Privatization and governance regulation in frontier emerging markets: The case of Romania.

We investigate the link between the regulation of control transactions and the institutional and corporate features of public companies, by analyzing the massive delisting activity in the Romanian capital market. The peculiar ownership reforms involving a large number of listed companies offer a unique opportunity to test Bebchuk and Roe’s (2000) theory of path dependence. Over time, the Romanian authorities have undertaken wide-ranging institutional reforms, most of which favoring blockholders over small and dispersed shareholders. Our empirical approach, based on logit and duration models, allows us to analyze the evolution of public companies over this period and sheds light on the likely events causing the eclipse of frontier emerging markets. Our main findings reveal that delisting is more likely to occur when (i) the shareholdings acquired from the privatization authority by circumventing the capital market are high; (ii) the company experiences frequent takeover bids; and (iii) the stock liquidity is low.minority shareholder protection; squeeze-out; takeover regulation;

How fair are the fair price standards in blockholder regimes?

This paper examines the impact of frequent changes of investor protection regulation on the bid premium levels and the reception of the bid by the minority shareholders in blockholder regimes. In order to document the corporate governance function of takeover regulation, we explore a comprehensive data set representing more than 90% of the takeovers organized in Romania between 1998 and 2012. The peculiar institutional framework in Romania allows factoring in the analysis a hitherto unexplored structural element, namely the parallel control transactions managed by the government, outside the stock market structures. After controlling for the influence of corporate governance and ownership attributes of targets, our main findings suggests that various market price components are strong predictors of both bid premiums and tender success. Besides, the alignment of legal details to the requirements of the European takeover regulation has a surprising negative effect on minority claimants. If the shareholders are indeed able to distil the pertinent information about a bid, our overall result suggests that the balance between competing concerns of protecting minority shareholders and facilitating value-creating transactions is still open to debate in emerging market

Legislating for Air Quality Management: Reducing Theory to Practice

What does it mean to bootstrap a compiler, and why do it? This paper reports on the first bootstrapping of a full-scale EOO (Equation-based Object-Oriented) modeling language such as Modelica. Bootstrapping means that the compiler of a language can compile itself. However, the usual application area for the Modelica is modeling and simulation of complex physical systems. Fortunately it turns out that with some minor extensions, the Modelica language is well suited for the modeling of language semantics. We use the name MetaModelica for this slightly extended Modelica. This is a prerequisite for bootstrapping which requires that the language can be used to model and/or implement itself. The OpenModelica Compiler (OMC) has been written in this MetaModelica language. It originally supported only the standard Modelica language but has been gradually extended to also cover the MetaModelica language extensions. After substantial work, OMC is able to quickly compile itself and produces an executable with good performance. The benefits include a more extensible and maintainable compiler by introducing improved language constructs and a more powerful runtime that makes it easy to add functionality such as parser generators, debuggers, and profiling tools. Future work includes extracting and restructuring parts of OMC, making the compiler smaller and more modular and extensible. This will also make it easier to interface with OMC, making it possible to create more powerful and user-friendly OpenModelica-based tools. The compiler and its bootstrapping is a major effort -- it is currently about 330 000 lines of code, and the MetaModelica extensions are used routinely by approximately ten developers on a daily basis

Beyond the Third Pillar of Basel Two: Taking Bond Market Signals Seriously

The logic behind the indirect channel of market discipline presumes that the pricing of bank debt in the secondary market, if accurate, conveys to supervisor and other market participants a reliable signal of bank's financial conditions and default risk. By collecting a unique dataset of spreads, ratings, and accounting measures of bank risk for a sample of large European banking organizations during the 1995—2002 period, we empirically test whether secondary market prices accurately reflect financial conditions of bank issuers. Our results complement the findings obtained by Sironi [Testing for market discipline in the European banking industry: Evidence from subordinated debt issues. Journal of Money, Credit, and Banking 35 (2003) 443-472] on the primary market of bank subordinated deb

