international institutional lending arrangements to sovereign borrowers abstract recent financial crises in east asia and elsewhere have illustrated the problems that plague emergency liquidity arrangements and the lender of last resort role of the international monetary fund and other international institutions in particular these act under conditions of extreme uncertainty where potential sovereign borrowers as well as private financial institutions are kept in the dark regarding the intentions of the emergency lenders and the amounts and terms of emergency liquidity that can be tapped from april 1999 longer term credit lines are being offered by the imf designed to be awarded to healthy countries before they experience contagion or distress the paper evaluates the advantages of this form of imf lending and this new trend in imf operations it is argued that provision of imf financing through such long term lending facilities is better in some senses than shorter term lending long term contracts reduce the uncertainty with respect to imf intentions moral hazard problems are reduced for the borrowing country and financial markets know the future level and terms of imf support another advantage is that long term loan contracts improve the allocation of resources within the borrowing country much as private sector facility lending is the dominant mode of finance in many markets so facility lending has efficiency advantages when it is provided by the imf this efficiency advantage is derived formally it is shown that sovereign borrowers are actually better off when utilizing these as backup lines of credit instead of emergency borrowing that is conducted after distress occurs facility lending by international institutions can lead to a welfare improvement and superior resource allocation for sovereign borrowers the intuition for this is that when financial distress drives these borrowers to increase their debt risk premia in borrowing rates would not rise at least up to the limits established by the size of the facility

credit lines and credit utilization while much is known about the characteristics of consumers or businesses that obtain credit lines relatively little is known empirically about credit line utilization after origination this study fills that gap by testing two interrelated hypotheses concerning borrower credit quality and credit line utilization the empirical analysis confirms that borrowers with higher expectations of future credit quality deterioration originate credit lines to preserve financial flexibility furthermore we estimate a competing risks model that confirms our predictions concerning changes in borrower credit line utilization in response to borrower credit quality shocks

product market imperfections and loan commitments i show in a model of competitive banks that the characteristics of loan contracts are affected by product market imperfections in the borrower s industry a bank loan commitment increases the value of a borrower firm operating in an imperfectly competitive industry and thus dominates a simple loan even in the absence of risk sharing considerations and informational asymmetries between the borrower and the bank while it is individually rational for a firm to obtain a loan commitment all the firms in that industry taken together are made worse off by the existence of loan commitments a loan commitment is a contract guaranteeing future availability of credit to a borrower at a prespecified fixed or stochastic interest rate although bank loan commitments are an important financial instrument and there exists an extensive literature analyzing them the rationale for their existence is still a matter of research this paper provides an explanation for the existence of bank loan commitments to borrowers from industries in which there is imperfect competition in the product market it is shown that in such industries the option to acquire financing at predetermined rates enhances the borrower s strategic power and thus creates value for the individual borrower consider an industry with imperfect competition where firms face the problem of noncooperatively exploiting a product market opportunity the optimal product market strategy of a firm depends on the output of its rivals a firm with access to resources at a lower marginal cost than its competitors has a strategic advantage that it can exploit to gain a larger market share and profits it is shown here that a firm that does not have such a strategic advantage can create it by purchasing for a fixed initial fee an option to acquire a factor of production such as financing at favorable terms specifically by initially negotiating a bank loan commitment the firm can finance an expansion of output to meet a strategic contingency at more favorable terms than would be possible if the expansion had to be financed in the spot market the ability to exercise the commitment enables the firm to threaten its rivals strategically and moves the industry to an equilibrium more favorable to that firm thus creating value for the borrower it is shown below that it is optimal for all firms to acquire bank loan commitments altering the industry equilibrium in the process

can tax loss selling explain the january seasonal in stock returns this paper analyzes the tax loss selling hypothesis as an explanation of the january seasonal in stock returns and argues that rational tax loss selling implies little relation between the january seasonal and the long term loss empirical results show that the january seasonal is as strongly related to the long term loss as it is to the short term loss the evidence is inconsistent with a model that explains the january seasonal by optimal tax trading

bank credit rationing and the customer relation abstract this paper investigates the theory that preference in situations of bank rationing is given to those customers with the strongest customer relation it has shown that within a certainty model where competitive pressure among banks requires full compensation for other bank relationships neither deposit levels nor intertemporal demand would produce the preferential treatment claimed it has also been shown that the prime borrowers would be unable to bargain effectively for credit line protection from such occasions of credit restriction

organizing debt relief the need for a new institution the banks they extended large short term credits to mexico then put pressure on the banks to reschedule mexican debt and lend more to mexico once the international monetary fund had endorsed the policies that mexico would follow to deal with its problems this was the birth of the case by case approach to the debt problem it was predicated implicitly on the belief that debtors faced a short term problem arising from an unusual combination of worldwide recession and high interest rates brought on by a shift in the policy stance of the major industrial countries on this view it was eminently sensible for debtors to take on more debt temporarily in order to pay interest on their existing debts the problem was still with us three years later however and the case by case approach was in trouble the world economy was growing again and interest rates had fallen but the debtor s export earnings were not growing and their governments were increasingly reluctant to deal with the imf which was asking for more austerity but providing less fund credit the banks were willing to reschedule larger amounts of debt for longer intervals but would put up new money only for the largest debtors

an economic rationale for the pricing structure of bank loan commitments abstract an economic rationale is provided for the competitive equilibrium deployment of commitment and usage fees in loan commitment pricing it is shown that under perfect information assessing both fees rather than just one permits optimal risk sharing when the borrower is privately informed about its probability of future commitment utilization commitment and usage fees can be used to induce borrowers to identify themselves by self selection through contract choice the equilibrium characterized here is dissipative and thus raises the usual existence questions which are addressed in the paper

portfolio rebalancing and the turn of the year effect this paper finds that for the 1935 1986 period the market s risk return relation does not have a january seasonal the findings differ from those of other studies due to the use of value weighted rather than equally weighted portfolios inferences are sensitive to the weighting procedure because of the small firm return patterns in january in particular even in those januaries for which the market return is negative small firm returns are positive and they are more positive the higher is beta this is consistent with the portfolio rebalancing explanation of the turn of the year effect since at least 1926 the average return on small firms in january has been unusually high a phenomenon known as the turn of the year effect in this paper we present new evidence regarding the risk return characteristics of small firms in january we find that for small firms there is a positively sloped riskreturn relation in both up and down markets this pattern is difficult to reconcile with the belief that the high return on small firms in january is equilibrium compensation for risk bearing we show how these patterns in small firms returns have led others to conclude that the market s risk return relation has a january seasonal in particular rozeff and kinney 21 and tinic and west 22 23 among others using equally weighted portfolios formed on the basis of historical betas have found a steeper slope for the capm s risk return relation in january than in other months we demonstrate that this pattern exists only for small firms consequently statistical inferences about the risk return relation are heavily dependent upon whether equally weighted or value weighted portfolio returns are used in the estimation we show that for 1935 86 when monthly cross sectional regressions are estimated using value weighted portfolio returns there is no more of a statistically significant difference in the estimated return to risk bearing in january than in the other eleven months of the year the notion that there is a january seasonal in the capm s risk return relation for the us has rapidly become accepted knowledge for example corhay hawawini and michel 6 accept this conclusion and investigate whether other

