Patrick Augustin, Hamid Boustanifar, J. Breckenfelder, Jan Schnitzler
The first Greek bailout on April 11, 2010 triggered a significant reevaluation of sovereign credit risk across Europe. We exploit this event to examine the transmission of sovereign to corporate credit risk. A ten percent increase in sovereign credit risk raises corporate credit risk on average by 1.1 percent after the bailout. The evidence is suggestive of risk spillovers from sovereign to corporate credit risk through a financial and a fiscal channel, as the effects are more pronounced for firms that are bank or government dependent. We find no support for indirect risk transmission through a deterioration of macroeconomic fundamentals. JEL Classification: F34, F36, G15, H81, G12
{"title":"Sovereign to Corporate Risk Spillovers","authors":"Patrick Augustin, Hamid Boustanifar, J. Breckenfelder, Jan Schnitzler","doi":"10.2139/ssrn.2097391","DOIUrl":"https://doi.org/10.2139/ssrn.2097391","url":null,"abstract":"The first Greek bailout on April 11, 2010 triggered a significant reevaluation of sovereign credit risk across Europe. We exploit this event to examine the transmission of sovereign to corporate credit risk. A ten percent increase in sovereign credit risk raises corporate credit risk on average by 1.1 percent after the bailout. The evidence is suggestive of risk spillovers from sovereign to corporate credit risk through a financial and a fiscal channel, as the effects are more pronounced for firms that are bank or government dependent. We find no support for indirect risk transmission through a deterioration of macroeconomic fundamentals. JEL Classification: F34, F36, G15, H81, G12","PeriodicalId":189146,"journal":{"name":"FEN: Political Risk & Corporate Finance (Topic)","volume":"134 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-01-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116593522","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper proposes an approach to study the expected excess return of a long-term bond and focuses on a lower bound. This lower bound is a crucial number, as it represents the minimum expected excess return demanded by investors. The derived bound is model-independent and can be extracted from options on the 30-year Treasury bond futures. Our implementation reveals that the annualized lower bound ranges from 0.22 to 6.07, with an unconditional average of 1.18%. The ideas and developed results are useful for thinking about cost of debt, allocation between equities and bonds, and measuring investor reaction to monetary policy shocks.
{"title":"An Inquiry into the Nature and Sources of Variation in the Expected Excess Return of a Long-Term Bond","authors":"G. Bakshi, Fousseni Chabi-Yo, Xiaohui Gao Bakshi","doi":"10.2139/ssrn.2600097","DOIUrl":"https://doi.org/10.2139/ssrn.2600097","url":null,"abstract":"This paper proposes an approach to study the expected excess return of a long-term bond and focuses on a lower bound. This lower bound is a crucial number, as it represents the minimum expected excess return demanded by investors. The derived bound is model-independent and can be extracted from options on the 30-year Treasury bond futures. Our implementation reveals that the annualized lower bound ranges from 0.22 to 6.07, with an unconditional average of 1.18%. The ideas and developed results are useful for thinking about cost of debt, allocation between equities and bonds, and measuring investor reaction to monetary policy shocks.","PeriodicalId":189146,"journal":{"name":"FEN: Political Risk & Corporate Finance (Topic)","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-01-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129078656","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I. Hasan, Krzysztof Jackowicz, Oskar Kowalewski, Łukasz Kozłowski
This study investigates the relationship between politically connected firms and their access to bank financing in a post-communist eras in Poland. Overall, it finds that "recent" political connections do influence access to bank financing and the value of such connections increased during the financial crisis. However, it also observes that the positive relationship mentioned above is substantially weaker in Poland relative to other emerging countries and we attribute this phenomenon to the instability of the Polish political climate.
{"title":"Politically Connected Firms in Poland and Their Access to Bank Financing","authors":"I. Hasan, Krzysztof Jackowicz, Oskar Kowalewski, Łukasz Kozłowski","doi":"10.2139/ssrn.2370298","DOIUrl":"https://doi.org/10.2139/ssrn.2370298","url":null,"abstract":"This study investigates the relationship between politically connected firms and their access to bank financing in a post-communist eras in Poland. Overall, it finds that \"recent\" political connections do influence access to bank financing and the value of such connections increased during the financial crisis. However, it also observes that the positive relationship mentioned above is substantially weaker in Poland relative to other emerging countries and we attribute this phenomenon to the instability of the Polish political climate.","PeriodicalId":189146,"journal":{"name":"FEN: Political Risk & Corporate Finance (Topic)","volume":"70 6","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-12-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133003973","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine the impact of political uncertainty on firms' payout policy. Using a large international sample across 35 countries over the period from year 1990 to 2008, we find that past dividend payers are more likely to terminate dividends and that non-payers are less likely to initiate dividends during periods of high political uncertainty. These findings suggest a precautionary incentive of managers in response to political shocks. Nevertheless, the impact of political shocks seems to be attenuated by stable political systems. In addition to identifying this precautionary incentive, we also document that firms with lower market valuation or less liquidity are more likely to initiate dividends during periods of high political uncertainty, which is consistent with the catering theory of dividends.
