S. Carbó-Valverde, Gregory F. Udell, Francisco Rodríguez-Fernández
Some studies find that market power is associated with credit availability (information hypothesis); others find that less competitive banking markets lead to more credit rationing (market power hypothesis). Empirical research has relied solely on concentration as a measure of market power. The industrial organization literature, however, argues that a structural competition indicator such as the Lerner index is a superior measure. We test the information hypothesis and the market power hypothesis using these two alternative measures of market power and find that they generally give conflicting results. However, we also offer evidence suggesting that both views can be reconciled. Copyright 2009, Oxford University Press.
{"title":"Bank Market Power and SME Financing Constraints","authors":"S. Carbó-Valverde, Gregory F. Udell, Francisco Rodríguez-Fernández","doi":"10.2139/ssrn.910226","DOIUrl":"https://doi.org/10.2139/ssrn.910226","url":null,"abstract":"Some studies find that market power is associated with credit availability (information hypothesis); others find that less competitive banking markets lead to more credit rationing (market power hypothesis). Empirical research has relied solely on concentration as a measure of market power. The industrial organization literature, however, argues that a structural competition indicator such as the Lerner index is a superior measure. We test the information hypothesis and the market power hypothesis using these two alternative measures of market power and find that they generally give conflicting results. However, we also offer evidence suggesting that both views can be reconciled. Copyright 2009, Oxford University Press.","PeriodicalId":308975,"journal":{"name":"EFA 2006 Zurich Meetings (Archive)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129673932","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}
When firms raise equity capital through initial public offerings (IPOs), do the managers act rationally? Recently Loughran and Ritter (2002) argued that some IPO issuers become "complacent" on receiving "good news", and that such issuers do not negotiate optimally. In this paper, I show that, upon observing good news, managers strategically select certain option quantities to their advantage. These options have a positive payoff only if the underlying IPO shares are underpriced. The evidence does not corroborate that managers become complacent upon observing good news. For the underpriced IPOs, potential payoff or recovery from the option is approximately 4 million dollars on average. Competition among underwriters reduces friction and improves the recovery rate while top ranked IPO underwriters with primarily institutional clients have the opposite impact. Finally, negotiated outcome for the option term is superior when interests of the directors and managers are aligned and less favorable when the directors have incentive but the managers do not. This may be construed as a weak evidence of effort based agency problem.
{"title":"Managerial Rationality and Agency Problem in the IPO Market","authors":"R. Ray","doi":"10.2139/ssrn.907320","DOIUrl":"https://doi.org/10.2139/ssrn.907320","url":null,"abstract":"When firms raise equity capital through initial public offerings (IPOs), do the managers act rationally? Recently Loughran and Ritter (2002) argued that some IPO issuers become \"complacent\" on receiving \"good news\", and that such issuers do not negotiate optimally. In this paper, I show that, upon observing good news, managers strategically select certain option quantities to their advantage. These options have a positive payoff only if the underlying IPO shares are underpriced. The evidence does not corroborate that managers become complacent upon observing good news. For the underpriced IPOs, potential payoff or recovery from the option is approximately 4 million dollars on average. Competition among underwriters reduces friction and improves the recovery rate while top ranked IPO underwriters with primarily institutional clients have the opposite impact. Finally, negotiated outcome for the option term is superior when interests of the directors and managers are aligned and less favorable when the directors have incentive but the managers do not. This may be construed as a weak evidence of effort based agency problem.","PeriodicalId":308975,"journal":{"name":"EFA 2006 Zurich Meetings (Archive)","volume":"221 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-05-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121565681","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}
Most papers in equity return prediction rely on the assumption that coefficients in linear predictive models are constant over time. We question and relax this assumption and find strong empirical support for the validity of models allowing for time varying regression coefficients. Analyzing model uncertainty, we document that uncertainty about the level of time-variation in coefficients and uncertainty about the choice of predictive variables are equally important sources of predictive variance. Furthermore, we document out-of-sample predictability of the average and individual predictive models. Most importantly, only individual predictive models with time-varying coefficients show out-of-sample predictability across all periods of time.
