The Economics of Solicited and Unsolicited Credit Ratings

This paper develops a dynamic rational expectations model of the credit rating process, incorporating three critical elements of this industry: (i) the rating agencies' ability to misreport the issuer's credit quality, (ii) their ability to issue unsolicited ratings, and (iii) their reputational concerns. We analyze the incentives of credit rating agencies to issue unsolicited credit ratings and the effects of this practice on the agencies' rating strategies. We nd that the issuance of unfavorable unsolicited credit ratings enables rating agencies to extract higher fees from issuers by credibly threatening to punish those that refuse to acquire a rating. Also, issuing unfavorable unsolicited ratings increases the rating agencies' reputation by demonstrating to investors that they resist the temptation to issue in ated ratings. In equilibrium, unsolicited credit ratings are lower than solicited ratings, because all favorable ratings are solicited; however, they do not have a downward bias. We show that, under certain conditions, a credit rating system that incorporates unsolicited ratings leads to more stringent rating standards

Portable Belt Conveyor for Construction Materials and Waste

Cílem této bakalářské práce je návrh přenosného pásového dopravníku dle zadaných parametrů. První část práce obsahuje koncepci navrhovaného dopravníku s volbou komponentů. V další části je řešen funkční výpočet, který je proveden dle normy ČSN ISO 5040 a dalších uvedených zdrojů. V poslední části je prováděn návrh napínacího zařízení a na závěr je připojena výkresová dokumentace dopravníku.The aim of this bachelor thesis is design of portable belt conveyor according to specified parameters. First part of the thesis contains the proposed concept with a choice of conveyor components. The next part of thesis deals with functional calculation, which is solved according to ČSN ISO 5040 and other specified sources. In the end of bachelor thesis is contained proposal of implemented tensioning device. Technical drawing of conveyor is also attached to the bachelor thesis.

Acknowledgments: We are grateful to Anat Admati, Ugo Albertazzi, Cindy Alexander,

We present a model in which issuers of asset backed securities choose to release coarse information to enhance the liquidity of their primary market, at the cost of reducing secondary market liquidity. The degree of transparency is inefficiently low if the social value of secondary market liquidity exceeds its private value. We show that various types of public intervention – mandatory transparency standards, provision of liquidit

Optimal Opacity on Financial Markets

We analyze the incentives for information disclosure in financial markets. We show that borrowers may have incentives to voluntarily withhold information and that doing so is most attractive for claims that are inherently hard to value, such as portfolios of subprime mortgages. Interestingly, opacity may be optimal even though it increases informational asymmetries between contracting parties. Finally, in our setting a government can intervene in ways that ensure the liquidity of financial markets and that resemble the initial plans for TARP. Even if such interventions are ex-post optimal, they affect incentives for information disclosure and have ambiguous ex-ante effects

Why do banks promise to pay par on demand?

We survey the theories of why banks promise to pay par on demand and examine evidence about the conditions under which banks have promised to pay the par value of deposits and banknotes on demand when holding only fractional reserves. The theoretical literature can be broadly divided into four strands: liquidity provision, asymmetric information, legal restrictions, and a medium of exchange. We assume that it is not zero cost to make a promise to redeem a liability at par value on demand. If so, then the conditions in the theories that result in par redemption are possible explanations of why banks promise to pay par on demand. If the explanation based on customers’ demand for liquidity is correct, payment of deposits at par will be promised when banks hold assets that are illiquid in the short run. If the asymmetric-information explanation based on the difficulty of valuing assets is correct, the marketability of banks’ assets determines whether banks promise to pay par. If the legal restrictions explanation of par redemption is correct, banks will not promise to pay par if they are not required to do so. If the transaction explanation is correct, banks will promise to pay par value only if the deposits are used in transactions. After the survey of the theoretical literature, we examine the history of banking in several countries in different eras: fourth-century Athens, medieval Italy, Japan, and free banking and money market mutual funds in the United States. We find that all of the theories can explain some of the observed banking arrangements, and none explain all of them

Size and Focus of a Venture Capitalist's Portfolio

We take a portfolio approach to analyze the investment strategy of a venture capitalist (VC) and show that portfolio size and scope affect both the entrepreneurs' and the VC's incentives to exert effort. A small portfolio improves entrepreneurial incentives because it allows the VC to concentrate the limited human capital on a smaller number of startups, adding more value. A large and focused portfolio is beneficial because it allows the VC to reallocate the limited resources and human capital in the case of startup failure and allows the VC to extract greater rents from the entrepreneurs. We show that the VC finds it optimal to limit portfolio size when startups have higher payoff potential--that is, when providing strong entrepreneurial incentives is most valuable. The VC expands portfolio size only when startup fundamentals are more moderate and when he can form a sufficiently focused portfolio. Finally, we show that the VC may find it optimal to engage in portfolio management by divesting some of the startups early since this strategy allows him to extract a greater surplus. The Author 2009. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: [email protected]., Oxford University Press.

Corporate Governance, Finance, and the Real Sector

This paper presents a theory of the linkages between corporate governance, corporate finance and the real sector of an economy. We examine a model of industry equilibrium with endogenous entry. We show that poor corporate governance and low investor protection generates less competitive economies, populated by firms with more insider ownership and greater leverage. The quality of the corporate governance system can also affect an economy's industrial structure: better corporate governance promotes the development of sectors more exposed to moral hazard, such as the high-technology industry. We also show that entrepreneurs may have a preference for "extreme" corporate governance systems, where the quality of corporate governance and the level of investor protection are either very high or very low. This suggests that entrepreneurs operating in economies endowed with a corporate governance system of low-quality may have little or no incentive to seek (or to lobby for) an improvement of the governance system of their economy. Finally we show that financial liberalizations facilitate firm entry and the adoption of more productive technologies, promoting economic growth. Our stylized model generates predictions that are consistent with several observed empirical regularities