Optimal capital structure: a trade-off model and its empirical testing

In the present research we have set forth a new, simple, Trade-Off model that would allow us to calculate how much debt and, by default, how much equity a company should have, using easily available information and calculating the cost of debt dynamically on the basis of the effect that the capital structure of the company has on the risk of bankruptcy; in an attempt to answer this question. The proposed model has been applied to the companies that make up the Dow Jones Industrial Average (DJIA) in 2007. We have used consolidated financial data from 1996 to 2006, published by Bloomberg. We have used simplex optimization method to find the debt level that maximizes firm value. Then, we compare the estimated debt with real debt of companies using statistical nonparametric Mann-Whitney. The results indicate that 63% of companies do not show a statistically significant difference between the real and the estimated debt.

Valuation of defaultable bonds and debt restructuring

In this paper we develop a contingent valuation model for zero-coupon bonds with default. In order to emphasize the role of maturity time and place of the lender’s claim in the hierarchy of debt of a firm, we consider a firm that issues two bonds with different maturities and different seniorage. The model allows us to analyze the implications of both debt renegotiation and capital structure of a firm on the prices of bonds. We obtain that renegotiation brings about a significant change in the bond prices and that the effect is dispersed through different channels: increasing the value of the firm, reallocating payments, and avoiding costly liquidation. Moreover, the presence of two creditors leads to qualitatively different implications for pricing, while emphasizing the importance of bond covenants and renegotiation of the entire debt.

Small firms, growth and financial constraints

This paper analyses the impact of different sources of finance on the growth of firms. Using panel data from Spanish manufacturing firms for the period 2000-2006, we investigate the effects of internal and external finances on firm growth. In particular, we examine three dimensions of these financial sources: a) the performance of the firms’ capital structure in accordance with firm size; b) the effects of internal and external financial sources on growth performance; c) the combined effect of equity, external debt and cash flow on firm growth. We find that low-growth firms are sensitive to cash flow and short-term bank debt, while high-growth firms are more sensitive to long-term debt. Furthermore, equity capital seems to reduce barriers to external finance. Our main conclusion is that during the start-up phase, firms are unable to increase their financial leverage and so their capital structure fails to promote correct investment strategies. However, as their equity capital increases, alternative financial mechanisms, in particular long-term debt, become available, which have a positive impact on firm growth.

Are small firms more sensitive to financial variables?

This paper analyses the impact of different sources of finance on the growth of firms. sing panel data from Spanish manufacturing firms for the period 2000-2006, we investigate the effects of internal and external finances on firm growth. In particular, we examine wo dimensions of these financial sources: a) the performance of the firms' capital structure n accordance with firm size; b) the combined effect of equity, external debt and cash low n firm growth. We find that low-growth firms are sensitive to cash low and short-term ank debt, while high-growth firms are more sensitive to long-term debt. Furthermore, ur results show that low-growth firms are more sensitive to short-term financial variables, hile fast growth firms are more sensitive to long-term financial variables. EL codes: L25, R12. eywords: Finance, Firm growth, Quantile regressions, Small firms

Human Capital, the Structure of Production, and Growth

Recent decisions by the Spanish national competition authority (TDC) mandate payment systems to include only two costs when setting their domestic multilateral interchange fees (MIF): a fixed processing cost and a variable cost for the risk of fraud. This artificial lowering of MIFs will not lower consumer prices, because of uncompetitive retailing; but it will however lead to higher cardholders fees and, likely, new prices for point of sale terminals, delaying the development of the immature Spanish card market. Also, to the extent that increased cardholders fees do not offset the fall in MIFs revenue, the task of issuing new cards will be underpaid relatively to the task of acquiring new merchants, causing an imbalance between the two sides of the networks. Moreover, the pricing scheme arising from the decisions will cause unbundling and underprovision of those services whose costs are excluded. Indeed, the payment guarantee and the free funding period will tend to be removed from the package of services currently provided, to be either provided by third parties, by issuers for a separate fee, or not provided at all, especially to smaller and medium-sized merchants. Transaction services will also suffer the consequences that the TDC precludes pricing them in variable terms.

Human capital, the structure of production and growth

Do high levels of human capital foster economic growth by facilitating technology adoption? If so, countries with more human capital should have adopted more rapidly the skilled-labor augmenting technologies becoming available since the 1970 s. High human capital levels should therefore have translated into fast growth in more compared to less human-capital-intensive industries in the 1980 s. Theories of international specialization point to human capital accumulation as another important determinant of growth in human-capital-intensive industries. Using data for a large sample of countries, we find significant positive effects of human capital levels and human capital accumulation on output and employment growth in human-capital-intensive industries.

Vintage capital growth theory: three breakthroughs

Vintage capital growth models have been at the heart of growth theory in the 60s. This research line collapsed in the late 60s with the so-called embodiment controversy and the technical sophisitication of the vintage models. This paper analyzes the astonishing revival of this literature in the 90s. In particular, it outlines three methodological breakthroughs explaining this resurgence: a growth accounting revolution, taking advantage of the availability of new time series, an optimal control revolution allowing to safely study vintage capital optimal growth models, and a vintage human capital revolution, along with the rise of economic demography, accounting for the vintage structure of human capital similarly to physical capital age structuring. The related literature is surveyed.

