Pricing the Idiosyncratic Risk in the Cost of Capital: A Comprehensive Model

Despite the mixed evidence, recent empirical works highlight the importance of idiosyncratic risk in the stock market. On this basis, this note elaborates an approach to price directly the specific risk in the cost of capital, both for scientific empirical purposes and practitioner’s investment valuation. For ex- tremely high leverage values, the cost of risky debt tends to approximate the unlevered cost of capital. Exploiting a Merton model, we show a simple solu- tion to calculate in practice every cost of capital version, providing a compre- hensive framework. A worked example is provided to simplify the concrete application

THE EFFECT OF FINTECH INVESTMENTS ON LISTED BANKS: EVIDENCE FROM AN ITALIAN SAMPLE

This paper analyses whether and how investments in financial technology (FinTech) affect performance, risk, and value of listed Italian banks. This paper tests the effect of return on equity (ROE) and capital asset pricing model (CAPM) Beta coefficient — and, secondly, of the price-to-book value (PBV) ratio, on a sample of 17 Italian listed banks from 2013 to 2019, representing the largest institutions operating in the Italian banking industry. The FinTech variable is declined into two different statuses: digital active banks and digital-focused banks. The study adds useful insights to the positive effects of innovation on banks’ value, in a market, like the Italian one, where investments in FinTech have spread in recent years. Controlling for other financial statements and market variables, the presence of FinTech investments does not affect the CAPM Beta coefficient, while the relationship is positive and significant with ROE for digital active banks only, and with the PBV for digital-focused banks. These results confirm a positive effect on performance for banks investing in FinTech, while greater expectations from investors and a positive effect on bank value creation are significant for digital-focused banks only

A revision of Altman’s Z- Score for SMEs: suggestions from the Italian Bankruptcy Law and pandemic perspectives

As the pandemic urged further investigations on the prediction of firms’ financial distress, this study develops and tests an alternative measure to the alert system elaborated by the NCCAAE which combines the benefits of the Z-score’s multivariate discriminant model with the background employed to develop the NCCAAE’ predictors. Using a sample of 43 viable and 43 non-viable Italian SMEs, we first compare the financial distress predictive accuracy of the NCCAAE’s alert system to that of the traditional Z-score over the period 2015-2019. On the basis of the results, we elaborate and compare the revised versions of both approaches which align the traditional Z-score to the current socio-economic conditions and provide an alternative measure to the NCCAAE’s alert system which embeds a Z-score calculated using the ratios elaborated by the NCCAAE for the alert system. The analysis of the two baseline approaches showed complementary results as the Z-score overperformed the alert system when predicting the status of non-viable firms whereas the opposite emerged as regards viable firms. The revised version of both approaches pointed out an enhanced predictive accuracy with respect to baseline models. In particular, the complementary role of the Z-score has been integrated into the new alert system as major contribute to its enhancement which pointed it out as the best measure employed. We, therefore, contribute to the literature studying the financial distress prediction developments by elaborating an alternative measure to the alert system developed by the NCCAAE which combines the benefits of the Z-score’s multivariate discriminant function with the background employed to develop the NCCAAE’ predictors. Our analysis enriches the post-pandemic debate on refined financial distressed prediction methods by pointing out the limits of the alert system as designed by the NCCAAE and suggests an alternative and better performing measure that may be used by third-party bodies to predict financial distress

The impact of ECB loan valuation metrics on third-party loan pricing: A EU firm perspective

This paper delves into the implications for the bank behaviour about firm loan pricing conditions of the new direction undertaken by supervisory and regulatory authorities in the aftermath of the deterioration of the loan portfolio quality that hit EU banks. The 2014 AQR exercise embraces the new direction and extensively uses debt service coverage measures to assess a firm’s loan quality. We, therefore, check whether the DSCR has influenced debt pricing conditions by analysing a panel of 655 listed EU firms from 2009 to 2017. Our findings show that Z-score is unable to discriminate between high and low credit risk firms. The DSCR becomes significant only after 2014, highlighting the incremented importance of this ratio in the bank’s loan pricing determination. Our work contributes to the literature investigating third-party interdependencies with the interplay between lender-borrower relationship and loan pricing and further extends the literature on creditworthiness metrics beyond their mere default-prediction ability (Beaver, 1966; Houghton & Woodliff, 1987). Our results highlight the relevance of the DSCR in the bank’s loan pricing determination and inform firm managers about the drivers that influence the cost of debt thereby enhancing their operational and financial planning

LEVERAGE, COST OF CAPITAL AND BANK VALUATION

In this paper, we present a model that demonstrates the e®ect of debt on cost of capital and value in the case of banking ¯rms. Using a static partial equilibrium setting, both in a steady state and steady growth scenario, we derive a bank-speci¯c valuation metric which separately attributes value to assets and debt cash °ows in the form of a liquidity premium and taxshield. We run our model on a sample of the largest 26 European banks from 2003 to 2016 ¯nding that the value contribution of debt bene¯ts to enterprise value is large and persistent. Further from our model, we derived an implied cost of capital (ICC) measure ¯nding consistent results with capital asset pricing model (CAPM). The theoretical framework we present is helpful to address bank debt bene¯ts valuation and to reconcile equity and asset side approaches