{"title":"Political Uncertainty and Dividend Policy: Evidence from International Political Crises","authors":"Tao Huang, Fei Wu, Jin Yu, Bohui Zhang","doi":"10.2139/ssrn.2212481","DOIUrl":"https://doi.org/10.2139/ssrn.2212481","url":null,"abstract":"We examine the impact of political uncertainty on firms' payout policy. Using a large international sample across 35 countries over the period from year 1990 to 2008, we find that past dividend payers are more likely to terminate dividends and that non-payers are less likely to initiate dividends during periods of high political uncertainty. These findings suggest a precautionary incentive of managers in response to political shocks. Nevertheless, the impact of political shocks seems to be attenuated by stable political systems. In addition to identifying this precautionary incentive, we also document that firms with lower market valuation or less liquidity are more likely to initiate dividends during periods of high political uncertainty, which is consistent with the catering theory of dividends.","PeriodicalId":189146,"journal":{"name":"FEN: Political Risk & Corporate Finance (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-08-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132554341","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We survey the theoretical literature on market liquidity. The literature traces illiquidity, i.e., the lack of liquidity, to underlying market imperfections. We consider six main imperfections: participation costs, transaction costs, asymmetric information, imperfect competition, funding constraints, and search. We address three questions in the context of each imperfection: (a) how to measure illiquidity, (b) how illiquidity relates to underlying market imperfections and other asset characteristics, and (c) how illiquidity affects expected asset returns. We nest all six imperfections within a common, unified model, and use that model to organize the literature.
{"title":"Theories of Liquidity","authors":"Dimitri Vayanos, Jiang Wang","doi":"10.1561/0500000014","DOIUrl":"https://doi.org/10.1561/0500000014","url":null,"abstract":"We survey the theoretical literature on market liquidity. The literature traces illiquidity, i.e., the lack of liquidity, to underlying market imperfections. We consider six main imperfections: participation costs, transaction costs, asymmetric information, imperfect competition, funding constraints, and search. We address three questions in the context of each imperfection: (a) how to measure illiquidity, (b) how illiquidity relates to underlying market imperfections and other asset characteristics, and (c) how illiquidity affects expected asset returns. We nest all six imperfections within a common, unified model, and use that model to organize the literature.","PeriodicalId":189146,"journal":{"name":"FEN: Political Risk & Corporate Finance (Topic)","volume":"124 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-10-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126869551","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Narjess Boubakri, O. Guedhami, Dev R. Mishra, W. Saffar
Motivated by recent research on the costs and benefits of political connection, we examine the cost of equity capital of politically connected firms. Using propensity score matching models, we find that politically connected firms enjoy a lower cost of equity capital than their non-connected peers. We find further that political connections are more valuable for firms with stronger ties to political power. In additional analyses, we find that the effect of political connection on firms’ equity financing costs is influenced by the prevailing country-level institutional and political environment, and by firm characteristics. Taken together, our findings provide strong evidence that investors require a lower cost of capital for politically connected firms, which suggests that politically connected firms are generally considered less risky than non-connected firms.
{"title":"Political Connections and the Cost of Equity Capital","authors":"Narjess Boubakri, O. Guedhami, Dev R. Mishra, W. Saffar","doi":"10.2139/ssrn.1589688","DOIUrl":"https://doi.org/10.2139/ssrn.1589688","url":null,"abstract":"Motivated by recent research on the costs and benefits of political connection, we examine the cost of equity capital of politically connected firms. Using propensity score matching models, we find that politically connected firms enjoy a lower cost of equity capital than their non-connected peers. We find further that political connections are more valuable for firms with stronger ties to political power. In additional analyses, we find that the effect of political connection on firms’ equity financing costs is influenced by the prevailing country-level institutional and political environment, and by firm characteristics. Taken together, our findings provide strong evidence that investors require a lower cost of capital for politically connected firms, which suggests that politically connected firms are generally considered less risky than non-connected firms.","PeriodicalId":189146,"journal":{"name":"FEN: Political Risk & Corporate Finance (Topic)","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-01-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133549508","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine the intuition that in supermajoritarian settings, polarization and policy-making gridlock are fundamentally linked, but that a pressing common problem can reduce both. When actors' individual costs from a policy addressing such a problem differ, their preferences over the appropriate policy respond asymmetrically to increases in the magnitude of the problem. In a broad range of circumstances such increases can give rise to increased polarization, but may also simultaneously yield net welfare enhancing policy adjustments rather than entrenchment of gridlock. The association of polarization and gridlock is contingent on two underlying factors: how the problem responds to the policy solution, and the location of the status quo policy when the extent of the problem changes. We illustrate the model's logic by comparing U.S. national policy making in the Progressive Era and the present.
