technological specialization and the decline of diversified firms we document a strong decline in corporate diversification activity since the late 1970s and we develop a dynamic model that explains this pattern both qualitatively and quantitatively the key feature of the model is that synergies endogenously decline with technological specialization leading to fewer diversified firms in equilibrium the model further predicts that segments inside a conglomerate should become more related over time which is consistent with the data finally the calibrated model also matches other empirical magnitudes well output growth rate market to book ratios diversification discount frequency and returns of diversifying mergers and frequency of refocusing activity

quantile dependence of oil price movements and stock returns we examine the impact of quantile and interquantile oil price movements on different stock return quantiles by testing the hypothesis of equality in conditional and unconditional quantile distribution functions of stock returns we capture quantile dependence under different stock market conditions while taking into account different kinds of oil price movements by computing unconditional and conditional stock return quantiles through marginal models for stock returns and copula functions for oil stock dependence analyzing stock return data for three developed economies the us the uk and the european monetary union and the five brics countries brazil russia india china and south africa for 2000 to 2014 our results indicate that 1 the impact of extreme upward and downward oil price changes on upper and lower stock price quantiles was much smaller before compared to after crisis onset 2 the downside spillover effects were larger than the upside spillover effects for most countries before crisis onset and for all countries after crisis onset and 3 small positive and negative oil price movements had no impact on any stock return quantiles neither before nor after crisis onset

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

internal capital markets and the competition for corporate resources this article examines the role of corporate headquarters in allocating scarce resources to competing projects in an internal capital market unlike a bank headquarters has control rights that enable it to engage in winner picking the practice of actively shifting funds from one project to another by doing a good job in the winner picking dimension headquarters can create value even when it cannot help at all to relax overall firm wide credit constraints the model implies that internal capital markets may sometimes function more efficiently when headquarters oversees a small and focused set of projects this article analyzes the process by which internal capital markets channel limited resources to different uses inside a company in so doing it seeks to address two related sets of questions first what is the fundamental economic rationale for creating an internal capital market that is under what circumstances can it make sense to combine several technologically distinct projects under one roof and have them seek funding from corporate headquarters as opposed to setting them up as stand alone companies that each raise external financing on their own second given this rationale what is the optimal size and scope of an internal capital market should headquarters be involved in funding a large number of projects or just a few and should these projects be unrelated to one another or in similar lines of business the answers to both sets of questions flow from the insight that in a credit constrained setting where not all positive npv projects can be financed headquarters can create value by actively reallocating scarce funds across projects for example the cash flow generated by one division s activities may be taken and spent on investment in another division where the returns are higher or alternatively one division s assets may be used as collateral to raise financing that is then diverted to the other division simply put individual projects must compete for the scarce funds and headquarters job is to pick the winners and losers in this competition

oil prices and the stock prices of alternative energy companies energy security issues coupled with increased concern over the natural environment are driving factors behind oil price movements while it is widely accepted that rising oil prices are good for the financial performance of alternative energy companies there has been relatively little statistical work done to measure just how sensitive the financial performance of alternative energy companies are to changes in oil prices in this paper a four variable vector autoregression model is developed and estimated in order to investigate the empirical relationship between alternative energy stock prices technology stock prices oil prices and interest rates our results show technology stock prices and oil prices each individually granger cause the stock prices of alternative energy companies simulation results show that a shock to technology stock prices has a larger impact on alternative energy stock prices than does a shock to oil prices these results should be of use to investors managers and policy makers

is it inefficient investment that causes the diversification discount diversified conglomerates are valued less than matched portfolios of pure play firms recent studies find that this diversification discount results from conglomerates inefficient allocation of capital expenditures across divisions much of this work uses tobin s q as a proxy for investment opportunities therefore hypothesizing that q is a good proxy this paper treats measurement error in q using a measurement error consistent estimator on the sorts regressions in the literature i find no evidence of inefficient allocation of investment the results in the literature appear to be artifacts of measurement error and of the correlation between investment opportunities and liquidity diversif ied conglomerates appear to trade at a discount relative to matched portfolios of pure play firms studies documenting this stylized fact include lang and stulz 1994 berger and ofek 1995 comment and jarrell 1995 and servaes 1996 recent empirical work has sought to find the source of this diversification discount building on the theoretical work in milgrom and roberts 1990 stein 1997 and scharfstein and stein 2000 on the inefficiency of internal capital markets this literature has asked specifically whether diversified firms allocate their capital expenditures inefficiently across divisions the canonical answer has been yes and has been supported by two types of evidence first studies such as lamont 1997 shin and stulz 1998 shin and park 1998 and rajan servaes and zingales 2000 all find that internal capital markets in conglomerates transfer funds across divisions in a suboptimal manner second studies such as berger and ofek and scharfstein 1998 provide evidence suggesting that the divisions of conglomerates do not respond adequately to investment opportunities in comparison to single segment firms however these findings about divisional investment may be an artifact of measurement error most of these studies rely on tobin s q the market value of the capital stock divided by its replacement value as a proxy for investment opportunities and tobin s q is likely to be a poor proxy shin and stulz