firm value illiquidity risk and liquidity insurance abstract our interest here concerns liquidity supply to firms we first examine the relation between firm value and access to liquidity supply and then we investigate the existence conditions and efficiency properties of financial contracts with a liquidity covenant in a continuous time infinite horizon stochastic model of a repeated firm investors relationship where the key problem is the mutual commitment between the two parties to model this problem we consider liquidity supply as a stochastic regulator mechanism that prevents the firm s ability to pay from falling below a predefined threshold here the market fixed coupon and we then apply recent developments in dynamic programming techniques for regulated processes to obtain a close form solution for the firm s value our main finding is that efficient i e actuarially fair and renegotiation proof contracts emerge in the absence of perfect commitment as the firm and the investor can exert mutual threat of termination

some models for estimating technical and scale inefficiencies in data envelopment analysis in management contexts mathematical programming is usually used to evaluate a collection of possible alternative courses of action en route to selecting one which is best in this capacity mathematical programming serves as a planning aid to management data envelopment analysis reverses this role and employs mathematical programming to obtain ex post facto evaluations of the relative efficiency of management accomplishments however they may have been planned or executed mathematical programming is thereby extended for use as a tool for control and evaluation of past accomplishments as well as a tool to aid in planning future activities the ccr ratio form introduced by charnes cooper and rhodes as part of their data envelopment analysis approach comprehends both technical and scale inefficiencies via the optimal value of the ratio form as obtained directly from the data without requiring a priori specification of weights and or explicit delineation of assumed functional forms of relations between inputs and outputs a separation into technical and scale efficiencies is accomplished by the methods developed in this paper without altering the latter conditions for use of dea directly on observational data technical inefficiencies are identified with failures to achieve best possible output levels and or usage of excessive amounts of inputs methods for identifying and correcting the magnitudes of these inefficiencies as supplied in prior work are illustrated in the present paper a new separate variable is introduced which makes it possible to determine whether operations were conducted in regions of increasing constant or decreasing returns to scale in multiple input and multiple output situations the results are discussed and related not only to classical single output economics but also to more modern versions of economics which are identified with contestable market theories

cash flows accruals and future returns this study explored the accrual anomaly the study is unique because it analyzed originally reported unrestated quarterly data for 1991 through the first quarter of 2004 to calculate accruals and used u s sec filing dates to identify the day on which investors first obtained information about accruals the study found that the accrual anomaly exists for quarterly accruals as has been found for annual accruals future quarterly earnings were found to be more highly associated with current net operating cash flows than with accruals because accruals have less persistence than cash flows companies with extremely high low current quarterly accruals have significant and negative positive abnormal returns through the subsequent four quarters

portfolio selection with mental accounts and delegation das et al 2010 develop an elegant framework where an investor selects portfolios within mental accounts but ends up holding an aggregate portfolio on the mean variance frontier this investor directly allocates the wealth in each account among available assets in practice however investors often delegate the task of allocating wealth among assets to portfolio managers who seek to beat certain benchmarks accordingly we extend their framework to the case where the investor allocates the wealth in each account among portfolio managers our contribution is threefold first we provide an analytical characterization of the existence and composition of the optimal portfolios within accounts and the aggregate portfolio second we present conditions under which such portfolios are not on the mean variance frontier and conditions under which they are third we show that the aforementioned analytical characterization is also applicable within the framework of das et al and thus improves upon their numerical approach

additive efficiency decomposition in two stage dea kao and hwang 2008 kao c hwang s n 2008 efficiency decomposition in two stage data envelopment analysis an application to non life insurance companies in taiwan european journal of operational research 185 1 418 429 develop a data envelopment analysis dea approach for measuring efficiency of decision processes which can be divided into two stages the first stage uses inputs to generate outputs which become the inputs to the second stage the first stage outputs are referred to as intermediate measures the second stage then uses these intermediate measures to produce outputs kao and huang represent the efficiency of the overall process as the product of the efficiencies of the two stages a major limitation of this model is its applicability to only constant returns to scale crs situations the current paper develops an additive efficiency decomposition approach wherein the overall efficiency is expressed as a weighted sum of the efficiencies of the individual stages this approach can be applied under both crs and variable returns to scale vrs assumptions the case of taiwanese non life insurance companies is revisited using this newly developed approach

portfolios in disguise window dressing in bond fund holdings abstract this paper builds on the limited body of research on window dressing by bond mutual funds our monthly bias free sample allows us to undertake a more comprehensive study than is possible with the quarterly data traditionally employed in otherwise similar studies we test window dressing in a straightforward manner using monthly undisclosed portfolios which makes it possible to compare changes in public debt allocations around quarterly disclosures our results support the hypothesis that window dressing patterns vary with market conditions we also conduct thorough tests that indicate the significant influence of fund size on window dressing individual analyses provide evidence that this cosmetic practice is not a widespread behaviour in the spanish bond fund industry

momentum investment strategies portfolio performance and herding a study of mutual fund behavior this study analyzes the extent to which mutual funds purchase stocks based on their past returns as well as their tendency to exhibit herding behavior i e buying and selling the same stocks at the same time the authors find that 77 percent of the mutual funds were momentum investors buying stocks that were past winners however most did not systematically sell past losers on average funds that invested on momentum realized significantly better performance than other funds the authors also find relatively weak evidence that funds tended to buy and sell the same stocks at the same time copyright 1995 by american economic association

sovereign debt structural adjustment and conditionality abstract the lack of a proper enforcement mechanism for sovereign debt generates a commitment failure as a result a sovereign may seek to improve its position in debt renegotiations and thus evade its debt obligations by reducing exports conditionality seeks to provide a solution to the incentive problem by addressing the commitment failure formalizing this argument we show that conditionality helps the repayment of sovereign debt in certain circumstances it can eliminate debt overhang especially when it is coupled with concessionary lending of sufficient magnitude it is however unable to restore first best when it is anticipated by lenders conditionality may get international financial institutions and sovereign debtors into a trap where the debt overhang persist debt rescheduling takes place periodically and conditionality continues indefinitely

risk assessment for credit portfolios a coupled markov chain model abstract credit portfolios as for instance collateralized debt obligations cdo s consist of credits that are heterogeneous both with respect to their ratings and the involved industry sectors estimates for the transition probabilities for different rating classes are well known and documented we develop a markov chain model which uses the given transition probability matrix as the marginal law but introduces correlation coefficients within and between industry sectors and between rating classes for the joint law of migration of all components of the portfolio we have found a generating function for the one step joint distribution of all assets having non default credit ratings and a generating function of the loss distribution the numerical simulations presented here verify that the average number of defaults is not affected by the correlation coefficients but the percentiles of the number of defaults are heavily dependent upon them in particular for strongly correlated assets the distribution of the number of defaults follows a cascade pattern nesting in non overlapping intervals as a result the probability of a large number of defaults is higher for correlated assets than for non correlated ones

