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SESSION IV-1 : CORPORATE FINANCE I (20/12/2007 à 16h00)

Ulrich Hege (HEC Paris)

How Do Firms Choose Between Intermediary and Supplier Finance?

Auteurs : ANTOV Dimitar (Cambridge Group) and ATANASOVA Christina (Simon Fraser University) Email:

Intervenants : ATANASOVA Christina (Simon Fraser University)

Rapporteurs : KOIVULEHTO Hanna (Vienna University of Economics and Business Administration)

We examine the dynamics of firm’s choice of short-term financing between intermediated
loans and trade credit. We argue that trade credit facilitates the access to and improves
the terms of conventional loans. We model the idea that trade credit is a favorable signal
of the creditworthiness of the borrower. Hence, some firms will use trade credit in addition
to conventional institutional loans despite its higher cost. Our empirical results support the
predictions of the theoretical model we develop. We show that firms with high agency costs
rely heavily on supplier financing. For these firms trade credit has a significant positive
effect on the level of intermediated borrowing.

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Should we Invest in Microcredit? A Financial Analysis of Microcredit from a USD-Investor’s Perspective

Auteurs : KOIVULEHTO Hanna (Vienna University of Economics And Business Administration) Email :

Intervenants : KOIVULEHTO Hanna (Vienna University of Economics And Business Administration)

Rapporteurs : FASNACHT Philipp (University of Geneva)

This study makes an innovative approach towards rating the profitability of micro-credit.
While previous research on microfinance has been conducted through the analysis of
individual case studies, this study takes a more widespread look at the financial performance
of micro-lending organizations in less developed financial markets. A sample consisting
of 24 micro-finance institutions (MFIs) operating in different regions worldwide is observed
over a period of up to 9 consecutive years. The influence of both organization-specific and
environmental factors on the profitability of their loan portfolios is examined. Furthermore,
the capacity of those institutions to generate sufficient yields on their credit operations in
order to attract rational foreign investors is rated. For this purpose, the realized credit spreads
on MFI-portfolios are compared with spreads observable for exchange-traded USD-corporate
bonds exhibiting equal levels of risk. The panel design and the investigation of multiple (partly
qualitative) external variables influencing loan portfolio returns contribute to a comprehensive
investigation of MFI-performance. Indeed, MFI-specific factors are found to be much more
decisive for profitability than any environmental conditions.

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Leverage Choice and Credit Spread Dynamics when Managers Risk Shift

Auteurs : LAZRAK Ali and CARLSON Murray (University of British Columbia) Email :

Intervenants : LAZRAK Ali (University of British Columbia)

Rapporteurs : TROEGE Michael (ESCP-EAP Paris)

We provide new insights that link compensation terms to credit spreads and leverage by
structurally modeling the financial and operating decisions of a risk-averse manager paid
with cash and stock. Optimal debt balances tax benefits with the utility cost resulting from
ex-post asset substitution. When cash-stock ratios are low (high), initial leverage is high
and debt is safe (risky), while moderate cash-stock ratios are associated with low initial
leverage. High credit spreads can be generated even when leverage and equity volatility
are low. Using a large cross-section of 646 US based corporate credit default swaps (CDS)
covering 2001-2006, we find strong evidence that the flexibility provided by the compensation
terms is important for explaining CDS rates. With parameters estimated to match moments
based on stock volatility and CDS rates, our model outperforms a similarly calibrated version
of the Merton (1974) model, explaining an additional 10% of the variation in CDS rates and
reducing average bias by over 50%.

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The Determinants of Sin Stock Returns: Evidence on the European Market

Auteurs : SALABER Julie (Paris-Dauphine University) Email :

Intervenants : SALABER Julie (Paris-Dauphine University)

Rapporteurs : LOBE Sebastian (University of Regensburg)

This article deals with the time-series variation in average sin stock returns – returns on
publicly-traded companies involved in producing tobacco, alcohol, and gaming. Next to
nothing has been written about this class of stocks, especially on the European stock
market. The hypothesis I explore in this paper is that sin stock returns depend on legal
and cultural characteristics such as religious preferences, the level of excise taxation,
and the degree of litigation risk. Using data on 18 European countries over the period
1975-2006, my results show evidence that Protestants are more “sin averse” than
Catholics, and require a significant premium on sin stocks. Moreover, sin stocks have
higher risk-adjusted returns when they are located in a country with high excise taxation;
and sin stocks outperform other stocks when the litigation risk is higher, even after
controlling for well-known risk factors such as market capitalization and book-to-market
ratio. These findings suggest that sin stock returns depend on both legal and religious
environments of each country.

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