{"title":"Equity Return Prediction: Are Coefficients Time-Varying?","authors":"Thomas Dangl, M. Halling, Otto Randl","doi":"10.2139/ssrn.887780","DOIUrl":"https://doi.org/10.2139/ssrn.887780","url":null,"abstract":"Most papers in equity return prediction rely on the assumption that coefficients in linear predictive models are constant over time. We question and relax this assumption and find strong empirical support for the validity of models allowing for time varying regression coefficients. Analyzing model uncertainty, we document that uncertainty about the level of time-variation in coefficients and uncertainty about the choice of predictive variables are equally important sources of predictive variance. Furthermore, we document out-of-sample predictability of the average and individual predictive models. Most importantly, only individual predictive models with time-varying coefficients show out-of-sample predictability across all periods of time.","PeriodicalId":308975,"journal":{"name":"EFA 2006 Zurich Meetings (Archive)","volume":"25 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123614497","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 overvaluation hypothesis (Miller 1977) predicts that a) stocks are overvalued when there are short selling restrictions and that b) the overvaluation is increasing in the degree of divergence of opinion. We design an experiment that allows us to test these predictions in the laboratory. Our results support the hypothesis that prices are higher in the presence of short selling constraints. The overvaluation does not depend on the degree of divergence of opinion.
{"title":"Short Sale Constraints, Divergence of Opinion and Asset Values: Evidence from the Laboratory","authors":"Gerlinde Fellner-Röhling, E. Theissen","doi":"10.2139/ssrn.905270","DOIUrl":"https://doi.org/10.2139/ssrn.905270","url":null,"abstract":"The overvaluation hypothesis (Miller 1977) predicts that a) stocks are overvalued when there are short selling restrictions and that b) the overvaluation is increasing in the degree of divergence of opinion. We design an experiment that allows us to test these predictions in the laboratory. Our results support the hypothesis that prices are higher in the presence of short selling constraints. The overvaluation does not depend on the degree of divergence of opinion.","PeriodicalId":308975,"journal":{"name":"EFA 2006 Zurich Meetings (Archive)","volume":"49 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123986750","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 examines the reliability of information provided by certification intermediaries, such as rating agencies in the context of both a monopolistic and a duopolistic certification industry. It demonstrates that, in a simple model where the intermediary is concerned about reputation and there is asymmetric information on her ability, the certification intermediary may ignore private information about the quality of the firm and decide instead to conform to the public information. It also shows that an intermediary perceived by the other agents as more talented chooses to act more conservatively by sending unfavourable reports more frequently. However, incentives to send out unfavourable reports and to conform with public information are mitigated by competition in the certification industry. The paper provides a theoretical explanation based on reputational concerns for why a rating agency may exhibit excess sensitivity to the business cycle and for differences in ratings across agencies.
{"title":"Conformity and Competition in Financial Certification","authors":"Beatriz Mariano","doi":"10.2139/ssrn.906462","DOIUrl":"https://doi.org/10.2139/ssrn.906462","url":null,"abstract":"This paper examines the reliability of information provided by certification intermediaries, such as rating agencies in the context of both a monopolistic and a duopolistic certification industry. It demonstrates that, in a simple model where the intermediary is concerned about reputation and there is asymmetric information on her ability, the certification intermediary may ignore private information about the quality of the firm and decide instead to conform to the public information. It also shows that an intermediary perceived by the other agents as more talented chooses to act more conservatively by sending unfavourable reports more frequently. However, incentives to send out unfavourable reports and to conform with public information are mitigated by competition in the certification industry. The paper provides a theoretical explanation based on reputational concerns for why a rating agency may exhibit excess sensitivity to the business cycle and for differences in ratings across agencies.","PeriodicalId":308975,"journal":{"name":"EFA 2006 Zurich Meetings (Archive)","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126379238","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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