A Simple Accounting-based Valuation Model for the Debt Tax Shield

This paper describes a simple way to integrate the debt tax shield into an accounting-based valuation model. The market value of equity is determined by forecasting residual operating income, which is calculated by charging operating income for the operating assets at a required return that accounts for the tax benefit that comes from borrowing to raise cash for the operations. The model assumes that the firm maintains a deterministic financial leverage ratio, which tends to converge quickly to typical steady-state levels over time. From a practical point of view, this characteristic is of particular help, because it allows a continuing value calculation at the end of a short forecast period.

Do Words Matter? The Impact of Communication on the PIIGS' CDS and Bond Yield Spreads during Europe's Sovereign Debt Crisis

The paper aims to shed light on the role of communication in the European debt crisis. It examines the effects of public statements by ECB Governing Council members, EU officials and national representatives on the PIIGS' CDS and bond yield spreads. The focus lies on dovish statements that signal strong determination in the rescue of indebted countries, and hawkish statements that indicate limited commitment to support the PIIGS and protect its creditors. The analysis of daily data for the period between January 1, 2009 and August 12, 2011 in an EGARCH framework suggests that communication by representatives of Germany, France, and the EU as well as ECB Governing Council members had an immediate impact on both types of securities. No effects.

The Optimal Capital Structure of Banks: Balancing Deposit Insurance, Capital Requirements and Tax-Advantaged Debt

The capital structure and regulation of financial intermediaries is an important topic for practitioners, regulators and academic researchers. In general, theory predicts that firms choose their capital structures by balancing the benefits of debt (e.g., tax and agency benefits) against its costs (e.g., bankruptcy costs). However, when traditional corporate finance models have been applied to insured financial institutions, the results have generally predicted corner solutions (all equity or all debt) to the capital structure problem. This paper studies the impact and interaction of deposit insurance, capital requirements and tax benefits on a bankÇs choice of optimal capital structure. Using a contingent claims model to value the firm and its associated claims, we find that there exists an interior optimal capital ratio in the presence of deposit insurance, taxes and a minimum fixed capital standard. Banks voluntarily choose to maintain capital in excess of the minimum required in order to balance the risks of insolvency (especially the loss of future tax benefits) against the benefits of additional debt. Because we derive a closed- form solution, our model provides useful insights on several current policy debates including revisions to the regulatory framework for GSEs, tax policy in general and the tax exemption for credit unions.

The effect of the shift from HMO to PPO plans on the prevalence of hospital bad debt in the insured population: A case study in two Houston-area hospitals

In spite of the dramatic increase and general concern with U.S. hospital bad debt expense (AMNews, January 12, 2004; Philadelphia Business Journal, April 30, 2004; WSJ, July 23, 2004), there appears to be little available analysis of the precise sources and causes of its growth. This is particularly true in terms of the potential contribution of insured patients to bad debt expense in light of the recent shift in managed care from health maintenance organization (HMO) plans to preferred provider organization (PPO) plans (Kaiser Annual Survey Report, 2003). This study examines and attempts to explain the recent dramatic growth in bad debt expense by focusing on and analyzing data from two Houston-area hospital providers within one healthcare system. In contrast to prior studies in which self-pay was found to be the primary source of hospital bad debt expense (Saywell, R. M., et al., 1989; Zollinger, T. W., 1991; Weissman, Joel S., et al., 1999), this study hypothesizes that the growing hospital bad debt expense is mainly due to the shifting trend away from HMOs to PPOs as a conscious decision by employers to share costs with employees. Compared to HMO plans, the structure of PPOs includes higher co-pays, coinsurance, and deductibles for the patient-pay portion of medical bills, creating the potential for an increase in bad debt for hospital providers (from a case study). This bad debt expense has a greater impact in the community hospital than in the Texas Medical Center hospital. ^

A Cost-Benefit analysis model for technical debt management considering uncertainty and time

In the last few years, technical debt has been used as a useful means for making the intrinsic cost of the internal software quality weaknesses visible. This visibility is made possible by quantifying this cost. Specifically, technical debt is expressed in terms of two main concepts: principal and interest. The principal is the cost of eliminating or reducing the impact of a, so called, technical debt item in a software system; whereas the interest is the recurring cost, over a time period, of not eliminating a technical debt item. Previous works about technical debt are mainly focused on estimating principal and interest, and on performing a cost-benefit analysis. This cost-benefit analysis allows one to determine if to remove technical debt is profitable and to prioritize which items incurring in technical debt should be fixed first. Nevertheless, for these previous works technical debt is flat along the time. However the introduction of new factors to estimate technical debt may produce non flat models that allow us to produce more accurate predictions. These factors should be used to estimate principal and interest, and to perform cost-benefit analysis related to technical debt. In this paper, we take a step forward introducing the uncertainty about the interest, and the time frame factors so that it becomes possible to depict a number of possible future scenarios. Estimations obtained without considering the possible evolution of the interest over time may be less accurate as they consider simplistic scenarios without changes.