The Small Business Credit Gap: Some New Evidence

What is the magnitude of credit constraint or credit gap affecting small businesses? This paper provides estimates of credit gap, defined as the difference between the desired and actual levels of debt for credit- constrained small businesses using the data from the National Survey of Small Business Finances. The estimated credit gap is approximately 20 percent – credit constrained small business on the average would desire 20 percent more debt. This credit gap varies considerably across industries, with service, manufacturing, and wholesale industries facing a significantly larger gap than firms in other industries. Evidence also indicates that relationship banking helps to narrow the credit gap. From a policy perspective, our results indicate that credit policies will be more effective if they are customized to industry needs.Lending Relationship, Small Business Finance, Credit Constraints

The Impact of Macroeconomic Uncertainty on Firms Changes in Financial Leverage

We investigate the relationship between a firm’s measures of corporate gov- ernance, macroeconomic uncertainty and changes in leverage. Recent research highlights the role of governance in financing decisions. Previous research also indicates that macroeconomic uncertainty affects a firm’s ability to borrow. In this paper we investigate how both these channels of influence affects firms’ financing decisions. Our findings show that macroeconomic uncertainty has an important role to play, both by itself and in interaction with a measure of corporate governance

Risk Sharing and the Market for Corporate Control: A Case for Golden Parachutes

The predictability of security returns has received considerable attention in the literature, and yet the predictability of bond returns beyond the US markets has remained far less explored. Here we plan to remedy the shortcoming, and in that effort we analyse the ability of several predetermined information variables in predicting bond returns in the European market. We test if variables, commonly used for that matter in the context of other markets (such as inverse relative wealth, term spread, real bond yield and a January dummy) are also useful predictors of European bond returns. Due to some particularities of the sample period of analysis, characterised by the EMU convergence, we also include the yield spread in relation to German bonds. We further examine the return predictability across different bond maturities: 1-3, 3-5 and 5 or more years to maturity. The results indicate that variables such as the term spread, IRW and a January dummy represent useful information in order to predict bond returns for different maturities. The other two variables add little in terms of explanatory power. Surprisingly, the DM yield spread does not seem to have any predictive ability for the countries expected to participate in the EMU. However, a puzzling result is obtained: this variable appears to be significant for the UK market! Additionally, we find that investors, using simple trading strategies that exploit this information, may obtain higher returns. This outperformance is observed for different maturities, being more evident for long- term Government bonds. These findings may have important implications on other related issues such as market efficiency, asset pricing, and portfolio performance evaluation

Credit Gap in Small Businesses: Some New Evidence

What is the magnitude of credit constraint affecting small businesses? This paper provides estimate of the credit gap – defined as the difference between the desired and actual levels of debt for credit constrained small businesses. The estimated credit gap is approximately 20 percent, i.e., credit constrained small business on the average would desire 20 percent more debt. This credit gap varies considerably across industries, with manufacturing firms facing a significantly larger gap than firms in the wholesale or service industries

Governance and Corporate Control: Compliments or Substitutes

In this paper we test for the motives for adopting golden parachutes and Anti Takeover Amendments (ATAs). Firms that exhibited financial characteristics that were associated with a greater probability of hostile raids were also more likely to adopt golden parachutes or ATAs. We also find evidence to support the hypothesis that the adoption of golden parachutes and poison pills may in fact be complement each other

The Importance of Being Known: Relationship Banking and Credit Limits

This paper measures the importance of bank-firm relationships in obtaining higher credit “limits.” We use data from a relatively unused section of the National Survey of Small Business Finance (NSSBF, 1993) on credit limits, credit sources, and contract terms for firms with lines of credit from multiple banks. This lets us isolate the credit limit that each bank provides the same firm, eliminating the need to control for often immeasurable, unreliable, or firm-specific “soft” information. For a median Line of Credit (LOC) of $250,000, we find that a bank with a five-year information advantage provides a LOC limit that is$20,000 higher. We also find that purchase of loan and non-loan services by firm from the contracting bank affects the credit limit differently. Non-loan services increase the credit limit and loan services decrease the credit limit. Our findings confirm anecdotal claims from the small business community that relationships are vital to secure higher credit limits. We check for the robustness of our results to outliers, sample selection, and stratification across firm organization types.Lending Relationship, Small Business Finance, Credit limits

