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Author: Liu Hong
Publisher:
ISBN:
Category : Banks and banking
Languages : en
Pages : 322
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Book Description
My dissertation consists of two topics: the relation between derivatives and corporate finance, and the relation between bank deregulation and interstate risk sharing. In the first essay, I study the use of commodity derivatives among U.S. oil and gas producers. Using hand-collected data, I find large variations in hedging intensity and hedging profits. On average, firms generate significantly positive profits, and their profits relate positively to the intensity of hedging. I further decompose the hedge ratio into two components: the pure hedging component and the market timing component. I find that the hedging profits relate strongly and positively to the market timing component. I also identify a group of firms that can consistently generate profits from their hedging activities. Among firms who actively change their hedging positions, the winners tend to be the larger firms. The hedging outcome does not increase equity beta while the pure hedging component tends to decrease equity beta. The positive profits are exclusive for the commodity derivative transactions of the oil and gas producers, while they do not profit from their interest rate or foreign exchange derivative transactions. In the second essay, I look at the relation between the trading of CDS contracts and corporate’s risk-taking behavior. Because the CDS hinders successful debt renegotiation with creditors and weakens shareholders’ put option to strategically default, equity values of CDS firms are more sensitive to cash flow risk. As a result, I show that the onset of CDS trading is accompanied by a rise in equity market beta and return volatility, particularly for firms with poor credit ratings, high liquidation costs, and a more liquid CDS market. In the years after CDS trading is initiated, I find that firms reduce corporate risk-taking by expanding diversification across industries, scaling back risky investment, and reducing demand for leverage. The final essay studies the impact of two types of banking deregulation, interstate banking deregulation, and interstate branching deregulation, on interstate risk sharing. We consider both the initial permission of interstate banking and interstate branching, and the follow-up changes in state-level restrictions. From the residential perspective, interstate risk sharing has two components: personal income smoothing and personal consumption smoothing. Our results provide evidence that interstate banking deregulation plays an important role in improving personal income smoothing, while it slightly hinders personal consumption smoothing. On the contrary, interstate branching deregulation does not have a significant impact on personal income smoothing, but does improve personal consumption smoothing.
Author: Liu Hong
Publisher:
ISBN:
Category : Banks and banking
Languages : en
Pages : 322
Get Book Here
Book Description
My dissertation consists of two topics: the relation between derivatives and corporate finance, and the relation between bank deregulation and interstate risk sharing. In the first essay, I study the use of commodity derivatives among U.S. oil and gas producers. Using hand-collected data, I find large variations in hedging intensity and hedging profits. On average, firms generate significantly positive profits, and their profits relate positively to the intensity of hedging. I further decompose the hedge ratio into two components: the pure hedging component and the market timing component. I find that the hedging profits relate strongly and positively to the market timing component. I also identify a group of firms that can consistently generate profits from their hedging activities. Among firms who actively change their hedging positions, the winners tend to be the larger firms. The hedging outcome does not increase equity beta while the pure hedging component tends to decrease equity beta. The positive profits are exclusive for the commodity derivative transactions of the oil and gas producers, while they do not profit from their interest rate or foreign exchange derivative transactions. In the second essay, I look at the relation between the trading of CDS contracts and corporate’s risk-taking behavior. Because the CDS hinders successful debt renegotiation with creditors and weakens shareholders’ put option to strategically default, equity values of CDS firms are more sensitive to cash flow risk. As a result, I show that the onset of CDS trading is accompanied by a rise in equity market beta and return volatility, particularly for firms with poor credit ratings, high liquidation costs, and a more liquid CDS market. In the years after CDS trading is initiated, I find that firms reduce corporate risk-taking by expanding diversification across industries, scaling back risky investment, and reducing demand for leverage. The final essay studies the impact of two types of banking deregulation, interstate banking deregulation, and interstate branching deregulation, on interstate risk sharing. We consider both the initial permission of interstate banking and interstate branching, and the follow-up changes in state-level restrictions. From the residential perspective, interstate risk sharing has two components: personal income smoothing and personal consumption smoothing. Our results provide evidence that interstate banking deregulation plays an important role in improving personal income smoothing, while it slightly hinders personal consumption smoothing. On the contrary, interstate branching deregulation does not have a significant impact on personal income smoothing, but does improve personal consumption smoothing.
