perceived credit constraints in the european union the promotion and support of small and medium sized enterprises smes is an essential component of policies designed to help improve europe s economic performance a crucial issue is whether smes face difficulty obtaining bank loans using pre crisis survey data from 2005 and 2006 for nearly 3 500 smes firms with fewer than 250 employees in the european union eu we investigate the determinants of perceived bank loan accessibility at the firm level and at the country level based on hierarchical multi level binomial logit regressions our findings show that the youngest and smallest smes have the worst perception of access to bank loans the smes in nations with concentrated banking sectors are more positive about loan accessibility in addition a high fraction of foreign owned banks is associated with improved perception of loan accessibility in the eu 15 but not in the eu 10

delegated portfolio management abstract a problem of screening agents with privately known forecasting abilities and reservation utilities and then eliciting truthful information from these agents once they are employed is considered for the case of risk averse agents and large principals an approximately optimal solution is constructively characterized under the assumption that payoffs are normally distributed a significant extension of the definnetti savage probability elicitation result is developed under this extension knowledge of agent preferences is not required when the underlying conditional distributions are symmetric and this fact is exploited to solve the screening problem in a mean variance formulation

the economics of small business finance the roles of private equity and debt markets in the financial growth cycle abstract this article examines the economics of financing small business in private equity and debt markets firms are viewed through a financial growth cycle paradigm in which different capital structures are optimal at different points in the cycle we show the sources of small business finance and how capital structure varies with firm size and age the interconnectedness of small firm finance is discussed along with the impact of the macroeconomic environment we also analyze a number of research and policy issues review the literature and suggest topics for future research

the effects of incentive compensation contracts on the risk and return performance of commodity trading advisors this paper shows that commodity trading advisors ctas investment performance may be partially explained by their incentive compensation contracts contracts include base incentive and asset parameters the relationships between contract parameters and performance are theoretically indeterminate but are examined here empirically results indicate that incentive parameters are positively related to return means and standard deviations the dollar amounts of assets ctas manage are negatively related to return means and standard deviations supporting elton et al s 1987 1989 finding that cta performance falls after public offerings of commodity funds intuitively since dollar fees are a function of assets at the higher asset and fee levels achieved through commodity fund offerings ctas may safeguard assets and fees by pursuing less risky investment strategies

incentives learning and compensation a theoretical and empirical investigation of managerial labor contracts this article analyzes properties and implications of multiperiod managerial labor contracts under two alternative hypotheses incentives in which productivity depends on unobservable effort and learning in which ability is unknown and is revealed over time shared and conflicting implications of these competing models are developed in terms of experienceearnings profiles and the relation between compensation and performance i empirically examine these theoretical results by using a longitudinal sample of 1 488 chief executive officers followed from 1974 1985 the data yield mixed evidence that generally supports the learning hypothesis over the incentive hypothesis

executive effort and selection of risky projects this article examines the incentives of executives to adopt risky projects the agency problem considered is that of motivating the executive to expend effort to generate information about the profitability of projects and to select the best project conditional upon the information that his effort generates we show that the executive and the principal will not always agree regarding which project is best we provide conditions under which this conflict of interest leads from the principal s perspective to either an underinvestment or an overinvestment in risky projects

new public offerings information and investor rationality the case of publicly offered commodity funds publicly traded commodity funds have been poor investment vehicles yet new funds are a fast growing part of the investment scene in this article the authors show that the information provided to investors is significantly biased upward and that true performance cannot be determined by the information most investors see thus investment in commodity funds given the information set is rational while the authors limit the study to commodity funds the same should hold for other limited partnerships such as real estate oil and gas copyright 1989 by the university of chicago

professionally managed publicly traded commodity funds investment in professionally managed publicly traded commodity funds has grown rapidly in recent years this is the first comprehensive study of the performance of these funds it is found that randomly selected funds offer neither an attractive alternative to bonds nor a profitable addition to a portfolio of stocks and bonds furthermore past performance of these funds offers very little information about future performance the findings may be explained by the large transactions costs incurred by these funds and their primary reliance on technical analysis copyright 1987 by the university of chicago

bank competition and firm creation we investigate the effects of competition in the financial sector on the creation of firms in the nonfinancial sector explicitly allowing for heterogeneous effects across borrowers characterized by different degrees of asymmetric information we find evidence of a bell shaped relationship between bank competition and firm creation in addition consistently with theories arguing that competition may reduce the availability of credit to informationally opaque firms we find that bank competition results less favorable to the emergence of new firms in industrial sectors where informational asymmetries are more important