{"title":"Common Problems","authors":"S. Gordon, Dimitri Landa","doi":"10.2139/ssrn.2882236","DOIUrl":"https://doi.org/10.2139/ssrn.2882236","url":null,"abstract":"We examine the intuition that in supermajoritarian settings, polarization and policy-making gridlock are fundamentally linked, but that a pressing common problem can reduce both. When actors' individual costs from a policy addressing such a problem differ, their preferences over the appropriate policy respond asymmetrically to increases in the magnitude of the problem. In a broad range of circumstances such increases can give rise to increased polarization, but may also simultaneously yield net welfare enhancing policy adjustments rather than entrenchment of gridlock. The association of polarization and gridlock is contingent on two underlying factors: how the problem responds to the policy solution, and the location of the status quo policy when the extent of the problem changes. We illustrate the model's logic by comparing U.S. national policy making in the Progressive Era and the present.","PeriodicalId":189146,"journal":{"name":"FEN: Political Risk & Corporate Finance (Topic)","volume":"45 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-07-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131827000","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The current global economic development has made it possible for corporate executives to operate anywhere they wish over the world. This opportunity, however, depends on the need and strategy of the company concern. Some companies go into the global market in order to exploit an opportunity that has been identified. Others go global as a market expansion strategy. Others may be due to the fact that the company has reached the maturity stage in its local market, they would have no choice than to go global in order to be in business.Companies have many choices by which they can go into the global market. They may choose importing and exporting, licensing and franchising and by direct foreign investments (DFI), such as joint ventures, minority and/or majority interest and Greenfield operations.Whichever forms the foreign operations take, the local company would be exposed to foreign currency exchange risks. To reduce these risks, the company can make use of natural hedging or using other technical hedging instruments. By natural hedging, the company can choose to bill their foreign customers in the home currency. On the other hand, the multinational company can make use of hedging techniques (derivatives) like spot, forward, futures and options markets. With this strategy, the company can purchase the exchange rate futures or options to purchase some currencies at a future date with the rate set now.Another form of risks faced by the local company in the foreign markets is the country and political risks. The company, however, has the opportunity to design good strategies for handling such risks. Alternatively, the company can take some insurance against some political risks.Though these strategies can help multinational companies to reduce the currency and other risks associated with the foreign operations, they are not complete without obstacles. Trading volume is concentrated in the spot and the forward market than the futures and options and the London International Financial Futures Exchange (LIFFE) and International Monetary Market forms the biggest markets, with the highest volume in the world. Also the volatility of the currency prices in the market as a result of the release of macroeconomic information from the various countries involved in the market.In spite of the drawbacks of the FX market, it remains the best and effective means by which the multinational companies can minimise the FX risks of their international operations.
{"title":"Evaluation of Hedging Techniques as Instruments to Minimise the Impact of Transaction and Translation Risks in Global Business Market","authors":"G. Ekeha","doi":"10.2139/SSRN.1728827","DOIUrl":"https://doi.org/10.2139/SSRN.1728827","url":null,"abstract":"The current global economic development has made it possible for corporate executives to operate anywhere they wish over the world. This opportunity, however, depends on the need and strategy of the company concern. Some companies go into the global market in order to exploit an opportunity that has been identified. Others go global as a market expansion strategy. Others may be due to the fact that the company has reached the maturity stage in its local market, they would have no choice than to go global in order to be in business.Companies have many choices by which they can go into the global market. They may choose importing and exporting, licensing and franchising and by direct foreign investments (DFI), such as joint ventures, minority and/or majority interest and Greenfield operations.Whichever forms the foreign operations take, the local company would be exposed to foreign currency exchange risks. To reduce these risks, the company can make use of natural hedging or using other technical hedging instruments. By natural hedging, the company can choose to bill their foreign customers in the home currency. On the other hand, the multinational company can make use of hedging techniques (derivatives) like spot, forward, futures and options markets. With this strategy, the company can purchase the exchange rate futures or options to purchase some currencies at a future date with the rate set now.Another form of risks faced by the local company in the foreign markets is the country and political risks. The company, however, has the opportunity to design good strategies for handling such risks. Alternatively, the company can take some insurance against some political risks.Though these strategies can help multinational companies to reduce the currency and other risks associated with the foreign operations, they are not complete without obstacles. Trading volume is concentrated in the spot and the forward market than the futures and options and the London International Financial Futures Exchange (LIFFE) and International Monetary Market forms the biggest markets, with the highest volume in the world. Also the volatility of the currency prices in the market as a result of the release of macroeconomic information from the various countries involved in the market.In spite of the drawbacks of the FX market, it remains the best and effective means by which the multinational companies can minimise the FX risks of their international operations.","PeriodicalId":189146,"journal":{"name":"FEN: Political Risk & Corporate Finance (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129727526","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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