348 research outputs found

    Directed-job match with heterogeneity

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    Matching process involves three stages of selection: application, candidates selection and job acceptance. In traditional matching models all three stages are assumed random, while in the directed-search literature only the first stage is generally assumed ‘directed’. This paper develops a job-matching model where all three selection stages are directed, by introducing heterogeneous preferences of firms and workers. Both firm-level and aggregate matching functions are derived, which in a comparison with random-matching models reveals that the coordination failure problem is worse under heterogeneous directed-match when the number of vacancies is small, but is better when it is large. Furthermore directed-search limits friction when the market consists of fewer but larger firm

    Removing moral hazard and agency costs in banks: beyond CoCo Bonds

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    The convex payoffs for equityholders in a corporate structure results in agency costs and moral hazard problems. The implicit government guarantee for banks accentuates these. We believe that the Basel III related bail-in contingent convertible (CoCo) structures do only not solve these problems, but may even aggravate them. In this paper we suggest solutions. The first is to replace the currently issued writedown/off and equity-conversion CoCo structures with a market-price equity-conversion CoCo bonds. This mirrors the full dilution effect of an ordinary equity raise in a distressed situation to reduce incentives for high risk-taking by equityholders. The second is to establish a Contingent Equity Base that replaces the incumbent shareholders once the CoCo is triggered. This will finally remove the perverse risk-taking incentives. The valuation of the CEB is then suggested

    Agency costs of bail-in

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    This paper investigates two elements of agency costs, namely the wealth-transfer and the value destruction problems, associated with the equity-conversion and writedown CoCo bonds. By focusing on the costs as those stemming from the deviation from absolute priority rule (DAPR), we derive the expressions for the CoCo bonds and show that both agency costs are aggravated under these structures. We demonstrate this by studying the case of Monte Di Paschi bail-out in 2010. We argue that the replacement of government bailout by bail-in is akin to replacing moral hazard for agency costs, and that by encouraging bail-in structures the regulator prioritises the reduction of the former while ignoring the aggravation of the latter

    Optimal volatility, covenants and cost of capital under Basel III bail-in

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    This paper investigates three consequences of the new financial regulation: the agency costs, the monitoring costs and the effect on banks’ cost of capital. For the first, the shareholders’ behaviour is analysed as a trade-off between the value of the bank and its volatility by using an indifference curve model of the bank’s choice of optimal risk. While the first-best optimal risk maximises the value of the bank, the shareholders select suboptimally high risks under bail-in structures. This leads to both the wealth transfer and the value destruction agency costs. For the second, as a result of these consequences of the DAPR (Deviation from the Absolute Priority Rule) the bondholders are forced to closely monitor the bank behaviour. Requiring higher rate of return for higher risk, reflecting the costs of monitoring, is shown to alleviate the agency problems. Different types of covenants are proposed as an efficient way of implementing this solution. For the third, the impact of the new bail-in structure and the monitoring costs on the WACC of 16 largest European banks is estimated, and is shown to increase the cost of capital by between 75% and 110%

    Unpleasant actuarial arithmetic: fair contribution rates for defined benefit pension schemes

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    We derive key properties of the actuarially fair contribution rate for defined benefit (DB) schemes, that equates scheme assets to liabilities for any given scheme member. The unpleasant actuarial arithmetic of both increased life expectancy and (especially) negative real yields has resulted in a massive rise in the fair contribution rate over recent decades. At present there appears to be little prospect of these rises being reversed. We analyse the implications for the viability of DB schemes, and consider the (potentially significant) impact of incorporating systematic risk into benefits

    High TC ferromagnetism in diluted magnetic semiconducting GaN:Mn films

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    Wurtzite GaN:Mn films on sapphire substrates were successfully grown by use of the molecular beam epitaxy (MBE) system. The film has an extremely high Curie temperature of around 940 K, although the Mn concentration is only about 3 ~ 5 %. Magnetization measurements were carried out in magnetic fields parallel to the film surface up to 7 T. The magnetization process shows the coexistence of ferromagnetic and paramagnetic contributions at low temperatures, while the typical ferromagnetic magnetization process is mainly observed at high temperatures because of the decrease of the paramagnetic contributions. The observed transport characteristics show a close relation between the magnetism and the impurity conduction. The double exchange mechanism of the Mn-impurity band is one of the possible models for the high-TC ferromagnetism in GaN:Mn.Comment: 20 pages, 4 figures, submitted to Physica