a trade off theory of ownership and capital structure abstract this paper determines the optimal ownership share held by a unit into a second unit when both face a tax bankruptcy trade off full ownership is optimal when the first unit has positive debt because dividends help avoid its default positive debt is in turn optimal when its corporate tax rate exceeds a threshold and or thin capitalization rules place an upper limit on the debt level in the second unit and or the volcker rule bans bailout transfers to the second unit full ownership is no longer optimal only if there is a tax on intercorporate dividend this theory rationalizes observations on multinationals financial conglomerates and family groups

resource allocation within firms and financial market dislocation evidence from diversified conglomerates we argue and demonstrate that resource allocation within firms internal capital markets provides an important force countervailing financial market dislocation we estimate a structural model of internal capital markets to separately identify and quantify the forces driving the reallocation decision and illustrate how these forces interact with external capital market stress the weaker stronger division obtains too much little capital as though it is 12 9 more less productive than it really is out of sample simulated data are consistent with the actual data showing that internal capital markets offset financial market stress during the recent financial crisis by 16 30

corporate diversification and credit constraints real effects across the business cycle we study whether differences in access to credit cause focused firms to perform differently from diversified firms in the product market prior work has identified binding credit constraints for bank dependent firms during recessions we assess whether corporate diversification alleviates these constraints we find that during recessions sales growth rates drop more for bank dependent focused firms than for rival segments of bank dependent diversified firms we also find that during recessions inventory growth rates drop more for bank dependent focused firms than for bank dependent diversified firms even after we control for contemporaneous sales growth consistent with a credit constraint explanation we find no difference in the sensitivities to recessions of bank independent focused and bank independent diversified firms jel g30 g31 g32 copyright 2006 oxford university press

how do the stock prices of new energy and fossil fuel companies correlate evidence from china abstract this study documents the return and volatility spillover effect between the stock prices of chinese new energy and fossil fuel companies using the asymmetric bekk model based on daily samples taken from august 30 2006 to september 11 2012 the dynamics of new energy fossil fuel stock spillover are found to be significant and asymmetric compared with positive news negative news about new energy and fossil fuel stock returns leads to larger return changes in their counter assets news about both new energy and fossil fuel stock returns spills over into variances of their counter assets and the volatility spillovers depend complexly on the respective signs of the return shocks of each asset the empirical results demonstrate that new energy and fossil fuel stocks are generally viewed as competing assets that positive news about new energy stocks could affect the attractiveness of fossil fuel stocks and that new energy stock investment is more speculative and riskier than fossil fuel stock investment these results have potential implications for asset allocation financial risk management and energy policymaking

oil shocks and their impact on energy related stocks in china abstract this paper contributes to the current literature by adopting time varying conditional correlation and asset pricing models to discover how the dynamics of international oil prices affect energy related stock returns in china after conditioning for structural instability the results show a much stronger relation following the 2008 financial crisis we argue that this reflects the fact that investors in the chinese stock market especially for energy related stocks are more sensitive to the shocks in international crude oil market

deposit competition and financial fragility evidence from the us banking sector preliminary and incomplete please do not cite without permission we develop and estimate an empirical model of the u s banking sector using a new data set covering the largest u s banks over the period 2002 2013 our model incorporates insured depositors and run prone uninsured depositors who have rich preferences over dierentiated banks banks compete for deposits in the spirit of matutes and vives 1996 and can endogenously default we estimate demand for uninsured

the impact of energy prices on clean energy stock prices a multivariate quantile dependence approach abstract we assess the impact of quantile price movements in oil gas coal and electricity on the quantiles of clean energy stock returns using a multivariate vine copula dependence setup for the period 2009 2016 our evidence shows that oil and electricity prices were major contributors to the dynamics of clean energy stock returns in the usa and the eu respectively whereas the other energy prices played a minor role in shaping clean energy stock returns furthermore we find evidence of a symmetric energy price impact so extreme upward and downward energy price movements had a similar impact on clean energy stock returns this evidence has potential implications for risk management decision making by energy investors and for policy maker decisions regarding support for clean energy deployment

