http://repub.eur.nl/res/concept/jel-G31/ Recent publications classified by JEL Code G31 en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/37301/ 2012-09-25T00:00:00Z We study risk perception and actual decision-making by the corporate elite, where we consider CEOs, CFOs and non-executives. We collect data for many members of the elite for Netherlands-based companies using the vignettes method. We find that CEOs are more risk tolerant but do not act accordingly by demanding higher returns. CFOs and non-executives are found to be more risk-averse; but, interestingly, only the non-executives demand higher returns more than CEOs do. Differences in demanded returns across CEOs and CFOs are found to be negligible. When decision makers mature and get more experienced, they tend to ask higher returns on investment. For all members of the corporate elite it holds that overconfidence is consistently related to higher risk tolerance, whereas those degrees of overconfidence are similar. Groot, E.A. de Renes, S. Segers, R. Franses, Ph.H.B.F. http://repub.eur.nl/res/pub/32160/ 2012-01-27T00:00:00Z We use earnings forecasts from a cross-sectional model to proxy for cash flow expectations and estimate the implied cost of capital (ICC) for a large sample of firms over 1968-2008. The earnings forecasts generated by the cross-sectional model are superior to analysts' forecasts in terms of coverage, forecast bias, and earnings response coefficient. Moreover, the model-based ICC is a more reliable proxy for expected returns than the ICC based on analysts' forecasts. We present evidence on the cross-sectional relation between firm-level characteristics and ex ante expected returns using the model-based ICC. Hou, K. Dijk, M.A. van Zhang, Y. http://repub.eur.nl/res/pub/19594/ 2010-05-21T00:00:00Z Collaboration between firms in order to coordinate supply chain operations can lead to both strategic and operational benefits. Many advanced forms of collaboration arrangements between firms exist with the aim to coordinate supply chain decisions and to reap these benefits. This dissertation contributes to the understanding of the conditions that are necessary for collaboration in such arrangements and the benefits that can be realized of such collaboration arrangements. This dissertation focuses on the vendor-buyer dyad in the supply chain. We identify and categorize collaboration arrangements that exist in practice, based on a review of the literature and combine this with formal analytical models in the literature. An important factor in the benefits of collaboration is the benefit of reduced costs of transport, by realization of economies of scale in the context of capacity-constrained trucks. As a contribution to the understanding of the dependence of transport costs on the volume transported, we demonstrate how transport tariffs for orders of less-than-a-truckload in size on a single link can be deduced from a basic model. The success of a collaboration arrangement depends on agreement about the distribution of decision authority and collaboration-benefits. We study a collaboration arrangement in which the vendor takes responsibility for managing the buyer's inventory and makes it economically attractive to the buyer by offering a financial incentive, dependent on the maximum level the buyer permits to be stocked. This dissertation demonstrates that this incentive alignment leads to considerable cost savings and near-optimal supply chain decisions. Verheijen, H.J.J. http://repub.eur.nl/res/pub/18125/ 2010-01-29T00:00:00Z This thesis consists of three studies that respectively investigate the stock returns, risk management, and liquidity creation of banks. Chapter 2 focuses on the cross-section of bank stock returns and found that pricing factors such as leverage and beta, shown to be irrelevant to nonfinancial stocks, are important for pricing bank stocks. During the two decades prior to the subprime crisis, banks with high leverage have high stock returns. Beta appears to have a strong and convex relationship with bank stock returns. This chapter generally suggests that bank stocks seem to respond to a different set of pricing factors than other industries. Chapter 3 examines the drivers behind banks’ use of derivatives for hedging. Covering virtually all banks in the U.S. that have used derivative, one key finding of this chapter is that off-balance sheet loan commitment contracts, rather than on-balance sheet loans, determines the use of derivatives for hedging. Since loan commitment contracts are the primary channel of financing for commercial and industrial borrowers, this finding is consistent with the observation during the subprime crisis that the illiquidity of the financial market makes it difficult for firms to refinance their existing loans. Finally the last chapter of this thesis examines the liquidity creation of European banks and its relationship with bank equity capital, market power, and institutional context. Using a unique and comprehensive sample of European banks, this chapter shows that the impact of stronger capital base on bank liquidity creation is strictly negative. This means that capital regulations such as the Basel II Accord are likely to curtail banking activities and slow down economic recovery and growth. Next, this chapter shows that stronger creditor rights coupled with stronger market power reduces liquidity creation in developing countries, and vice versa for developed countries. This finding suggests that due to the less developed legal infrastructure, stronger creditor rights could be counterproductive in facilitating bank liquidity creation in developing countries. Xu, Y. http://repub.eur.nl/res/pub/16710/ 2009-09-04T00:00:00Z Private equity has become an increasingly important part of our