can the stock market success of montreal s ipos be predicted by the prospectus content in this paper we investigated if it is possible for investors to objectively estimate the probability of success of newly public companies using the information contained in offering prospectuses analysing prospectuses of small firms that went public on the montreal stock exchange revealed that the age of the firm at the time of the ipo the percentage of voting rights sold by managers the sales growth potential and the subscription price of newly quoted firms could be good predictors of long term performance on the stock market however it is relatively difficult to link any information contained in the issuing prospectus to short term performance the findings of this study should help authorities to define more stringent criteria to accept new public offerings and make the small cap market more attractive to investors and new growing companies

proper risk aversion on introduit et on etudie une condition comportementale significative sur les fonctions d utilite pour les richesses qui signifie qu une loterie indesirable ne peut jamais etre rendue desirable par la presence d une loterie indesirable independante

flexible exchange rates and the j curve an alternative approach abstract estimates of the j curve that do not explicitly account for feedback effects may give misleading results in the absence of a structural model a var approach is recommended to solve this problem

optimal insurance in incomplete markets this paper examines the theory of optimal insurance purchasing in the presence of uninsurable background risk existing theorems concerning the optimal level of insurance and the optimal form of an insurance contract are shown to hold only under restricted market and risk assumptions in particular conditions sufficient for the optimality of full coverage or sufficient for the optimality of deductible policies depend on the correlation between insurable and uninsurable risks these results may provide a partial explanation why existing theory is often contradicted by observable behavior

determinants of capital structure in irish smes this paper presents an empirical examination of determinants of the capital structure of a sample of 299 irish small and medium sized enterprises smes results suggest that age size level of intangible activity ownership structure and the provision of collateral are important determinants of the capital structure in smes a generalisation of zellner s journal of the american statistical association57 348 368 1962 seemingly unrelated regression sur approach is used to examine industry effects and to test the stability of parameter estimates across sectors we find that the influence of age size ownership structure and provision of collateral is similar across industry sectors indicating the universal effect of information asymmetries firms overcome the lack of adequate collateralisable firm assets in two ways by providing personal assets as collateral for business debt and by employing additional external equity to finance research and development projects

exchange rate policy and trade balance a cointegration analysis of the argentine experience since 1962 using multivariate cointegration tests for nonstationary data and vector error correction models this article examines the determinants of trade balance tb for argentina over the last forty to fifty years taking into account that the short run impacts of currency depreciation on the tb behaviour may differ from the long run effects our investigation confirms the existence of long run relationships among tb real exchange rate rer and foreign and domestic incomes for argentina during different rer management policies based on the estimations the marshall lerner condition is checked and by means of impulse response functions we trace the effect of a one time shock to the rer on the tb not finding support for a j curve pattern in the short run

real exchange rate and openness in emerging economies argentina in the long run argentina s economic policies since the beginning of the century give an interesting background to the study of real exchange rate rer management in emerging countries in this article four types of rer overvaluation are identified in the 1920s argentina provides a short example of overvaluation in a context of a fixed exchange rate policy moreover the estimations show that import substitution regimes can lead to a misalignment of rer argentina illustrates also the difficult management of rer in a volatile environment the results allow in addition to better understand the failure of the trade liberalization attempts of the country and remind that successfully integrating the world economy asks for an appropriate rer policy

long run price elasticities and the marshall lerner condition revisited abstract in estimating trade elasticities most previous researchers employed nonstationary data and ols or 2sls method with new developments in the literature this paper uses stationary data and johansen s cointegration analysis to provide new trade elasticities for almost 30 countries

how does financial distress affect small firms financial structure this paper provides new evidence on the financial structure of small firms by emphasizing the role played by financial distress we specify a model of debt adjustments that allows us to investigate the specific nature of the adjustment process towards target debt levels in small firms which is then extended to account for the effect of financial distress on financial structure decisions our models were estimated by the generalized method of moments on a data panel of small portuguese firms during a period of recession in which a substantial proportion of the companies analyzed faced a financial distress situation we find that small firms do adjust their debt ratios towards target levels the speed of adjustment being faster in the shorter term our results also indicate that there are major differences in the determinants of long term and short term debt highlighting the role played by debt maturity in explaining a firm s financial structure finally random behavior is observed in financially distressed firms who seem to be disoriented when making their financial structure decisions

