Alternative Solutions to Underinvestment, Under Equity and Credit Rationing

We compare alternative solutions to underinvestment (UI) problems in firms subject to limited access to equity markets, interest ceilings, and constraints on the volume of debt. Collaterals (assets or compensating balances) and credit insurance ('regular' or 'outcome' insurance whereby the premium is paid at the end of the insurance period) are compared on the basis to their costs and their effective use of financial sources. It is shown that when there is no moral hazard problem, credit insurance is the most effective instrument. Otherwise, 'outcome' insurance program is the most effective one.     

The valuation of inflation‐indexed and FX convertible bonds

This paper derives a valuation model of inflation‐indexed convertible bonds that incorporates the firm's stock price, inflation indexing and the firm's credit risk. The pricing of inflation‐indexed convertible bonds traded on the Tel‐Aviv Stock Exchange (TASE) was empirically tested by using a comprehensive database. The study is the first to empirically test the pricing of convertibles in emerging markets. It was found that the theoretical values for the bonds are, on average, 1.94% higher than the observed market prices. Unlike previous studies, it was found that the underpricing increases with the moneyness of the convertible. It was found that as the maturity lengthens, the underpricing increases. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:634–655, 2008     

Innovation in corporate law

In most countries large business enterprises today are organized as corporations. The corporation with its key attributes of independent personality, limited liability and free tradeability of shares has played a key role in most developed market economies since the 19th century and has made major inroads in emerging markets. We suggest that the resilience of the corporate form is a function of the adaptability of the legal framework to a changing environment. We analyze a country's capacity to innovate using the rate of statutory legal change, the flexibility of corporate law, and institutional change as indicators. Our findings suggest that origin countries are more innovative than transplant countries. Journal of Comparative Economics 31 (4) (2003) 676–694.