Trade credit: Suppliers as debt collectors and insurance providers

There are two fundamental puzzles about trade credit: why does it appearto be so expensive,and why do input suppliers engage in the business oflending money? This paper addresses and answers both questions analysingthe interaction between the financial and the industrial aspects of thesupplier-customer relationship. It examines how, in a context of limitedenforceability of contracts, suppliers may have a comparative advantageover banks in lending to their customers because they hold the extrathreat of stopping the supply of intermediate goods. Suppliers may alsoact as lenders of last resort, providing insurance against liquidityshocks that may endanger the survival of their customers. The relativelyhigh implicit interest rates of trade credit result from the existenceof default and insurance premia. The implications of the model areexamined empirically using parametric and nonparametric techniques on apanel of UK firms.

Long term debt with hidden borrowing

We consider borrowers with the opportunity to raise funds from a competitive baking sector,that shares information about borrowers, and an alternative hidden lender. We highlight thatthe presence of the hidden lender restricts the contracts that can be obtained from the banking sector and that in equilibrium some borrowers obtain funds from both the banking sector and the (inefficient) hidden lender simultaneously. We further show that as the inefficiency of the hidden lender increases, total welfare decreases. By extending the model to examine a partially hidden lender, we further highlight the key role of information.

Why do emerging economies borrow short term?

We argue that one reason why emerging economies borrow short term is that it is cheaperthan borrowing long term. This is especially the case during crises, as in these episodes therelative cost of long-term borrowing increases. We construct a unique database of sovereignbond prices, returns, and issuances at di¤erent maturities for 11 emerging economies from 1990to 2009 and present a set of new stylized facts. On average, these countries pay a higher riskpremium on long-term than on short-term bonds. During crises, the di¤erence between the tworisk premia increases and issuance shifts towards shorter maturities. To illustrate our argument,we present a simple model in which the maturity structure is the outcome of a risk sharingproblem between an emerging economy subject to rollover crises and risk averse internationalinvestors.

Optimal taxation without state-contingent debt

To recover a version of Barro's (1979) `random walk'tax smoothing outcome, we modify Lucas and Stokey's (1983) economyto permit only risk--free debt. This imparts near unit root like behaviorto government debt, independently of the government expenditureprocess, a realistic outcome in the spirit of Barro's. We showhow the risk--free--debt--only economy confronts the Ramsey plannerwith additional constraints on equilibrium allocations thattake the form of a sequence of measurability conditions.We solve the Ramsey problem by formulating it in terms of a Lagrangian,and applying a Parameterized Expectations Algorithm tothe associated first--order conditions. The first--order conditions andnumerical impulse response functions partially affirmBarro's random walk outcome. Though the behaviors oftax rates, government surpluses, and government debts differ, allocationsare very close for computed Ramsey policies across incomplete and completemarkets economies.

Conglomeration with bankruptcy costs: Separate or joint financing?

The paper analyzes the determinants of the optimal scope of incorporation in the presenceof bankruptcy costs. Bankruptcy costs alone generate a non-trivial tradeoff between thebenefit of coinsurance and the cost of risk contamination associated to joint financing corporate projects through debt. This tradeoff is characterized for projects with binary returns,depending on the distributional characteristics of returns (mean, variability, skewness, heterogeneity, correlation, and number of projects), the bankruptcy recovery rate, and the taxrate advantage of debt relative to equity. Our testable predictions are broadly consistentwith existing empirical evidence on conglomerate mergers, spin-offs, project finance, andsecuritization.

O mercado de Obrigações Corporate em Cabo Verde, potencialidades de crescimento e desenvolvimento. Estudo de Caso: Empréstimo Obrigacionista da ASA – Aeroportos e Segurança Aérea, SA

As obrigações constituem uma das formas de eleição de financiamento para as empresas e são um dos instrumentos financeiros mais utilizados em todo o mundo. Destacam-se, como um dos produtos financeiros privilegiados para investidores conservadores visto que, asseguram contratualmente, a data do pagamento dos juros e do reembolso do empréstimo além do montante dos juros, tratando-se neste caso da modalidade de taxa fixa. Até ao momento, três empresas emitiram Obrigações em Cabo Verde. Electra, Empresa Nacional de Electricidade e Água, SARL, Tecnicil, Sociedade de Imobiliária e Construções, SA e ASA, Empresa Nacional de Aeroportos e Segurança Aérea, SA.