Author: Bomi Lee
Publisher:
ISBN:
Category :
Languages : en
Pages : 176
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Book Description
This dissertation contains two essays on the aggressive behavior of corporations in product market competition. In the first essay, I investigate how market structure can impact a firm's risk of facing predation by rivals, and hence, its financial policy decisions. Using a simple model, I demonstrate that a firm faces a greater predation threat when it meets the same competitor in many markets, as this competitor is able to internalize more of the benefit, degrading the firm's ability to compete in the future through aggressive actions today. I then test the predictions of the model using 2003-2011 panel data on store location across retail store chains in the US. I find that firms tend to expand more aggressively in markets shared with a competitor experiencing a substantial increase in leverage, or a decline in a credit rating, when they face that competitor in more of the other markets. The expansion relationship was found to be stronger in data from the 2008-2009 financial crisis, a period when difficulty in rolling over or obtaining new debt made it especially hard for weak firms to absorb losses. I also show that a firm facing the same competitors in many markets choose lower levels of leverage and that it decreases that leverage when a merger in the industry increases the amount of competitive overlap it has with other firms. These results suggest that firms are aware of the predation risk due to a competitive overlap and select financial policies to minimize this risk. In the second essay, I study the impact of internally generated funds on product market competition. More specifically, I investigate the idea that firms compete aggressively when their competitors face cash flow shortfalls. Testing this idea is challenging because competitor's cash flow changes are potentially endogenous with respect to firm's behavior. I address this problem in three ways. First, I investigate firm's reaction in a given market when its competitors face cash flow shortfalls outside of that market; this analysis is conducted using store location data on retail store chains. Second, I focus on the 2008-2009 financial crisis period in which retail store chains were hit by a negative demand shock which was hardly expected ex ante. Finally, I use a shock to local economic conditions which varies across markets and the different distributions of store locations across firms as instruments for the changes in competitors' cash flows. I find that a firm expands more in a given market in which it competes with rivals which face a more negative cash flow shortfall in the other markets. This relation is stronger when the competitors were highly leveraged before the crisis. Finally, I illustrate evidence that a firm responds more aggressively to competitor's cash flow shortfalls if it competes with that competitor in many of the same markets; this result is consistent with the prediction of the model in Chapter 1. These essays contribute to the literature by adding new evidence on the predatory behavior of corporations in product market competition.
Author: Felipe Cortés
Publisher:
ISBN:
Category : Electronic dissertations
Languages : en
Pages : 130
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Book Description
This dissertation seeks to understand the effect of information asymmetries on corporate liquidity choices and efficiency of bankruptcy resolution, and the role of pooling and reputational concerns on an originator's incentives to invest in signal precision. The first chapter identifies and provides a causal estimate of the economic importance of information asymmetries between corporate insiders and outsiders in equity markets on small public firms decision to hoard liquid assets. The second chapter develops a theory of securitization in which the originator's incentives to screen are endogenized and affected by reputational concerns to investigate the effect of the pooling of assets on screening and systematic risk. In the third chapter, we investigate the impact of relative bargaining power of firms over creditors during bankruptcy on ex-post firm performance, once the firm emerges out of bankruptcy. Although existing theories predict a causal link between firm opaqueness and firm cash holdings, endogenous and coarse measures of opaqueness hinder the identification of this link. Using the discontinuous requirement of financial reporting introduced by Sarbanes-Oxley Act, Section 404, we estimate the causal effect of opaqueness on cash holdings. We show that firms that comply with Section 404 and provide more reliable information exhibit lower cash holdings compared to observationally similar firms. Further, compliant firms that hold less cash exhibit higher R & D expenditures relative to non-compliant firms. This difference sheds light on the opportunity costs of holding cash. In the second chapter, we develop a theory of securitization in which the securitization of large asset pools leads to a reduction in idiosyncratic risk but an increase in systematic risk, and the originate-to-distribute model of securitization is not sufficient for this result. The model is one in which the originator's screening incentives are endogenized, and screening and pooling of loans in securitization have both idiosyncratic and systematic risk consequences. The originator's screening incentives are affected by career concerns as well as by the impact of screening on the risk of the securitized portfolio. The effect of securitization on idiosyncratic risk and systematic risk occurs via a dilution of the originator's screening incentives, with greater dilution occurring as more loans are added to the pool being securitized. Further, when we endogenize the information acquisition incentives of the investors who purchase securitized claims, we find that there is an interaction between these incentives and the screening incentives of originators. A weakening of the issuer's screening incentives leads to weaker incentives for investors to become informed and a higher valuation uncertainty, creating a feedback effect that further weakens the issuer's screening incentives. In the third chapter of my thesis evaluates the impact of bargaining between management and creditors on bankruptcy outcome and ex-post efficiency of bankruptcy resolution. We find that firms in which creditors (management) exerts greater (lower) influence in the negotiation process are more likely to be liquidated. Increase in power of creditors during the bankruptcy negotiations is associated with lower likelihood of re-filing and superior post-bankruptcy profitability among firms that emerge. However such ex-post efficiency gains come at a cost as increase in power of creditors also leads to a lengthier bankruptcy. The unique aspect of our analysis is our ability to correct for the selection bias engendered by our focus on firms that emerge out of bankruptcy using the Bankruptcy Abuse Prevention and Consumer Protection Act (BACPA) passed in 2005 as an exogenous shock to the likelihood of liquidation. Collectively, our results lend credence to the idea of allocating greater power to creditors in bankruptcy proceedings.
