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Explores how financial markets are used to manage risk and allocate scarce resources over time and space. Topics covered may include: bond pricing, time and risk preferences, the capital asset pricing model, the efficient markets hypothesis, anomalies and proposed explanations in asset pricing, the Modigliani-Miller theorem, and agency issues within firms. Presentation of material will be grounded in economic theory.

Presents a historical and theoretical overview of financial crises. Covers models of exchange-rate crises, sovereign debt crises, and banking crises. A particular focus on the financial crisis of , with close readings of contemporary accounts on the origins and propagation mechanisms linking this crisis to the Great Recession. Focuses on the core economic aspects of the EU integration while taking into account historical and political influences. Major contemporary macroeconomic issues like monetary unification, fiscal policy in a monetary union, theory of customs unions, labor markets and migration, and financial markets and EU crises analyzed through theoretical approaches and empirical evidence.

Many standard economic models assume perfect and complete information. The economics of information explores how economic phenomena can be better understood by relaxing this assumption. Develops and uses selected tools from probability theory and game theory. Considers the history of American enterprise over the past two centuries. First examines key issues in the economics of the firm, entrepreneurship, and innovation during the nineteenth century the period of the second industrial revolution.

Then addresses these issues from a more recent perspective the so-called third industrial revolution. An intermediate-level study of contemporary microeconomic theory. Analysis of the theory of resource allocation and distribution, with major emphasis on systems of markets and prices as a social mechanism for making resource allocation decisions.

Topics include the theory of individual choice and demand, the theory of the firm, market equilibrium under competition and monopoly, general equilibrium theory, and welfare economics. An intermediate-level study of contemporary national income, employment, and inflation theory. Consumption, investment, government receipts, government expenditures, money, and interest rates are examined for their determinants, interrelationships, and role in determining the level of aggregate economic activity. Policy implications are drawn from the analysis.

An introduction to the data and statistical methods used in economics. A review of the systems that generate economic data and the accuracy of such data is followed by an examination of the statistical methods used in testing the hypotheses of economic theory, both micro- and macro-. Probability, random variables and their distributions, methods of estimating parameters, hypothesis testing, regression, and correlation are covered. The application of multiple regression to economic problems is stressed.

Students who have taken Mathematics are encouraged to take Economics instead of this course. Highlights applied research methods in microeconomics. While topics of Chinese economic life and economic models of migration are studied, primarily focuses on methods: how applied researchers work with data to analyze a set of questions. Elementary statistics is a prerequisite. Statistical techniques beyond the elementary level are taught.

An introduction to the economics of finance using the tools of intermediate microeconomic theory. Explores the economic role of financial markets in determining the price of risk, allocating capital across space, and moving economic value through time.

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Particular emphasis on questions of market efficiency and social usefulness. Topics likely to include choice under uncertainty, the time value of money, portfolio optimization, the Capital Asset Pricing Model, the Efficient Market Hypothesis, options and derivatives, and the Modigliani- Miller Theorem. Not open to students with credit for Economics taken in the fall or fall semesters.

Provides hands-on practice of financial theory using financial modeling. Addresses real-life financial problems using Excel and VBA. Topics include arbitrage pricing theory, capital asset pricing model, portfolio selection, fixed income securities, and option pricing. Builds on materials covered in Economics A rigorous introduction to mathematical game theory, the theory of strategic behavior.

Topics include dominance, rationalinability, pure and mixed strategy Nash equilibrium, sequential and repeated games, subgame perfect equilibrium, bargaining, and games of incomplete information. Applications to business, politics, and sports discussed. A survey of some of the mathematical techniques used to conduct economic analyses. Topics include utility maximization under uncertainty; solving constrained optimization problems with mathematical programming; optimal control theory; solving complex equations and systems of equations with numerical methods; dynamic programming; and general equilibrium analysis.