Nominal debt as a burden on monetary policy

We study the effects of nominal debt on the optimal sequential choice of monetary policy. When the stock of debt is nominal, the incentive to generate unanticipated inflation increases the cost of the outstanding debt even if no unanticipated inflation episodes occur in equilibrium. Without full commitment, the optimal sequential policy is to deplete the outstanding stock of debt progressively until these extra costs disappear. Nominal debt is therefore a burden on monetary policy, not only because it must be serviced, but also because it creates a time inconsistency problem that distorts interest rates. The introduction of alternative forms of taxation may lessen this burden, if there is enough commtiment to fiscal policy. If there is full commitment to an optimal fiscal policy, then the resulting monetary policy is the Friedman rule of zero nominal interest rates.

Generating global brand equity through corporate social responsibility to key stakeholders

In this paper we argue that corporate social responsibility (CSR) to various stakeholders(customers, shareholders, employees, suppliers, and community) has a positive effect on globalbrand equity (BE). In addition, policies aimed at satisfying community interests help reinforcecredibility to social responsible polices with other stakeholders. We test these theoreticalcontentions using panel data comprised of 57 global brands originating from 10 countries (USA,Japan, South Korea, France, UK, Italy, Germany, Finland, Switzerland and the Netherlands) forthe period 2002 to 2008. Our findings show that CSR to each of the stakeholder groups has apositive impact on global BE. In addition, global brands that follow local social responsibilitypolicies over communities obtain strong positive benefits in terms of the generation of BE, as itenhances the positive effects of CSR to other stakeholders, particularly to customers. Therefore,for managers of global brands it is particularly productive for generating brand value to combineglobal strategies with the satisfaction of the interests of local communities.

Lending to the borrower from hell: Debt and default in the age of Philip II, 1556-1598

What sustained borrowing without third-party enforcement, in the early days of sovereignlending? Philip II of Spain accumulated towering debts while stopping all payments tohis lenders four times. How could the sovereign borrow much and default often? Weargue that bankers ability to cut off Philip II s access to smoothing services was key. Aform of syndicated lending created cohesion among his Genoese bankers. As a result,lending moratoria were sustained through a cheat the cheater mechanism (Kletzer andWright, 2000). Our paper thus lends empirical support to a recent literature emphasizingthe role of bankers incentives for continued sovereign borrowing.

Is bank debt special for the transmission of monetary policy? Evidence from the stock market

We combine existing balance sheet and stock market data with two new datasets to studywhether, how much, and why bank lending to firms matters for the transmission of monetarypolicy. The first new dataset enables us to quantify the bank dependence of firms precisely,as the ratio of bank debt to total assets. We show that a two standard deviation increase inthe bank dependence of a firm makes its stock price about 25% more responsive to monetarypolicy shocks. We explore the channels through which this effect occurs, and find that thestock prices of bank-dependent firms that borrow from financially weaker banks display astronger sensitivity to monetary policy shocks. This finding is consistent with the banklending channel, a theory according to which the strength of bank balance sheets mattersfor monetary policy transmission. We construct a new database of hedging activities andshow that the stock prices of bank-dependent firms that hedge against interest rate riskdisplay a lower sensitivity to monetary policy shocks. This finding is consistent with aninterest rate pass-through channel that operates via the direct transmission of policy ratesto lending rates associated with the widespread use of floating-rates in bank loans and creditline agreements.