Author: Sen Li
Publisher:
ISBN:
Category :
Languages : en
Pages : 248
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Book Description
Author: Johan Molin
Publisher: Stockholm School of Economics Efi Economic Research Institut
ISBN:
Category : Business & Economics
Languages : en
Pages : 182
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Book Description
Author: Sukwhan Ahn
Publisher:
ISBN:
Category : Corporate debt
Languages : en
Pages : 314
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Book Description
Author: Bernardino Manuel Pereira Adão
Publisher:
ISBN:
Category :
Languages : en
Pages : 292
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Book Description
Author: Mr.Akito Matsumoto
Publisher: International Monetary Fund
ISBN: 1451873565
Category : Business & Economics
Languages : en
Pages : 40
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Book Description
Though theory suggests financial globalization should improve international risk sharing, empirical support has been limited. We develop a simple welfare-based measure that captures how far countries are from the ideal of perfect risk sharing. We then take it to data and find international risk sharing has, indeed, improved during globalization. Improved risk sharing comes mostly from the convergence in rates of consumption growth among countries rather than from synchronization of consumption at the business cycle frequency. Our finding explains why many existing measures fail to detect improved risk sharing-they focus only on risk sharing at the business cycle frequency.
Author: Sudipto Bhattacharya
Publisher: World Scientific
ISBN: 9814480088
Category : Business & Economics
Languages : en
Pages : 387
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Book Description
The first edition of Theory of Valuation is a collection of important papers in the field of theoretical financial economics published from 1973 to 1986, and original accompanying essays contributed by eminent researchers including Robert C Merton, Edward C Prescott, Stephen A Ross, and Joseph E Stiglitz.Since then, with the perspective of major theoretical strides in the field, the book has more than fulfilled its original expectations. The realization that it remains today a compendium of classic articles and a must-read for any serious student in theoretical financial economics, has prompted the publication of a new edition.This second edition presents a summary statement of significant research in theoretical financial economics for both the specialist and non-specialist financial economist. It also provides material for PhD-level courses covering valuation theory, and elective reading for advanced Master's and undergraduate courses.In addition to reproducing the original contributions, this edition includes the seminal paper by Edward C Prescott and Rajnish Mehra, “Recursive Competitive Equilibrium: The Case of Homogeneous Households,” originally published in Econometrica in 1980.
Author: Sudipto Bhattacharya
Publisher: World Scientific
ISBN: 9812701028
Category : Business & Economics
Languages : en
Pages : 387
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Book Description
The first edition of Theory of Valuation is a collection of important papers in the field of theoretical financial economics published from 1973 to 1986, and original accompanying essays contributed by eminent researchers including Robert C Merton, Edward C Prescott, Stephen A Ross, and Joseph E Stiglitz. Since then, with the perspective of major theoretical strides in the field, the book has more than fulfilled its original expectations. The realization that it remains today a compendium of classic articles and a must-read for any serious student in theoretical financial economics, has prompted the publication of a new edition. This second edition presents a summary statement of significant research in theoretical financial economics for both the specialist and non-specialist financial economist. It also provides material for PhD-level courses covering valuation theory, and elective reading for advanced MasterOCOs and undergraduate courses. In addition to reproducing the original contributions, this edition includes the seminal paper by Edward C Prescott and Rajnish Mehra, OC Recursive Competitive Equilibrium: The Case of Homogeneous Households, OCO originally published in Econometrica in 1980."