bankruptcy proceedings for sovereign state insolvency the paper examines the main issues involved in translating domestic bankruptcy procedures to the sovereign context it considers some of the principles by which domestic bankruptcy procedures operate and the extent to which they apply to international lending two recent proposals are considered in more detail that of krueger a new approach to sovereign debt restructuring and that of pettifor chapter 9 11 resolving international debt crises the jubilee framework for international insolvency the paper also considers the question of the ex ante effects of a procedure which makes default less costly and concludes that despite a negative impact on the ability to borrow the overall welfare effect need not be negative

debt relief and the international enforcement of loan contracts it is now apparent that the governments of many developing countries will not repay their debts as initially contracted creditors have already forgiven loans to some poor borrowers in africa loans to several middle income borrowers mostly in latin america trade in secondary markets at enormous discounts below 10 percent of face value in some cases creditors and debtors are negotiating the status of these debts with relief now likely for them as well since 1983 the situation has been seen to be sufficiently troubled to constitute a debt crisis although whether the debts actually caused the stagnation and financial chaos in many debtor countries is questionable poor economic management at home along with some adverse changes abroad probably have more to do with their plight while the debts themselves may not have caused the crisis creditors and creditor governments must now adjust to the realization that full repayment is either infeasible or that enforcing full payment is undesirable from the point of view of creditor countries as a whole the question now is what to do with these debts the baker and brady plans have increased u s government involvement in the debt crisis and have allocated public money toward its resolution the kenen plan discussed in this issue proposes still more public involvement and in all likelihood more public money each of these plans is an ad hoc response to the impasse that has arisen between some highly indebted countries and their private creditors and aspects of each plan may help resolve this impasse but none of these plans confronts the features of international capital markets that led to the crisis in the first place my argument here is that the debt crisis that began in 1983 arose from defects in how international capital markets operated the previous decade a goal of any

investment decisions depend on portfolio disclosures a weekly database of retail money fund portfolio statistics is uneconomical for retail investors to observe so it allows direct comparison of disclosed and undisclosed portfolios this makes possible a more direct and unambiguous test for window dressing than elsewhere in the literature the analysis shows that funds allocating between government and private issues hold more in government issues around disclosures than at other times consistent with the theory that intermediaries prefer to disclose safer portfolios cross sectional comparisons locate the most intense rebalancing in the worst recent performers money managers are typically required to disclose their portfolios on prearranged dates whether investors receive new information depends on whether managers are influenced by the disclosure requirement managers can ignore the disclosure schedule when they invest in which case the disclosed portfolios will be unbiased albeit noisy estimates of their investing strategies alternatively they can plan their investing around the schedule by moving briefly into and out of the portfolios they prefer to disclose thereby reducing or destroying the power of the disclosures to reveal anything meaningful the goal of this paper is to establish which scenario best describes the behavior of money market mutual fund managers the idea that portfolio weights interact with disclosure dates surfaces now and again in the academic and trade literature surviving on circumstantial evidence rather than direct observation the odd behavior of asset prices around common disclosure dates particularly the end of the year comprises

the valuation of multiple claim insurance contracts this paper provides a closed form solution for the value of a multiple claim insurance contract that is subject to a deductible amount and or an upper limit on claims the solution is a time integral of european option prices the model provides three important insights first systematic risk in insurance policies is altered in the presence of deductibles and maximum indemnity levels second idiosyncratic risk affects policy valuation and the required rates of return on underwriting portfolios finally contrary to traditional actuarial intuition changes in the risk free interest rate may either increase or reduce policy values

bank credit commitments credit rationing and monetary policy when loan needs are uncertain and bankruptcy is costly contracts resembling bank credit commitments dominate ordinary debt contracts the fees charged on commitments reduce bankruptcy risk by smoothing out borrowers loan payments reduced bankruptcy risk entitles borrowers to larger loans thereby reducing the risk of quantity rationing even if commitments reduce rationing risk monetary policy is not necessarily weaker under commitment finance a rise in lenders cost of funds perhaps reflecting a monetary contraction can reduce the expected value of a project more under a commitment than under an ordinary debt contract copyright 1994 by ohio state university press

mutual fund tournaments the sorting bias and new evidence previous findings regarding the risk shifting behavior of mid year underperforming mutual fund managers are mixed in this article i show that this is due to a sorting bias which is caused by the sorting of first half risk levels when establishing relative mid year performance even without risk shifting behavior mean reversion of these sorted risk levels results in the detection of tournament behavior after correcting for this bias i find evidence supporting the hypothesis that first half underperforming managers increase portfolio risk during the second half of the year and that this tournament behavior is not dependent on first half market conditions the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

new network data envelopment analysis approaches an application in measuring sustainable operation of combined cycle power plants abstract nowadays organizations deal with numerous economic environmental and social problems to have sustainable operations they have begun to incorporate environmental and social concerns into conventional economic objectives a combined cycle power plant ccpp is a good instance of an open system with multistage processes and interconnected activities efficiency evaluation of ccpps is a complex task since there exist a variety of inputs outputs which enter into any stages of network additionally there might be intermediate products which are consumed by the same power plants we call such factors loop intermediate measures to measure efficiency of ccpps network data envelopment analysis ndea is used this paper proposes new ndea models to evaluate efficiency of ccpps the proposed models calculate the efficiency of power plants and their sub sectors under both crs constant returns to scale and vrs variable returns to scale assumptions this paper provides a comprehensive analysis for returns to scale we apply the new ndea models to measure relative efficiency of ccpps

assessing and managing external debt problems in nigeria abstract the paper addresses some of the major issues in external debt management from the point of view of a borrowing country it has been found that frequent occurrence of debt and debt servicing problems among less developed countries ldcs can be traced to poor debt management despite the awareness of the need to develop an effective debt management capability and formulate specific debt management policies formal debt models have yet to enjoy wide application in many african countries whereas there are many debt management systems which debtor countries can adopt most african countries are not using them because of several constraints an analytical framework which can be used to formulate sound debt management policies is proposed and applied using nigeria as a case study

sovereign debt a primer the troublesome debts of many developing countries have spawned much literature on why countries borrow on what debt contributes to growth on why countries repay and on how to deal with existing debt the author provides an analytical primer on the following aspects of sovereign debt 1 the basic accounting concepts associated with debt and some data associated with external borrowing 2 debt as a component of an optimizing model of borrowing in a competitive loan market when the borrower faces an intertemporal budget constraint 3 debt as a component of recent models of endogenous growth 4 problems arising from sovereign risk including problems of liquidity enforcement and revenue raising to finance repayment 5 incentives to repay 6 options available to a creditor whose debtor is unwilling to meet current debt service obligations and 7 debt buybacks the author concludes that in the absence of any efficiency cost imposed by outstanding debt how much a buyback benefits the borrower depends on how much buying back debt reduces what is available for repayment later the author also concludes that if there are efficiency losses associated with debt debt forgiveness can benefit both a debtor nation and its creditors contrary to claims in the literature this outcome does not require that a reduction in the face value of debt raise its market value and the debtor benefits even though the buyback raises the market price of the debt