PhD Students’ Research Group Social Capital in Two Countries: A Clustering Approach with Duocentred Network Measures

The article examines the structure of the collaboration networks of research groups where Slovenian and Spanish PhD students are pursuing their doctorate. The units of analysis are student-supervisor dyads. We use duocentred networks, a novel network structure appropriate for networks which are centred around a dyad. A cluster analysis reveals three typical clusters of research groups. Those which are large and belong to several institutions are labelled under a bridging social capital label. Those which are small, centred in a single institution but have high cohesion are labelled as bonding social capital. Those which are small and with low cohesion are called weak social capital groups. Academic performance of both PhD students and supervisors are highest in bridging groups and lowest in weak groups. Other variables are also found to differ according to the type of research group. At the end, some recommendations regarding academic and research policy are drawn

Bowling for fascism: Social capital and the rise of the Nazi Party in Weimar Germany, 1919-33

Social capital a dense network of associations facilitating cooperation within a community typically leads to positive political and economic outcomes, as demonstrated by a large literature following Putnam. A growing literature emphasizes the potentially "dark side" of social capital. This paper examines the role of social capital in the downfall of democracy in interwar Germany by analyzing Nazi party entry rates in a cross-section of towns and cities. Before the Nazi Party's triumphs at the ballot box, it built an extensive organizational structure, becoming a mass movement with nearly a million members by early 1933. We show that dense networks of civic associations such as bowling clubs, animal breeder associations, or choirs facilitated the rise of the Nazi Party. The effects are large: Towns with one standard deviation higher association density saw at least one-third faster growth in the strength of the Nazi Party. IV results based on 19th century measures of social capital reinforce our conclusions. In addition, all types of associations veteran associations and non-military clubs, "bridging" and "bonding" associations positively predict NS party entry. These results suggest that social capital in Weimar Germany aided the rise of the Nazi movement that ultimately destroyed Germany's first democracy.

Entrepreneurial structure of the mercantile company in pre-industrial Catalonia

The mercantile company was the basic form of enterprise in pre-industrial Catalonia. The aim of this paper is to study the formation and development of the mercantile companies in Barcelona whose end was the wholesale and retail sale of textiles in the botigues de teles (textile retail shops) throughout the eighteenth century. These firms were officially registered before a notary and their deeds reveal how these establishments were administered and managed.The study covers a sample of 121 mercantile companies, and the articles and documentation that were put into effect by 32 notaries who were active in Barcelona in the 18th century have been consulted in their entirety. From an initial selection of documentation, a total of 228 deeds registering companies have been found, 107 of which (47%) relate to the creation of companies whose various activities were centred in taverns, textile manufacturing, braiding.... While the 121 companies, which make up our sample and which account for 53% of the deeds registered with the notaries mentioned above, focused exclusively on the management of textile retail shops located in the commercial heart of the city. Thus one point of interest that the documentation reveals is that the majority of the mercantile companies registered by Barcelona notaries throughout the 18th century were establishments which traded in textiles. The first part of the article focuses on the structural characteristics of these enterprises, the number and socio-professional status of the partners and the extent of each partner s involvement in the administration and management. The second part of the article examines the capital investment made by each partner, their rights and obligations agreed on, the sharing out of profits and possible losses and the duration of the companies. The final aim of the paper is to highlight the evolution of these companies through one specific case.

Inflation and output dynamics with firm-owned capital

We model firm-owned capital in a stochastic dynamic New-Keynesian generalequilibrium model à la Calvo. We find that this structure impliesequilibrium dynamics which are quantitatively di¤erent from the onesassociated with a benchmark case where households accumulate capital andrent it to firms. Our findings therefore stress the importance ofmodeling an investment decision at the firm level in addition to ameaningful price setting decision. Along the way we argue that the problemof modeling firm-owned capital with Calvo price-setting has not been solvedin a correct way in the previous literature.

Regional structure of wages and external economies in Spain

Regional data on wages for the Spanish economy show that workers who live in developed regions earn more than workers in other regions.Literature on external economies provides a possible explanation of why firms do not move from these regions to others where wages are lower. Previous studies for the Spanish case use aggregated sectoral data to explain in terms of external economies why average wages are different across regions. The originalcontribution of this paper consists of using individual data to detect the existenceand nature of external economies as an explanatory cause of territorial wagedifferences. With this aim, we have used individual data from the EPF 1990-91(INE). This information permits us to control the influence of individual and jobcharacteristics on wages to, first, detect the existence of external economies and,second, to test alternative explanations of their presence. The empirical evidenceobtained confirms the relevance of territorial external economies and their influence on wages, as a result of improvements in the productive efficiency of the firm. In concrete terms, the more relevant external economies are associatedwith the regional human capital stock and geographical productive specialisation

Regional structure of wages and external economies in Spain

Regional data on wages for the Spanish economy show that workers who live in developed regions earn more than workers in other regions.Literature on external economies provides a possible explanation of why firms do not move from these regions to others where wages are lower. Previous studies for the Spanish case use aggregated sectoral data to explain in terms of external economies why average wages are different across regions. The originalcontribution of this paper consists of using individual data to detect the existenceand nature of external economies as an explanatory cause of territorial wagedifferences. With this aim, we have used individual data from the EPF 1990-91(INE). This information permits us to control the influence of individual and jobcharacteristics on wages to, first, detect the existence of external economies and,second, to test alternative explanations of their presence. The empirical evidenceobtained confirms the relevance of territorial external economies and their influence on wages, as a result of improvements in the productive efficiency of the firm. In concrete terms, the more relevant external economies are associatedwith the regional human capital stock and geographical productive specialisation