application of real options analysis for pharmaceutical r d project valuation empirical results from a survey real options analysis was often recommended as an emerging valuation technique for high risk investment projects former inter sectoral surveys have drawn an ambivalent picture of real options usage in general in addition there is a lack of sector specific investigations in the following article the results of an in depth analysis of collected empirical data regarding the application of this new tool in the pharmaceutical sector is presented by capturing the internal view from the pharmaceutical companies themselves and the external view from the health care departments of financial service firms r d stage specific modi of application reasons for reluctance in the employment of real options and their assumed future prospects are elucidated

collective bargaining in the public sector the effect of legal structure on dispute costs and wages this paper examines the impact of collective bargaining legislation on dispute costs and wages using a panel of canadian public sector contracts the authors results suggest that policymakers designing collective bargaining legislation face a trade off between reducing dispute costs and increasing wages dispute costs are lower under compulsory arbitration than under the right to strike or when no collective bargaining legislation exists hence a switch to compulsory arbitration could potentially make both the union and the employer better off by reducing dispute costs however the authors find that wages are higher under compulsory arbitration than under other legal structures copyright 1991 by american economic association

retail bank deposits as quasi fixed factors of production neoclassical models of the banking firm for example michael klein 1971 treat all deposit liabilities as fully variable factors of production banks then maximize profits minimize liability costs by equating the marginal costs of all liability types during each period the empirical relevance of these models is difficult to establish because binding deposit rate ceilings regulation q force bank competition for many retail deposits into implicit interest channels that are not readily measured it is therefore noteworthy that during two recent periods when deposit rate ceilings were not binding banks paid retail deposit rates considerably in excess of the rate at which they could borrow via large unregulated certificates of deposit such behavior seems inconsistent with the cost minimization prescribed by neoclassical bank models however if retail deposit accounts are interpreted as quasi fixed gary becker 1962 walter oi 1962 donald parsons 1972 sherwin rosen 1968 inputs to the banking firm these important historical observations can be reconciled with bank profit maximization this paper first describes two historical episodes during which the bank retail deposit rate exceeded the negotiable certificate of deposit rate for substantial periods of time while no profit maximizing cost minimizing bank would pay such a rate differential if retail deposit quantities are costlessly variable interpreting retail deposit accounts as quasi fixed inputs to the bank explains the peculiar rate structures a simple two period model of bank liability selection formalizes the analysis i two puzzling historical episodes

religiosity and earnings management international evidence from the banking industry using an international sample of banks we study how differences in religiosity across countries affect earnings management given that religiosity is a major source of morality and ethical behavior it may reduce excessive risk taking and act as deterrence for earnings manipulations therefore we predict lower earnings management in societies that have higher religiosity consistent with expectations our cross country analysis indicates that religiosity is negatively related to income increasing earnings management for loss avoidance and just meeting or beating prior year s earnings we also find that religiosity reduces income increasing earnings management through abnormal loan loss provisions in additional tests we document that religiosity increases the information value of bank earnings with both earnings persistence and cash flow predictability being enhanced by higher religiosity for the crisis period analysis i e 2007 2009 our evidence shows that banks in countries with higher religiosity exhibit lower probability of reporting asset deterioration and lower probability of having poor performance

vive la difference social banks and reciprocity in the credit market social banks are financial intermediaries paying attention to non economic i e social ethical and environmental criteria to investigate the behavior of social banks on the credit market this paper proposes both theory and empirics our theoretical model rationalizes the idea that reciprocity can generate better repayment performances based on a unique hand collected dataset released by a french social bank our empirical results are twofold first we show that the bank charges below market interest rates for social projects second regardless of their creditworthiness motivated borrowers respond to advantageous credit terms by significantly lowering their probability of default we interpret this outcome as the first evidence of reciprocity in the credit market

why is bank debt senior a theory of asymmetry and claim priority based on influence costs this theory can explain why bank debt is universally senior consistent with the presence of conflict lawyers and absolute priority violations in financial distress better organized banks would more strongly contest priority in financial distress if they were junior because deterrence can reduce creditors total expenses in a priority contest the ex post stronger lobbyist litigant should be senior ex ante for equivalent reasons the theory can advise when public debt should be senior to trade credit and or implicit contracts and can even suggest one rationale for the absolute priority rule apr this article further shows that chapter hi creditor reimbursement procedures can lower overall costs article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

relationship banking fragility and the asset liability matching problem we address a fundamental question in relationship banking why do banks that make relationship loans finance themselves primarily with core deposits and when would it be optimal to finance such loans with purchased money we show that not only are relationship loans informationally opaque and illiquid but they also require the relationship between the bank and the borrower to endure in order for the bank to add value however the informational opacity of relationship loans gives rise to endogenous withdrawal risk that makes the bank fragile core deposits are an attractive funding source for such loans because the bank provides liquidity services to core depositors and this diminishes the likelihood of premature deposit withdrawal thereby facilitating the continuity of relationship loans that is we show that banks will wish to match the highest value added liabilities with the highest value added loans and that doing so simultaneously minimizes the bank s fragility owing to withdrawal risk and maximizes the value the bank adds in relationship lending we also examine the impact of interbank competition on the bank s asset liability matching and extract numerous testable predictions

bank mergers and small firm financing in this study the effect of bank mergers on the most recent attempt to obtain financing from a sample u s small firms in the mid 1990s is examined banking mergers which affected about 25 of the firms responding to the survey had no significant effect on the ability of small firms to obtain a loan or the contract loan rate on the most recent loan from a commercial bank however the incidence of mergers does appear to increase nonprice loan terms increase the incidence of related fees for services raise the frequency of searching for a new bank and result in deterioration of service quality little evidence is found that the most informationally opaque firms e g the smallest firms bear a higher cost from mergers than do less informationally opaque firms