relaxing the cash in advance constraint at a fixed cost are simple trigger target portfolio rules optimal this paper studies the microeconomic foundations of trigger target rules of portfolio demand such as the demand for money it allows an agent to relax her cash in advance constraint by paying a fixed transactions cost to move between money and the interest bearing asset an example is generated where the potential of being liquidity constrained in order to avoid incurring the transactions cost can cause excessive nonconcavities of the value function in a dynamic program such that simple trigger target rules of money demand are suboptimal

sovereign debt optimal contract underinvestment and forgiveness in this paper we develop a time consistent rational expectations model which analyzes the equilibrium loan contract between a borrowing country and a foreign bank the loan contract specifies both the amount of the loan and the promised interest payments and rationally reflects the investment decisions of the country and the possibilities of renegotiation and repudiation of the debt an important feature of the model is that at the initial negotiation of the loan there is uncertainty about whether the country will renegotiate for partial forgiveness in the future and whether it will eventually repudiate the debt even having successfully renegotiated moreover the probabilities of renegotiation and repudiation and the amount of possible forgiveness are endogenously determined in the model the repudiation decision is directly related to the underinvestment problem the objective of the renegotiation is precisely to alleviate this problem the model is used to analyze the effects of four variables on both the optimal contract and the country s welfare the degree of penalties that a bank can impose on a defaulting country the uncertainty of production the productivity of investments and the riskless interest rate the analysis has policy implications as well as testable predictions during the last ten years the issues related to less developed countries ldcs debt have become increasingly more important in the world economy the main reason for this is the significant increase in the amount of debt outstanding and the consequent higher yearly interest payments by 1988 seventeen highly indebted countries had an aggregated debt of 510 billion dollars see rogoff 1990 a second important reason is that starting in 1982 some of these countries suspended debt service payments creating a serious crisis of confidence in the banking system of the lending countries as a consequence borrowers and lenders have had to engage in negotiations including the rescheduling of the repayments and possibly partial forgiveness a number of papers have suggested that forgiveness could conceivably make both lenders and borrowers better off because the country

a theory and test of credit rationing some further results the arbitrage argument extends to the case of many risk assets the equilibrium leverage ratio will vary with the riskiness of the asset backing up the loan and variations in leverage will then substitute for variations in the interest rate however it can readily be shown along the lines of vernon l smith that competition in leverage terms would be insufficient to correct the inefficient allocation of claims produced by the market when the interest rate is fixed 4

momentum strategies based on reward risk stock selection criteria abstract in this paper we analyze momentum strategies that are based on reward risk stock selection criteria in contrast to ordinary momentum strategies based on a cumulative return criterion reward risk stock selection criteria include the standard sharpe ratio with variance as a risk measure and alternative reward risk ratios with the expected shortfall as a risk measure we investigate momentum strategies using 517 stocks in the s p 500 universe in the period 1996 2003 although the cumulative return criterion provides the highest average monthly momentum profits of 1 3 compared to the monthly profit of 0 86 for the best alternative criterion the alternative ratios provide better risk adjusted returns measured on an independent risk adjusted performance measure we also provide evidence on unique distributional properties of extreme momentum portfolios analyzed within the framework of general non normal stable paretian distributions specifically for every stock selection criterion loser portfolios have the lowest tail index and tail index of winner portfolios is lower than that of middle deciles the lower tail index is associated with a lower mean strategy the lowest tail index is obtained for the cumulative return strategy given our data set these findings indicate that the cumulative return strategy obtains higher profits with the acceptance of higher tail risk while strategies based on reward risk criteria obtain better risk adjusted performance with the acceptance of the lower tail risk

credible commitments contract enforcement problems and banks intermediation as credibility assurance abstract we consider contract enforceability problems in credit transactions and justify a bank as an organizational solution to market breakdown due to unenforceable contracts specifically we explain i why loan commitments exist and ii why banks exist to sell such commitments a loan commitment resolves moral hazard more efficiently than any combination of inside equity and spot credit however the market breaks down if commitment sellers are individuals because their promises to honor contracts are not credible with a large bank a perfect sequential equilibrium is obtained in which credibility is restored

the economic institution of international barter starting with the international debt crisis in the 1980s international barter increased substantially more recently barter has emerged in russia and south east asia this paper examines how barter can help highly indebted countries to finance imports if they cannot use standard credit arrangements we argue that payment in goods is easier to enforce than payment in money however debtors may pay with inferior quality products we rank goods with respect to these incentive properties and derive the economic institution of commodity money which explains the trade pattern in barter our theoretical predictions are consistent with data on barter contracts

international debts what s fact and what s fiction presidential address to the western economic association july 2 1988 schwartz international debts the official strategy on the international debt problem was breached in may 1987 when citicorp acknowledging the likelihood of credit losses on its latin american loans announced that it was increasing its reserves by 3 billion nineteen banks between 26 may and 8 july also announced additions to their loan loss reserves in aggregate amounting to over 12 billion according to musumeci and sinkey 1988 in may 1988 the general accounting office gao estimated that reserves of u s banks against their troubled loans to ldcs totaled about 21 billion whereas adequate provisioning would require reserves of 49 billion see the wall street journal 19 may 1988 the gao used prices on secondary debt markets in determining the adequacy of loan reserves the banks and regulators however dispute the gao s report see the wall street journal 13 may 1988 the secondary markets they contend are thin and transactions of even moderate size cannot be executed at quoted prices the price quotations may also misrepresent the prospect of repayment for the following reason by holding a foreign country s debt a creditor bank has been subject to the implied obligation to lend new money pro rata to that country however by selling the debt on the secondary market a creditor bank is released from that obligation and hence may accept a lower price than would otherwise be the case on the other hand as sachs and huizinga 1987 579 87 note the decline in bank equity prices since 1982 closely matches the secondary market valuation of ldc exposure the qualifications concerning the significance of the secondary market prices of foreign debt did not apply to prices of foreign bonds that in the past traded at a discount in the market those prices reflected solely the probability of repayment of the bond the additions to loan loss reserves in 1987 reduced the banks reported income and their book capital equity was reduced by a transfer to reserves and plans to issue equity were announced by many banks following their additions to reserves the reserves however are not charged against current income for tax purposes should write offs occur in the future or agreements be reached with the debtors to reduce outstanding debt the losses will be charged to reserves with no effect on reported income latin american debt has not been written down because of the additions to reserves and no forgiveness is involved for ldc debts the banks face difficulties in reducing their developing country debt by sales swaps and write offs loan agreements may prohibit repurchase of the debt by the borrower hence limiting the sales option 14 swaps for local currency or equity have had only small effects on debt reduction j p morgan and company earlier this year devised a program with mexico that had the blessing of the u s treasury morgan swapped 400 million of its mexican government debt for 263 million twenty year mexican government bonds the mexican issue was collateralized by twenty year u s treasury zerocoupon bonds at time of sale priced to pay 8 41 percent annually that mexico bought with 2 56 billion of its international reserves swaps by other banks participating in the program reduced mexico s bank debt by about 1 billion although a 10 billion reduction had been forecast morgan regarded the swap as advantageous because it also served to reduce its obligation to supply future loans to mexico for other banks the size of the discount on the swap made the deal unattractive 15 the third way for the banks to reduce exposure to developing country debt is write offs write offs have limited appeal they risk inciting political pressure to force debt forgiveness the regulators the u s government and international agency lenders continue to pressure the banks to provide additional loans to the latin american debtors that are either in arrears on interest payments or pay a large percentage of their trade surplus to cover service charges