Offers a theoretical and empirical analysis of international trade. Addresses the globalization debate; and the relation between trade, growth, and productivity. Particular attention is given to the standard models of trade: the Ricardian model, the Heckscher- Ohlin model, the specific factors model, the monopolistic competition model, and the model of heterogeneous firms and trade. Data analysis is used in order to evaluate the success or shortcomings of the theoretical models. Surveys a number of topics in international finance and international macroeconomics, including balance of payments, exchange rate determination, the Mundell-Fleming model of output and exchange rate, exchange rate regimes, international capital flows, and international financial crises.

Involves data analysis to empirically evaluate the theoretical models. Also provides a special focus on Asia by discussing issues such as Asia's role in the global imbalances, China's exchange rate regime, and the currency carry trade associated with the Japanese Yen. How to measure the effectiveness of public policy programs. Covers the basics of cost-benefit analysis and modern empirical methods used to measure and evaluate impacts of public programs.

Examines the strengths and limitations of randomized control experiments, natural experiments, and non- experimental observational designs with applications to education, health, public assistance, and labor market policies. A study of the mathematical formulation of economic models and the statistical methods of testing them.

A detailed examination of the general linear regression model, its assumptions, and its extensions. Applications to both micro- and macroeconomics are considered. Though most of the course deals with single-equation models, an introduction to the estimation of systems of equations is included. An empirical research paper is required. Theoretical and empirical analysis of selected microeconomic issues within the context of developing countries.

Has a dual focus on modeling household decisions and on the effects of government policy and intervention on household behavior and well-being. Topics include agricultural production, land use systems, technology and credit markets, household labor allocation and migration, investment in education and health, and income inequality.

Analysis of the economic forces that shape land-use patterns, the relationship between land-use patterns and ecosystem service provision and biodiversity persistence, and the economic value of ecosystem service provision. Investigates methods for increasing ecosystem service values on the landscape and the economic cost of these methods. Analysis of land-use externalities and the failure of land-use patterns to generate maximum societal net benefits; neoclassical economic theory on land-use; methods for estimating market value of land; methods of non-market valuation; efficient land-use patterns from a societal perspective; methods for finding efficient land-use patterns; and governmental and non- governmental organization land conservation programs.

Offers both theoretical and empirical analyses of macro determinants of economic growth. Explores the role of such key factors as the accumulation of physical capital and human capital, productivity and technology, natural resources, openness to trade and capital flow, institutions, culture, and geography. Microeconomic analysis of the family, gender roles, and related institutions. A survey of competing theories of the business cycle, empirical tests of cycle theories, and appropriate macro stabilization policies. Not surprisingly, CAPM contributed to the rise in the use of indexing —assembling a portfolio of shares to mimic a particular market or asset class—by risk-averse investors.

This is largely due to CAPM's message that it is only possible to earn higher returns than those of the market as a whole by taking on higher risk beta. The capital asset pricing model is by no means a perfect theory. But the spirit of CAPM is correct. It provides a useful measure that helps investors determine what return they deserve on an investment, in exchange for putting their money at risk on it.

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Interest rates, recessions, and wars are examples of systematic risks. In more technical terms, it represents the component of a stock's return that is not correlated with general market moves. Here is the formula:. Compare Investment Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.

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Related Articles. Arbitrage Pricing Theory: What's the Difference? Based on the mean values of long-term debt to total assets i. The analysis also suggests that large and small firms have particular difficulty accessing long-term debt finance with low and declining leverage ratios.

No doubt this is partly the result of low prospective profitability of the firms. Moreover, the standard deviation of the second measure of leverage 0. This observation predicts that companies in every stock market do not reflect large differences in their long-term debt holdings. If we split total liabilities into long term and current liabilities, the figures 8.

This reveals a salient fact that Nigerian firms are either financed by equity capital or a mix of equity capital and short-term financing i. This presents a great disparity between firms in profitability. This result reveals that companies under review will prefer less debts and more equity. With respect to tangibility fixed assets divided by total assets , it was discovered that fixed assets represent about This indicates that the bulk of companies assets quoted on the Nigerian Stock Exchange This may be logical since the bulk of debt obligations of such companies come in the form of short-term debts.

This may indicate a sound management principle of matching short-term debts with short-term assets. The mean of Growth prospect is This indicates high rate of growth prospect for the sample of listed companies under study. It is worthy of note to point out that this growth in size has not really translated to more profitable results. Considering the standard deviation SD which measures the level of variation or degree of dispersion of the variables from their mean reveals that the most volatile least stable of the variables is profitability with an S.

