Innovation, competition and financial vulnerability in economic development

The financial sector has been viewed traditionally as either providing the "oil" for the "wheels of commerce" or as a parasite on the real sector of the economy where real productivity gains provide for increasing real wages and per capita incomes. The present paper takes a different route and attempts to an analysis of financial institutions on a par with the production sector of the economy. It also develops a link which amalgamates "the knowledge-based" perspective on firms' operations with Schumpeterian financial leverage to exploit productivity enhancing innovations, and Minsky's tendency towards financial fragility. The analysis also leads to some policy recommendations concerning financial regulation, risk management and financial institution's building.

Analysis of multi-scale systemic risk in Brazil's financial market

This work analyzes whether the relationship between risk and returns predicted by the Capital Asset Pricing Model (CAPM) is valid in the Brazilian stock market. The analysis is based on discrete wavelet decomposition on different time scales. This technique allows to analyze the relationship between different time horizons, since the short-term ones (2 to 4 days) up to the long-term ones (64 to 128 days). The results indicate that there is a negative or null relationship between systemic risk and returns for Brazil from 2004 to 2007. As the average excess return of a market portfolio in relation to a risk-free asset during that period was positive, it would be expected this relationship to be positive. That is, higher systematic risk should result in higher excess returns, which did not occur. Therefore, during that period, appropriate compensation for systemic risk was not observed in the Brazilian market. The scales that proved to be most significant to the risk-return relation were the first three, which corresponded to short-term time horizons. When treating differently, year-by-year, and consequently separating positive and negative premiums, some relevance is found, during some years, in the risk/return relation predicted by the CAPM. However, this pattern did not persist throughout the years. Therefore, there is not any evidence strong enough confirming that the asset pricing follows the model.

CITRICULTURE ECONOMIC AND FINANCIAL EVALUATION UNDER CONDITIONS OF UNCERTAINTY

ABSTRACT The citriculture consists in several environmental risks, as weather changes and pests, and also consists in considerable financial risk, mainly due to the period ofreturn on the initial investment. This study was motivated by the need to assess the risks of a business activity such as citriculture. Our objective was to build a stochastic simulation model to achieve the economic and financial analysis of an orange producer in the Midwest region of the state of Sao Paulo, under conditions of uncertainty. The parameters used were the Net Present Value (NPV), the Modified Internal Rate of Return(MIRR), and the Discounted Payback. To evaluate the risk conditions we built a probabilistic model of pseudorandom numbers generated with Monte Carlo method. The results showed that the activity analyzed provides a risk of 42.8% to reach a NPV negative; however, the yield assessed by MIRR was 7.7%, higher than the yield from the reapplication of the positive cash flows. The financial investment pays itself after the fourteenth year of activity.

Computational modeling for irrigated agriculture planning. Part II: risk analysis

Techniques of evaluation of risks coming from inherent uncertainties to the agricultural activity should accompany planning studies. The risk analysis should be carried out by risk simulation using techniques as the Monte Carlo method. This study was carried out to develop a computer program so-called P-RISCO for the application of risky simulations on linear programming models, to apply to a case study, as well to test the results comparatively to the @RISK program. In the risk analysis it was observed that the average of the output variable total net present value, U, was considerably lower than the maximum U value obtained from the linear programming model. It was also verified that the enterprise will be front to expressive risk of shortage of water in the month of April, what doesn't happen for the cropping pattern obtained by the minimization of the irrigation requirement in the months of April in the four years. The scenario analysis indicated that the sale price of the passion fruit crop exercises expressive influence on the financial performance of the enterprise. In the comparative analysis it was verified the equivalence of P-RISCO and @RISK programs in the execution of the risk simulation for the considered scenario.

Can future systemic financial risks be quantified?: ergodic vs nonergodic stochastic processes

Different axioms underlie efficient market theory and Keynes's liquidity preference theory. Efficient market theory assumes the ergodic axiom. Consequently, today's decision makers can calculate with actuarial precision the future value of all possible outcomes resulting from today's decisions. Since in an efficient market world decision makers "know" their intertemporal budget constraints, decision makers never default on a loan, i.e., systemic defaults, insolvencies, and bankruptcies are impossible. Keynes liquidity preference theory rejects the ergodic axiom. The future is ontologically uncertain. Accordingly systemic defaults and insolvencies can occur but can never be predicted in advance.

The new international financial crisis: causes, consequences and perspectives

The paper investigates the recent financial crisis within a historical and comparative perspective having in mind that it is ultimately a confidence crisis, initially associated to a chain of high risk loans and financial innovations that spread thorough the international system culminating with impressive wealth losses. The financial market will eventually recover from the crisis but the outcome should be followed by a different and more disciplined set of international institutions. There will be a change on how we perceive the widespread liberal argument that the market is always efficient, or at least, more efficient than any State intervention, overcoming the false perception that the State is in opposition to the market. A deep financial crisis brings out a period of wealth losses and an adjustment process characterized by price corrections (commodities and equity price deflation) and real effects (recession and lower employment), and a period of turbulences and end of illusions is in place.

Financial strategies for minimizing corporate income taxes under Brazil's new global tax system

In 1996, Brazil adopted a worldwide income tax system for corporations. This system represents a fundamental change in how the Brazílian government treats multinational transactions and the tax minimizing strategies relevant to businesses. In this article, we describe the conceptual basis for worldwide tax systems and the problem of double taxation that they create. Responses to double taxation by both the governments and the priva te sector are considered. Namely, the imperfect mechanisms developed by Brazil and other countries for mitigating double taxation are analyzed. We ultimately focus on the strategies that companies utilize in order not only to avoid double texetion, but also to take advantage of tax havens.

