Iowa Finance Authority, Strategic Plan, 2003

This report outlines the strategic plan for Iowa Finance Authority, goals and mission.

The lender of last resort: A 21st Century approach

The object of this paper is to analyze rigorously the role of a Lender ofLast Resort by providing a framework where the distinction betweeninsolvency and illiquidity is not clearly cut. Determining the optimalLender of Last Resort policy requires a careful modeling of the structureof the interbank market and of the closure policy. In our set up, theresults depend upon the existence of moral hazard. If the main source ofmoral hazard is the banks lack of incentives to screen loans, then theLender of Last Resort may have to intervene to improve the e¢ciency of anunsecured interbank market; if instead, the main source of moral hazard isloans monitoring, then the interbank market should be secured and theLender of Last Resort should never intervene.

Causal assessment in finite extensive-form games

Two finite extensive-form games are empirically equivalent when theempirical distribution on action profiles generated by every behaviorstrategy in one can also be generated by an appropriately chosen behaviorstrategy in the other. This paper provides a characterization ofempirical equivalence. The central idea is to relate a game's informationstructure to the conditional independencies in the empirical distributionsit generates. We present a new analytical device, the influence opportunitydiagram of a game, describe how such a diagram is constructed for a givenextensive-form game, and demonstrate that it provides a complete summaryof the information needed to test empirical equivalence between two games.

Equipment and Vehicle Purchase Report, 2008

Attached is the Equipment and Vehicle Purchase Report for Fiscal Year 2008 as required by Iowa Code section 307.47. The report is sorted by our accounting object codes. The object codes help you sort the equipment into general categories. The following list will help you understand the codes: Object Description 701 Self Propelled Vehicles 702 Road Equipment & Trailers 703 Large Office Furniture & Files 704 Shop Tools & Small Equipment 705 Engineer, Survey & Measuring Equipment 706 Copiers, Fax & Communication Equipment 707 Computers & Related Equipment

Financing constraints and fixed-term employment contracts

This paper studies the interactions between financing constraints and theemployment decisions of firms when both fixed-term and permanent employmentcontracts are available. We first develop a dynamic model that shows theeffects of financing constraints and firing costs on employment decisions. Oncecalibrated, the model shows that financially constrained firms tend to use moreintensely fixed term workers, and to make them absorb a larger fraction of thetotal employment volatility than financially unconstrained firms do. We testand confirm the predictions of the model on a unique panel data of Italian manufacturingfirms with detailed information about the type of workers employedby the firms and about firm financing constraints.

Conflicts of interest, information provision and competition in banking

In some markets, such as the market for drugs or for financial services, sellers have better information than buyersregarding the matching between the buyer's needs and the good's actual characteristics. Depending on the market structure,this may lead to conflicts of interest and/or the underprovision of information by the seller. This paper studies this issuein the market for financial services. The analysis presents a new model of competition between banks, as banks' pricecompetition influences the ensuing incentives for truthful information revelation. We compare two different firm structures,specialized banking, where financial institutions provide a unique financial product, and one-stop banking, where a financialinstitution is able to provide several financial products which are horizontally differentiated. We show first that, althoughconflicts of interest may prevent information disclosure under monopoly, competition forces full information provision forsufficiently high reputation costs. Second, in the presence of market power, one-stop banks will use information strategicallyto increase product differentiation and therefore will always provide reliable information and charge higher rices thanspecialized banks, thus providing a new justification for the creation of one-stop banks. Finally, we show that, ifindependent financial advisers are able to provide reliable information, this increases product differentiation and thereforemarket power, so that it is in the interest of financial intermediaries to promote external independent financial advice.

Portfolio choice beyond the traditional approach

This paper surveys asset allocation methods that extend the traditional approach. An important feature of the the traditional approach is that measures the risk and return tradeoff in terms of mean and variance of final wealth. However, there are also other important features that are not always made explicit in terms of investor s wealth, information, and horizon: The investor makes a single portfolio choice based only on the mean and variance of her final financial wealth and she knows the relevant parameters in that computation. First, the paper describes traditional portfolio choice based on four basic assumptions, while the rest of the sections extend those assumptions. Each section will describe the corresponding equilibrium implications in terms of portfolio advice and asset pricing.

A model of market-making

The two essential features of a decentralized economy taken intoaccount are, first, that individual agents need some informationabout other agents in order to meet potential trading partners,which requires some communication or interaction between theseagents, and second, that in general agents will face tradinguncertainty. We consider trade in a homogeneous commodity. Firmsdecide upon their effective supplies, and may create their ownmarkets by sending information signals communicating theirwillingness to sell. Meeting of potential trading partners isarranged in the form of shopping by consumers. The questions to beconsidered are: How do firms compete in such markets? And what arethe properties of an equilibrium? We establish existenceconditions for a symmetric Nash equilibrium in the firms'strategies, and analyze its characteristics. The developedframework appears to lend itself well to study many typicalphenomena of decentralized economies, such as the emergence ofcentral markets, the role of middlemen, and price-making.

