254 research outputs found

    Herd on the Street: Informational Inefficiencies in a Market with Short-Term Speculation

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    Standard models of informed speculation suggest that traders try to learn information that others do not have. This result implicitly relies on the assumption that speculators have long horizons, i.e, can hold the asset forever. By contrast, we show that if speculators have short horizons, they may herd on the same information, trying to learn what other informed traders also know. There can be multiple herding equilibria, and herding speculators may even choose to study information that is completely unrelated to fundamentals. These equilibria are informationally inefficient.

    Internal versus External Capital Markets

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    This paper presents a framework for analyzing the costs and benefits of internal vs. external capital allocation. We focus primarily on comparing an internal capital market to bank lending. While both represent centralized forms of financing, in the former case the financing is owner-provided, while in the latter case it is not. We argue that the ownership aspect of internal capital allocation has three important consequences: 1) it leads to more monitoring than bank lending; 2) it reduces managers' entrepreneurial incentives; and 3) it makes it easier to efficiently redeploy the assets of projects that are performing poorly under existing management.

    LDC Debt: Forgiveness, Indexation, and Investment Incentives

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    We compare different indexation schemes in terms of their ability to facilitate forgiveness and reduce the investment disincentives associated with the large LDC debt overhang. Indexing to an endogenous variable (e.g., a country's output) has a negative moral hazard effect on investment, This problem does not arise when payments are linked to an exogenous variable such as commodity prices. Nonetheless, indexing payments to output may be useful when debtors know more about their willingness to invest than lenders. We also reach new conclusions about the desirability of default penalties under asymmetric information.

    The Dark Side of Internal Capital Markets II: Evidence from Diversified Conglomerates

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    This paper is an empirical examination of capital allocation in a sample of 165 diversified" conglomerates in 1979. I find that divisions in high-Q manufacturing industries tend to invest" less than their stand-alone industry peers, while divisions in low-Q manufacturing industries tend" to invest more than their stand-alone industry peers. This sort of socialism in which investment tends to get equalized across divisions is particularly pronounced in a" conglomerate's smaller divisions. It is also more pronounced in firms in which management has" small equity stakes suggesting that agency problems between corporate headquarters and" investors are at the root of the problem. By 1994, only 53 (32%) of these firms continue to be" free-standing diversified conglomerates. Fifty-five (33%) choose to sell off unrelated divisions" and focus on one core business. These firms tend to sell their smaller divisions do, their investment behavior changes relative to 1979: it more closely resembles that of their" stand-alone industry peers. The remaining 57 (35%) firms were acquired or (in two cases)" liquidated.

    The Dark Side of Internal Capital Markets: Divisional Rent-Seeking and Inefficient Investment

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    We develop a model that shows how rent-seeking behavior on the part of division managers can subvert the workings of an internal capital market. In an effort to stop rent-seeking, corporate headquarters will be effectively forced into paying bribes to some division managers. And because headquarters is itself an agent of outside investors, the bribes may take the form not of cash, but rather of preferential capital budgeting allocations. One interesting feature of our model is a kind of socialism' in internal capital allocation, whereby weaker divisions tend to get subsidized by stronger ones.

    Risk Management: Coordinating Corporate Investment and Financing Policies

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    This paper develops a general framework for analyzing corporate risk management policies. We begin by observing that if external sources of finance are more costly to corporations than internally generated funds, there will typically be a benefit to hedging: hedging adds value to the extent that it helps ensure that a corporation has sufficient internal funds available to take advantage of attractive investment opportunities. We then argue that this simple observation has wide-ranging implications for the design of risk management strategies. We delineate how these strategies should depend on such factors as shocks to investment and financing opportunities. We also discuss exchange-rate hedging strategies for multinationals. as well as strategies involving "nonlinear" instruments like options.