a theory of noise trading in securities markets in a recent article black 1 introduces a type of trading that he terms noise trading he asserts that noise trading which he defines as trading on noise as if it were information must be a significant factor in securities markets however he does not provide an explanation of why any investors would rationally want to engage in noise trading the goal of this paper is to provide such an explanation for one type of investor managers of investment funds as shown here the incentive for a manager to engage in noise trading arises because of the positive signal that the level of the manager s trading provides about his or her ability to collect private information concerning current and potential investments if the manager s compensation is directly related to investors perceptions of his or her ability the manager will then trade more frequently than is justified on the basis of his or her private information in addition to providing this explanation for noise trading the results of this analysis may also be useful for further empirical exploration of the relation between investment fund portfolio turnover and subsequent performance

performance fee contract change and mutual fund risk abstract we examine the effect that an exogenously specifically governmentally required change in compensation contract had on a managerial decision we find that a group of mutual funds changed their portfolio risk levels after they were forced to change their performance fee schedules their portfolio risk choices differed predictably from a randomly selected group of nonperformance fee funds and a group of performance fee funds that were not required to change their compensation contracts in addition the affected mutual funds lost both shareholders and assets around the time of the imposition of the restriction while the other funds exhibited little change or gained assets and shareholders

discrimination in the small business credit market we use data from the 1993 and 1998 national surveys of small business finances to examine the existence of racial discrimination in the small business credit market we conduct an econometric analysis of loan outcomes by race and find that black owned small businesses are about twice as likely to be denied credit even after controlling for differences in creditworthiness and other factors a series of specification checks indicates that this gap is unlikely to be explained by omitted variable bias these results indicate that the racial disparity in credit availability is likely caused by discrimination

measuring investment performance in a rational expectations equilibrium model much research has been concerned with evaluating the performance of managed portfolios e g mutual funds and examining whether portfolio managers display in some sense superior performance superior performance would seemingly turn on the possession of superior information that is utilized in managing portfolios in general a fund s asset holdings or portfolio weights might not be observable to an outsider whether they are or not however they are likely to change over time this happens especially when better performance is a result of superior information since managers will change their portfolio composition on obtaining private information since such changes must be taken into account the problem of measuring performance of managed portfolios is inherently different from that of evaluating the performance of individual assets groups of assets or generally portfolios with constant and known composition

a more complete conceptual framework for sme finance abstract we propose a more complete conceptual framework for analysis of sme credit availability issues in this framework lending technologies are the key conduit through which government policies and national financial structures affect credit availability we emphasize a causal chain from policy to financial structures which affect the feasibility and profitability of different lending technologies these technologies in turn have important effects on sme credit availability financial structures include the presence of different financial institution types and the conditions under which they operate lending technologies include several transactions technologies plus relationship lending we argue that the framework implicit in most of the literature is oversimplified neglects key elements of the chain and often yields misleading conclusions a common oversimplification is the treatment of transactions technologies as a homogeneous group unsuitable for serving informationally opaque smes and a frequent misleading conclusion is that large institutions are disadvantaged in lending to opaque smes

disagreement as a measure of uncertainty this paper presents evidence from the livingston survey of inflation forecasts that forecaster disagreement provides a useful measure of forecast uncertainty the evidence is analogous to the evidence for arch effects disagreement at the time of the forecast has as large positive effect on the conditional variance of the subsequent forecast error as a conditioning variable forecaster disagreement dominates arch for both survey errors and the error terms in robert engle s quarterly model of inflation as measured by the resulting conditional variances disagreement indicates larger and more variable levels of uncertainty for the 1946 94 period copyright 1996 by ohio state university press

competition small business financing and discrimination evidence from a new survey we analyze credit applications loan denials and interest rates paid by small businesses across owner gender race and ethnicity in addition we examine data from owners who said they did not apply for credit because they believed that their applications would have been turned down after controlling for a rich set of explanatory variables including personal and business credit histories substantial differences in denial rates between firms owned by african americans and white males remain moreover consistent with becker s classic theories 1957 we find evidence that increases in competition in the firm s local banking market reduces these differences