loan commitments and monetary policy abstract in this paper we examine the impact of loan commitment agreements on the way in which monetary policy affects the economy we estimate a vector autoregressive var model and find evidence of a smaller impact of monetary policy on loans made under commitment agreements than on loans not made under commitment our conclusion is that loan commitments effectively protect borrowers from quantity credit rationing and thus force monetary policy to work mainly through interest rate channels

good bye financial repression hello financial crash some unintended consequences of financial liberalization in latin america are analyzed in this paper intrinsic imperfectious in financial markets and the policy dilemmas they pose are reviewed first the stylized facts of southern cone experiments in financial liberization are then presented alternative ways of organlzing domestic capital markets under latin american conditions are discussed and an eclectic reform mongering program is proposed

competitive equilibrium with type convergence in an asymmetrically informed market this article studies an asymmetric information game with type convergence in which under some realizations of a common uncertainity inducing informed agents to reveal their types through self selection by contract choice is either costly or impossible under other realizations self selection permits costless distinctions between informed agents i obtain sufficient conditions under which contracting with options prior to the realization of the common uncertainity leads to the existence of a perfectly separating costless nash equilibrium applications to variable rate loan commitments and life insurance contracting are discussed article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

rescheduling of sovereign debt forgiveness precommitment and new money to meet contractual obligations on their external debt lenders generally responded by rescheduling these debts rather than declaring them to be in default but further commercial lending to these sovereigns has virtually ceased these borrowers now face an enormous debt overhang while their lenders face substantial losses on their international loan portfolios among the many proposals for addressing this crisis the relative desirability of debt forgiveness and new lending has been the focus of considerable debate the baker plan of 1985 emphasized additional funding coupled with growth oriented domestic policies rather than debt reduction lenders were encouraged to provide additional funds new money to help the impaired and indebted economies grow their way back to creditworthiness however lenders were reluctant to offer new funds that would increase the sovereign s debt burden without some assurance that future repayment would be likely with debt generally recognized as providing borrowers with a disincentive for investment 1 the emphasis has now shifted to the need for debt forgiveness on the part of the lenders and a commitment to internal adjustment by the borrowers both parties are viewed as benefitting by a reduction of the inherited debt and possibly the provision of additional funds if the sovereign borrower can commit itself to adopting policies that reduce internal consumption and

transactions costs and portfolio choice in a discrete continuous time setting abstract this paper makes the following observation concerning a new formulation of the consumption and portfolio choice model of merton 1971 with transaction costs suppose an investor observes his or her current wealth only when making a transaction that transactions are costly and that decisions to transact can be made at any time based on all current information if at each transaction the agent is charged a fixed fraction of current portfolio value an optimal policy exists and the optimal interval of time between transactions is fixed independent of time and current wealth

changes to mutual fund risk intentional or mean reverting an empirical issue is whether a mutual fund s change in intertemporal risk is intentional or arises from risk mean reversion our methodology uses actual fund trades to identify funds that actively change risk funds that are statistically identified as trading to change return variance or tracking error variance do not exhibit risk mean reversion mostly funds trade to reduce risk and in particular tracking error variance this is most evident for funds that previously attained a low tracking error variance we find no evidence of a relation between past performance and intended changes to return variance or tracking error variance

of tournaments and temptations an analysis of managerial incentives in the mutual fund industry we test the hypothesis that when their compensation is linked to relative performance managers of investment portfolios likely to end up as losers will manipulate fund risk differently than those managing portfolios likely to be winners an empirical investigation of the performance of 334 growth oriented mutual funds during 1976 to 1991 demonstrates that mid year losers tend to increase fund volatility in the latter part of an annual assessment period to a greater extent than mid year winners furthermore we show that this effect became stronger as industry growth and investor awareness of fund performance increased over time

loan commitments investment decisions and the signalling equilibrium abstract this paper analyzes the use of loan commitments to finance future risky investment projects when the capital market is informed of a firm s project quality having a loan commitment would lead the firm to overinvest if banks are competitively rational the cost of this overinvestment would be borne by the firm making the loan commitment contract unattractive when the project quality is private information firms will signal their project qualities through purchasing loan commitments this signal is credible because purchasing a loan commitment poses overinvestment cost to the firm this paper establishes and characterizes this dissipative signalling equilibrium

loan commitment contracts terms of lending and credit allocation this paper analyzes the structure of loan commitment contracts and the interrelationships among their component parameters lenders offer borrowers a set of loan packages from which the latter may choose that package found to be most appealing borrowers may trade off changes in any loan parameter in exchange for other adjustments the borrower at this time may purchase a larger credit ration for a price supporting empirical evidence is presented recently researchers have begun to study the determinants of loan commitment or line of credit contracts such contracts play an extremely important role in bank credit allocation according to the federal reserve bulletin over 70 of u s commercial and industrial loans are made under loan commitment contracts given the central importance of the institution it is not surprising that it is the subject of a growing literature loan commitment contracts have importance both at the micro level in terms of the bank customer relationship and at the marco level in terms of the channels of operation of monetary policy in this paper we seek to present and test empirically an analytic model of loan commitment contracts our paper differs from most previous work in that we include empirical analysis of credit allocation moreover most previous theoretical work on the subject has concentrated on the specific issue of pricing of the contracts often using an approach based on option theory and not on the quantity allocation of credit and its determinants we are particularly interested in the determinants of the quantitative allocation of credit to bank customers and in the composition of and trade offs among the various parameters comprising such a loan commitment package our model helps explain how contract terms are established in the market and will illuminate the institutional framework of commercial lending a view of the credit contract as a package of loan terms has been implied recently in connection with the credit rationing problem studies by azzi and cox 21 arzac schwartz and whitcomb 11 and koskela 81 show that the

window dressing by pension fund managers this paper takes a first look at investment strategies of managers of 769 pension funds with total assets of 129 billion at the end of 1989 the data show that managers of these funds tend to oversell stocks that have performed poorly relative sales of losers accelerate in the fourth quarter when funds portfolios are closely examined by the sponsors this result supports the view that fund managers window dress their portfolios to impress sponsors and suggests that managers are evaluated on their individual stock selections and not just aggregate portfolio performance this abstract was borrowed from another version of this item