Comparative Genome Analysis of the Neurexin Gene Family in Danio rerio: Insights into Their Functions and Evolution

Neurexins constitute a family of proteins originally identified as synaptic transmembrane receptors for a spider venom toxin. In mammals, the 3 known Neurexin genes present 2 alternative promoters that drive the synthesis of a long (alpha) and a short (beta) form and contain different sites of alternative splicing (AS) that can give rise to thousands of different transcripts. To date, very little is known about the significance of this variability, except for the modulation of binding to some of the Neurexin ligands. Although orthologs of Neurexins have been isolated in invertebrates, these genes have been studied mostly in mammals. With the aim of investigating their functions in lower vertebrates, we chose Danio rerio as a model because of its increasing importance in comparative biology. We have isolated 6 zebrafish homologous genes, which are highly conserved at the structural level and display a similar regulation of AS, despite about 450 Myr separating the human and zebrafish species. Our data indicate a strong selective pressure at the exonic level and on the intronic borders, in particular on the regulative intronic sequences that flank the exons subject to AS. Such a selective pressure could help conserve the regulation and consequently the function of these genes along the vertebrates evolutive tree. AS analysis during development shows that all genes are expressed and finely regulated since the earliest stages of development, but mark an increase after the 24-h stage that corresponds to the beginning of synaptogenesis. Moreover, we found that specific isoforms of a zebrafish Neurexin gene (nrxn1a) are expressed in the adult testis and in the earliest stages of development, before the beginning of zygotic transcription, indicating a potential delivery of paternal RNA to the embryo. Our analysis suggests the existence of possible new functions for Neurexins, serving as the basis for novel approaches to the functional studies of this complex neuronal protein family and more in general to the understanding of the AS mechanism in low vertebrates

Accuracy of parasitological and immunological tests for the screening of human schistosomiasis in immigrants and refugees from African countries: An approach with Latent Class Analysis

BACKGROUND: Schistosomiasis is a neglected infection affecting millions of people, mostly living in sub-Saharan Africa. Morbidity and mortality due to chronic infection are relevant, although schistosomiasis is often clinically silent. Different diagnostic tests have been implemented in order to improve screening and diagnosis, that traditionally rely on parasitological tests with low sensitivity. Aim of this study was to evaluate the accuracy of different tests for the screening of schistosomiasis in African migrants, in a non endemic setting. METHODOLOGY/PRINCIPAL FINDINGS: A retrospective study was conducted on 373 patients screened at the Centre for Tropical Diseases (CTD) in Negrar, Verona, Italy. Biological samples were tested with: stool/urine microscopy, Circulating Cathodic Antigen (CCA) dipstick test, ELISA, Western blot, immune-chromatographic test (ICT). Test accuracy and predictive values of the immunological tests were assessed primarily on the basis of the results of microscopy (primary reference standard): ICT and WB resulted the test with highest sensitivity (94% and 92%, respectively), with a high NPV (98%). CCA showed the highest specificity (93%), but low sensitivity (48%). The analysis was conducted also using a composite reference standard, CRS (patients classified as infected in case of positive microscopy and/or at least 2 concordant positive immunological tests) and Latent Class Analysis (LCA). The latter two models demonstrated excellent agreement (Cohen's kappa: 0.92) for the classification of the results. In fact, they both confirmed ICT as the test with the highest sensitivity (96%) and NPV (97%), moreover PPV was reasonably good (78% and 72% according to CRS and LCA, respectively). ELISA resulted the most specific immunological test (over 99%). The ICT appears to be a suitable screening test, even when used alone. CONCLUSIONS: The rapid test ICT was the most sensitive test, with the potential of being used as a single screening test for African migrants

Human cases of West Nile Virus infection in north-eastern Italy, 15 June to 15 November 2010.

In 2010, for the third consecutive year, human cases of West Nile virus (WNV) infection, including three confirmed cases of neuroinvasive disease and three confirmed cases of West Nile fever, were identified in north-eastern Italy. While in 2008 and 2009 all human cases of WNV disease were recorded in the south of the Veneto region, cases of WNV disease in 2010 additionally occurred in two relatively small northern areas of Veneto, located outside those with WNV circulation in the previous years. WNV IgG antibody prevalence in blood donors resident in Veneto was estimated as ranging from 3.2 per 1,000 in areas not affected by cases of WNV disease to 33.3 per 1,000 in a highly affected area of the Rovigo province. No further autochthonous human cases of WNV disease were notified in Italy in 2010. The recurrence of human cases of WNV infection for the third consecutive year strongly suggests WNV has become endemic in north-eastern Italy

Imported Chikungunya Infection, Italy

From July to September 2006, a total of 17 confirmed cases of CHIKV infection were observed in travelers at 5 Gruppo di Interesse e Studio delle Patologie di Importazione (GISPI) centers (Italian network of Institutes of Infectious and Tropical Diseases). Prompt reporting of imported CHIKV infections is essential for monitoring of potential risk. The possibility of introducing CHIKV into Italy cannot be ruled out on the basis of current evidence