Requiem for Market Discipline and the Specter of TBTF in Japanese Banking

This study examines the reaction of private market participants to the enhancement of the “Too-Big-To-Fail” (TBTF) doctrine in the Japanese banking sector. The event justifying the use of the “TBTF” label occurred on May 17th , 2003, when the Japanese government decided to bailout Resona Holdings, the 5th largest financial group in the country. By using a sample of all Japanese listed banks and the standard event study methodology, we document significant and positive wealth effects in the stock market accruing to large banks and negative (though non-significant) effects accruing to smaller banks. Besides the effect on bank equity values, we also document a significant abnormal volume of trading on days following the bailout announcement date for the largest banks only. We extend our empirical analysis on stock prices and trading volumes by detecting an original “pure” risk effect in the Credit Default Swap (CDS) market.

Predicting Financial Distress in a High-Stress Financial World: The Role of Option Prices as Bank Risk Metrics

The current financial crisis offers a unique opportunity to investigate the leading properties of market indicators in a stressed environment and their usefulness from a banking supervision perspective. One pool of relevant information that has been little explored in the empirical literature is the market for bank's exchange-traded option contracts. In this paper, we first extract implied volatility indicators from the prices of the most actively traded option contracts on financial firms' equity. We then examine empirically their ability to predict financial distress by applying survival analysis techniques to a sample of large US financial firms. We find that market indicators extracted from option prices significantly explain the survival time of troubled financial firms and do a better job in predicting financial distress than other time-varying covariates typically included in bank failure models. Overall, both accounting information and option prices contain useful information of subsequent financial problems and, more importantly, the combination produces good forecasts in a high-stress financial world, full of doubts and uncertainties.Financial distress ; Financial system oversight ; Market discipline ; Options ; Implied volatility ; Survival analysis

Beyond the Third Pillar of Basel Two: Taking Bond Market Signals Seriously

The logic behind the indirect channel of market discipline presumes that the pricing of bank debt in the secondary market, if accurate, conveys to supervisor and other market participants a reliable signal of bank's financial conditions and default risk. By collecting a unique dataset of spreads, ratings, and accounting measures of bank risk for a sample of large European banking organizations during the 1995—2002 period, we empirically test whether secondary market prices accurately reflect financial conditions of bank issuers. Our results complement the findings obtained by Sironi [Testing for market discipline in the European banking industry: Evidence from subordinated debt issues. Journal of Money, Credit, and Banking 35 (2003) 443-472] on the primary market of bank subordinated debt

Argument en faveur d'une politique de dette subordonnée obligatoire

Cet article se concentre sur les propositions de dette subordonnée obligatoire comme instrument de discipline de marché. Une Politique de Dette Subordonnée (PDS) se définit comme une exigence réglementaire formelle par laquelle les grandes banques sont obligées d'émettre régulièrement et de maintenir un montant minimal de dette subordonnée sous forme de titres homogènes. L'article comble une lacune importante dans la littérature en fournissant une justification que nous croyons intéressante et robuste à la PDS. L'idée est de démontrer qu'une PDS obligatoire (pléonasme voulu) élimine les opportunités de contournement de la discipline de marché qui s'ouvrent aux banques en l'absence d'une telle politique ; en les contraignant à se soumettre continûment à l'examen du marché. Cette intuition est testée indirectement, en étudiant l'impact de la dette subordonnée sur la performance ex-post d'un échantillon de 500 banques européennes sur la période 1996-2003. Les principaux résultats obtenus confirment que la dette subordonnée est émise généralement par les banques dont les sources de revenus sont stables et très importantes. De surcroît, les émissions volontaires de dette subordonnée permettent aux banques de diminuer leurs ratios de fonds propres de base (Tier 1), tout en améliorant leur degré de capitalisation au sens large (Tier 1 + Tier 2). Enfin, quant au profil de risque, les banques ayant émis des montants importants de dette subordonnée exhibent généralement des ratios encours de crédit douteux/total crédit plus élevés en moyenne que ceux rapportés par leurs concurrentes. Néanmoins, cet effet pervers de la discipline de marché est contrecarré en partie par la détention de réserves pour le risque de crédit relativement plus importantes par ces mêmes banques.Banking Regulation ; Market Discipline ; Mandatory Sub-Debt Policy.