Financial constraints

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Financial constraints and investment: an alternative empirical framework

Financial constraints and investment: an alternative empirical framework

This paper uses recent advances in econometrics to address a key problem in the empirical literature on financial constraints. All existing studies compare ag- gregate investment-cash flow sensitivities between ex-ante defined sub-samples using standard regression techniques. Such an ex-ante sample splitting frame- work, however, comes with a number of limitations. Firstly, the results are only as strong as the splitting scheme used to reflect different degrees in capital market imperfections, which is subjective in nature. We have demonstrated that some “popular” splitting schemes do not necessarily capture the same firm-year ob- servations and classification overlaps across various schemes are rather low. As a result, the estimates are sensitive to the splitting scheme that is used. Using five schemes that have been used extensively in the literature, we find that two schemes reflect the view of Fazzari et al. (1988), and three schemes contradict this view. Secondly, a point estimate in a certain sub-sample summarizes all available firm-year information of that sub-sample into a single aggregate coeffi- cient, thereby ignoring firm heterogeneity. As a result, much relevant firm-specific information is ignored and statistically neutralized (Hansen, 2004). Finally, an aggregate coefficient might be influenced heavily by a few influential outliers as indicated by Allayannis and Mozumdar (2004) and Pesaran and Smith (1995).

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Banking Competition, Institutional Investors and Financial Constraints: Evidence from Europe

Banking Competition, Institutional Investors and Financial Constraints: Evidence from Europe

investors. According to Ferreira and Matos (2008), investors' monitoring intensity is a function of the business relations that arise with the firms where they have shareholdings. This work and other similar studies claim that independent institutional investors (mutual funds, hedge funds., investment firms and investment advisors) actively monitor firm management, while grey investors (bank trusts, insurance companies, pension funds) are more prone to being more loyal to corporate management and, thus, to hold shares without reacting to management actions that are not in line with shareholder interests. These studies show a positive effect on changes in institutional holdings by independent investors on firms’ Tobin’s Q, and the effect of grey investors is non-conclusive and statistically not significant Independent institutional investors are more active in undertaking voice monitoring as blockholder. Therefore, investment funds, mutual funds, and financial advisors, are the main candidates in reducing financial constraints [Alvarez et al, 2018]. Grey institutions in contrast are passive investors because they tend to keep long-term relationships with corporations they have equity holdings and follow management investment decisions instead of influencing these decisions or monitoring them.

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Do institutional investors unbind firm financial constraints? Evidence from emerging markets

Do institutional investors unbind firm financial constraints? Evidence from emerging markets

The interacted coefficient for grey investors, although negative, is not statistically significant (0.59, t= 0.6) for size-restricted firms (Col. 4). For unrestricted firms’ regression equations, Col. 5 and 6 show that the parameter for the interactions of cash flow multiplied by grey institutional ownership is positive and significant at a size of 5% (1.118, t = 2.26 and 1.065, t = 2.16, respectively). Using the estimation in Col. 6, grey investors increase investment cash flow sensitivity from 0.159 to 0.180 evaluated at sample (unrestricted) means. 10 These results suggest that the presence of grey investors results in suboptimal investment policies since grey investors such as insurance companies and bank trusts establish long term relationships with the firms they invest in and tend to have less incentives to undertake direct monitoring. 11 Monitoring costs are higher for grey investors (Almazan et. al., 2005). Hence the above results validate our Hypothesis H2b, which states that grey investor ownership does not have an expected sign and significant effect on firm financial constraints.

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Determinants and consequences of financial constraints facing firms in Argentina

Determinants and consequences of financial constraints facing firms in Argentina

Point (c) is clearly stated in the literature. It is very well known that the severity of financial constraints is likely to vary with overall macroeconomic conditions and the stance of economic policy because they influence net worth. In this way, it is stressed that monetary policy works not only through the traditional cost-of-capital channel but also through collateralizable net worth. Very little is known, however, about the way in which changes in macroeconomic conditions affect financial constraints in the context of a currency board where, by definition, there is no room for monetary policy. When expectations change, as reflected for example in a variation of the country risk premium, there will be variations in the rate at which returns are discounted and more pessimistic forecasts. This is true to all economies. But volatility is higher in emerging markets. We have seen, for example, that shocks induce sizable changes in both the level of leverage and the composition of debt. We suggest that these questions are under-researched in the literature because of the lack of data on emerging markets. The main purpose of this section is to present some evidence of the way changes in macroeconomic conditions affect microeconomic financial decisions in an economy which adopted a currency board-like scheme and where sizable shocks are frequent. To take into account these effects we will introduce the country risk, an index of financial deepening (the aggregate banking credit/GDP ratio), and the proportion of dollar debt in total debt as explanatory variables in the regressions.

