Investment timing,liquidity, and agency costs of debt

This paper examines the effect of debt and liquidity on corporate investment in a continuous-time framework. We show that stockholder–bondholder agency conflicts cause investment thresholds to be U-shaped in leverage and decreasing in liquidity. In the absence of tax effects, we derive the optimal level of liquid funds that eliminates agency costs by implementing the first-best investment policy for a given capital structure. In a second step we generalize the framework by introducing a tax advantage of debt, and we show that an interior solution for liquidity and capital structure optimally trades off tax benefits and agency costs of debt.     

Income Inequality, Competitive Balance and the Attractiveness of Team Sports: Some Evidence and a Natural Experiment from English Soccer

This paper examines the relationship between financial inequality, competitive balance and attendance at English professional league soccer. It shows that while financial inequality among the clubs has increased, competitive balance has remained relatively stable and match attendance appears unrelated to competitive balance. A clearer test of the relationship is suggested by comparison with FA Cup matches. Because income inequality is primarily driven by inter- rather than intra-divisional inequality, the FA Cup has been a much more unbalanced competition than the divisional championships. Attendance at FA Cup matches relative to the corresponding league matches has fallen over the last twenty years.     

Der Lehrstuhl für Allgemeine Betriebswirtschaftslehre und Controlling an der Philipps-Universität Marburg

Ohne Zusammenfassung     

Improving the business impact of foresight

Achieving an impact on business decision-makers with foresight does not appear to be an easy task. Therefore, the Macro Trends team at Deutsche Bank Research has formulated some criteria to guide foresight projects. They should aim to produce plausibility, provide convenience and inspiration as well as an appropriate time perspective with regard to the content of foresight results. In addition, a structured way of producing and delivering foresight, a seamless inclusion in organisational procedures, a high level of interaction with decision-makers, ideational entrepreneurship, innovation regarding communication with business people, and persistence and synchronisation with the business organisation are the key criteria for achieving a higher impact from foresight projects. To live up to these criteria, the Macro Trends team has developed a 'trend map' which provides a conceptual aggregation of trends - to provide orientation for decision-makers and stakeholders.     

Determinanten des deutschen Kreditzinsniveaus

Seit Mitte der 90er Jahre liegt das deutsche Kreditzinsniveau über dem Durchschnitt der EWU. Worauf ist diese Entwicklung zurückzuführen? Sind die deutschen Banken weniger effizient? Liegt der Zinsunterschied an den hohen Refinanzierungskosten? Gibt es in Deutschland mehr Kreditausf?lle, oder sch?tzen die deutschen Banken die Risiken realistischer ein? Dr. Stefan Sch?fer, 34, und Christian Weistroffer, 30, Dipl.-Wirtschaftsingenieur, arbeiten im Referat Banken, Finanzm?rkte und Regulierung von Deutsche Bank Research; Christian Weistroffer forscht au?erdem am Center for Financial Studies, Frankfurt am Main. * Der Beitrag gibt die Meinung der beiden Autoren, aber nicht unbedingt diejenige des Center for Financial Studies oder von Deutsche Bank Research wieder.     

Information-eliciting compensation schemes

This paper examines the implications of the ‘residence’ approach to taxing foreign source income such as employed by the United States. It is argued that, because the repatriation of earnings to the home country investor and not the earnings themselves are typically the source of tax liability, the foreign source income tax should affect foreign investment differently depending on the required transfers of funds within the firm.One implication of viewing the tax in this way is that in order to maximize after-tax profits, a firm should finance its foreign investment out of foreign earnings to the greatest extent possible. That is, a firm's required foreign return jumps at the point at which desired foreign investment just exhausts foreign earnings. This allows us to draw a distinction between ‘mature’ foreign operations, which are at any point in time financed at the margin by investing earnings (and perhaps also pay dividends to their parent firm in the home country), and ‘immature’ foreign affiliates, which rely on funding from their parents (and should not be paying dividends). It is noted that survey evidence on multinational firm behavior is consistent with this distinction. Direct investment data indicate that mature foreign operations probably account for nearly 90 percent of U.S. foreign direct investment.The discussion then turns to investment incentives. It is shown that the home country's rate of tax on foreign source income and the presence or absence of a foreign tax credit should be irrelevant to a mature foreign operations's investment and dividend decisions. This conclusion, which conflicts sharply with the conventional wisdom, follows because the home country tax acts as an unavoidable cost. New firms' investment decisions are, on the other hand, influenced by home country taxes.     

Cyclical correlations, credit contagion, and portfolio losses

We model aggregate credit losses on large portfolios of financial positions contracted with firms subject to both cyclical default correlation and direct default contagion processes. Cyclical correlation is due to the dependence of firms on common economic factors. Contagion is associated with the local interaction of firms with their business partners. We provide an explicit normal approximation of the distribution of portfolio losses. We quantify the relation between the variability of global economic fundamentals, strength of local firm interaction, and the fluctuation of losses. We find that cyclical oscillations in fundamentals dominate average losses, while local interaction causes additional fluctuations of losses around their average. The strength of the contagion-induced loss variability depends on the complexity of the business partner network.     

Nearly exact sample size calculation for powerful non‐randomized tests for differences between binomial proportions

In the case of two independent samples, it turns out that among the procedures taken in consideration, BOSCHLOO'S technique of raising the nominal level in the standard conditional test as far as admissible performs best in terms of power against almost all alternatives. The computational burden entailed in exact sample size calculation is comparatively modest for both the uniformly most powerful unbiased randomized and the conservative non‐randomized version of the exact Fisher‐type test. Computing these values yields a pair of bounds enclosing the exact sample size required for the Boschloo test, and it seems reasonable to replace the exact value with the middle of the corresponding interval. Comparisons between these mid‐N estimates and the fully exact sample sizes lead to the conclusion that the extra computational effort required for obtaining the latter is mostly dispensable. This holds also true in the case of paired binary data (McNemar setting). In the latter, the level‐corrected score test turns out to be almost as powerful as the randomized uniformly most powerful unbiased test and should be preferred to the McNemar–Boschloo test. The mid‐N rule provides a fairly tight upper bound to the exact sample size for the score test for paired proportions.