a test of the law of one price in retail banking this paper investigates the level and the determinants of retail banking interest rate differences among spanish banks in the period 1989 2003 we find that the interest rates of twenty five different bank loan and deposit products adjust rather rapidly to their long term values in response to external shocks as the relative version of the law of one price predicts but the evidence runs contrary to the absolute version of the law credit risk premium part of the marginal cost of the loans granted by a particular bank is an important source of interest rate dispersion across banks and loan products both before and after spain joined the euro zone therefore differences in credit risk policies across banks must be taken into account when forming expectations about european retail banking integration

rebuilding trust ireland s csr plan in the light of caritas in veritate this paper seeks to contribute to the discussion on national corporate social responsibility csr plans from the perspectives of the three logics as articulated in caritas in veritate by using the irish national csr plan as an example good for business good for the community ireland s national plan on corporate social responsibility 2014 2016 maintains that csr activities can enable organisations to build relationships and trust with communities one of the consequences of the 2008 financial crisis was the decrease in trust in banking systems and in business more broadly it is well recognised that relationships of trust are essential to the life of the market the state and civil society pope emeritus benedict xvi s caritas in veritate contends that corresponding to the life of the market the state and civil society are three logics the logic of exchange i e giving to acquire the logic of public obligation i e giving through duty and the logic of gift i e giving due to solidarity this paper proposes that the normative framework of the three logics of caritas in veritate can be read into the irish national csr plan this paper argues that the examples of csr initiatives proffered by the plan could point organisations in the direction of the logic of gift and therefore enable the rebuilding of relationships of trust with citizens and communities

this time is the same using bank performance in 1998 to explain bank performance during the recent financial crisis are some banks prone to perform poorly during crises if yes why in this paper we show that a bank s stock return performance during the 1998 crisis predicts its stock return performance and probability of failure during the recent financial crisis this effect is economically large our findings are consistent with persistence in a bank s risk culture and or aspects of its business model that make its performance sensitive to crises banks that relied more on short term funding had more leverage and grew more are more likely to be banks that performed poorly in both crises

term structure intermediation by depository institutions abstract term structure intermediation in which institutions purchase assets and sell liabilities of different maturities is analyzed theoretically and the results are applied to current policy issues the theoretical model allows the identification of alternative reasons for mismatched portfolios including risk loving utility functions interest rate forecasts that differ from the market s forward rates and risk premia in the yield curve the risk premia case appears empirically relevant and intermediation in which lending is long earning the risk premium and borrowing is short not paying a risk premium may offset capital market imperfections but such intermediation is also risky creating a dilemma for bank regulators

codes of ethics partly as a result of much recent evidence of business and government crime a large proportion of major corporations have adopted codes of ethics government service is also making more use of them the electrical manufacturing anti trust conspiracy and 1973 1976 investigation of foreign and domestic bribery were immediate prods there are also government codes of which the aspa code is most widely distributed corporate codes discuss relations to employees interemployee relationships whistle blowing effect on environment commercial bribery insider information other conflicts of interest anti trust accounting consumer relations and political activities a discussion of use of codes shows partly favorable results a number of corporation decisions have not yet become a subject of code provisions codes will be more useful if the reasons behind each order are stated and team work is encouraged

renewable energy policy evaluation using real option model the case of taiwan abstract this study presents a policy benefit evaluation model that integrates cost efficiency curve information on renewable power generation technologies into real options analysis roa methods the proposed model evaluates quantitatively the policy value provided by developing renewable energy re in the face of uncertain fossil fuel prices and re policy related factors the economic intuition underlying the policy making process is elucidated while empirical analysis illustrates the option value embedded in the current development policy in taiwan for wind power in addition to revealing the benefits that re development provides when considering real options analytical results indicate that roa is a highly effective means of quantifying how policy planning uncertainty including managerial flexibility influences re development in addition to assessing the policy value of current re development policy this study also compares policy values in terms of internalized external costs and varying feed in tariff fit simulation results demonstrate that the re development policy with internalized co2 emission costs is appropriate policy planning from sustainability point of view furthermore relationship between varying fit and policy values can be shown quantitatively and appropriate fit level could be determined accordingly

valuation of project portfolios an endogenously discounted method abstract real options analysis roa has been developed to value assets in which managerial flexibilities create significant value the methodology is ideal for the valuation of projects in which frequent adjustments e g investment deferral project scope changes etc are necessary in response to the realization of market and technological uncertainties however roa has no practical application when valuing portfolios of multiple concurrent projects sharing resources as the size of the problem grows exponentially with the number of projects and the length of the time horizon in this paper an extension of roa suitable for the valuation of project portfolios with substantial technological uncertainty e g r d portfolios is proposed the method exploits the distributed decision making strategy encountered in most organizations to decompose the portfolio valuation problem into a decision making sub problem and a set of single project valuation sub problems that can be sequentially solved discrete event simulation is used for the first sub problem while a tailored roa based strategy is used for the set of valuation sub problems a case study from the pharmaceutical industry is used to compare the decision tree analysis dta method and the proposed method