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Sticking to the winners - Heterogeneous financial frictions and growth

Sticking to the winners - Heterogeneous financial frictions and growth

More specifically, I show that without government intervention the unique equilibrium displays homogeneous budget constraint. Then, I argue how government intervention can cause looser borrowing constraints for some firms while tighter ones for other firms by mon- itoring more closely the first group of firms. The resulting heterogeneous financial frictions dampen the negative effect of financial constraints on capital misallocation and total factor productivity. Besides, I show that the more persistent the heterogeneous borrowing con- straints are the less severe are the consequences of financial frictions. Both results help to motivate the policy of the Korean government in the 60’s. Importantly, these results do not depend on the proportion of firms that benefit from the government intervention nor on the cost for the rest of the economy in terms of worse borrowing conditions - at least in the long- run.

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Essays in corporate finance

Essays in corporate finance

The main findings are as follows. The JGTRRA quasi-natural experiment shows that a one standard deviation decrease in creditworthiness as measured by re- tained earnings over total assets causes the share of unsecured debt over total debt to decrease by 0.2 standard deviations. This means that a deterioration in the financial condition of the firm leads to lower usage of unsecured debt. As a result from JGTRRA, firms in the treatment group react to a lower tax rate on dividends by initiating dividends more pronouncedly, consistent with life-cycle theories of dividend initiations in DeAngelo et al. [2006] and the free cashflow hypothesis in Jensen [1986]. The tax reform generates a trade-off between pay- out policy and short-term financing and longer term investment decisions. As firms try to issue debt in order to finance both dividend payouts and investment projects, lower creditworthiness reduces repayment capacity in the eyes of unse- cured (bank) creditors and puts upward pressure on spreads. This in turn may restrict access to the unsecured debt market and force substitution toward secured debt issues for firms in the treatment group. When there is substitution, different financial constraints become more relevant. In the context of JGTRRA, limited contract enforceability becomes more relevant. Creditors require the pledge of collateral to enforce repayment. Senior secured bank debt issues increase by 1.2%, while senior secured bonds increase by 0.6% more than the control group.

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Essays in financial history

Essays in financial history

The study provides a clear example of funding illiquidity causing market illiquidity. Of course, today’s markets are different from the Berlin Stock Ex- change during the interwar period. The rise of algorithmic trading, the emer- gence of several trading venues, and other differences limit the applicability of this study’s quantitative results to the present. Even so, this chapter contributes to the discussion of whether funding liquidity is important for asset pricing by showing that such liquidity did matter in an institutional setting with universal banks and a well–developed stock exchange. The research reported here supple- ments the suggestive evidence from today’s markets and provides further support for the view that liquidity providers’ balance sheets can influence asset markets. The study speaks also to the current debate over the dangers of universal banking. The Danatbank experienced a balance sheet shock because a creditor was in distress. Although not related to the bank’s trading business, this shock led to illiquidity and price fluctuations on the stock market. Nowadays, JP Morgan Chase’s CEO Jamie Dimon wants his bank to be “like Wal-Mart”, 39 and Bank of America’s CEO Brian Moynihan believes that universal banking is the “most important model there is because it gives consumers access to global informa- tion, capital markets, investment advice, and basic banking activities all in one place.” 40 Neither CEO addresses the risks of these “financial supermarkets.” The arguments in favor of the Glass-Steagall Act were based on conflicts of interest (Kroszner and Rajan 1994). When commercial banks are involved in securities trading, their financial advice might be driven by prospects of high profits for the investment department. As Glass-Steagall eroded, discussion about the dangers of universal banks was conspicuously absent. However, the recent financial crisis

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Essays on financial contagion

Essays on financial contagion

In Chapter 3 we test for contagion adopting a different approach, the focus in on co-skewness (Fry et al., 2010) which describes the feedback of shocks from return to volatility and viceversa. The title of the chapter is Was the late 2008 US Financial Crisis contagious? Testing using a higher order co-movement approach. The starting point is the use of a generalized normal distribution that describes the co-skewness parameters. This chapter is aimed by the fact that crisis heightens the asymmetries in distribution of returns, so that looking into a higher order co- movement statistics can provide a different and more complete information about the transmission of shocks among countries. The contagion test based on the co-skewness is somehow quite similar to that of based on correlations, there is evidence of contagion if the co-skewness increases after a crisis. When taking into account the asymmetries and adjusting for heteroskedasticity, the co-skewness test suggests some evidence of contagion for feedback in higher order of co-movements. Financial Spillover Across Countries: Measuring shock transmissions is the ti- tle of the fourth chapter where we measure interdependence in returns as well as in volatility among countries and summarizing into a spillover index. Spillover index is based on the forecast error variance decomposition (fevd) from a VAR model at h-step ahead forecast and we construct it using both the orthogonalized fevd and the generalized fevd, both of them provide similar results, but the generalized version is easier to handle, this is true since it does not depend on the restric- ESSAYS ON FINANCIAL CONTAGION