economy. Around the world the companies owned by private equity investors account for a substantial percentage of Gross Domestic Product (GDP) and private sector employment. These investors have recently been under fire in the media when they takeover companies. Private equity investors are at best seen as ‘kings of capitalism’ and at worst as ‘barbarians’ and ‘weapons of mass destruction’. The first part of this address contrasts this negative press with what we know about the real effects of private equity from academic studies. In general, private equity seems to be more negatively written about in the media then is warranted based on recent empirical evidence. However, as this address will show the jury is still out on a large number of issues that deserve further attention. One of the issues we know surprisingly little about is the real effects of private equity. Although policymakers are extremely wary of buy-outs, they tend to welcome venture capital investments. They believe that venture capital helps to close the funding gap faced by small high-growth companies that banks are reluctant to finance. The second part of this address discusses recent research that investigates the impact of private equity on the creation of new businesses in Europe. We find that private equity positively impacts the number of start-up firms at the country and industry level. Especially the availability of venture capital to finance these new ventures has a positive impact on new business creation, as many European policymakers assume. Roosenboom, P.G.J. http://repub.eur.nl/res/pub/21276/ 2009-02-01T00:00:00Z We advance the real-option-based empirical analysis of commercial real estate investment in three respects. First, we test several real option implications for real estate construction that have not been examined in the commercial real estate investment literature. In particular and in line with the predictions of real option models, we show that the effects of real interest rate and the expected demand growth on hurdle rent become more negative when the market volatility is greater. Second, we use a cointegrating vector of office employment and office stock to provide a better control of the demand for new construction than traditional indicators based on real estate prices and vacancy rates. Third, whereas the existing studies focus on the U.S. commercial real estate markets, we study two major office markets in Asia, namely Singapore and Hong Kong. We rely on the local stock market in the two city states to derive forward-looking measures of office demand growth expectations. Jennen, M.G.J. Fu, Y. http://repub.eur.nl/res/pub/14312/ 2008-12-18T00:00:00Z This dissertation consists of four empirical studies on firms’ financing decisions. In the first two studies, we investigate the debt-equity choice for a large number of U.S. firms. We find that firms prefer debt financing over equity financing in case a debt issue allows the firm to keep its investment grade rating. When the financing requirement becomes sufficiently large, firms are more likely to choose equity financing. We find that most firms repurchase debt instead of equity in case they have excess funds. The last two studies of this dissertation deal with convertible security design. Since convertible securities combine debt and equity characteristics, the specific structure of these instruments can provide further insight into the relevant costs and benefits of debt and equity. We find that taxes, the costs of refinancing, and the costs of managerial discretion are important drivers of convertible security design. We further find that the desire to manage earnings has been responsible for recent innovations in the convertible market. Convertible arbitrage drives the innovation of combining a convertible issue with a stock repurchase: the stock repurchase serves to mitigate the negative price impact that results from the short sales of arbitrageurs. Verwijmeren, P. http://repub.eur.nl/res/pub/10897/ 2008-01-07T00:00:00Z This paper shows that the presence of conditional staging in R&D (Research & Development) has a critical impact on portfolio risk, and changes diversification arguments when a portfolio is constructed. When R&D projects exhibit option-like characteristics, correlation between projects plays a more complicated role than traditional portfolio diversification would suggest. Real option theory argues that research projects with conditional phases have option-like risk and return properties, and are different from unconditional projects. We show that although the risk of a portfolio always depends on the correlation between projects, a portfolio of conditional R&D projects with real option characteristics has fundamentally different risk than a portfolio of unconditional projects. When conditional R&D projects are negatively correlated, portfolio risk is hardly reduced by diversification. When projects are positively correlated, however, diversification is more effective than these tools predict. Bekkum, S. van Pennings, H.P.G. Smit, J.T.J. http://repub.eur.nl/res/pub/11255/ 2007-09-11T00:00:00Z This paper examines the relation between cash-flow availability and investment spending in The Netherlands. In particular we are interested whether manae for both firms with low and high investment opportunities. It is however significantly larger for firms with low investment opportunities, suggesting that the managerial-discretion problem is most important in the Dutch setting. Effective corporate-governance may reduce this agency problem. Specific to The Netherlands, firms with low shareholder influence posit a higher cash-flow investment sensitivity.The relavnce of asymmetric information is confirmed as smaller firms and firms from information-sensitive