Capital structure, firm liquidity and growth

This paper is an exploration of the relationships among the firm's financial structure, its choice of liquid asset holdings, and growth. We present a theoretical model of the firm where external finance is costly and where retaining earnings as liquid assets serves a precautionary motive. One of the predictions of this model is that a long-term reliance on high levels of debt finance tends to be associated with high levels of liquid asset holding. We test this empirically by estimating the determinants of liquid asset holdings using panel data sets of Belgian and UK firms. We find evidence of a positive relation between leverage and liquid asset holding. This result leads us to identify a possible linkage from high debt to high liquidity to slow growth. In light of this we discuss the possible implications of the development of stock markets, private equity, and venture capital markets.

The Internationalization of the Renminbi

This special paper discusses the inclusion of the Chinese Renminbi in the international reserve asset Special Drawing Right (SDR) created by the International Monetary Fund

Stake-holder firms and the reform of local public finance in China

Since 1978 China has developed strongly using a particular form of capitalism which has relied upon close relations between private enterprise and the state and the continuing presence of state-owned enterprise, both centrally and at local levels. This model has been criticised as being responsible for the rapid rise of debt since 2010 and the slow-down of growth more recently. Using examples taken from Guangdong Province in south China I illustrate the workings of this system and highlight the challenges to adapting it to support China's growth ambitions for the coming decades

Who bears risk in China's non-financial enterprise debt?

This paper analyses of how risk is allocated in China's markets for debt issued by non-financial enterprises. Compared to other major corporate bond markets China's is unusual in that unlisted, state-owned enterprises account for a large fraction of the debt issued and that the foundations of the corporate and bankruptcy law are young and still evolving. The implications of these features are described and quantified. The results show that the major changes in relative pricing across different market segments cannot be explained well by standard measures of solvency and liquidity. Rather, the most successful explanation is that major policy actions have had the effect of withdrawing implicit guarantees from private issuers and making more explicit the limits of guarantees afforded to state issuers

Stochastic Forecasts of the Social Security Trust Fund

We present stochastic forecasts of the Social Security trust fund by modeling key demographic and economic variables as historical time series, and using the fitted models to generate computer simulations of future fund performance. We evaluate several plans for achieving long-term solvency by raising the normal retirement age (NRA), increasing taxes, or investing some portion of the fund in the stock market. Stochastic population trajectories by age and sex are generated using the Lee-Carter and Lee- Tuljapurkar mortality and fertility models. Interest rates, wage growth and equities returns are modeled as vector autoregressive processes. With the exception of mortality, central tendencies are constrained to the Intermediate assumptions of the 2002 Trustees Report. Combining population forecasts with forecasted per-capita tax and benefit profiles by age and sex, we obtain inflows to and outflows from the fund over time, resulting in stochastic fund trajectories and distributions. Under current legislation, we estimate the chance of insolvency by 2038 to be 50%, although the expected fund balance stays positive until 2041. An immediate 2% increase in the payroll tax rate from 12.4% to 14.4% sustains a positive expected fund balance until 2078, with a 50% chance of solvency through 2064. Investing 60% of the fund in the S&P 500 by 2015 keeps the expected fund balance positive until 2060, with a 50% chance of solvency through 2042. An increase in the NRA to age 69 by 2024 keeps the expected fund balance positive until 2047, with a 50% chance of solvency through 2041. A combination of raising the payroll tax to 13.4%, increasing the NRA to 69 by 2024, and investing 25% of the fund in equities by 2015 keeps the expected fund balance positive past 2101 with a 50% chance of solvency through 2077.

EXPLANATION OF THE BASIC FORMULA PRICE PROVISIONS OF THE PROPOSED RULE

An important segment of milk marketing order reform involves replacing the current BFP. This working paper explains the background of the BFP issue, the options considered and the provisions of the proposed rule as related to the BFP issue.Marketing,

An Ultraviolet-Excess Optical Candidate for the Luminous Globular Cluster X-ray Source in NGC1851

The intense, bursting X-ray source in the globular cluster NGC 1851 was one of the first cluster sources discovered, but has remained optically unidentified for 25 years. We report here on results from Hubble Space Telescope WFPC2 multicolor images in NGC 1851. Our high spatial resolution images resolve ~200 objects in the 3'' radius Einstein X-ray error circle, 40 times as many as in previous ground-based work. A color-magnitude diagram of the cluster clearly reveals a markedly UV-excess object with B~21, (U-B) ~ -0.9 only 2'' from the X-ray position. The UV-excess candidate is 0.12'' distant from a second, unremarkable star that is 0.5 mag brighter in B; thus ground-based studies of this field are probably impractical. Three other UV-excess objects are also present among the ~16,000 objects in the surveyed region of the cluster, leaving a ~5% probability that a UV-excess object has fallen in the X-ray error circle by chance. No variability of the candidate is seen in these data, although a more complete study is required. If this object is in fact the counterpart of the X-ray source, previous inferences that some globular cluster X-ray sources are optically subluminous with respect to low-mass X-ray binaries in the field are now strengthened.Comment: 13 pages including 1 table and 3 figures in AASTeX 4.0; To appear in The Astrophysical Journal Letters, volume 472 (1996 December 1). Preprint with full-resolution figures available at http://www.astro.washington.edu/deutsch/pubs/pubs.htm

The economics of collateral

In this paper we study how the use of collateral is evolving under the influence of regulatory reform and changing market structure. We start with a critical review of the recent empirical literature on the supply and demand of collateral which has focussed on the issue of ‘collateral scarcity’. We argue that while limited data availability does not allow a comprehensive view of the market for collateral, it is unlikely that there is an overall shortage of collateral. However, it is quite possible that there may be bottlenecks within the system which mean that available collateral is immobilized in one part of the system and unattainable by credit-worthy borrowers. We then describe how these problems sometimes can be overcome by improved information systems and collateral transformation. We discuss how collateral management techniques differ between banks and derivatives markets infrastructures including, in particular, CCPs. In order to assess the impact of alternative institutional arrangements on collateral demand, we introduce a theoretical model of an OTC derivatives market consisting of investors and banks arrayed in several regions or market segments. We simulate this model under alternative forms meant to capture the implications of moving to mandatory CCP clearing and mandatory initial margin requirements for non-cleared OTC derivatives