capital structure decisions during a firm s life cycle the study reported here examines the financing choices of small and medium sized firms i e those most vulnerable to information and incentive problems through the lens of the business life cycle we argue that the controversy in the empirical literature regarding the determinants of capital structure decisions is based on a failure to take into account the different degrees of information opacity and consequently firms characteristics and needs at specific stages of their life cycles the results show that in a bank oriented country firms tend to adopt specific financing strategies and a different hierarchy of financial decision making as they progress through the phases of their business life cycle contrary to conventional wisdom debt is shown to be fundamental to business activities in the early stages representing the first choice by contrast in the maturity stage firms re balance their capital structure gradually substituting debt for internal capital and for firms that have consolidated their business the pecking order theory shows a high degree of application this financial life cycle pattern seems to be homogeneous for different industries and consistent over time

statistical dynamics and walras law abstract much interest has been shown on identifying the chaotic behavior generated from t tonnement process recently the aim of this article is to direct the research in exploring its statistical dynamical properties two typical types of ergodic t tonnement processes restricted t tonnement and unrestricted t tonnement have been studied their long run statistical characteristics such as time average of price excess demand and inflation rate are discussed in theory and by computer simulations

on the observational equivalence of managerial contracts under conditions of moral hazard and self selection managerial contracts often tie compensation to the performance of the firm two models of contracting under asymmetric information moral hazard and self selection are used to explain this phenomenon an important direction for research in this area will be to use data on managerial contracts to sharpen our understanding of the settings in which a given informational problem is most important the purpose of this paper is to ask whether this is possible using static models of contracting under asymmetric information to address this question we compare the standard principal agent model presented by grossman and hart 1983 with a plausible self selection model where the firm only wants to hire a manager with a particular level of productivity we call this self selection model a talent search

performance incentive fees an agency theoretic approach this paper employs recent developments in agency theory to study the impact that com pensation contracts have on portfolio management investment decisions in a restricted mean variance world two types of incentive contracts for mutual fund managers are ana lyzed and compared the results show that the symmetric contract while not necessar ily eliminating agency costs dominates the bonus contract in aligning the manager s interests with those ofthe investor investment companies and by extension their managers control a large and increasing percentage ofthe aggregate wealth of their clients more investors are putting their money under the control of these advisers than ever before con sequently potential conflicts of interest arise between investment company own ers and their financial management advisers the securities and exchange com mission sec has been concerned with this issue for a number of years the agency has commissioned several studies to investigate the issue and has set forth certain rulings concerning the behavior of investment company advisers of par ticular importance has been the compensation arrangement between mutual fund management and the fund owners in fact the sec has issued specific guidelines regarding allowable fee schedules for managers these guidelines have ied to a policy debate concerning whether the sec has been too stringent or not stringent enough in regulating compensation for investment managers the present study takes a new approach to this problem in an attempt to resolve this debate the fiduciary relationship between mutual fund management and the inves tors they represent may be viewed as a principal agent relationship conse quently the methodology from the agency literature can be applied to study the impact of various compensation arrangements on the potential conflict of interest between these two groups

life cycle effects in small business finance this paper studies the life cycle profiles of small firms cost and use of credit using a panel of finnish firms the choice of method matters for the conclusions drawn about the relationship between firm age and financing costs the cross sectional age profiles of financing costs are hump shaped and consistent with hold up theories whereas methods that control for cohort fixed effects demonstrate that the financing costs decrease monotonically as the firms mature the life cycle profiles of the use of credit also indicate that firms are more dependent on financial intermediaries in the early periods of their lives furthermore the cohorts born during recessions pay higher financing costs and use smaller amounts of bank loans even after their creditworthiness is controlled for the recession cohort effect appears to be more related to the experience of starting up the firm in the recession than to the ceos growing up in a recession during their early adulthood

statistical dynamics and economics abstract it is shown in this paper how complex economic dynamics can be characterized using the statistical or distributional theory of dynamical systems the basic concepts of the latter are summarized then applications to supply and demand adjustments in competitive markets aggregate business fluctuations and economic growth in the very long run are briefly reviewed

the value of private sector business credit information sharing the us case this paper investigates the value added by private information exchanges that share information on business payment performance we discuss how this information is collected and disseminated by the worlds largest private information broker dun bradstreet we provide the first empirical examination of the importance of this information at the lending decision level our findings indicate that exchange generated information provides significant explanatory power in failure prediction models controlling for other credit information that is easily available to lenders our study complements the work of jappelli and pagano information sharing lending and defaults cross country evidence centre for economic policy research discussion paper 2184 1999 who find in cross country macro level tests that information exchanges add value 2003 elsevier science b v all rights reserved