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Lessons from financial crises

Lessons from financial crises

Capital inflows and their effects on the RER involve a threat to the real economy, to the ability to generate employment and to the development process. Long lasting real appreciations generate negative trends that are slow to be clearly visible and that do not assume critical forms (as opposed to the trends in finance or the balance of payments). These real effects must be considered on an equal footing with the risks of crisis because they are difficult to reverse. Investment in the manufacturing industry is largely irreversible and the loss of competitiveness that results from several years of RER appreciation (even if it is transitory) causes permanent destruction of human and organizational capital. Moreover, avoiding the effects of a prolonged RER appreciation is recommendable even if the favorable the terms of trade and international financial conditions were lasting.

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El afecto, las decisiones financieras y los mercados financieros. Affect, financial decision making, and financial markets

El afecto, las decisiones financieras y los mercados financieros. Affect, financial decision making, and financial markets

Finance is only just beginning to take heed of the ongoing affective revolution in the social sciences, and the perspectives are broad and exciting. Access to the technologies necessary to study affective topics (such as big data, social media, and medical imagery) is becoming widespread. For the first time, reliable, longitudinal, and direct measurements of affect are possible and accessible. This means that researchers who are interested in studying how affect is responsible for price bubbles can now open that black box. We now have the ability to paint a detailed picture of the latent mechanics of a price bubble. This set of circumstances is exciting because our financial system will benefit greatly from the better information we will have, that will make markets more efficient, and allow for better regulation, monitoring, and investor performance. The situation is also a little off-putting because affective information is of a personal nature and a disconcertingly good predictor of behavior. The changes to the financial system will be inevitable because the typical measures of utility and wealth will be complemented (perhaps even replaced) by distinct affective factors, which can be specifically related to physical processes in the brain. Indeed, the purpose of the financial system is to ensure that resources and capital are efficiently distributed and used; the success of this process is measured today by economic growth or returns. One may imagine a not so distant (and somewhat Orwellian) future where the success of capital distribution may also be directly measured by subjective states of wellbeing.

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Grasp plannind under task-specific contact constraints

Grasp plannind under task-specific contact constraints

This chapter proposes a more general solution to the synthesis of compliant grasps using a kinetostatic formulation inspired by the notion of soft synergies [6, 34, 81, 82]. The approach effectively introduces an elastic model of the hand whereby the physical hand is attracted towards a reference hand through a set of virtual springs at the joints, while being repelled by the object through springs at the contacts, which are also supposed to be compliant. A system of equations is proposed to account for the behaviour of such model, which implicitly enforces the necessary constraints to find a kinematically-feasible and restrained grasp in the presence of compliant elements. As a consequence, any solution to this system allows to execute the grasp using a position controller, because it provides the actuated-joint setpoints that keep the object held after the deformation of the hand-object system. The dimension of the problem is considerably large, so that the use of a local search method becomes inevitable to compute a solution. However, the method can be properly initialized using an estimation of the solution computed with the methods in Chapters3 and 4, for instance, in combination with joint torque determination methods [49].

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Variations on an ordering theme with constraints

Variations on an ordering theme with constraints

Conversely, a simple translation from our formalism to Allen’s interval al- gebra fails also for two reasons. First, the start and end points of intervals are correlated, whereas no such restrictions apply for our ordering problems with constraints. Second, there is only one clause for each pair of intervals, but our set C models arbitrary conjunctions.

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Robust Fuzzy Clustering via Trimming and Constraints

Robust Fuzzy Clustering via Trimming and Constraints

It is important to note that the maximization of (1) when k > 1 is com- monly an ill-posed problem without any constraint on the scatter parameters. For instance, in the two previous problems, we can see that (1) becomes un- bounded when | S j | → 0 or when s 2 j → 0. Additionally, these constraints are

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Financial and budgetary matters

Financial and budgetary matters

3. NOTING WITH GRATITUDE the additional financial contributions made by many Contracting Parties through their Ramsar Administrative Authority and other agencies, including some development assistance agencies, and also the contributions made by non- governmental organizations and the private sector for activities undertaken by the Ramsar Bureau, as shown in the information document Ramsar COP7 DOC. 26;

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A vehicle routing application for retail delivery with open source tools

A vehicle routing application for retail delivery with open source tools

Each client has different demands, the entire fleet is available, but they have different cargo capacity. The first module for the main program developed in python 3.0 is the data creation module, as we say before we use the google distance matrix API, then we add time window constraints with an initial time at 2:00 pm.