earnings quality in uk private firms comparative loss recognition timeliness abstract uk private and public companies face substantially equivalent regulation on auditing accounting standards and taxes we hypothesize that private company financial reporting nevertheless is of lower quality due to different market demand regulation notwithstanding a large uk sample supports this hypothesis quality is operationalized using basu s 1997 time series measure of timely loss recognition and a new accruals based method the result is not affected by controls for size leverage industry membership and auditor size or by allowing endogenous listing choice the result enhances understanding of private companies which are predominant in the economy it also provides insight into the economics of accounting standards

bank foreign lending mandatory disclosure rules and the reaction of bank stock prices to the mexican debt crisis this paper examines the effects of the mexican debt mora torium in august 1982 on bank valuation the mexican default resulted in the passage of regulations requiring public disclosure of bank fo reign lending exposure the authors find that even in the absence of public disclosure regulations investors were able to discriminate a mong banks with different levels of exposure copyright 1987 by the university of chicago

religious beliefs gambling attitudes and financial market outcomes this study investigates whether geographic variation in religion induced gambling norms affects aggregate market outcomes we conjecture that gambling propensity would be stronger in regions with higher concentrations of catholics relative to protestants consistent with our conjecture we show that in regions with higher catholic protestant ratios investors exhibit a stronger propensity to hold lottery type stocks broad based employee stock option plans are more popular the initial day return following an initial public offering is higher and the magnitude of the negative lottery stock premium is larger collectively these results indicate that religion induced gambling attitudes impact investors portfolio choices corporate decisions and stock returns

market evidence on the effective maturity of bank assets and liabilities the recent years increase in interest rate volatility has intensified concern over the exposure of commercial banks to interest rate or funding risk since the effect of interest rate changes on the equity value of a bank depends on the maturity or duration of the bank s assets and liabilities assessing an individual bank s interest rate risk exposure requires information about the maturity composition of its portfolio it is difficult however to assess a bank s risk exposure from balance sheet data because several important asset and liability items have theoretically ambiguous effective maturities in a frictionless market a security s effective maturity will equal its stated maturity or time to repricing with market imperfections e g depositors transaction or information costs however the equilibrium cost of some deposit items may respond sluggishly or incompletely to market rate changes see hester and pierce 1975 or flannery 1982 such liabilities market values discounted at market rates would therefore fluctuate with the level of interest rates these liabilities are sometimes called core deposits which manifest sticky responses to market rate changes we define an asset or liability s effective maturity as the maturity of a fixed rate perfectly elastically supplied security with the same market value elasticity as the bank balance sheet item under consideration naturally a balance sheet item s effective maturity is the relevant determinant of its contribution to the bank s overall interest rate risk sensitivity

the methods used to implement an ethical code of conduct and employee attitudes in the process of implementing an ethical code of conduct a business organization uses formal methods of these training courses and means of enforcement are common and are also suitable for self regulation the usa is encouraging business corporations to self regulate with the federal sentencing guidelines fsg the guidelines prescribe similar formal methods and specify that unless such methods are used the process of implementation will be considered ineffective and the business will therefore not be considered to have complied with the guidelines business organizations invest enormous funds on formal methods however recent events indicate that these are not by themselves yielding the desired results our study based on a sample of 812 employees and conducted in an israeli subsidiary of a leading multinational high tech corporation headquartered in the us indicates that of the methods used in the process of implementation one of the informal methods namely the social norms of the organization is perceived by employees to have the most influence on their conduct this result when examined against employee tenure remains relatively stable over the years and stands in contradistinction to the formalistic approach embedded in the fsg we indirectly measure the effectiveness of the percieved most influential implementation process methods by analyzing their impact on employee attitudes namely personal ethical commitment and employees commitment to organizational values our results indicate that the informal methods manager sets an example or social norms of the organization are likely to yield greater commitment with respect to both employee attitudes than the formal method training and courses on the subject of ethics the personal control method my own personal values differs significantly from all the other methods in that it yields the highest degree of personal ethical commitment and the lowest degree of employees commitment to organizational values

reputation and discretion in financial contracting the authors explain the use of legally unenforceable discretionary financial contracts in circumstances where legally enforceable contracts are feasible a discretionary contract allows a contracting party to choose whether or not to honor the contract it is shown that such a contract liquefies reputational capital by permitting it to be depreciated in exchange for the preservation of financial capital and information reusability in financially impaired states in addition discretionary contracts foster the development of reputation this explains discretion among highly confident letters holding company relationships mutual fund contracts bank loan commitments and other financial and nonfinancial contracts copyright 1993 by american economic association

unanticipated interest rates bank stock returns and the nominal contracting hypothesis abstract the relationship between unexpected interest rate movements and bank stock returns is analyzed in the context of the nominal contracting hypothesis unanticipated changes in interest rates should influence individual bank profits and stock returns depending on the maturity characteristics of their assets relative to their liabilities this hypothesis is investigated by constructing portfolios on the basis of the nominal contracting positions of banks the main conclusion of this paper is that the wealth redistribution implications of the nominal contracting hypothesis is found to be unimportant in the determination of bank stock returns

networth exposure to interest rate risk an empirical analysis of indian commercial banks abstract in the basel ii era management of interest rate risk in the banking book has become significant in the first study of its kind we develop a simulation based driver driven approach to estimate the impact of interest rate volatility on the networth of indian banks during the period 2002 2004 we derive the interest rates that drive changes in deposit and prime lending rates plr then we perform monte carlo simulation and multiple regressions on these driver rates to obtain simulated shocks to deposit rates and plr we use these simulated shocks to get the 99 worst eve loss for the sample banks these losses are much larger than what the existing literature suggests this is because apart from repricing risk we are the first to find evidence of significant basis risk our results have important policy implications both for banks and regulators