lending to small businesses the role of loan maturity in addressing information problems we investigate what determines the maturity of lines of credit to small businesses our results provide strong support for the hypothesis that shorter loan maturities serve to mitigate the problems associated with borrower risk and asymmetric information that are typical of small business lending we find that maturity is shorter for firm owners that have poor credit histories are older and less experienced and for firms that are more informationally opaque supporting the notion that collateral and maturity are substitute mechanisms in mitigating agency problems we also find strong evidence that maturity increases with collateral pledges that personal collateral is associated with longer maturities than business collateral and that collateral types that better mitigate agency problems reduce the sensitivity of loan maturity to informational asymmetries and risk finally while it is argued that relationship lending may mitigate information asymmetry we find no relation between loan maturity and stronger firm creditor ties

small firm growth access to capital markets and financial structure review of issues and an empirical investigation this article investigates the financial structure of small firms with an emphasis on growth and access to capital markets neo classical economic life cycle pecking order and agency theory perspectives are reviewed in order to formulate testable propositions concerning levels of long term short term and total debt and liquidity up to date financial data were collected from the u k private database for a large sample comprising of both listed and unlisted small firms regression results indicate significant relationships between financial structure and profitability asset structure size age and stock market flotation but not growth except when rapid and combined with lack of stock market flotation analysis of stock market flotation as an interactive dummy reveals major differences between listed and unlisted small firms the results indicate that the variety of financial structures observed in practice may reflect rational trade offs of various costs on the part of small firm owner managers but that the over reliance on internally available funds and the importance of collateral in the case of unlisted small firms are likely to be major constraints on economic growth

income effects on the trade balance this paper investigates the income effects on the trade balance with particular attention to the distinction between permanent and transitory disturbances for the united states japan germany and the united kingdom in all four countries movements in the trade balance have mostly been associated with transitory changes in income the latter also are negatively associated with the trade balance in marked contrast permanent changes in income have little to do with the trade balance these results are examined in light of intertemporal models and real business cycle models copyright 1996 by mit press

the j curve a literature review due to lag structure currency devaluation is said to worsen the trade balance first and improve it later resulting in a pattern that resemble the letter j hence the j curve phenomenon since its introduction by magee in 1973 brooking papers on economic activity 1 pp 303 25 a large number of studies have attempted to test the phenomenon using different techniques and different model specifications the results are at best ambiguous and deserve to be collected together for the future generation of researchers and graduate students this paper fills such a vacuum in the literature by reviewing the j curve related empirical papers

complementarity and substituability in multiple risk insurance markets we study imperfect competition between insurers in a multiple risk environment in the absence of asymmetric information equilibria are efficient and we determine the degrees of specialization under which the specialized insurers are able or unable to capture the surplus we show in contrast that under adverse selection specialization systematically prevents second best efficiency concluding on the role of our notions of strategic complementarity substituability on the tradeoff between efficiency and fairness of the allocation we give indications on the desirable structure of the insurance industry

is there a j curve abstract if the response of the value of the trade balance to movements in the real exchange rate is described by a j curve then a real depreciation initially worsens a balance of trade deficit only improving it over time this paper investigates whether a j curve can be detected in the last twenty five years of american data no statistically reliable evidence of a stable j curve is detected the model is checked extensively to support this finding

how sensitive are malaysia s bilateral trade flows to depreciation in an attempt to assess the impact of currency depreciation on the trade balance recent studies are employing disaggregated trade data to avoid aggregation bias however since import and export prices are not available at disaggregated level recent studies are using export and import values rather than their volumes so that they can establish direct relation between inpayments and the exchange rate as well as between outpayments and the exchange rate this study explores the experience of malaysia bilateral inpayments and outpayments models are estimated between malaysia and her 14 trading partners using quarterly data and bound testing approach to cointegration the results show that while real depreciation of the ringgit has short run effects in the long run it increases malaysia s inpayments from only five trading partners