debt relief for poor countries conditionality and effectiveness this paper studies the effectiveness of debt relief to stimulate economic growth in the most heavily indebted poor countries we develop a neoclassical framework with a conflict of interest between the altruistic donor and the recipient government and model conditionality as an imperfectly enforceable dynamic contract in contrast to the recent practice of fully cancelling debt optimal incentive compatible conditionality is accompanied by a concessionality level that implies a combination of subsidized loans and outright grants the optimal concessionality level depends on the recipient s access to international financial markets and on the strength of the conflict of interest incentive compatible transfers with optimal concessionality levels generate substantial welfare gains if the donor does not implement the optimal concessionality level and provides subsidized loans only then the effectiveness of transfers decreases in the long run with severe welfare implications in contrast transfers are less effective in the short run if the donor offers outright grants only

competition risk neutrality and loan commitments abstract we rationalize fixed rate loan commitments forward credit contracting with options in a competitive credit market with universal risk neutrality future interest rates are random but there are no transactions costs borrowers finance projects with bank loans and choose ex post unobservable actions that affect project payoffs credit contract design by the bank is the outcome of a non cooperative nash game between the bank and the borrower the initial formal analysis is basically in two steps first we show that the only spot credit market nash equilibria that exist are inefficient in the sense that they result in welfare losses for borrowers due to the bank s informational handicap second we show that loan commitments because of their ability to weaken the link between the offering bank s expected profit and the loan interest rate enable the complete elimination of informationally induced welfare losses and thus produce an outcome that strictly pareto dominates any spot market equilibrium perhaps our most surprising result is that if the borrower has some initial liquidity it is better for the borrower to use it now to pay a commitment fee and buy a loan commitment that entitles it to borrow in the future rather than save it for use as inside equity in conjunction with spot borrowing

an economic analysis of debt swaps and case study of the harvard debt for education swap abstract evaluation of harvard university s debt for education swap with ecuador yields a clear bottom line harvard unambiguously gains from the deal since tuition receipts more than double initial outlays and the university acquires assets to fund research in ecuador ecuador s economic benefits however are less clear since the dollar outflow from ecuador may exceed the amount of new scholarship aid plus the true buyback value participants in future debt for education deals must consider both the uncertainty of economic gains and possible macroeconomic consequences for the debtor country

trade credit use as firms approach default using a sample of firms matched with their suppliers we study the use of trade credit as firms approach a default event we show that in the extensive margin around one third of suppliers exit the relationship well ahead of default but the rest continue the relationship relationships are more likely to continue when suppliers sell differentiated goods are located close to their distressed clients sell large proportions to the distressed clients or when the distressed client is in a concentrated market suggesting that dependent suppliers are held up in distressed relationships firms with suppliers that continue the relationship continue purchasing the same amounts from their suppliers and have larger increases in accounts payable suggesting that held up suppliers trade off the potential benefits of granting concessions to their clients during bad times with the risk of increasing their exposure to a distressed firm

bank loan commitments and interest rate volatility bank loan commitments are examined in the context of option pricing models and a valuation formula is obtained the partial takedown phenomenon which is both distinctive and vexatious is considered in detail finally estimates of the value of u s bank loan commitments and their sensitivity to interest rate changes are provided

optimal loan contracts and floating rate debt in international lending to ldcs abstract most ldc debt is at floating interest rate and the wisdom of this choice is analyzed here for a prototype ldc complete insurance requires repayment to increase with export revenues and import prices since the latter variables are positively correlated with libor floating rate debt yields better risk sharing than fixed rate debt and induces more investment in the ldc when default is possible repayment becomes contingent on the cost of sanctions is renegotiation states and some renegotiation costs are likely to be incurred fixed rate debt would have reduced the occurrence of default in the 80s but only marginally

efficiency effectiveness and productivity of marketing in services abstract how can a service firm right size marketing expenses and yet strive to maximize revenue this paper represents the first attempt to model these efficiency and effectiveness issues using a 49 unit asia pacific hotel chain as illustration we employ a triangular dea model with total expenses controlling for number of rooms as the raw input marketing expenses as intermediate output input and revenues from room rentals and f b as final outputs we infer that efficiency tails off when more than 12 of the budget is expended on marketing activities in terms of effectiveness we find that all the units rated as relatively inefficient can accrue increasing returns to scale in revenues from marketing activities by contrast in the productivity stage linking the raw inputs to the revenues we observe mostly decreasing returns to scale our results highlight the crucial role of marketing in service organizations

under what circumstances past and present have international rescues of countries in financial distress been successful recent events in asia and other parts of the globe have prompted calls from many quarters for international rescue of the monetary or fiscal authorities in distressed countries we contrast the experience of rescues of monetary authorities before 1973 of advanced countries temporarily short of liquidity with recent experience of bailouts international rescues in the past have involved relatively small amounts of money sufficient to stave off devaluation or abandonment of a fixed exchange rate while remedial policies were put in place recent bailouts have involved handing over relatively large amounts to both foreign lenders and domestic investors after devaluation of a pegged exchange rate to avoid their incurring wealth losses we document past rescues whether successful or unsuccessful by monetary regimes and show what is different today from past experience

mutual fund volatility timing and management fees this paper shows that compensation incentives partly drive fund managers market volatility timing strategies larger incentive management fees lead to less counter cyclical or more pro cyclical volatility timing but fund styles or aggregate fund flows could also account for this relation therefore we control for them and find that the relation between fees and volatility timing still holds results show that less aggressive fund styles are associated with pro cyclical volatility timing and that volatility timing and flow timing are negatively related we also find that pro cyclical timing mostly improves funds average excess returns sharpe ratios and alphas

portfolio disclosures and year end price shifts commercial paper sells at an extra discount if it matures in the next calendar year but treasury bills do not the discount is apparent in downward price shifts before the year end and upward price shifts at the turn of the year that are significantly correlated with the simultaneous returns to small stocks and that cannot reflect tax loss selling cross sectional and time series tests on prices as well as flow of funds evidence on trades by institutional investors indicate that both the debt and equity patterns reflect agency problems related to portfolio disclosures financial research has brought considerable analysis to bear on the turn of the year in the equity market but not the money market extant literature starting with keim and stambaugh 1986 reports similarities between equity market and money market price shifts in january but has not examined time series and cross sections of money market prices at the high resolution common in studies of the equity market repeating tests from the equity literature on money market prices this article finds a more precise and robust characterization of the price shifts this characterization combined with observations of year end shifts in money market holdings supports the view that intermediaries move prices with strategic responses to portfolio disclosures the main empirical result is that commercial paper pays a higher yield if it matures across the end of the year that is it imputes a forward premium for the holding period from the last trading day of one year to the first trading day of the next this premium is even higher for issues with more default risk and longer maturity as measured at the end of the year and has a substantial impact on yield spreads i argue that the forward premium reflects an abnormally high market price for bearing risk across the year end and that this high price reflects the disutility to intermediaries of showing risky portfolios to claimholders or regulators the connection between portfolio disclosures and price shifts was proposed by haugen and lakonishok hl 1988 as an explanation of the equity market january effect as originally documented by keim 1983 with monthly data