a dynamic model of housing demand estimation and policy implications a dynamic model of housing demand using data from the panel study of income dynamics psid we specify estimate and simulate a dynamic structural model of housing demand our model generalizes previous applied econometric work by incorporating realistic features of the housing market including non convex adjustment costs from buying and selling a home credit constraints from minimum downpayment requirements and uncertainty about the evolution of incomes and home prices we argue that these features are critical for capturing salient features of housing demand observed in the psid after estimating the model we use it to simulate how consumer behavior responds to house price and income declines as well as tightening credit these experiments are motivated by the u s recession starting in december of 2007 that saw large falls in home prices large negative income shocks for many households and tightening credit standards in the short run relatively few households adjust their housing stock households respond instead by reducing non housing consumption and reducing wealth because they wish to avoid losing their home and the associated adjustment costs households that adjust in the short run are those hit with a series of bad shocks such as a negative income shock and a home price decline a larger proportion of households do adjust their consumption in the long run increasing their housing stock since housing is less expensive however such changes may occur several years after the shocks listed above

diversification and cash dynamics abstract why do diversified firms hold significantly less cash than focused firms we study this question using a dynamic model of corporate investment saving and diversification decisions we find that investment dynamics are more important in explaining the cash differences than financing frictions more efficient internal capital markets increase cash differences and are especially valuable when a firm diversifies or refocuses contrary to static models more diverse conglomerates have lower cash differences endogenous selection diversifying firms are larger and have better growth opportunities accounts for 68 of the cash difference and the diversification event itself reduces cash holdings by 32

modeling renewable energy company risk abstract the renewable energy sector is one of the fastest growing components of the energy industry and along with this increased demand for renewable energy there has been an increase in investing and financing activities the tradeoff between risk and return in the renewable energy sector is however precarious renewable energy companies are often among the riskiest types of companies to invest in and for this reason it is necessary to have a good understanding of the risk factors this paper uses a variable beta model to investigate the determinants of renewable energy company risk the empirical results show that company sales growth has a negative impact on company risk while oil price increases have a positive impact on company risk when oil price returns are positive and moderate increases in sales growth can offset the impact of oil price returns and this leads to lower systematic risk

wavelet based test of co movement and causality between oil and renewable energy stock prices abstract we studied co movement and causality between oil and renewable energy stock prices using continuous and discrete wavelets firstly to obtain information on dynamic correlations over time and for different time scales from wavelet coherence and secondly to obtain information on linear and non linear granger causality in the time frequency domain for general and sectoral renewable energy indices for the period 2006 2015 our findings indicate that dependence between oil and renewable energy returns in the short run was weak but gradually strengthened towards the long run mainly for the period 2008 2012 our causality tests provide evidence against linear causality at higher frequencies and in favour of unidirectional and bidirectional linear causality at lower frequencies in contrast we found consistent evidence of non linear causality running from renewable energy indices to oil prices at different time horizons and mixed evidence of causality running from oil to renewable energy prices these results have potential implications for investors in terms of hedging and for policymakers in terms of policy support decisions regarding the development of renewable energy

entrepreneurship and advancing national level economic efficiency we explore the channels under which entrepreneurship fosters productivity by disentangling its impact on national level economic efficiency and find that more entrepreneurship in aggregate is not always good for economic growth and most importantly identifying the form and activity of entrepreneurship is critical for policy makers to better manage changes in their economies our national level results also suggest that the new product entrepreneurship and to a lesser extent improvement driven opportunity entrepreneurship both significantly contribute to the improvement of national level efficiency however both measures would benefit from further development and it seems a higher coincidence of both is more likely to advance a nation s economic efficiency

evidence on the dark side of internal capital markets this article documents differences between the sensitivity of investment of stand alone firms and unrelated segments of conglomerate firms unrelated segments exhibit lower o sensitivity of investment than stand alone firms this fact is driven by unrelated segments of conglomerate firms that tend to invest less than stand alone firms in high s industries this finding is robust to matching on industry year size age and profitability the differences are more pronounced in conglomerates in which top management has small ownership stakes suggesting that agency problems explain the investment behavior

time varying co movements between energy market and global financial markets implication for portfolio diversification and hedging strategies abstract this study explores the time patterns of volatility spillovers between energy market and stock prices of seven major global financial markets including clean energy energy information technology corporations equity markets and united states economic policy index over the period vary from december 28 2000 to december 31 2018 we employ a time domain connectedness measures of diebold and yilmaz dy 2009 2012 and 2014 to examine spillover mechanism of volatility shocks across future markets optimal weights and hedge ratios are calculated for portfolio diversification and risk management the main findings of the study conclude that oil shocks are exogenous and contribution of oil market volatility to global financial markets is insignificant the returns of world stock index and world energy index are major transmitters of volatility to clean energy market moreover the impact of energy market become strong in global financial market when data is divided into pre during and post financial crisis periods finally the hedge ratios are volatile over time and their maximum value is observed during the financial crisis period of 2008 09 the optimal portfolio between energy and stock prices are heavily weighted to the stock markets