firm heterogeneity internal finance and credit rationing this paper assesses the role of internal net worth holding constant investment opportunities in the allocation of credit in the presence of asymmetric information in the capital market the authors consider an economy in which both symmetric information and information intensive entrepreneurs seek funds from the capital market and they develop a simple general equilibrium model of credit allocation their emphasis is on shocks to borrower net worth depending on levels of net worth the symmetric information allocation a credit collapse or intermediate allocations are possible the model yields predictions corresponding to accelerator effects on investment and output as well as real effects of collateral redistributions copyright 1990 by royal economic society

misspecification of capital asset pricing this study documents empirical anomalies which suggest that either the simple one period capital asset pricing model capm is misspecified or that capital markets are inefficient in particular portfolios based on firm size or earnings price e p ratios experience average returns systematically different from those predicted by the capm furthermore the abnormal returns persist for at least two years this persistence reduces the likelihood that these results are being generated by a market inefficiency rather the evidence seems to indicate that the equilibrium pricing model is misspecified however the data also reveals that an e p effect does not emerge after returns are controlled for the firm size effect the firm size effect largely subsumes the e p effect thus while the e p anomaly and value anomaly exist when each variable is considered separately the two anomalies seem to be related to the same set of missing factors and these factors appear to be more closely associated with firm size than e p ratios

the financing of business start ups abstract this article investigates the determinants of capital structure and types of financing used around business start ups utilizing a survey that reduces the confounding effects of survivorship bias in particular the influence of start up size asset structure organization type growth orientation and owners characteristics are examined both in the choice and in the magnitude of finance use the results are consistent with the theoretical models incorporating issues such as information asymmetries agency theory and transaction costs the results also demonstrate linkages among providers of finance maturity of assets and the capital structure of start ups while the results provide insights into business finances near the time of creation some recommendations for future research are discussed

asymmetric information financing constraints and investment the results of a number of theoretical papers lead to the hypothesis that financial variables affect capital sp ending because of asymmetric information in capital markets the auth ors review the relevant theory and test this hypothesis with a large sample of firm data the results show that financial variables such a s cash flow and interest expense add significant explanatory power to investment equations based on dale jorgenson s neoclassical model w ith a capm specification for the firm s cost of capital and a sales accelerator model the analysis therefore links recent theoretical work on capital markets to long standing empirical debates in the inv estment literature copyright 1987 by mit press

business starters and credit rationing this paper investigates which business starters experience credit rationing by simultaneously analyzing which business founders apply for credit and which are refused we argue that credit denial depends largely on the entrepreneurs commitment and signals regarding the repayment of the loan and the success chances of the proposed business our empirical analysis is based on a sample of 1140 potential business starters in the dutch county south limburg our findings show that commitments drive the credit application and approval while the effects of signals are mixed the findings also suggest that business founders have a pretty good idea regarding whether their applications will be honored or not

bilateral j curve between the uk vis a vis her major trading partners currency depreciation is said to worsen the trade balance first before resulting in an improvement yielding a short run pattern labelled the j curve phenomenon while early studies tested the j curve by using aggregate trade data a few recent studies have employed bilateral data mostly between the us and her major trading partners in this paper we extend the literature by considering the experience of the uk we test the phenomenon between the uk and her twenty major trading partners by employing data over 1973q1 2001q3 period in most instances we find no support for the j curve in the short run in the long run only in five cases has the exchange rate had significant impact on the bilateral trade balance

dynamics of the trade balance and the terms of trade the j curve the authors provide a theoretical interpretation of two features of international data the countercyclical movements in net exports and the tendency for the trade balance to be negatively correlated with current and future movements in terms of trade but positively correlated with past movements they document the same properties in a two country stochastic growth model in which trade fluctuations reflect in large part the dynamics of capital formation the authors find that their general equilibrium perspective is essential the relation between the trade balance and the terms of trade depends critically on the source of fluctuations copyright 1994 by american economic association

second best insurance contract design in an incomplete market the optimal form of insurance contracts for multiple risks is examined a well known result in the literature is that under fairly general conditions an insurance policy with a deductible for aggregate losses is optimal real world markets however are typically incomplete in that they require separate contracts for separate loss exposures for instance insurable damage to one s home is not generally allowed to affect the insurance indemnity for unrelated insurable damage to one s automobile we show that separate deductibles are second best optima in this setting we compare the indemnity provided in this second best setting with first best solutions the effect of second best contracts on the individual s total insurance demand is also examined