estimation risk and incentive contracts for portfolio managers the fiduciary relationship between portfolio managers and the investors they represent may be viewed as a principal agent relationship and therefore we have used the methodology from the agency literature in economics and finance to study the impact of existing compensation arrangements on the conflicts of interest between these two groups in this paper we employ the assumptions of the capital asset pricing model and of estimation risk concerning beta to develop a model in which portfolio managers can through effort choose the parameters of the beta distribution our model entails moral hazard because the investor cannot observe the manager s action given certain utility functions we show that the presence of estimation risk leads the manager to choose a lower beta portfolio than otherwise and that no first best optimal contract exists we also show that managerial divergent behavior is related to the divergence in risk preferences between the manager and the investor by making slightly more stringent assumptions about preferences we show that there exist some conditions under which the manager will provide more effort but also a riskier portfolio than the investor prefers finally we show that the investor will prefer a manager who is less risk averse than the investor

are good or bad borrowers discouraged from applying for loans evidence from us small business credit markets this paper takes the concept of a discouraged borrower originally formulated by kon and storey kon y storey d j 2003 a theory of discouraged borrowers small business economics 21 37 49 and examines whether discouragement is an efficient self rationing mechanism using us data it finds riskier borrowers have higher probabilities of discouragement which increase with longer financial relationships suggesting discouragement is an efficient self rationing mechanism it also finds low risk borrowers are less likely to be discouraged in concentrated markets than in competitive markets and that in concentrated markets high risk borrowers are more likely to be discouraged the longer their financial relationships we conclude discouragement is more efficient in concentrated than in competitive markets

disagreement between rating agencies and bond opacity a theoretical perspective in this paper we explicitly model a bond rating process under varying degrees of bond opacity and derive conditions under which disagreements between rating agencies rating splits can serve as a useful proxy for opacity in empirical analyses

investment incentives debt and warrants abstract this paper models and characterizes investment incentive problems associated with debt financing the decision problem of residual claimants is explicity formulated and their investment policies are characterized the paper also analyzes the use of conversion features and warrants to control distortionary incentives these claims reverse the convex shape of levered equity over the upper range of the firm s earnings and this mitigates the incentive to take risk it is shown that under certain conditions such claims can be constructed to restore net present value maximizing incentives and simultaneously meet the financing requirements of the firm

opacity of young businesses evidence from rating disagreements abstract a conventional wisdom in the contemporary corporate finance literature argues that small and medium sized enterprises smes are informationally opaque we use data from two credit information companies and in particular their disagreements over the creditworthiness of smes to study the empirical relevance of this often invoked assumption our panel data analysis shows that once unobserved firm effects are controlled for the disagreements i e rating splits are inversely related to the age of firms we are not able to document such a robust relationship between the disagreements and the size of firms this finding holds a lesson for empirical corporate finance researchers who need firm level proxies for informational imperfections and asymmetries of the two often used proxies firm size is not as closely related to informational opacity as firm age is

multiple equilibria and chaos in a discrete tâtonnement process the purpose of this note is to demonstrate a sufficient condition for a discrete t tonnement process to lead to chaos in a general equilibrium model with multiple commodities the result indicates that as the speed of price adjustment increases the discrete t tonnement process is complex in a general equilibrium economy in which there are multiple equilibria

small and medium size enterprises access to finance as a growth constraint abstract this paper presents recent research on access to finance by small and medium size enterprises smes smes form a large part of private sector in many developed and developing countries while cross country research sheds doubt on a causal link between smes and economic development there is substantial evidence that small firms face larger growth constraints and have less access to formal sources of external finance potentially explaining the lack of smes contribution to growth financial and institutional development helps alleviate smes growth constraints and increase their access to external finance and thus levels the playing field between firms of different sizes specific financing tools such as leasing and factoring can be useful in facilitating greater access to finance even in the absence of well developed institutions as can systems of credit information sharing and a more competitive banking structure

multiple equilibria and chaotic tâtonnement applications of the yamaguti matano theorem abstract this paper demonstrates sufficient conditions for the discrete time t tonnement process to lead to chaos in the competitive economy with only two commodities to prove that we use yamaguti matano theorem