correlations and volatility spillovers between oil prices and the stock prices of clean energy and technology companies abstract in this paper multivariate garch models are used to model conditional correlations and to analyze the volatility spillovers between oil prices and the stock prices of clean energy companies and technology companies four different multivariate garch models bekk diagonal constant conditional correlation and dynamic conditional correlation are compared and contrasted the dynamic conditional correlation model is found to fit the data the best and generates results showing that the stock prices of clean energy companies correlate more highly with technology stock prices than with oil prices on average a 1 long position in clean energy companies can be hedged for 20 cents with a short position in the crude oil futures market

liquidity constraints and imperfect information in subprime lending ditions for precisely the population that is most likely to have a difficult time obtaining credit those with low incomes and poor credit histories these consumers who typically cannot qualify for regular bank loans comprise the so called subprime market because the company we study originates subprime loans its loan applications and transaction records provide an unusual win dow into the consumption and borrowing behavior of households that are rationed in primary credit markets moreover we track loan repayments allowing us to analyze the difficulties in lending to the subprime population we begin by documenting the importance of short term liquidity constraints for individuals in our sample we present two pieces of evidence both are based on purchasing behavior and indicate a high sensitivity to cash on hand first we document a dramatic degree of demand seasonality associated with tax rebates overall demand is almost 50 percent higher during tax rebate season than during other parts of the year this seasonal effect varies with household

the corporate propensity to save why do corporations accumulate liquid assets we show theoretically that intertemporal trade offs between interest income taxation and the cost of external finance determine optimal savings intriguingly we find that controlling for tobin s q saving and cash flow are negatively related because firms lower cash reserves to invest after receiving positive cash flow shocks and vice versa consistent with theory we estimate negative propensities to save out of cash flow we also find that income uncertainty affects saving more than do external finance constraints therefore contrary to previous evidence saving propensities reflect too many forces to be used to measure external finance constraints

contract pricing in consumer credit markets we analyze subprime consumer lending and the role played by down payment requirements in screening high risk borrowers and limiting defaults to do this we develop an empirical model of the demand for financed purchases that incorporates both adverse selection and repayment incentives we estimate the model using detailed transaction level data on subprime auto loans we show how different elements of loan contracts affect the quality of the borrower pool and subsequent loan performance we also evaluate the returns to credit scoring that allows sellers to customize financing terms to individual applicants our approach shows how standard econometric tools for analyzing demand and supply under imperfect competition extend to settings in which firms care about the identity of their customers and their postpurchase behavior

systemic risk in european sovereign debt markets a covar copula approach abstract we studied systemic risk in european sovereign debt markets before and after the onset of the greek debt crisis taking the conditional value at risk covar as a systemic risk measure characterized and computed using copulas we found that before the debt crisis sovereign debt markets were all coupled and systemic risk was similar for all countries however with the onset of the greek crisis debt markets decoupled and the systemic risk of the countries in crisis excepting spain for the european debt market as a whole decreased whereas that of the non crisis countries increased to a small degree the systemic risk of the greek debt market for other countries in difficulties increased especially for portugal where systemic risk tripled after the onset of the crisis whereas the systemic impact on the non crisis countries decreased

stock prices of clean energy firms oil and carbon markets a vector autoregressive analysis recent discussions of energy security and climate change have attracted significant attention to clean energy we hypothesize that rising prices of conventional energy and or placement of a price on carbon emissions would encourage investments in clean energy firms the data from three clean energy indices show that oil prices and technology stock prices separately affect the stock prices of clean energy firms however the data fail to demonstrate a significant relationship between carbon prices and the stock prices of the firms

how do crude oil prices co move a copula approach abstract this paper examines the dependence structure between crude oil benchmark prices using copulas by considering several copula models with different conditional dependence structures and time varying dependence parameters we find evidence of significant symmetric upper and lower tail dependence between crude oil prices these findings suggest that crude oil prices are linked with the same intensity during bull and bear markets thus supporting the hypothesis that the oil market is one great pool in contrast with the hypothesis that states that the oil market is regionalized our findings on crude oil price co movements also have implications for risk management hedging strategies and asset pricing

is there dependence and systemic risk between oil and renewable energy stock prices abstract we study systemic risk and dependence between oil and renewable energy markets using copulas to characterize the dependence structure and to compute the conditional value at risk as a measure of systemic risk we found significant time varying average and symmetric tail dependence between oil returns and several global and sectoral renewable energy indices our evidence on systemic risk indicates that oil price dynamics significantly contributes around 30 to downside and upside risk of renewable energy companies these results have important implications for risk management and renewable energy policies

debt and seniority an analysis of the role of hard claims in constraining management we argue that long term debt has a role in controlling management s ability to finance future investments a company with high widely held debt will find it hard to raise capital since new security holders will have low priority relative to existing creditors conversely for a company with low debt we show there is an optimal debt equity ratio and mix of senior and junior debt if management undertakes unprofitable as well as profitable investments we derive conditions under which equity and a single class of senior long term debt work as well as more complex contracts for controlling investment behavior