does mediation arbitration reduce arbitration rates evidence from a natural experiment to study the effect of the introduction of mediation arbitration as a dispute resolution procedure on interest arbitration the authors exploit a natural experiment in the arbitration institutions

moral hazard and secured lending in an infinitely repeated credit market game we analyze repeated moral hazard with discounting in a competitive credit market with risk neutrality even without learning or risk aversion long term bank borrower relationships are welfare enhancing the main result is that the borrower obtains an infinite sequence of unsecured loans at below spot market cost following the first good project realization this contract produces first best action choices prior to this stage the borrower gets secured loans with above market borrowing cost the optimal contract thus displays a selective memory feature taking only one of two forms at any given point in time depending on prior history we consider an infinitely repeated bank borrower relationship with moral hazard and universal risk neutrality and explore the ramifications of credit contract duration when the two well known benefits of long term contracting learning and improved risk sharing are absent our objectives are twofold the first is to analyze an infinitely repeated game with discounting in a credit market context we thus relate the theory of repeated games to financial intermediation theory particularly to issues of moral hazard and collateral related distortions the second objective is to understand noteworthy stylized facts of credit markets such as durability in credit relationships lower borrowing costs for established borrowers and unsecured loans for established borrowers versus secured loans for newer borrowers while these practices may be partly due to learning we show that learning is not essential to rationalize them even if information decays rapidly and banks learn nothing about borrowers through time these aspects of credit contracting arise in a repeated game context our main results are as follows first despite universal risk neutrality and the absence of learning a durable bank relationship benefits the borrower 2 the intuition is that the long term contracting permitted by a durable relationship enables the bank to efficiently tax and subsidize the borrower through time to reduce the use of costly collateral second the average welfare loss due to moral hazard per period is positive even as the time horizon goes to infinity third the optimal infinite horizon contract has the striking property that following the period

how does the stock market view bank regulatory capital forbearance policies during the subprime crisis the fdic has shown once again laxity in resolving and closing insolvent institutions ronn and verma 1986 call the tolerance level below which a bank closure is triggered the regulatory policy parameter we derive a model in which we make this parameter stochastic and bank specific to infer the stock market view of the regulatory capital forbearance value for 565 u s listed banks during 1990 to 2012 the countercyclical forbearance fraction in capital most substantial in recessions could represent 17 on average of the market valuation of bank equity and could go as high as 100

evidence of bank market discipline in subordinated debenture yields 1983 1991 we examine debenture yields over the period 1983 1991 to evaluate the market s sensitivity to bank specific risks and conclude that investors have rationally reflected changes in the government s policy toward absorbing private losses in the event of a bank failure although this evidence does not establish that market discipline can effectively control banking firms it soundly rejects the hypothesis that investors cannot rationally differentiate among the risks undertaken by the major u s banking firms an increasingly important issue in the regulation of financial institutions concerns the extent to which market investors can will recognize and control the risks of banking firms although the banking act of 1933 replaced some private risk bearing with federal deposit insurance legislators were reluctant to displace market discipline very extensively flood 1992 by the early 1980s however u s regulators had come to protect virtually all bank liability holders from credit losses most visibly at large banks which were deemed too big to fail sprague 1986 o hara and shaw 1990 this extension of the government safety net largely reflects a skepticism on the part of regulators that normal market forces could adequately identify and control bank risks while u s regulators have recently shown an increased willingness to let some bank investors bear default losses an official suspicion of the efficacy of market discipline remains widespread by contrast some prominent academic economists argue that market investors in bank debentures could provide timely and effective control over banking firms risk exposures and that the social cost of supervising banks would be lower if regulators ceded greater

gender differences in customer expectations and perceptions of corporate social responsibility abstract the literature on business ethics corporate social responsibility and sustainability includes many studies on gender differences however the results are often contrasting in particular there has not yet been full agreement on the role and significance of gender differences in customer expectations and perceptions of responsible corporate conduct an extensive review of the research on the subject reveals that the published studies have not dealt with the substantive significance of gender differences and as a result the size of such differences is unknown the current study analyses both the statistical and the substantive significance of gender differences in customer expectations and perceptions of corporate responsibility also examining the influence of age and education the analysis is carried out on a remarkably large sample of 908 clients pertaining to 12 of the largest italian banks the overall results show that there is a small substantive difference between women s and men s average expectations with women showing higher average values than men this result holds generally true with variation of education levels and age groups young females show the highest average values of expectations and the significance of gender differences decreases with age in contrast the perception of corporate social responsibility does not show significant gender differences either at the general level or when the analyses are repeated by education levels and age groups the paper introduces the use of a standardized measure of effect size for analysing the substantive significance of gender differences in customer expectations and perceptions of corporate social responsibility this novel approach increases results reliability and accordingly the effectiveness of company or policy maker strategies in designing planning implementing and assessing sustainability initiatives

real options approach based demand forecasting method for a range of products with highly volatile and correlated demand to achieve a competitive edge needed for marketing highly competitive products modern enterprises have actively sought to provide the marketplace with an expansive range of products with high random volatility of demand and correlations between demands of product consequently traditional forecasting methods for separately forecasting demand for these products are likely to yield significant deviations therefore this study develops a real options approach based forecasting model to accurately predict future demand for a given range of products with highly volatile and correlated demand additionally this study also proposes using monte carlo simulation to solve the demand forecasting model the real options approach associated with monte carlo simulation not only deals effectively with random variation involving a particular demand stochastic diffusion process but can handle the correlations in product demand