Performance Incentives, Performance Pressure and Executive Turnover

We examine the relationship between the optimal incentive contract and the firm’s decision to fire a manager for poor performance. We first derive some theoretical results using a simple principal-agent model, and then examine the empirical evidence on the incidence of forced turnover among CEOs with different compensation contracts. We find that CEOs with steeper compensation contracts (i.e., with greater incentives) are more likely to be fired following poor firm performance. Logit estimations indicate that among firms that make a net loss in a given year, a CEO receiving incentives at the 60th percentile level is 26.55% more likely to be fired than a CEO with incentives at the 40th percentile. The corresponding figure for firms whose ROA is below the industry average level is 15.07%, and for firms whose stock return is below the market return is 15.86%. The results are robust to various performance and incentive measures. Overall, our re-sults indicate that CEOs with greater incentives also face greater performance pressures.Incentive Contracts, Executive Compensation, Equity-based compensation, Management Turnover

The Importance of Metrics and Communication in Cafeteria School Policy

Obesity has become an epidemic amongst American youth in the 21st century, and is spreading not only into other developed nations such as the UK and Australia, but is also beginning to effect developing nations such as India (Bhardwaj, 2008). It is estimated that nationwide, childhood obesity affects around 17% of American children (Center For Disease Control, 2011). Obesity has been linked to many health disorders, including but not limited to, heart disease and diabetes. Subsequently, this rise in childhood obesity is having a severe impact on the healthcare services sector in America, with some studies suggesting childhood obesity in the United States could cost as much as 11 billion annually for children with private insurance and 3 billion for children on Medicare (Thomson Medstat, 2006). An important question parents, teachers, and researchers have often asked, is “How can we reduce childhood obesity?” More specifically, how does school cafeteria policy towards obesity potentially effect student obesity rates? Can schools implement certain policies with dramatic reductions in childhood obesity? When looking at obesity rates within the states of Massachusetts, why do schools in regions that have similar socio-economic conditions (the most often cited causes of childhood obesity) have vastly different childhood obesity rates? How can measuring internal factors and communicating them to parents affect external factors? Is the communication and metric system that Arlington, a district with an obesity rate of 4.6% more effective than a city like that of Newton, a city which has a childhood obesity rate of 9%? In particular, we will look at the effectiveness of online tools and metrics in helping to reduce childhood obesity

cron, perl and Stata: automated production and presentation of a business-daily index

In a *nix-based environment such as Mac OSX it is very simple to set up 'cron jobs' that run at any periodic interval. This presentation illustrates how 'cron', the perl scripting language and Stata are used to generate a database of daily stock quotes from a regional index, compute an investor sentiment index based on a Spearman rank correlation, and "publish" the results to a web page. Stata's file command is particularly useful in generating the various formats needed in the web page presentation.

Product Differentiation and the Use of Information Technology: New Evidence from the Trucking Industry

Since the mid-1980s many authors have investigated the influence of information technology (IT) on productivity. Until recently there has been no clear evidence that productivity increases as a result of IT spending. This productivity paradox is partly due to the difficulty in correctly identifying outputs, particularly in the service sector such as the trucking industry. Products are often differentiated by quality attributes of the service provided, rather than merely the physical content of the good delivered by motor carriers. A carrier's primary marketing objective, e.g. on-time-performance vs. lowest rate carrier, are precisely what differentiates a trucking firm's service. This paper uses cross-sectional data to show that the use of increasingly sophisticated IT by trucking firms varies depending upon marketing objectives. Our empirical results imply that in order to measure the impact of IT on productivity it is crucial to account for how the firm differentiates its product. We conclude that the productivity paradox can be alleviated if measures of output incorporate firms' marketing objectives.