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

how did the notional interest deduction affect belgian smes capital structure the recently introduced risk capital allowance in belgium which allows a notional interest deduction to be denoted nid hereafter on a firm s adjusted equity for tax purposes has mitigated the tax discrepancy between equity and debt financing to our knowledge we provide the first empirical study of the extent to which this regulation has resulted in a strengthening of small and medium sized enterprises to be denoted smes hereafter solvency which was one of its most prominent objectives results from logit regressions reveal that the probability of adopting the nid is higher for lowly leveraged smes smes without experience with the tax exempt investment reserve and smes with a sound knowledge of the notional interest deduction regulation results on the impact of the nid on the capital structure of smes based on panel and first differences regressions reveal that this measure did not result in a significant change of smes leverage in view of the discussion regarding the optimal tax and legislative framework that governments should put in place poutziouris et al j small bus enterp dev 6 1 7 25 1999 these results cast doubt on the risk capital allowance as it stands now being the right government instrument to contribute at least in the short term to creating a pro enterprising tax and legislative climate for smes we conclude by providing some general suggestions for improving the effectiveness of the risk capital allowance

the existence of equilibrium in discontinuous economic games i theory the article presents information about the existence of equilibrium in discontinuous economic games in this paper and its sequel presents study the existence of nash equilibrium in games where agents payoff functions are discontinuous the enquiry is motivated by a number of recent studies that have uncovered serious existence problems in seemingly innocuous economic games in the sequel to this paper authors have explained the utility function in the economic games referred to earlier are neither continuous nor quasi concave however they demonstrate that the payoff functions in mildly modified versions of these constructs exhibit two weaker forms of continuity which together with the requirement of quasi concavity suffice for the existence of an equilibrium from this one may conclude that at least in the modified versions of these models discontinuities in the payoff functions are not the real source of the problem rather it is the failure of the payoff functions to the quasi concave which is responsible for the non existence of equilibrium these observations bear on the existence of nash equilibrium in pure strategies

trajectories of small business financial structure a dynamic theory of the small firm is expounded assuming entrepreneurs maximise business value over a finite time horizon predicted trajectories for key financial variables are seen to depend on whether debt or equity are cheaper the predicted trajectories are compared with actual trajectories using empirical evidence from three years of detailed primary source data on one hundred and fifty new business startups in scotland evidence largely confirms predictions of the model for the cheap equity case for this case as capital and sales rise steadily debt is retired rapidly except when interest rates on long term debt are low this finding is supported by explicit empirical trajectories of key financial variables

do crises impact capital structure a study of french micro enterprises this article analyses the impact of the global crisis on the relationship between firm related factors size tangible and intangible assets growth and profitability and the capital structure of french micro enterprises a panel of 4945 firms are studied comparatively over two periods before 2003 2007 and during 2008 2013 the global crisis during the global crisis micro enterprises survive by relying mostly on internal sources of financing external leverage is reduced as the increased information asymmetry and default risk raise the cost of debt when necessary micro enterprises sell the underused or unnecessary tangible assets as they focus on their main competence and develop their intangible assets human skills advertising networking brand name and awareness in addition we show that the pecking order is the most relevant theory for predicting the financial decisions and situation of french mes these results provide interesting insights into the financial strategy of french micro enterprises facilitating understanding and action at academic and policy levels