industries show a larger cash-flow investment sensitivity. Jong, A. de Degryse, H. http://repub.eur.nl/res/pub/7993/ 2006-10-20T00:00:00Z De accounting literatuur besteedt aanzienlijke aandacht aan de effecten van accounting prestatiemaatstaven op korte-termijn gedrag. Recentelijk is ook de aandacht voor het gebruik van niet-financiële maatstaven, om korte-termijn gedrag onder managers te voorkomen, toegenomen (Balanced Scorecard). Zowel theorie als empirisch bewijs hierover zijn echter beperkt. De bestaande literatuur heeft korte-termijn gedrag veelal gelijkgesteld aan dysfunctioneel gedrag, terwijl de optimale tijdsoriëntatie afhangt van de omstandigheden. Verder lijdt de bestaande literatuur aan een gebrek aan theorie over welke karakteristieken van prestatiemaatstaven van invloed zijn op de tijdsoriëntatie van managers. Dit uit zich bijvoorbeeld in het gebruik van brede categoriëen prestatiemaatstaven, zoals financieel en niet-financieel, zonder een nadere specificatie van het proces waardoor deze categoriëen het gedrag van het management beïnvloeden. Dit proefschrift bouwt voort op de psychologische, economische en accounting literatuur, en analyseert de effecten van karakteristieken van het prestatiemeetsysteem, alsmede variabelen op individueel niveau, op de tijdsoriëntatie van managers. De ontwikkelde hypothesen zijn eerst empirisch getoetst door middel van een vragenlijst, gedistribueerd onder een representatieve groep financieel managers. Daarnaast is een drietal geselecteerde hypothesen, aangaande de gecombineerde effecten van ‘leading indicators’ en de lengte van de evaluatieperiode, aan een aanvullende test middels een experiment onderworpen. De resultaten tonen aan dat zowel variabelen op individueel niveau als karakteristieken van het prestatiemeetsysteem belangrijke voorspellers van de tijdsoriëntatie van managers zijn. Rinsum, M. van http://repub.eur.nl/res/pub/12069/ 2005-05-01T00:00:00Z When a foreign monopolist facing uncertain future demand can either export to a host country or serve the market by undertaking an irreversible foreign direct investment, the host government maximizes net domestic benefits by nearly fully subsidizing the investment cost in combination with taxing away benefits that exceed the gains from exporting. Without the subsidy, maximization of domestic benefits leads to underinvestment from a world welfare point of view. Pennings, H.P.G. http://repub.eur.nl/res/pub/11350/ 2004-12-01T00:00:00Z This paper studies how the use of alternative valuation methodologies affects investment performance for a sample of 53 German venture capitalists. We measure investment performance by the amount of investments they need to write off and by the number of companies they take public. We find that a significant number of investment managers use discounted cash flow (DCF) techniques, but only a minority appears to use a discount rate related to the cost of capital. The majority applies DCF using subjective discount rates. We present evidence that the use of DCF is correlated with superior investment performance only if applied in conjunction with an objectifiable discount rate. Also, funds that invest with a longer horizon perform better. The use of multiples is not significantly correlated with investment performance. We conclude that a focus on fundamental values confers an advantage. Dittmann, I. Maug, E.G. Kemper, J. http://repub.eur.nl/res/pub/1111/ 2004-01-16T00:00:00Z In this paper we present the results of an international survey among 313 CFOs on capital budgeting, cost of capital, capital structure, and corporate governance. We extend previous results of Graham and Harvey (2001) by broadening their sample internationally, by including corporate governance, and by applying multivariate regression analysis. We document interesting insights on how theoretical concepts are applied by professionals in the U.K., the Netherlands, Germany, and France and compare these results with the U.S. We discover compelling variations between large and small firms across all markets. While large firms frequently use present value techniques and the capital asset pricing model when assessing the financial feasibility of an investment opportunity, CFOs of small firms still rely on the payback criterion. Regarding debt policy we document more subtle disparities across firms and national samples. We also find substantial variation in corporate governance structures, which turn out to be more oriented at shareholder wealth in the Anglo-Saxon countries. Corporate finance practice appears to be influenced mostly by firm size, to a lesser extent by shareholder orientation, while national differences are weak at best. Brounen, D. Jong, A. de Koedijk, C.G. http://repub.eur.nl/res/pub/16939/ 2004-01-01T00:00:00Z This paper analyses the cost of capital of firms with foreign equity listings. Our purpose is to shed light on the question whether international and domestic asset pricing models yield a different estimate of the cost of capital for cross-listed stocks. We distinguish between (i) the multifactor ICAPM of Solnik (1979) and Sercu (1980) including both the global market portfolio and exchange rate risk premia and (ii) the single factor domestic CAPM. We test for the significance of the cost of capital differential in a sample of 336 cross-listed stocks from nine countries in the period 1980–99. Our hypothesis is that the cost of capital differential is substantial for firms with international listings, as these are often large multinationals with a strong international orientation. We find that the asset pricing models yield a significantly different estimate of the cost of capital for only 12% of the cross-listed companies. The size of the cost of capital differential is around 50 basis points for the