The probability of all the variables is an indication that all of them are individually significant in the equation. From Table 2 , it could be seen that the correlation between total liabilities LEV1 and other explanatory variables shows a positive correlation, which ranges between 8. However, it is negatively correlated with the growth opportunities GROW and whose degree of association is Long-term liabilities LEV2 is negatively correlated with profitability These results support the descriptive statistics results, which show that the mean value of LEV2 is 8.

The degree of association ranges between 5. As shown above profitability has a positive correlation with LEV1 at There is a negative relationship between growth opportunities GROW and the three debt elements. The degree of association ranges between Non-debt tax shield NDTS also has positive correlation with the three debt elements. Hence, from the above analysis, it can be deduced that the degree of associations are very weak, because the coefficients are very low. However, it is important to emphasize that the descriptive statistics and correlation analysis only indicate the associate link between variables.

They do not necessary establish a causal relationship, even with high coefficients.

An Empirical Analysis of Asset-Backed Securitization

Consequently, a more rigorous and advance econometrics technique is required to adequately capture definite causal nexus between the capital structure leverage and explanatory variables. These are addressed in the subsequent sections in this chapter. Also, as it can be observed in Table 2 , the correlation coefficients are not sufficiently large to cause collinearity problems in the regressions. The analysis of the individual leverage elements in Table 3 - 5 under pooled OLS reveal a series of equations that are significant at one percent level and five percent level. Although the adjusted R 2 measure differs significantly among them, from a low of 8.

The results of the fixed effects in Tables 3 - 5 for all the debts elements suggest that the explanatory powers of the regressions are higher. The adjusted R 2 is satisfactory in all the cases. The adjusted R 2 is 0. The F-values are also significant in all the three models in Table 3 - 5. The Hausman test indicates that the fixed effect model should be used. These results suggest that profitable firms initially rely on less costly internally generated funds and subsequently look out for external finances if additional funds are needed.

It is expected that more profitable firms will require less debt finance. Moreover, the negative relationship between leverage and profitability is consistent with the underdeveloped bonds market in all markets. This result is consistent with the previous studies.

For instance, Toy et al. This negative correlation between asset structure and short-term debt ratio means that short-term debts current liabilities are used to finance non-fixed assets, consisting basically current assets. This is the so-called maturity matching principle from Brealey and Myers , which was reflected in hypothesis 2C that is clearly accepted. Hence, these results support the collateral explanation in the case of long-term debt LEV2 and the maturity matching principle in the case of short-term debts LEV3.

The results also suggest that firms use tangible assets as collateral when negotiating borrowing, especially long-term borrowing. It is notable, however, that at the aggregate level, total debt LEV1 was found to be negatively correlated with tangibility under pooled OLS, but not significant. This result confirms prior finding by Bervan and Daubolt These results indicate that firms with growth opportunities tend to hold more debt. This result agrees with the previous findings by Chittenden et al. It is probably the case that companies with good investment growth opportunities are not really worried about their leverage higher ratios because they feel they can get the debt finance whenever they need it.

This result implies that Nigerian companies with growth opportunities tend to have high leverage ratios. Moreover, when the analysis controls for firm-specific time-invariant heterogeneity under fixed effect model. The panel data estimation under the three models gives a negative correlation between growth and long-term debts ratio LEV2. The negative sign of growth at the aggregate long-term debt confirms that firms in Nigeria with growth opportunities contract less of long-term debt.

Rajan and Zingales argue that due to the Myers and Majhif under-investment problem, firms expecting high future growth should use a greater amount of equity finance, thus suggesting a negative relationship between expected growth and leverage. Therefore, Nigerian companies contact more of short-term liabilities and less of long-term debt. This result supports the outcome of descriptive statistics in Table 1.

This finding is consistent with the study of Bervan and Daubolt He finds a negative correlation between growth and long-term debt, but finds total debts to be positively related to the level of growth opportunities. On the other, he finds short-term debt to be positively related to growth opportunities.