on the incentives associated with sovereign debt abstract this paper revisits the question of whether a sovereign s desire for future access to international credit markets which it retains by paying its international debts constitutes by itself enough of an incentive to make it a reliable customer for commercial lenders the answer is no as it is in the earlier analysis of bulow and rogoff but the result here is in certaincases stronger a defaulter here is excluded from participating in credit markets as both a debtor and a creditor whereas in the previous analysis a key assumption was that defaulters could return as creditors

investment opportunities and corporate demand for lines of credit abstract the behavior of a risk neutral corporation in selection of a line of credit is modeled in a new framework where demand for credit lines by a firm arises from the stochastic arrival in continuous time of short lived opportunities to capture investment projects the firm needs speed and secrecy to capture projects before competitors the firm chooses a credit line that balances its up front commitment cost against the expected extra cost of borrowing in the spot market upon exhaustion of its credit line the firm s demanded credit line depends upon both relative pricing within the contract and the nature of the firm s growth opportunities interestingly while credit line demand is positively related to business growth prospects it is potentially negatively related to uncertainty in those prospects

the use of bank lines of credit in corporate liquidity management a review of empirical evidence abstract this paper reviews empirical evidence on the use of bank lines of credit as a source of corporate liquidity traditional explanation for lines of credit is that they provide insurance against liquidity shocks in much the same as way hoarding cash does however recent empirical research suggests that access to lines of credit is contingent on the credit quality of the borrower as well as the financial condition of the lender these findings suggest that lines of credit are an imperfect substitute for cash as a source of corporate liquidity

a retrospective on the bretton woods system lessons for international monetary reform at the close of the second world war when industrialized nations faced serious trade and financial imbalances delegates from forty four countries met in bretton woods new hampshire in order to reconstruct the international monetary system over the next 25 years with currencies fixed to the american dollar world trade expanded vigorously inflation remained moderate and national income in industrialized countries rose faster than during any other period in this volume three generations of scholars and policy makers some of whom participated in the 1944 conference consider how the bretton woods system contributed to economic stability and rapid growth between 1945 and 1971 and discuss the future of the international monetary system in light of the bretton woods experience since president richard m nixon ended the bretton woods system in 1971 exchange rates have exhibited increasing flexibility after twenty years of floating rates however there is considerable interest in once again limiting exchange rate flexibility the apparent success of the european monetary system a fixed rate arrangement loosely based on the postwar system and the prospect of european monetary unification increase interest in a new internationally stable exchange rate moreover some academics and government officials see fixed rates as a way to help eastern europe and the former soviet union cope with pressing economic and political problems the economists historians political scientists and policy makers who contribute to this volume relate the bretton woods system to earlier fixed rate schemes and consider the political background of the original new hampshire meeting using recenteconomic theory for example work on time consistency and credibility they explore adjustment liquidity and transmission under the system the way it affected developing countries and the role of the international monetary fund in maintaining a stable rate the authors examine th

the economics of loan commitment contracts credit pricing and utilization abstract our purpose is to examine the circumstances under which enduring customer relationships such as revolving credit agreements will become predominant we compare loan commitment contracts under which borrowers may take down funds at fixed marginal mark up to spot lending under which funds are priced in consideration of customers leverage under the first arrangement insurance against default risk is priced as a fixed front end fee under the second arrangement it is priced under a rising leverage specific markup schedule we show that when default risk is independent of take down the loan commitment contract will always dominate spot loans when default risk increases with credit use spot loans may become dominant

financing vs forgiving a debt overhang abstract this paper examines the tradeoffs facing creditors of a country whose debt is large enough that the country cannot attract voluntary new lending if the country is unable to meet its debt service requirements out of current income the creditors have two choices they can finance the country lending at an expected loss in the hope that the country will eventually be able to repay its debt after all or they can forgive reducing the debt level to one that the country can repay the post 1983 debt strategy of the imf and the us has relied on financing but many current calls for debt reform call for forgiveness instead the paper shows that the choice between financing and forgiveness represents a tradeoff financing gives the creditors an option value if the country turns out to do relatively well creditors will not have written down their claims unnecessarily however the burden of debt distorts the country s incentives since the benefits of good performance go largely to creditors rather than itself the paper also shows that the tradeoff itself can be improved if both financing and forgiveness are made contingent on states of nature that the country cannot affect such as oil prices world interest rates etc

the equilibrium valuation of risky discrete cash flows in continuous time this paper values a contingent claim to discrete stochastic cash flows generated by a poisson arrival process with a randomly varying intensity parameter in the most general case both the size and the arrival intensity of cash flows may correlate wih state variables in a continuous time economy assuming the conditions of an intertemporal capital aset pricing model solutions for the value of the contingent claim can be found using various techniques the paper suggests immediate applications to the valuation of insurance contracts the decision to build a firm with unknown future investment opportunities and the pricing of mortgage backed securities

a dynamic efficiency model using data envelopment analysis abstract changes in productivity due to technological progress or regress are incorporated in models of data envelopment analysis dea in two ways either through a network technology or in terms of a capacity variable or capital input embodying technical progress the second way is analyzed here in terms of time varying capital inputs due to the changes in input prices over time this provides an optimal control theoretic view of the time path of capital inputs which minimizes a discounted sum of total input costs for each dmu the cost of risk aversion and the adjustment cost of input price fluctuations may then be minimized in an extended dea model framework these extensions of the dea model are analyzed here and illustrated by an empirical application to international airlines data

the effect of holdings data frequency on conclusions about mutual fund behavior abstract a number of articles in financial economics have used quarterly or semi annual mutual fund holdings data to test hypotheses about investment manager behavior this article reexamines four well known hypotheses in finance to determine whether the results of prior tests of these hypotheses remain valid when higher frequency monthly holdings data are employed the areas examined are momentum trading tax motivated trading window dressing and tournament behavior we find that the use of monthly holdings data rather than quarterly holdings data or in the case of tournament behavior holdings data rather than monthly return data change and in some cases reverse previous results this occurs because monthly holdings data capture a large number of trades missed by quarterly data 18 5 of the trades and permit a more precise estimation of the timing of trades

the dynamics of short term mutual fund flows and returns a time series and cross sectional investigation abstract this study analyzes the dynamics of daily mutual fund flows a vector auto regression var of flows and returns shows that the behavior of fund investors is more consistent with contrarian rather than momentum characteristics past fund flows have a positive impact on future fund returns with the long term information effect dominating the transient price pressure effect seasonality in daily flows such as day of week and day of month patterns are present and daily flows are generally mean reverting probit regressions indicate that fund investment objective marketing policy and level of active management explain cross sectional variation in the behavioral patterns displayed in daily flows our results are robust to the different methods of calculating daily flows based on whether or not the day end tna figures include the current day s flow throughout the analysis we contrast the dynamics of daily flows with established results for monthly fund flows and find important differences between the two