analytical issues in external financing alternatives for sbes as the amount of information about an enterprise is generally not neutral with respect to firm size financiers have problems to identify the default risk associated with a borrower or to have control over a borrower s investments this review paper analyses how various control mechanisms are fit to reduce this information problem and how various types of capital suppliers are endowed to finance small business enterprises

an empirical approach to the financial behaviour of small and medium sized companies this paper shows how the financial behaviour of small and medium sized companies is influenced by size and business sector this idea underlies two research approaches to capital structure i credit rationing and ii the pecking order theory both approaches are based on asymmetric information and have been widely developed over the past two decades an analysis has been carried out on 1000 valencian companies that were randomly selected from the state company registry these companies were divided by size before analysis as an innovation the investigation implements a multivariate manova model that takes into account two key variables in the financing of small and medium firms our results show that size influences company self financing strategies and that business sector influences short term financial policy

determinants of small firm debt ratios an analysis of retail panel data in this paper the relevance of some debt ratio determinants from the recent theory of finance is empirically investigated in a small business sector the data used in this study consist of average financial data of 27 shoptypes in 20 different years covering a period of 24 years the panel character of the data facilitates the use of analytical techniques aimed at reducing or avoiding the biasing effect of omitted variables on the outcomes the main conclusion is that the theoretical determinants appear indeed to be relevant for the small business sector investigated here but the influences encountered in the analyses are far less straightforward than the hypothesized effects in the theory influences on total debt are frequently found to be the net effects of opposite influences on long and short term debt and some variables show large time and industry specific effects further distinct patterns in the time specific effects were found

a probit analysis of the changes in the financial characteristics of newly quoted small firms 1970 73 and 1980 83 an important reason for the establishment of the uk unlisted securities market was to provide capital for promising small firms this paper makes two comparisons a between selected financial characteristics of a sample of small firms that took advantage of this opportunity and a sample of firms that did not and b between any differences in these characteristics and those between a sample of small firms that were floated on the stock market between 1970 73 and a sample of small firms that remained unfloated probit was employed the results suggest floated firms were on average more profitable and faster growing though with the latter relationship not particularly strong there was little significant difference in gearing or liquidity the owners of floated firms were prepared to take less remuneration than average during the 1970s but not during the 1980s

control aversion and the search for external financing in swedish smes the discussion on growth see storey 1997 and control aversion cressy 1995 chittenden et al 1996 cressy and olofsson 1996 in small and medium sized firms has been attracting an increasing amount of attention our purpose in this article is to identify under what circumstances small and medium sized firms are prepared to accept outside control in the business firm in order to grow in the article it is argued that technology development financial strength size and perceived need to grow change firms attitudes towards external financiers the change in attitude towards more openness eventually leads to an actual behaviour where the principals choose to apply for external finance in the form of bank loans a linear structural equation modelling program lisrel is used to analyse a sample of 281 swedish firms the firms all have less than 200 employees and the sample includes both manufacturing and service firms

a note on the specification of inter firm communication in insurance markets with adverse selection abstract this paper reconsiders the proposition due to jaynes that the rothschild stiglitz wilson insurence market with adverse selection has a nash equilibrium once the sharing of information about customers is treated endogenously as part of the game among firms the proposition is shown to be correct if and only if each firm s communication behaviour is conditioned on the set of contracts that are offered by the other firms this type of conditioning introduces a reactive element which is akin to the alternative approach of wilson

exchange rates and the trade balance abstract the impact of the exchange rate on the trade balance is examined for a number of developing countries non structural techniques indicate that a depreciation of the real exchange rate is not strongly associated with a significant improvement in the trade balance

the importance of equity finance for r d activity this article analyzes the importance of equity finance for the r d activity of small and medium sized enterprises we use information on almost 6 000 german smes from a company survey using the intensity of banking competition at the district level as an instrument to control for endogeneity we find that a higher equity ratio is conducive to a higher r d intensity owners may only start r d activities if they have the financial resources to sustain them until successful completion we find a larger influence of the equity ratio for young companies equity may be more important for young companies which have to rely on the original equity investment of their owners since they have not yet accumulated retained earnings and can rely less on bank financing