short term loans and long term relationships relationship lending in early america recent banking theory holds that durable firm bank relationships are valuable to both parties this paper uses the contract specific loan records of a 19th century u s bank and shows that firms with extended relationships received three principal benefits first firmswith extended relationships had lower credit costs second long term customers provided fewer personal guarantees which were an alternative to collateral third long term customers were more likely to have loan terms renegotiated during a credit crunch these findings support theories that banks realize cost advantages through the use of proprietary information

the collapse of a european bank in the financial crisis an analysis from stakeholder and ethical perspectives fortis the leading benelux financial group had been a success story of successive mergers of bank and insurance companies with leadership in corporate social responsibility csr one year after the acquisition of the major dutch financial conglomerate abn amro the global financial crisis caused the collapse of the fortis group the purpose of this article is to use the case study of fortis s recent fall as a basis for reflective considerations on the financial crisis from stakeholder and ethical perspectives a selected number of key events of the history of the dramatic crisis at fortis will be analysed from different ethical frameworks special consideration will be given to fairness of communication shareholder activism and conflicts of interests of ceo s mergers opportunities a confrontation between the csr policy and the reality raises the fundamental questions why the powerful csr guidelines and ethical principles did not help in the assessment of the risks

suppliers compliance with mncs codes of conduct behind the scenes at chinese toy suppliers despite increased academic and practitioner interest in codes of conduct there has been little research into the actual compliance of suppliers in developing countries with the codes of conduct of multinational corporations mncs this paper addresses this lack by analysing chinese suppliers level of compliance with swedish toy retailers codes of conduct based on unannounced and unofficial interviews with employees of chinese suppliers the study shows that all of the nine studied suppliers breached some of the standards in the toy retailers codes with over two thirds of the suppliers not complying with the majority of the studied standards while there are different explanations of this lack of compliance the main explanation seems to be that chinese suppliers successfully deceive toy retailers monitoring organisations by decoupling the formal monitored part of their organisation from the actual operational part of their organisation the paper concludes with a discussion of how to increase compliance with mncs codes of conduct

capital market imperfections high tech investment and new equity financing highly variable returns asymmetric information and a lack of collateral should cause small high tech firms to have poor access to debt new equity financing has several advantages over debt but may be costly compared to internal finance we examine an unbalanced panel of over 2 400 publicly traded us high tech companies over the period 1981 98 most small high tech firms obtain little debt financing new equity financing in the form of the initial public offering is very important and permits a major increase in firm size after going public comparatively few firms make heavy use of external finacing

relationship lending and sme financing in the continental european bank based system this paper analyzes the relationship between banks and smes in the continental european bank based system we find that smes with longer bank relationships have enhanced access to loans but at the same time they bear a higher cost for their debt we also find that firms maintaining two bank relationships get the cheapest debt which establishes a limit for the degree of concentration of bank relationships our results also show that the existence of trust between firm and bank improves access to financing and reduces the borrowing costs whereas it increases the likelihood that guarantees will have to be provided as a consequence it seems that a relationship based on trust is a better strategy to improve smes access to finance than the establishment of longer or more concentrated relationships

scoring firms codes of ethics an explorative study of quality drivers research in the field of management has increasingly focused on strategies and tools related to corporate sustainability of the tools examined codes of ethics have been found to play a primary role many studies have investigated the content of such codes as well as their capacity to condition the behaviour of people within organizations however few studies have considered the intrinsic quality of codes of ethics this study aims to investigate the impact that specific factors firm size degree of internationalization and industry effect can have on the quality of codes of ethics based on a sample of 248 listed italian companies the results of the empirical analysis show that the quality standard is particularly high in larger companies and in those firms operating in industries in which relationships established with critical stakeholders and disclosure to those stakeholders play a crucial role these results have interesting implications for both researchers and practitioners

a real options perspective on r d portfolio diversification abstract this paper shows that the conditionality of investment decisions in r d has a critical impact on portfolio risk and implies that traditional diversification strategies should be reevaluated when a portfolio is constructed real option theory argues that research projects have conditional or option like risk and return properties and are different from unconditional projects although the risk of a portfolio always depends on the correlation between projects a portfolio of conditional r d projects with real option characteristics has a fundamentally different risk than a portfolio of unconditional projects when conditional r d projects are negatively correlated diversification only slightly reduces portfolio risk when projects are positively correlated however diversification proves more effective than conventional tools predict

distance and private information in lending we study the effects of physical distance on the acquisition and use of private information in informationally opaque credit markets using a unique data set of all loan applications by small firms to a large bank we show that borrower proximity facilitates the collection of soft information leading to a trade off in the availability and pricing of credit which is more readily accessible to nearby firms albeit at higher interest rates ceteris paribus analyzing loan rates and firms decision to switch lenders provides further evidence for banks strategic use of private information however distance erodes our lender s ability to collect proprietary intelligence and to carve out local captive markets suggesting that the requisite soft information is primarily local the author 2010 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

the long haul effects of interest arbitration the case of new york state s taylor law the authors examine debates about the effects of mandatory interest arbitration on police and firefighters in new york state under the taylor law from 1974 to 2007 comparing experience with interest arbitration in the first three years after the law was adopted with experiences from 1995 to 2007 the authors find that no strikes occurred under arbitration and that rates of dependence on arbitration declined considerably moreover the effectiveness of mediation prior to and during arbitration remained high the tripartite arbitration structure continued to foster discussion of options for resolution among arbitration panel members and wage increases awarded under arbitration matched those negotiated voluntarily by the parties econometric estimates of the effects of interest arbitration on wage changes in a national sample suggest wage increases differed little in states with arbitration from those without it the authors therefore propose a role for interest arbitration in national labor policy