International transfer pricing restrictions: impact on corporate financial policy

Transfer pricing is a pervasive issue that presents significant tax savings potential concerning international enterprises. The authors discuss company incentives to manage transfer prices in an article appearing in the preceding issue of this journal. In response to these incentives, governments have increasingly enacted and enforced domestic restrictions on transfer prices. In this article, contemporary norms restricting transfer pricing are analyzed. The OEGO and US pricing standards are assessed and Brazil's recent application of these standards is considered. Transfer pricing methods are described and evidence of their use is presented. We conclude by describing an intercompany transfer pricing policy intended to facilitate internaI financiaI management and minimize externaI tax threats.

Portfolio valuation in banks

Frequent references are made to the use of portfolio spread rates in managing financial risks in banks, but indications as to the procedures for determining such rates are very scant.The purpose of this article is to present some initial ideas on the subject: a Standard Funding system indicates what each portfolio should have earned, while an Actual Funding system points out what each portfolio did, in fact, earn; additionally, by comparing the outcomes of the two funding systems for each portfolio, it is possible to determine what each portfolio earned (or lost) in the way of arbitrage.

ANTECEDENTS AND CONSEQUENCES OF HOUSEHOLD FINANCIAL MANAGEMENT IN BRAZILIAN LOWER-MIDDLE-CLASS

Through two complementary and exploratory studies – one qualitative and one quantitative – this research aims to understand the ways in which lower-middle-class families in Brazil manage their household finances. The study proposes an integrated framework that brings together various previously disconnected theoretical fragments. Based on a survey with a sample of 165 lower-middle-class female consumers of a retail company in São Paulo, we explored and tested, via a quantitative study, how antecedents such as personal characteristics affect the financial management process, as well as its consequences, either negatively as defaults or positively as savings. The model calibration and analysis were derived from a series of regression analyses. The results revealed the mediator role that financial management plays in the relationship between personal characteristics and defaults and savings. Compared to previous studies with consumers of more affluent countries, we identified peculiar findings among Brazilian lower-middle-class consumers: inadequate attention to control, weak or no focus on short- or long-range planning, widespread absence of budget surplus, and influence of critical events on episodes of default.

CROSS-COUNTRY STUDY ON THE DETERMINANTS OF BANK FINANCIAL DISTRESS

ABSTRACTBank failures affect owners, employees, and customers, possibly causing large-scale economic distress. Thus, banks must evaluate operational risks and develop early warning systems. This study investigates bank failures in the Organization for Economic Co-operation and Development, the North America Free Trade Area (NAFTA), the Association of Southeast Asian Nations, the European Union, newly industrialized countries, the G20, and the G8. We use financial ratios to analyze and explore the appropriateness of prediction models. Results show that capital ratios, interest income compared to interest expenses, non-interest income compared to non-interest expenses, return on equity, and provisions for loan losses have significantly negative correlations with bank failure. However, loan ratios, non-performing loans, and fixed assets all have significantly positive correlations with bank failure. In addition, the accuracy of the logistic model for banks from NAFTA countries provides the best prediction accuracy regarding bank failure.

CORPORATE SOCIAL RESPONSIBILITY AND FINANCIAL PERFORMANCE: THE SPANISH CASE

ABSTRACT The enormous interest aroused by corporate social responsibility both in the academic and the business worlds forms the background for this study. Its objective is to analyze the relationship between corporate social responsibility and financial performance in view of the debate in the literature on the subject. The study focuses on a sample of Spanish companies taken from the IBEX 35 stock market index, using panel data methodology, which offers advantages in comparison to methodologies used in other studies. We analyzed the period from 2003 to 2010. Our findings suggest that there is no obvious relationship between corporate social responsibility and financial results, at least in the case of Spain.

THE ROLE OF EARNINGS PERSISTENCE IN VALUATION ACCURACY AND THE TIME HORIZON

ABSTRACT Based on the assumption that earnings persistence has implications for both financial analysis and compensation contracts, the aim of this paper is to investigate the role of earnings persistence assuming that (i) more persistent earnings are likely to be a better input to valuation models and (ii) more persistent earnings are likely to serve as a proxy for long-term market and managerial orientation. The analysis is based on Brazilian listed firms from 1995 to 2013, and while we document strong support for the relevance of earnings persistence in financial analysis and valuation, we fail to document a significant relationship between earnings persistence and long-term value orientation. These results are sensitive to different specifications, and additional results suggest that firms' idiosyncratic risk (total risk) is relevant to explain the focus on short-term outcomes (short-termism) across firms. The main contribution of this paper is to offer empirical evidence for the relevance of accounting numbers in both valuation and contractual theories in an emergent market.

Risk factors for basal cell carcinoma: a case-control study

A controlled trial was performed with the purpose of investigating which factors could be considered of significant risk for the development of basal cell carcinoma. A total of 259 cases of basal cell carcinoma diagnosed from July 1991 to July 1992 were compared with 518 controls matched for age and sex. All subjects in both groups were white. Protocol data were submitted to statistical analysis by the chi-square test and by multiple conditional logistic regression analysis and the following conclusions were reached: 1) light skin color (types I and II of the Fitzpatrick classification), odds ratio of 2.8; outdoor work under constant sunlight, odds ratio of 5.0; the presence of actinic lesions due to exposure to the sun, odds ratio of 4.9, are risk factors perse. 2) Type III skin in the Fitzpatrick classification only represents a risk factor when the patient reports a history of intense sunburns, but not in the absence of such a history. 3) Sunburns per se do not represent a risk factor althorig the point made in item 2 of these conclusions is valid. 4) Other suspected risk factors whose significance was not confirmed by multiple conditioned logistic regression analysis were: residence in rural areas, light eyes and blond hair color, extent of the awareness of the "sun x skin cancer" relationship, familial occurrence of skin cancer, excessive exposure to the sun, and freckles appearing in childhood.