    Kapitalstrukturen börsennotierter Aktiengesellschaften - Deutschland und USA im Vergleich

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    Bisherige Evidenz über Kapitalstrukturunterschiede zwischen Deutschland und den USA deutet auf eine durchschnittlich höhere Verschuldung deutscher Unternehmen hin. Die vergangenen Jahre waren in Deutschland jedoch durch eine Förderung der Eigenkapitalfinanzierung seitens des deutschen Gesetzgebers und der Regulierungsbehörden geprägt. Die vorliegende Arbeit untersucht, inwieweit sich diese Änderungen tatsächlich auf den Verschuldungsgrad deutscher Unternehmen auswirken und ob es zu einer Annäherung an amerikanische Unternehmen kommt. Zu diesem Zweck werden durchschnittliche Verschuldungsgrade von US-amerikanischen und deutschen börsennotierten Gesellschaften über einen Zeitraum von 10 Jahren verglichen. Die Untersuchung zeigt, dass diese Änderungen vor allem den Verschuldungsgrad von Unternehmen beeinflusst haben, die erst in den letzten Jahren an einer deutschen Börse notiert wurden. Bei am deutschen Kapitalmarkt etablierten Unternehmen hingegen lässt sich keine aufgrund der neuen Rahmenbedingungen vorgenommene Anpassung der Verschuldungspolitik erkennen. Abstract Existing comparative evidence on corporate capital structure decisions in the U.S. and Germany traditionally reveals that German firms chose substantially higher levels of debt financing. Within the past years, however, Germany has experienced repeated initiatives by both legislative and regulatory bodies to promote equity finance. This paper tries to shed first light on how these initiatives affect the debt-equity-decision of German corporations and whether a convergence of German leverage levels to Anglo-American financing patterns can be observed. For this purpose we compare capital structures for a panel of U.S. and German public corporations over the past 10 years. The obtained evidence suggests that aggregate leverage ratios do indeed converge. Yet this development is primarily driven by recent German IPOs which seem to respond to the revamped institutional setting by choosing higher levels of equity. Established German corporations, by contrast, do not seem to have systematically adapted their financing patterns over the past decade

    Study protocol: The Improving Care of Acute Lung Injury Patients (ICAP) study

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    INTRODUCTION: The short-term mortality benefit of lower tidal volume ventilation (LTVV) for patients with acute lung injury/acute respiratory distress syndrome (ALI/ARDS) has been demonstrated in a large, multi-center randomized trial. However, the impact of LTVV and other critical care therapies on the longer-term outcomes of ALI/ARDS survivors remains uncertain. The Improving Care of ALI Patients (ICAP) study is a multi-site, prospective cohort study that aims to evaluate the longer-term outcomes of ALI/ARDS survivors with a particular focus on the effect of LTVV and other critical care therapies. METHODS: Consecutive mechanically ventilated ALI/ARDS patients from 11 intensive care units (ICUs) at four hospitals in the city of Baltimore, MD, USA, will be enrolled in a prospective cohort study. Exposures (patient-based, clinical management, and ICU organizational) will be comprehensively collected both at baseline and throughout patients' ICU stay. Outcomes, including mortality, organ impairment, functional status, and quality of life, will be assessed with the use of standardized surveys and testing at 3, 6, 12, and 24 months after ALI/ARDS diagnosis. A multi-faceted retention strategy will be used to minimize participant loss to follow-up. RESULTS: On the basis of the historical incidence of ALI/ARDS at the study sites, we expect to enroll 520 patients over two years. This projected sample size is more than double that of any published study of long-term outcomes in ALI/ARDS survivors, providing 86% power to detect a relative mortality hazard of 0.70 in patients receiving higher versus lower exposure to LTVV. The projected sample size also provides sufficient power to evaluate the association between a variety of other exposure and outcome variables, including quality of life. CONCLUSION: The ICAP study is a novel, prospective cohort study that will build on previous critical care research to improve our understanding of the longer-term impact of ALI/ARDS, LTVV and other aspects of critical care management. Given the paucity of information about the impact of interventions on long-term outcomes for survivors of critical illness, this study can provide important information to inform clinical practice
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