a joint measurement of efficiency and effectiveness for non storable commodities integrated data envelopment analysis approaches efficiency and effectiveness for non storable commodities represent two distinct dimensions and a joint measurement of both is necessary to fully capture the overall performance this paper proposes two novel integrated data envelopment analysis idea approaches the integrated charnes cooper and rhodes iccr and integrated banker charnes and cooper ibcc models to jointly analyze the overall performance of non storable commodities under constant and variable returns to scale technologies the core logic of the proposed models is simultaneously determining the virtual multipliers associated with inputs outputs and consumption by additive specifications for technical efficiency and service effectiveness terms with equal weights we show that both iccr and ibcc models possess the essential properties of rationality uniqueness and benchmarking power a case analysis also demonstrates that the proposed novel idea approaches have higher benchmarking power than the conventional separate dea approaches more generalized specifications of idea models with unequal weights are also elaborated

corporate cash holdings and credit line usage we investigate the factors driving the unprecedented rise in corporate liquidities since the 1970s we find that an economy wide reduction in the cost of holding liquidities and an increase in risk best explain the rise in cash holdings and the widespread use of credit lines the structural estimation results shed light on two widely acknowledged motives for holding cash the precautionary motive and the liquidity motive translate risk exposure into cash holdings our results however do not suggest that firms have become more prudent over time it is higher liquidity needs that has forced firms to hold more cash and use more credit lines abstract from author

loan availability and investment can innovative companies better cope with loan denials this study examines the consequences of loan denials for the investment performance of small and medium sized german enterprises as a consequence of a loan denial innovative companies experience a smaller drop in the share of actual to planned investment than noninnovative companies the nonrandomness of loan denials is controlled for with a selection equation employing the intensity of banking competition at the district level as an exclusion restriction we can explain the better performance of innovative companies by their ability to increase the use of external equity financing such as venture capital or mezzanine capital when facing a loan denial

the simple dynamics of a debt crisis abstract optimal growth path of an impatient neoclassical economy is studied when creditors impose a credit ceiling to prevent debt repudiation the ceiling becomes binding in finite time when the credit constrained regime begins foreign capital inflows and domestic investment fall abruptly output per capita consumption and real wages gradually decline while the real interest rate rises these results show that debt crises in which high external debt is associated to low growth can occur even in the absence of unanticipated shocks policy mistakes or debt overhang effects if distortionary policies cause impatient behavior the model is consistent with chronic capital flight in the debtor country jel f34 f32

the structure of an environmental transaction the debt for nature swap the structure and occurrence of debt for nature swaps are examined empirically contracts executing debt for nature swaps are studied to assess the role of transaction costs in determining how these agreements are structured the emerging contract form is a product of weak enforcement of legal claims to environmental resources in developing countries high costs for delineating and monitoring environmental outcomes and nominal government ownership of the resources involved the occurrence of swaps in individual countries is significantly related to host country attributes including the presence of tropical land and threatened species democratic political institutions and large debt burdens

institutions and individuals at the turn of the year this article evaluates the tax loss selling hypothesis against the window dressing hypothesis as explanations for turn of the year anomalies we examine differences between securities dominated by individual investors versus those dominated by institutional investors and find that the effect is more pervasive in the former controlling for capitalization we find that in early january late december stocks with greater individual investor interest outperform underperform stocks with greater institutional investor interest these results hold for both stocks that previously appreciated in value and stocks that previously depreciated in value the results are most consistent with the tax loss selling hypothesis as an explanation for the turn of the year effect

lending policies of financial intermediaries facing credit and funding risk this paper compares the optimal lending decisions of financial intermediaries that differ in their risk exposure all intermediaries are assumed to face a loan demand described by a random applicant arrival process with each applicant offering a unique risk adjusted rate of return loan demand is therefore uncertain in both quantity and quality the intermediaries differ in terms of their risk exposure because of disparate funding practices intermediaries functioning as brokers minimize their exposure by borrowing funds only as demand is realized whereas those behaving as asset transformers borrow in advance of realizing loan demand thereby maintaining a loanable funds inventory and sustaining the related exposure the optimal sequential lending policy is shown to involve setting a credit standard that becomes stricter with the length of the intermediary s planning horizon and the volume of loans outstanding most importantly it is shown that brokers adopt stricter credit standards than asset transformers and therby reduce their volume of lending

performance measurement with selectivity market and volatility timing the performance of portfolio managers depends on market timing volatility timing and security selection we develop holdings based performance measures that adjust for risk using stochastic discount factors display all three components in a consistent framework and avoid strong assumptions about managers behavior previous models leave out some of the components of performance and correcting for this we deliver better measures of selectivity sorting stocks held by funds on selectivity produces a quintile spread in four factor alphas greater than 2 5 per year before costs and more than 1 7 greater than found using the daniel grinblatt titman and wermers 1997 measure

efficiency and effectiveness in the urban public transport sector a critical review with directions for future research abstract this paper proposes a self contained reference for both policy makers and scholars who want to address the problem of efficiency and effectiveness of local public transport lpt with special emphasis on urban transit in a sound empirical way framing economic efficiency studies into a transport planning perspective it offers a critical discussion of the existing empirical studies relating them to the main methodological approaches used the connection between such perspectives and operations research studies dealing with scheduling and tactical design of public transport services is also developed the comprehensive classification of selected relevant dimensions of the empirical literature namely inputs outputs kind of data analysed methods adopted and policy relevant questions addressed and the systematic investigation of their interrelationships allows us to summarise the existing literature and to propose desirable developments and extensions for future studies in the field

loans on sale credit market seasonality borrower need and lender rents abstract the market for corporate credit is characterized by significant seasonal variation both in interest rates and the volume of new lending firms borrowing from banks during seasonal sales in late spring and fall issue at 19 basis points cheaper than winter and summer borrowers issuers during cheap seasons appear to have less immediate needs but are enticed by low rates to engage in precautionary borrowing high interest rate periods capture borrowers with unanticipated non deferrable investment needs consistent with models of intertemporal price discrimination seasonality is strongly associated with market concentration among a few large banks with repeated interactions

the role of multilateral institutions in the market for sovereign debt creditor country governments have an interest in avoiding defaults by sovereign debtors because default sanctions may be costly to their citizens as a result a standard bargaining model predicts that debtors do not repay in equilibrium even if the threat of sanctions is credible on the part of the banks by contracting with a third party such as a multilateral institution with some degree of independence creditor country governments can precommit not to intervene in equilibrium when debt renegotiation occurs the sovereign receives a subsidy from the multilateral agency the model is used to interpret recent debt reduction operations

reduced cross border lending and financing costs of smes abstract this paper investigates how the withdrawal of banks from their cross border business impacted the borrowing costs of european firms since the crisis we combine aggregate information on total and cross border credit with firm level survey data for the period 2010 2014 we find that the decline in cross border lending led to a deterioration in the borrowing conditions of small firms in countries with more pronounced reductions in cross border credit inflows the likelihood of a rise in firms external financing costs increased this result is mainly driven by the interbank channel which plays a crucial role in transmitting shocks to the real sector across borders