Sovereign debt markets in turbulent times: Creditor discrimination and crowding-out effects

In 2007, countries in the Euro periphery were enjoying stable growth, low deficits, and lowspreads. Then the financial crisis erupted and pushed them into deep recessions, raising theirdeficits and debt levels. By 2010, they were facing severe debt problems. Spreads increased and,surprisingly, so did the share of the debt held by domestic creditors. Credit was reallocatedfrom the private to the public sectors, reducing investment and deepening the recessions evenfurther. To account for these facts, we propose a simple model of sovereign risk in which debtcan be traded in secondary markets. The model has two key ingredients: creditor discriminationand crowding-out effects. Creditor discrimination arises because, in turbulent times, sovereigndebt offers a higher expected return to domestic creditors than to foreign ones. This providesincentives for domestic purchases of debt. Crowding-out effects arise because private borrowingis limited by financial frictions. This implies that domestic debt purchases displace productiveinvestment. The model shows that these purchases reduce growth and welfare, and may lead toself-fulfilling crises. It also shows how crowding-out effects can be transmitted to other countriesin the Eurozone, and how they may be addressed by policies at the European level.

Micro-insurance through corporate-NGO partnerships in West Bengal : opportunities and constraints

This Practical Note examines the nascent micro-insurance sector in West Bengal, paying particular attention to the corporate- NGO partnership model for micro-insurance distribution,which has been enabled by India's unique regulatory framework. We challenge the popularconstruction of this model as a 'win - win' for all parties by analysing conflicting understandings of micro-insurance schemes and their purposes by insurance companies, NGOs, and poorvillagers. The article also considers the role of the specific political context of West Bengal inconstricting corporate- NGO micro-insurance

Schedule of Debt Service and Coverage for Iowa State University of Science and Technology for the Academic Building Revenue Bond Funds for the year ended June 30, 2009

Schedule of Debt Service and Coverage for Iowa State University of Science and Technology for the Academic Building Revenue Bond Funds for the year ended June 30, 2009

Determinants of Corporate Disclosure : A Multicountry, Multilevel Model

Abstract The complexity of the current business world is making corporate disclosure more and more important for information users. These users, including investors, financial analysts, and government authorities rely on the disclosed information to make their investment decisions, analyze and recommend shares, and to draft regulation policies. Moreover, the globalization of capital markets has raised difficulties for information users in understanding the differences incorporate disclosure across countries and across firms. Using a sample of 797 firms from 34 countries, this thesis advances the literature on disclosure by illustrating comprehensively the disclosure determinants originating at firm systems and national systems based on the multilevel latent variable approach. Under this approach, the overall variation associated with the firm-specific variables is decomposed into two parts, the within-country and the between-country part. Accordingly, the model estimates the latent association between corporate disclosure and information demand at two levels, the within-country and the between-country level. The results indicate that the variables originating from corporate systems are hierarchically correlated with those from the country environment. The information demand factor indicated by the number of exchanges listed and the number of analyst recommendations can significantly explain the variation of corporate disclosure for both "within" and "between" countries. The exogenous influences of firm fundamentals-firm size and performance-are exerted indirectly through the information demand factor. Specifically, if the between-country variation in firm variables is taken into account, only the variables of legal systems and economic growth keep significance in explaining the disclosure differences across countries. These findings strongly support the hypothesis that disclosure is a response to both corporate systems and national systems, but the influence of the latter on disclosure reflected significantly through that of the former. In addition, the results based on ADR (American Depositary Receipt) firms suggest that the globalization of capital markets is harmonizing the disclosure behavior of cross-boundary listed firms, but it cannot entirely eliminate the national features in disclosure and other firm-specific characteristics.

Corporate governance and corporate social performance

By integrating the agency and stakeholder perspectives, this study aims to provide a systematic understanding of the firm- and institutional-level corporate governance factors that affect corporate social performance (CSP). We analyze a large global panel dataset and reveal that CSP is positively associated with board independence, but negatively with ownership concentration. These results underscore the idea that the benefits of CSP do not flow to shareholders to the same extent as the costs and that the allocation of resources to CSP is lower when shareholders are powerful. Furthermore, these findings indicate that independent directors should be understood as agents in their own right, not only focused on defending shareholder interests. We also find that CSP is negatively related to investor protection and shareholder-oriented environments, while it is positively related to egalitarian environments. Finally, we jointly analyze firm-level drivers and institutional contexts.