Investment and Arbitrage Opportunities with Short Sales Constraints

In this paper we consider a family of investment projects defined by their deterministic cash flows. We assume stationarity—that is, projects available today are the same as those available in the past. In this framework, we prove that the absence of arbitrage opportunities is equivalent to the existence of a discount rate such that the net present value of all projects is nonpositive if the projects cannot be sold short and is equal to zero otherwise. Our result allows for an infinite number of projects and for continuous as well as discrete cash flows, generalizing similar results established by Cantor and Lippman (1983, 1995) and Adler and Gale (1997) in a discrete time framework and for a finite number of projects.     

National corporate governance institutions and post‐acquisition target reorganization

We examine the characteristics of national systems of corporate governance to theorize about the nature of the shareholders' and employees' interests when it comes to reorganization, under the assumption that the firm is coalitional in nature. We argue that corporate governance institutions prevalent in both the host and the target country of the merging firms enable or constrain the ability of the acquirer to reorganize the target. Using a cross‐national dataset of corporate acquisitions and post‐acquisition reorganization, we found support for our predictions that stronger legal protection of shareholder rights in the acquirer country compared to the target country increases the acquirer's ability to restructure the target's assets and leverage the target's resources, while the protection of employee rights in the target country restricts the acquirer's ability to restructure the target's assets and redeploy resources to and from the target. Copyright © 2009 John Wiley & Sons, Ltd.     

Does Fiscal Stimulus Cause Too Much Debt?

This study distinguishes between temporary fiscal stimulus to combat a recession and two other debt-raising policies: financial bailouts and spending on Medicare, Medicaid, and Social Security. Two striking conclusions emerge from our simulations of the impact of a temporary fiscal stimulus on the economy. First, the fiscal stimulus effectively mitigates the recession. Second, debt as a percentage of GDP is only slightly greater with the fiscal stimulus than it would be without the stimulus.     

What drives provincial‐Canada yield spreads?

Abstract.  Although recent research has led to a deeper understanding of the factors determining yields on long-term Canada bonds, there has been little corresponding work on provincial bonds. By using a carefully constructed new data set, we establish two important results. First, provincial fiscal positions (debt and deficits) are an important factor in determining yield spreads between provincial and Canada bonds. Second, we show that provincial bonds are a substitute for corporate debt, in that during recessionary 'flights to quality' their yields react like those on corporate bonds.     

Aid and the real exchange rate: Dutch disease effects in African countries

There is little evidence to show that official development assistance to sub-Saharan African countries has led to significant improvements of macroeconomic indicators such as export performance. Using four CFA zone countries (Burkina Faso, Côte d'lvoire, Senegal and Togo) as case studies, this article analyses the relationship between aid inflows and the real exchange rate with a view to identifying symptoms of “Dutch disease” in these economies.     

Modeling the Effects of Sponsorship-Linked Marketing: When Does Memory Matter?

The current study examined the mediating and moderating roles of sponsorship-linked marketing on the relationships among cognitive, affective, and behavioral sponsor evaluations. A panel of National Association for Stock Car Auto Racing (NASCAR) fans (N = 249) participated in an online survey, and the survey included multi-item scales including sponsor-brand recognition, consumer perceptions of property-based articulation, sponsorship-themed advertising, sponsorship-themed promotion, sponsor attitude, and purchase intention. Visit to sponsors' exhibits experience was incorporated as a moderator. This study provides empirical support for the full mediating role of sponsorship-linked marketing efforts in leveraging high levels of sponsor brand recognition into more desirable brand outcomes.     

The government deficit in a growth model: Consequences and trade-offs

This paper investigates the consequences of a fixed, positive government deficit/national-income ratio (where the deficit includes interest payments on the debt) in a growth model. To keep the deficit ratio fixed, policymakers must continuously adjust the primary deficit ratio (the deficit ratio when the deficit excludes interest payments) to offset endogenous changes in the interest/income ratio. The model is used to derive the impact of the deficit ratio and the monetization ratio-the fraction of the deficit financed by money-on the capital/labor ratio, the inflation rate, and the interest/income ratio. Consequences and trade-offs are examined. In the model, raising the deficit ratio reduces the capital/labor ratio; and must raise either the interest/income ratio, or the inflation rate, or both.     

FINDING VALUE WHERE NONE EXISTS: PITFALLS IN USING ADJUSTED PRESENT VALUE

There are several conceptually "correct" methods for valuing firms and projects, including the weighted average cost of capital (WACC) approach, the flows to equity (FTE) method, and the adjusted present value (APV) or valuation-by-components method. The author examines the relative advantages of these frameworks and offers guidance as to when they are likely to be most useful. The key message is a caution to would-be users of APV: it is frequently unreliable and should be used only in conjunction with more conventional valuation frameworks. It works best in transactions that involve structured financings, such as leveraged buyouts and project and real estate financings. Even in these cases, however, its usefulness depends on theoretical concepts that in practical applications have a wide margin of error.
In general, WACC is a robust and appropriate valuation framework as long as the firm has a target debt ratio. The FTE method is most relevant for acquisitions and very large projects. The author shows how APV and FTE can be formulated to be consistent with the WACC valuation. The issue, however, is not whether the techniques can be made consistent through relatively complex adjustments by sophisticated users, but rather what happens when they are used in everyday applications by practitioners unfamiliar with the somewhat arcane valuation issues involved.