is relationship lending still a mixed blessing a review of advantages and disadvantages for lenders and borrowers relationship lending is a common lending technology that is assumed to bring several benefits to small medium enterprises smes and to financial institutions that adopt it notably it could reduce information asymmetries permitting banks to offer better credit terms to the borrower however it also entails some costs for both sides the empirical evidence so far has not been conclusive in determining under what conditions relationship lending can be beneficial or harmful most of the studies suggest that smes that engage in relationship lending benefit from more credit availability especially during a financial crisis and lower interest rates this occurs when they are served by small banks are geographically close to the lender when the bank is adequately decentralized and when it is the dominant creditor of the firm however under certain circumstances banks can extract rents from the borrower or be captured by him in addition the consequences and the future of relationship lending will be remarkably affected by the level of competition among banks their ownership structure the regulatory framework and the business model that banks will have to adopt accordingly

structural models and endogeneity in corporate finance the link between managerial ownership and corporate performance this paper presents a parsimonious structural model that isolates primary economic determinants of the level and dispersion of managerial ownership firm scale and performance and the empirical associations among them in particular variation across firms and through time of estimated productivity parameters for physical assets and managerial input and corresponding variation in optimal compensation contract and firm size combine to deliver the well known hump shaped relation between tobin s q and managerial ownership to assess the effectiveness of standard econometric approaches to the endogeneity problem we apply those remedies to panel data generated from the model the unfortunate conclusion is that at least in the ownership performance context proxy variables fixed effects and instrumental variables do not generally provide reliable solutions to simultaneity bias

bank interest rates and credit relationships in italy abstract when evaluating the performance of a financial system in supporting the investment activity of the corporate sector a distinction is usually drawn between banking economies and market economies the former being characterized by long term relations between banks and the industrial sector although theoretical studies and empirical results seem to agree that lending relationships increase the available quantity of capital to firms they have little to say on the cost of bank credit it is not clear whether a close relationship with a main bank would allow the borrower to pay a lower interest rate or expose him to a monopolistic rent using a unique data set reporting detailed information on the evolution over time of individual bank borrower relationships in italy we show evidence that a main bank provides credit at a lower cost and that some competition helps to reinforce the commitment between the borrower and the bank

open innovation a real option to restore value to the biopharmaceutical r d abstract the pharmaceutical landscape has changed and new business models based on alliances are increasingly being adopted in this industry biotechnology advances have pushed this development and pooling complementary resources coming from incumbents and newcomers is a key skill to succeed these are the premises for a quick spread of the open innovation oi paradigm in this industry rd to achieve this goal the authors propose a closed form model that is easy to implement to evaluate the oi initiative for selecting an optimal rd i e licensing in or not and the self financing policy the proposed model can be easily implemented into a spreadsheet and the inputs needed to run it are usually requested to evaluate projects using the most used net present value based methods moreover some parameters of the model allow strategic aspects to be considered for example the nature of the project core non core the impending project phase and the risk sharing opportunity the results of the developed numerical example show that the selected portfolio is well balanced in terms of development stages core non core therapeutic areas and licensing in an inbound open innovation solution is preferred in the case of products at their early stages of development

does religion matter in corporate decision making in america abstract we examine how corporate culture influences firm behavior prior research suggests a link between individual religiosity and risk aversion we find that this relationship also influences organizational behavior firms located in counties with higher levels of religiosity display lower degrees of risk exposure as measured by variances in equity returns or returns on assets they exhibit a lower investment rate and less growth but generate a more positive market reaction when they announce new investments finally chief executive officers are more likely to join a firm with a similar religious environment as in their previous firm when they switch employers

evaluating pharmaceutical r d under technical and economic uncertainty this study sets up a compound option approach for evaluating pharmaceutical r d investment projects in the presence of technical and economic uncertainties technical uncertainty is modeled as a poisson jump that allows for failure and thus abandonment of the drug development economic uncertainty is modeled as a standard diffusion process which incorporates both up and downward shocks practical application of this method is emphasized through a case analysis we show that both uncertainties have a positive impact on the r d option value moreover from the sensitivity analysis we find that the sensitivity of the option with respect to economic uncertainty and market introduction cost decreases when technical uncertainty increases

interest rate derivatives at commercial banks an empirical investigation abstract i analyze the effects of bank characteristics and macroeconomic shocks on interest rate risk management behavior of commercial banks my findings are consistent with hedging theories based on cost of financial distress and costly external financing banks with higher probability of financial distress manage their interest rate risk more aggressively both by means of on balance sheet and off balance sheet instruments as compared to the derivative users the derivative non user banks adopt conservative asset liability management policies in tighter monetary policy regimes finally i show that the derivative non user bank s lending volume declines significantly with the contraction in the money supply derivative users on the other hand remain immune to the monetary policy shocks my findings suggest that a potential benefit of derivatives usage is to minimize the effect of external shocks on a firm s operating policies

real options valuation for a biotechnology company many companies in the biotechnology industry have significant valuations despite having no product revenue because their products are in early stages of development in the past 10 15 years investors have bid up the stock prices of companies showing promise of developing a blockbuster drug we explain the decision tree method and binomial lattice method which adds a growth option and use them to value a biotechnology company agouron pharmaceuticals as the sum of the values of its drug development projects the growth option was added because the development of an initial new molecular entity nme is similar to purchasing a call option on the value of a subsequent nme we compare our computed values of agouron with actual market values at selected points in time during the development of agouron s viracept a drug used to treat hiv positive patients