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Financial inclusion and inflation

Financial inclusion and inflation

Then the analysis with VAR model has two steps. In the first one I define a benchmark model. This model only includes five variables: difference between monetary aggregates M0 and M1, monetary aggregate M0, inflation, and GDP growth rate. Inflation and GDP growth rate are endogenous variables. In the second step I make several model estimates with additional variables of financial inclusion. In this point I test the relation of financial inclusion variables over inflation and economic growth. Optimal lag structure is chosen taking into account four information criteria selection Akaike's Information Criterion (AIC), Hannan-Quinn Criterion (HQ), Schwarz Criterion (SC) and Final Prediction Error (FPE). I get the optimal lag structure with the lowest AIC, Akaike Information Criterion.

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INTERNATIONAL FINANCIAL VOLATILITY

INTERNATIONAL FINANCIAL VOLATILITY

Not only is the volatility of capital flows higher in developing countries than in developed economies, but the cost of volatility is also higher. The cost of currency and banking crises tend to be higher, and recovery periods long. Increasingly, banking and currency crises are inter-connected, as collapses of capital flows, sharp devaluations, and high interest rates lead to banking crises. This phenomenon, which is often preceded by financial liberalization, has been termed ‘twin crises’ (Kaminsky and Reinhart, 1998). Honohan and Klingebiel (2000) sample 41 episodes of systemic banking crises. They show that governments, and so ultimately taxpayers, have largely met the costs of banking crises. These costs are larger on average in developing countries than in developed economies, an average of 14.3% of GDP compared with an average of 12.8% in developed countries. Some of the developing country banking crises in their study involved much larger costs; up to 55% of GDP was spent to resolve banking crises in Argentina and Chile (in the early 1980s) and in the worst hit of the Asian crisis countries in the late 1990s. All these were cases of ‘twin’ banking and currency crises. Honohan and Klingebiel (2000) show that developing countries as a group have suffered cumulative fiscal costs in excess of US$1 trillion to resolve banking crises over the past 25 years. The cost of resolving banking crises combines with other factors to severely constrain government resources for social spending during a crisis.

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Financial analysis

Financial analysis

With the ROA (return on assets) we value the ability of the company to make a profit by using its assets. The interests paid for the financial resources are added back to the return cause they are part of the financial sphere of the company and not part of the economic issue.

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Financial dollarization

Financial dollarization

The paper briefly explores how actual dollarization can deviate from underlying dollarization. Based on portfolio interaction between country risk (i.e., confiscation and banking system risk) and macroeconomic risk (i.e., inflation and foreign exchange risk), dollarization and the structure of interest rates are shown to depend on the volume of net foreign assets, the magnitude and currency of denomination of public domestic debt (including the central bank’s domestic liabilities), and the taxation of financial intermediation (e.g., through unremunerated reserve requirements). In particular, capital inflows due to declining country risk, a tightening of monetary policy or a shift in the currency composition of public domestic debt toward the domestic currency, increase the differential

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2014 - 2013 (Versión inglés)

2014 - 2013 (Versión inglés)

As indicated in note 10, the consolidated financial statements for 2014 include, under the balance of “Receivables for services rendered”, the amount of ¢56,519 (in millions) (2013: ¢51,361 [in millions]), corresponding to the Telecom Segment, comprised of balances due from private individuals and companies and the Government derived from the billing of telephone services and info communications, trade balances in administrative and legal collection and receivable balances originating from the sale of devices (terminals). Due to the existence of a number of unusual items generated mainly by errors in the information system, the inadequacy of the information included in the subledgers, and that we were unable to perform alternative audit procedures, we were unable to satisfy ourselves as to the completeness, existence, accuracy, and presentation of those balances. Furthermore, since we were not provided with an aging report of the aforementioned receivable balances to establish their recovery level, we were unable to satisfy ourselves as to the sufficiency or insufficiency of the allowance for doubtful accounts related to those accounts, which as of December 31, 2014 amount to ¢11,737 (in millions) (2013: ¢15,424 [in millions]); as well as the valuation of the balances indicated as of those dates. Management is still in the process of analysis and review to correct the errors identified in the information system (correct and timely generation of information flows from the transaction systems to the accounting systems) of the accounts receivable from the Telecom Segment, which is still in progress. In 2013 this review process generated adjustments that were applied retrospectively for ¢7,645 (in millions) and ¢6,962 (in millions), on the balances of these accounts receivable and the equity item “Development reserve”, respectively, for which we were unable to establish their reasonableness and adequate accounting treatment as of that date.

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