Overall, the level of growth opportunities appears to have little influence on the level of leverage. In the panel data estimations, the evidence indicates that the size SIZ of firms has positive effect on their total debts ratio LEV1 suggesting that large firms can better support higher debt ratios than small firms.

The pooled OLS identified a strongest statistics response t-test of 7. This result suggests that size determines firm capital structure for Nigerian companies. This result is consistent with the previous study by Berger et al.

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They find the positive relationship between leverage LEV1 and company size to hold regardless of whether the regressions are estimated using OLS, fixed effects or random effects panel estimation. This may result from large firms being perceived to have lower risk of default. The results also reveal a negative relationship between size and long-term debt ratio under pooled OLS, fixed effect and random effect estimations.

The coefficients The negative coefficients of the size variable in relation to long-term debt is in line with the prediction that small firms are more vulnerable to a liquidation risk when they are in financial distress, since banks are generally tougher against small firms. However, the negative coefficient of size under long-term debts ratio, might again be taken as evidence for the pecking order theory, which predicts that internal finance is preferred over external finance.


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On the other hand, alternative tax shield, that is, Non-Debt Tax NDTS Seems to be positively related with debt ratios regardless of whether the regressions are estimated using pooled OLS, fixed effects or random effects panel estimation. However, this relationship is not in accordance with theoretical prediction and shows non-debt tax shields as not substitutes to debt related tax shield. Non-debt tax shield is a positive and significant determinant of capital structure for firms operating in countries that do not have a tax system.

This is inconsistent with the tax hypothesis but may be due to NDTS proxying for collateral. In these results, the dividend DIV variable is accompanied by a positive coefficient for both total debts and long-term debt ratios. This seems to suggest that companies with low payout ratios are more likely to issue equity than debt. The results for short-term debt ratio are positive and significant under pooled OLS result.

This can be explained by the fact that dividend-paying firms need immediate cash, especially when their profits are limited. The best and fastest source for short-term cash is short-term bank loans. This is further supported by the fact that most of the Nigerian firms debt is in the form of short-term liabilities. This study examines an empirical analysis of the capital structure of selected quoted companies in Nigeria between and The analyses are performed using panel data. The results of this study further confirm some prior findings and extend the analysis using additional firm characteristics such as non-debt tax shields, dividend and a decomposition analysis of firm leverage.

In particular the robust fixed effects model and pooled OLS model suggest the following relationship between capital structure leverages and explanatory variables. One, the result shows that debt financing for quoted companies in the sample correspond mainly to a short-term nature. The major conclusion from this result is that listed firms rely heavily on equity and short-term bank financing. In addition, access to long-term debt is severely limited among all firms.

Based on the data availability, six potential determinants of capital structure are analyzed in this study- profitability, tangibility, growth opportunity, size, non-debt tax shields and dividend. Considering the results for all the firms, leverage is negatively correlated with profitability, but leverage is positively correlated with profitability of the large firms. However, the level of long-term debts components is negatively related to the level of growth opportunities. Overall, the level of growth opportunities appears to have little influence on the level of leverage i.

The level of long-term debt is negatively related to company size. The non-debt tax shields and dividend are positively correlated with leverage. The overall result for all the firms is consistent with pecking order theory semi-strong pecking order theory. Thus, the results from this study have important implications for financial stability as higher ratios of short-term debt to total debt makes the corporate sector highly vulnerable to changes in economic conditions and may increase the economy wide impact of a financial crisis.

Even though short-term financing is cheaper than long-term financing, they are riskier for a number of reasons; one, if a firm borrows on a long-term basis, its interest costs will be relatively stable over time, but if it uses short-term loans its interest expense will fluctuate widely, at times going quite high. Two, if a firm borrows heavily on a short-term basis; a temporary recession may render it unable to repay this debt. If the firm is in a weak financial position, lenders may not extend the loan, which could force the firm into bankruptcy.

The following recommendations are made.

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One, policymakers in Nigeria should take appropriate steps to lengthen the maturity structure of corporate debt. Two, government should pursue sectoral allocation of credit in favour of firms in Nigeria.


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