Multinationals, technology networks and international takeovers

We formulate a knowlegde--based model of direct investment through mergers and acquisitions. M&As are realized to create comparative advantages by exploiting international synergies and appropriating local technology spillovers requiring geographical proximity, but can also represent a strategic response to the presence of a multinational rival. The takeover fee paid tends to increase with the strength of local spillovers which can thus work against multinationalization. Seller's bargaining power increases the takeover fee, but does not influence the investment decision. We characterize losers and winners from multinationalization, and show that foreign investment stimulates research but could result in a synergy trap reducing multinationals' profits.

Moral hazard and dynamics of insider ownership stakes

In this paper, I analyze the ownership dynamics of N strategic risk-averse corporate insiders facing a moral hazard problem. A solution for the equilibrium share price and the dynamics of the aggregate insider stake is obtained in two cases: when agents can crediblycommit to an optimal ownership policy and when they cannot commit (time-consistent case). Inthe latter case, the aggregate stake gradually adjusts towards the competitive allocation. The speed of adjustment increases with N when outside investors are risk-averse, and does not depend on it when investors are risk-neutral. Predictions of the model are consistent with recent empirical findings.

Firms vs. insiders as traders of last resort

We explore the role of corporate insiders vs. firms as traders of last resort. We develop a simple model of insider trading in which insiders provide price support, as well as liquidity, in security markets. Consistent with the model predictions we find that in the US markets insiders trading activities have a clear impact on return distributions. Furthermore, we provide empirical evidence on insiders transactions and firm transactions affecting returns in a different manner. In particular, while insiders transactions (both purchases and sales) have a strong impact on skewness in the short run and to a lesser extent in short run volatility, company repurchases only have a clear impact on volatility, both in the short and the long run. We provide explanations for this asymmetry.

One hundred issues of Revista Española de Financiación y Contabilidad (REFC)-insights into trends in the Spanish academic community

From the year of its foundation, until the foundation of Revista deContabilidad in 1997, REFC has been the only referred accounting journalin Spain. Published by the Spanish Association for Accounting and BusinessAdministration (AECA), this journal is at the heart of the emergence ofa distinctly Spanish academic accounting community.Our study is based on:1. An analysis of 100 issues of REFC covering the period from 1985 to 1999.2. A questionnaire to Spanish accounting academics on their perceptionsand experience of the journal.Key points emerging from this study include:a) A move away from interest in accounting concepts and rules, as wellas accounting history, and towards positive accounting theory, the impactof accounting information on capital markets, and financial analysis.b) The emergence of a small number of universities as the driving forcein Spanish accounting research.c) Spanish academics rate REFC highly compared to other Spanish journalsfor publication status, as a support for research, and as a support forteaching. A number of English language journals are rated more highly forboth publication status and as a support for teaching.

Speculative securities

A speculative security is an asset whose payoff depends on a random shock uncorrelated with economic fundamentals (a sunspot) about which some traders have superior information. In this paper we show that agents may find it desirable to trade such a security in spite of the fact that it is a poorer hedge against their endowment risks as the time oftrade, and has an associated adverse selection cost. In the specific institutional setting of innovation of futures contracts, we show that a futures exchange may not have an incentive to introduce a speculative security even when all traders favor it.

2008 Annual Report of the Iowa Railway Finance Authority

The Iowa Railway Finance Authority (IRFA) was created in 1980 by the 68th General Assembly to provide for the financing of rail facilities and to enhance and continue the operation of essential rail facilities. IRFA was authorized to offer financial assistance for the acquisition, rehabilitation, construction, refinancing, extension, replacement, maintenance, repair, or leasing of any rail facility. Rail Revolving Loan and Grant Program The 2005 legislative session amended Iowa Code 327H.20 by assigning all repayments of IRFA and other Iowa Department of Transportation (Iowa DOT) rail assistance loans to the Rail Revolving Loan and Grant Program (RRLGP). In addition, the following annual appropriations were allocated to the fund: • FY 2007: $235,000 • FY 2008: $2 million • FY 2009: $2 million Since the creation of the RRLGP in 2005, IRFA has awarded funding to 23 projects totaling over $7.2 million in grants and loans in its three rounds of competitive funding. These projects have pledged to create 1,672 jobs within two years of project completion and 1,361 jobs have been retained. Funded projects are associated with over $2 billion in total private capital investment. In 2008, the IRFA Board directed all available funds be used to help repair railroads devastated by summer flooding. On July 31, $3.9 million in deferred payment loans were offered to seven Iowa based railroads to allow for immediate repair of rail beds, including the cost of materials, labor and equipment.

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.