Alessandro Fedele

Optimal Investment and Financial Strategies under Tax Rate Uncertainty

Abstract In this paper, we apply a real-option model to study the effects of tax-rate uncertainty on a firm’s decision. In doing so, we depart from the relevant literature, which focuses on fully equity-financed investment projects. By letting a representative firm borrow optimally, we show that debt finance not only encourages investment activities but can also substantially mitigate the effect of tax-rate uncertainty on investment timing.

Moonlighting Politicians: Motivation Matters!

Abstract We study self-selection into politics and effort once in office of citizens with different abilities and motivations in a framework where moonlighting is allowed. We find that high-ability motivated (public-fit) politicians exert higher effort in politics than high-ability non-motivated (market-fit) politicians, and that high-ability citizens, both public-fit and market-fit, may decide to enter politics. We test our predictions using a database of Italian parliamentarians for the period 1996-2006. We find evidence of advantageous selection of both market-fit and public-fit parliamentarians. We also show that public-fit parliamentarians have higher voting attendance and that only voting attendance of market-fit parliamentarians is negatively affected by income opportunities.

Does Product Market Competition Increase Credit Availability

Abstract With asymmetric information between investors and firms, credit availability is affected by the resale value of collateralized productive assets. If liquidation occurs, investors recover a greater value the higher the probability to find a buyer and the higher his willingness to pay to use the assets for production. We extend the idea of complementarities among firms in the same industry (as in Shleifer and Vishny, 1992) to study under which conditions credit availability is enhanced by competition in the product market when assets are industry specific.

Failing Firm Defence with Entry Deterrence

Under the principle of the Failing Firm Defense (FFD) a merger that would be blocked due to its harmful effect on competition could be nevertheless allowed when (i) the acquired firm is actually failing, (ii) there is no less anti-competitive alternative offer of purchase, (iii) absent the merger, the assets to be acquired would exit the market. We focus on potential anti-competitive effects of a myopic application of the third requirement by studying consequences of a horizontal merger on entry in a Cournot oligopoly with a failing firm. If the merger is blocked entry occurs and, when the industry is highly concentrated, consumer welfare is bigger because gains due to augmented competition exceed losses due to shortage of output.

The importance of being consulted

Does management consulting facilitate the access to credit for start-ups? This paper tries to answer the question by developing a theoretical framework where a firm applies for a bank loan to implement a risky project. The probability of success increases if the firm exerts a costly managerial extra-effort, but the bank is unable to observe such an effort: a moral hazard problem may therefore occur. During an economic downturn the project’s expected profitability is likely to be low relatively to the effort cost. In this case we find that credit is granted only if the bank hires a management consultant, even when the latter does not improve the business practice.

Product Market Competition and Collateralized Debt

This paper presents a model where bank credit depends upon borrowers.product market structure. We show that a larger number of competitors in the industry may increase credit availability by enhancing the resale value of the collateralized productive assets. We also study how this bene.t of competition is affected by the existence of outsiders willing to bid for the collateralized productive assets of the insiders. Our model encompasses the standard case of Cournot competition either when the default probability goes to zero or when there are multiple outsiders bidding for the productive assets. We test the empirical implications of the theoretical analysis exploiting information on the access to finance of small and medium Italian firms and find supportive evidence.

In Medio Stat Virtus: Does a Mixed Economy increase Welfare?

Over the past few decades, social enterprises have grown remarkably. This paper investigates how social enterprises affect access to social services (e.g., education and health-care) and utilitarian welfare. To this end, two economic systems are compared: a market economy system, where all firms are profit maximizers, and a mixed economy system, where both for-profit businesses and social enterprises are present. Findings show that individuals are more likely to have access to social services within mixed economy. Moreover, conditions are derived under which utilitarian welfare is larger within mixed economy. Public policies in support of social enterprises (e.g., subsidies) are shown to result in the following trade-off: access to social services is further enhanced but utilitarian welfare is more likely to be lower than that within market economy.

IN MEDIO STAT VIRTUS: DOES A MIXED ECONOMY INCREASE WELFARE?

Over the past few decades, social enterprises have grown remarkably. This paper investigates how social enterprises affect access to social services (e.g., education and health-care) and utilitarian welfare. To this end, two economic systems are compared: a market economy system, where all firms are profit maximizers, and a mixed economy system, where both for-profit businesses and social enterprises are present. Findings show that individuals are more likely to have access to social services within mixed economy. Moreover, conditions are derived under which utilitarian welfare is larger within mixed economy. Public policies in support of social enterprises (e.g., subsidies) are shown to result in the following trade-off: access to social services is further enhanced but utilitarian welfare is more likely to be lower than that within market economy.

Reputation and competition in a hidden action model.

The economics models of reputation and quality in markets can be classified in three categories. (i) Pure hidden action, where only one type of seller is present who can provide goods of different quality. (ii) Pure hidden information, where sellers of different types have no control over product quality. (iii) Mixed frameworks, which include both hidden action and hidden information. In this paper we develop a pure hidden action model of reputation and Bertrand competition, where consumers and firms interact repeatedly in a market with free entry. The price of the good produced by the firms is contractible, whilst the quality is noncontractible, hence it is promised by the firms when a contract is signed. Consumers infer future quality from all available information, i.e., both from what they know about past quality and from current prices. According to early contributions, competition should make reputation unable to induce the production of high-quality goods. We provide a simple solution to this problem by showing that high quality levels are sustained as an outcome of a stationary symmetric equilibrium.

'Stakeholder Orientation' and Capital Structure: Social Enterprises Versus For-Profit Firms in the Italian Social Residential Service Sector

In this paper, we investigate whether capital structure differs between for-profit and nonprofit sectors by focusing on two key aspects of the latter: the non-distribution constraint and the stakeholder oriented governance system. We develop a theoretical model and show that the former negatively affects leverage, defined as the amount borrowed over the total investment, whilst the latter has a positive effect. We then analyze a longitudinal data set of balance sheets of 800 firms operating in the social residential sector in Italy and show that, once controlled for observable characteristics, for-profit companies have a leverage 18% higher than nonprofit enterprises, even if the latter face lower credit costs. We explain this finding by arguing that the effect of the non-distribution constraint prevails over the effect of stakeholder orientation.