US, 80 basis points for the UK and 100 basis points for France. Koedijk, C.G. Dijk, M.A. van http://repub.eur.nl/res/pub/872/ 2003-05-02T00:00:00Z Antoon Pelsser (1968) is Head of the Asset-Liability Matching department of ING-Insurance. The ALM department advises the board on the optimal asset allocation to cover the insurance liabilities. The department is also responsible for the calculation of market values and risk measures of insurance contracts. He also holds a part-time position as Professor of Mathematical Finance at the Econometric Institute at the Erasmus University in Rotterdam. His research interests focus on pricing models for interest rate derivatives, the pricing of insurance contracts and Asset-Liability Management of insurance contracts. He has published in several academic journals including Finance and Stochastics, Journal of Derivatives, European Journal of Operational Research and European Finance Review. He is also author of the book Efficient Methods for Valuing Interest Rate Derivatives, published by Springer Verlag. Pelsser, A.A.J. http://repub.eur.nl/res/pub/255/ 2002-11-19T00:00:00Z Hedge funds databases are typically subject to high attrition rates because of fund termination and self-selection. Even when all funds are included up to their last available return, one cannot prevent that ex post conditioning biases a.ect standard estimates of performance persistence. In this paper we analyze the persistence in the performance of U.S. hedge funds taking into account look-ahead bias (multi-period sampling bias). To do so, we model attrition of hedge funds and analyze how it depends upon historical performance. Next, we use a weighting procedure that eliminates look-ahead bias in measures for performance persistence. The results show that the impact of look-ahead bias is quite severe, even though positive and negative survival-related biases are sometimes suggested to cancel out. At horizons of one and four quarters, we find clear evidence of positive persistence in hedge fund returns, also after correcting for investment style. At the two-year horizon, past winning funds tend to perform poorly in the future. Baquero, G. Horst, J.R. ter Verbeek, M.J.C.M. http://repub.eur.nl/res/pub/249/ 2002-10-29T00:00:00Z International financial markets are becoming integrated. Hence, global risk factor are increasingly important for portfolio selection and asset pricing. The recent empirical finance literature has confirmed that both the global market portfolio and exchange rate risk factors constitute important determinants of asset returns. We show, however, that global risk factors do not importantly affect estimates of the cost of equity capital for a remarkably wide variety of companies. We analyze almost 3,300 stocks from nine industrialized countries over the period 1980-1999. Incorporating global factors into cost of capital estimations leads to an adjustment of roughly 50 basis points per annum on average for the U.S. and 70 to 100 basis points for the other countries. Adjustments of this magnitude easily fall inside the margin of error associated with actual cost of capital computations. Specifically for U.S. companies, the amendment of the cost of capital estimate is generally very small. This suggests that global risk factors do not really matter for computing the cost of capital of U.S. firms. Koedijk, C.G. Dijk, M.A. van http://repub.eur.nl/res/pub/250/ 2002-10-29T00:00:00Z This paper analyzes the cost of capital of firms with foreign equity listings. Our purpose is to shed light on the question whether international and domestic asset pricing models yield a different estimate of the cost of capital for cross-listed stocks. We distinguish between (i) the multifactor ICAPM of Solnik (1983) and Sercu (1980) including both the global market portfolio and exchange rate risk premia, and (ii) the single factor domestic CAPM. We test for the significance of the cost of capital differential in a sample of 336 cross-listed stocks from nine countries in the period 1980-1999. Our hypothesis is that the cost of capital differential is substantial for firms with international listings, as these are often large multinationals with a strong international orientation. We find that the asset pricing models yield a significantly different estimate of the cost of capital for only 12 percent of the cross-listed companies. The size of the cost of capital differential is around 50 basis points for the U.S., 80 basis points for the U.K., and 100 basis points for France. Koedijk, C.G. Dijk, M.A. van http://repub.eur.nl/res/pub/222/ 2002-09-09T00:00:00Z This paper focuses on the development of entrepreneurial orientation (EO) after a management buy-out (MBO) and on the role played by venture capital firms in enhancing EO. It presents results of two exploratory case studies of divisional buy-outs with regard to their EO and the areas where the venture capital firm (VC) has been of greatest help. We discuss their contribution to elements of the EO of the buy-out firm. The key output is expected to be a better understanding of the functioning and operations of the VC with regard to their contribution to the EO of the firm after an MBO. This will also benefit the management team that seeks venture capital support to improve the firm?s economic performance by using its upside potential. Bruining, J. Wright, D.M. http://repub.eur.nl/res/pub/6797/ 2002-08-09T00:00:00Z One of the debates in the capital budgeting model selection is between the free cash flow and DCF methods. In this paper an attempt is made to compare SVA against NPV model based on Monte Carlo simulations. Accordingly, NPV is found less sensitive to value driver variations and has got higher forecast errors as compared to SVA model. Akalu, M.M. Turner, J.R.