returns to r d on new drug introductions in the 1980s abstract this study finds that the mean irr for 1980 1984 u s new drug introductions is 11 1 and the mean npv is 22 million 1990 dollars the distribution of returns is highly skewed the results are robust to plausible changes in the baseline assumptions our work is also compared with a 1993 study by the ota despite some important differences in assumptions both studies imply that returns for the average nce are within one percentage point of the industry s cost of capital this is much less than what is typically observed in analyses based on accounting data

do codes make a difference the case of bank lending and the environment codes of conduct are a conspicuous feature of modern business organization but doubts have been raised regarding their efficacy in ensuring high standards of behavior although some of the issues involved have been discussed at some length in the business ethics literature the amount of systematic empirical evidence on the impact of codes is very limited this paper seeks to make a contribution to that body of knowledge by studying the policies and procedures of a sample of banks which have signed a statement on banking and the environment promulgated by the united nations development programme although some differences are found when compared with a sample of banks which did not sign the statement they are not extensive the implications of the findings for codes of conduct and for future empirical studies are then discussed

financial institutions and trustworthy behavior in business transactions this paper uses the bankruptcy proceedings for enron to discuss the role of financial institutions in business transactions using recent work by dixit a business transaction is portrayed as a prisoners dilemma problem between competing firms the financial institution s role in this world is to provide information and enforce contracts so that the parties to the business deal act cooperatively this role is recognized in the law under the heading of fiduciary responsibility in the enron case the bankruptcy examiner has argued that the tier 1 financial institutions for enron failed to carry out their fiduciary responsibility as a result the examiner has asked a fact finder to subordinate the claims of the tier 1 financial institutions to other debt holders for enron

the role of demographics in small business loan pricing demographic change influences the structure of the entrepreneurially active population which may affect credit risk and financing conditions of small firms using bank internal data of small business loans in germany we find that the lending relationship plays a larger role for loan prices than demographics loan rates decrease with soft information gained through longer loan processing time and a larger number of accounts at the same bank they increase with hard information about repayment arrears and reminders late payments have the largest influence on loan prices older entrepreneurs do not seem to be discriminated rather the younger have to pay more because their loans and businesses are smaller and they lack liquidity to pay in time marital status and population density of the business district do not matter this is good news for aging economies with a rising share of elderly and singles and growing disparities between peripheral and agglomerated regions

the allowance for uncollectible accounts conservatism and earnings management we study the interrelation between conservatism and earnings management by examining the allowance for uncollectible accounts and its income statement counterpart bad debt expense we find that the allowance is conservative and that it has become more conservative over time conservatism may however facilitate earnings management we find that firms manage bad debt expense downward and even record income increasing bad debt expense to meet or beat analysts earnings forecasts and that conservatism accentuates the extent to which firms manage bad debt expense further we find that firms manage bad debt expense downward by drawing down previously recorded over accruals of bad debt expense that have accumulated on the balance sheet an implication of our study is that tighter limits on the amount by which firms are permitted to understate net assets may reduce their ability to manage earnings

who bears interest rate risk we study the allocation of interest rate risk within the european banking sector using novel data banks exposure to interest rate risk is small on aggregate but heterogeneous in the cross section contrary to conventional wisdom net worth is increasing in interest rates for approximately half of the institutions in our sample cross sectional variation in banks exposures is driven by cross country differences in loan rate fixation conventions for mortgages banks use derivatives to partially hedge on balance sheet exposures residual exposures imply that changes in interest rates have redistributive effects within the banking sector received october 31 2017 editorial decision august 30 2018 by editor philip strahan authors have furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

the relation between religiosity and private bank outcomes abstract we examine the effect of headquarters local religiosity on private bank outcomes religiosity is associated with lower risk taking for public banks but the unique features of private banks may result in a different effect for private banks we find religiosity is associated with greater asset risk taking at the same time however religiosity is negatively associated with solvency risk and return on asset roa volatility and is associated with higher roas and fewer failures we reconcile these results by finding banks in areas with higher religiosity recognize larger fees from providing additional banking services likely due to relationships formed from more risky lending as a result these banks are more less likely to realize extreme positive negative performance we also find religiosity is associated with lower earnings management and increased conservatism collectively our results confirm private banks are unique and religiosity can have a significant and nuanced effect on bank outcomes

the relationship between u k banks and their small business customers much emphasis is placed upon the benefits to both parties of a good relationship between banks and their small business customers having explained the significance of smes in the u k economy the papers goes on to consider briefly some of the arguments which underpin the rationale for these relationships the roles of information and communication are discussed and the poor co ordination between banks smes and their accountants is highlighted evidence from over 6 000 small businesses in response to the forum of private business survey in 1994 is then presented this demonstrates the strong positive association between more participative relationships and more positive perceptions of their banks by firms finally it is suggested that a virtuous circle of information and communication could be established if the parties cooperate in a systematic process of risk assessment

the economic effects of client losses on otc bank derivative dealers evidence from the capital market this paper investigates the economic impact of client derivatives losses on otc derivatives dealers its focus is on the capital marketers reaction to losses suffered by four end users of otc derivatives products arranged with bankers trust new york evidence is provided on the impact of these end user losses on bankers trust itself as well as whether these losses produced any systemic or contagion effects extending to other major bank otc derivatives dealers finally the paper investigates whether possible systemic effects may be associated with bank specific characteristics such as the level of derivatives exposure counterparty risk and reliance on trading income copyright 1996 by ohio state university press

relationship banking and escalating commitments to bad loans the relationship banking literature suggests that business relationships play an important role in the loan decisions of small banks we test one aspect of this hypothesis using a cross sectional panel dataset of small banks located in texas from 1994 to 2002 our results suggest that small banks located in smaller counties escalate their commitment to bad loans when compared with those located in larger counties even after controlling for psychological and social factors that influence escalation tendencies these results highlight the need for small banks to trade off the positive benefits of adopting a relationship banking strategy against its unintended negative consequence we provide some suggestions on how small banks may lessen their escalation tendencies despite adopting a relationship banking strategy the results of this study also suggest that small and medium sized enterprises smes that develop strong relational bonds with small banks may benefit from continued access to credit facilities especially during periods when they experience financial distress

the benefits of lending relationships evidence from small business data this paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm we analyze data collected in a survey of small firms by the small business administration the primary benefit of building close ties with an institutional creditor is that the availability of financing increases we find smaller effects on the price of credit attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit in sum relationships are valuable and appear to operate more through quantities rather than prices

market interest rates and commercial bank profitability an empirical investigation the widespread notion that commercial banks borrow short and lend long implies that sharp market interest rate increases may induce a significant number of banking failures this paper develops a method for estimating average asset and liability maturities for a sample of large money center banks regression models are tested to determine if market rate fluctuations have a significant impact on bank profitability the conclusion is negative large banks have effectively hedged themselves against market rate risk by assembling asset and liability portfolios with similar average maturities the impact of market interest rates on commercial bank revenues costs and profitability has increasingly concerned economists and policymakers as financial market conditions have become more volatile in recent years the widespread notion that depository intermediaries borrow short and lend long implies that rapid market rate increases may induce an unacceptable number of financial firm failures monetary policy discussions have reflected this concern for many years the federal reserve board considered stable market rates a goal or at least an intermediate target of monetary policy the extent to which money market conditions are permitted to fluctuate in the short run is also affected by the unique role of the federal reserve system as the nation s lender of last resort liquidity pressures ultimately devolve on the money market and the federal reserve has a responsibility for maintaining orderly conditions in that market

ethical commitment financial performance and valuation an empirical investigation of korean companies a variety of stakeholders including investors corporate managers customers suppliers employees researchers and government policy makers have long been interested in the relationship between the financial performance of a corporation and its commitment to business ethics as a subject of research the relations between business ethics and corporate valuation has yet to be thoroughly quantified and investigated this article is an effort to amend this inadequacy by demonstrating a statistically significant association between ethical commitment and corporate valuation measures consistent with anecdotal evidence we have found a significant association between the ethical commitment of korean companies and their valuation on the korean stock market however the result reveals that the association between ethical commitment and financial performance is not significantly supported

interest risk sensitive deposit insurance premia stable ach estimates abstract the parameters of interest rate uncertainty are estimated by maximum likelihood for the period 1952 1982 and used to evaluate bank or thrift deposit insurance as a function of duration mismatching capital asset ratio and the recent history of interest rate forecasting errors homoskedasticity is overwhelmingly rejected in favor of adaptive conditional heteroskedasticity ach even after removing this heteroskedasticity normality gives much lower likelihood than paretian stable distributions with characteristic exponent in the range 1 614 to 1 714 the conditional deposit insurance values fluctuate by factors in excess of 300 for some duration gaps over the past three decades

measuring rents and interest rate risk in imperfect financial markets the case of retail bank deposits traditional measures of interest rate risk assume that prices of financial assets and liabilities are set in perfectly competitive markets however evidence suggests that many retail financial markets do not follow the competitive paradigm in this paper we employ a general contingent claims framework to value rents earned by banks in demandable retail deposit markets our analysis provides a natural and economically meaningful measure of interest rate risk for these imperfectly competitive markets using monthly survey data on now accounts and mmdas we estimate the value of retail deposit rents and deposit durations for more than 200 commercial banks

banking on commitment intended and unintended consequences of an organization s attempt to attenuate escalation of commitment examining commercial lending decisions we found that increased monitoring of decision makers and changing decision makers attenuated escalation of commitment but also produced unintended effects

the effects of a shift in monetary policy regime on the profitability and risk of commercial banks abstract this paper examines the effects of the fed s october 6th 1979 change in monetary policy regime on the profitability and risk of commercial banks using capital market data and an event study methodology it was found that bank stocks exhibited significant abnormal returns during the announcement week of the policy change when these abnormal returns were decomposed into a part related to unexpected interest rate changes and a part assumed to reflect increased rate variability the results were consistent with a negative relationship between bank returns and interest rate surprises as well as between bank returns and rate variability

top managerial prestige power and tender offer response a study of elite social networks and target firm cooperation during takeovers in this paper we explore the following research question when faced with a tender offer why do some firms resist and others cooperate in the past researchers have suggested that the manner in which firms respond to takeover attempts may be in part a function of managers personal motivations we contribute to this line of research by questioning whether other factors might be involved specifically we examine whether cooperation may be a function of the friendliness of the bidding company and the social networks shared by executives in the two firms i e bidder and target we examine how the power and connections of managers affect their responses to tender offers our results suggest that these factors do indeed play a role we found for example that target managers are more likely to cooperate under two conditions 1 if they have less prestigious connections than managers in the bidding firm and 2 if the target and bidding firms share numerous ties to the same prestigious networks in