Christina V. Atanasova

Disequilibrium in the UK corporate loan market

In the last decade, a debate has resurfaced about whether financial constraints stemming from asymmetric information and incentive problems play an important role in propagating monetary policy shocks. This paper investigates the monetary transmission mechanism in the UK and its impact on the availability of bank credit to small and medium size firms. The empirical specification is based on a disequilibrium model that allows for the possibility of transitory credit rationing. Sample firms are classified endogenously into ‘borrowing constrained’ and ‘borrowing unconstrained’. The analysis of credit rationing takes into account not only firm specific variables, but also important macroeconomic factors such as the prevailing monetary conditions and the stage of the business cycle. We find that (i) firms’ assets play an important role as collateral in mitigating borrowing constraints; (ii) during periods of tight monetary conditions corporate demand for bank credit increases, whereas the supply of bank loans is reduced; (iii) to avoid bank credit rationing smaller companies increase their reliance on interfirm credit; (iv) the proportion of borrowing constrained firms is significantly higher during the recession years of the early 1990s than at other times.

How Do Firms Choose between Intermediary and Supplier Finance

We examine the dynamics of firms choice of short-term financing between intermediated loans and trade credit. We argue that trade credit facilitates the access to and improves the terms of conventional loans. We model the idea that trade credit is a favorable signal of the creditworthiness of the borrower. Hence, some firms will use trade credit in addition to conventional institutional loans despite its higher cost. Our empirical results support the predictions of the theoretical model we develop. We show that firms with high agency costs rely heavily on supplier financing. For these firms trade credit has a significant positive effect on the level of intermediated borrowing.

Trade Credit Financing: How Expensive is it Really?

This paper models the firms choice of short-term finance between intermediated loans and trade credit. We argue that one important benefit of supplier credit is to increase the availability of institutional financing. If the use of trade credit is perceived as a favourable signal that is informative of the creditworthiness of the borrower, some firms will use trade credit in addition to conventional institutional loans despite its higher cost. The model predicts that firms with high agency costs and information opacity will rely heavily on suppliers to finance their short-term operational expenditures. The empirical analysis is based on the estimation of a system of simultaneous equations. We solve the identification problem arising in this context by using an alternative method based on the heteroskedasticity of the structural shocks. Our estimation is drawn upon a large unbalanced panel of public and private UK firms covering a ten year period (1994-2003). The evidence is consistent with the predictions of the model in that trade credit increases the availability of institutional loans.

The Decline In The Volatility Of The Business Cycles In The Uk

We analyse the sources of the decline of business cycle volatility in the UK using a dynamic factor model that allows for the presence of a structural break in the conditional mean and variance of output, sales, income and unemployment. We augment the factor model with an economic component to investigate the role of structural changes and improved monetary policy in the volatility decline of the series. Our results suggest that the dominant cause for the observed volatility decline is the reduced variability of shocks.

FDI in Bulgaria

ABSTRACT This article examines aspects of foreign direct investment (FDI) in Bulgaria. The article considers propositions relating to the location and own-company motives for engaging in FDI in Bulgaria, the performance of the foreign ventures, and challenges in the management of the ventures. The article also reviews the lessons for potential investors in Bulgaria. The article is based on the analysis of in-depth interviews with senior expatriate managers of nine foreign ventures in Bulgaria. This analysis serves to better understand the nature of FDI in Bulgaria and highlights the issues facing potential investors. Relatively few studies have been conducted on FDI in Bulgaria which is one of the least researched transition economies. This article therefore sheds new light on some important issues concerning FDI in Bulgaria and serves as a case study of a transition economy that is little reported on and little known in the West.

Short Term Overreaction, Underreaction and Momentum in Equity Markets

This paper extends the literature on market reaction to extreme price changes by introducing an empirical model that allows the conditional mean and variance of returns to vary asymmetrically in response to price changes of all sizes. We provide evidence, from US, UK and Japanese markets, that conditional returns do depend on the size and sign of previous price changes although there are strong indications that the effect has declined over time. We find support for the recently developed asset pricing models in which economic agents display behavioral biases and simultaneously underreact to some types of events and overreact to others. Our results show that the market tends to reverse after large price changes, while after small price changes a momentum type effect is observed.

Assessing brand equity in the luxury wine market by exploiting tastemaker scores

Purpose Calculating brand equity, the price differential that a branded product is able to charge compared to an unbranded equivalent, often suffers from a lack of a means to truly determine equivalence. Luxury wines have the benefit of an established measure of equivalency – the Parker score. Robert Parker’s influence as a tastemaker provides a point of comparison across brands. This study looks at brand equity of Bordeaux classified growth wines considering château brands, growths and vintages to illustrate the intangible value for the consumer. Design/methodology/approach Using price and wine-specific data from Wine-Searcher.com, an online database and search engine, an initial sample of 393 wines with Parker scores ranging from 72 to 100 is presented. A subset of perfect wines, with 100-point Parker scores, is also reviewed focusing on the great vintage of 2009. Findings The results indicate that brand equity in the luxury wine market exists. Not only is this true for the brand of a specific château, but there is also equity associated with the vintage and the growth. Practical implications This offers practical implications for brand managers in positioning their wines. Originality/value An analysis of luxury wines supports the financial perspective on brand equity, especially when there is a viable means of determining equivalence, such as the Parker score.

Evidence From a Large Sample on the Effects of Group Size and Decision-Making Time on Performance in a Marketing Simulation Game

Marketing instructors using simulation games as a way of inducing some realism into a marketing course are faced with many dilemmas. Two important quandaries are the optimal size of groups and how much of the students’ time should ideally be devoted to the game. Using evidence from a very large sample of teams playing a simulation game, the study described here seeks to answer two fundamental questions: What effects on performance does group size have? And, is it possible for groups to spend too much time on decision making? The results indicate that performance increases in line with group size until teams have five members, and then tapers off. Furthermore, performance is shown to rise as time spent on decision making increases, up to a point, after which additional time spent on the game is shown to detract from performance. Implications for marketing instructors are discussed.

Familiarity Breeds Alternative Investment: Evidence from Corporate Defined Benefit Pension Plans

We show that corporate R&D intensity and Land and Buildings intensity increase sponsored defined-benefit pension plan investment in private equity and real estate, respectively. Pension funds with such alternative investment tilts underperform significantly, which is inconsistent with plans benefiting from an informational advantage or asset-specific expertise. We find some evidence consistent with the existence of spillovers between pension funds with portfolio tilts and their corporate sponsors. Our results are consistent with theories of familiarity based on ambiguity aversion and on fear of the unknown. This familiarity bias in asset allocation is both robust and economically significant.

The corporate governance and financing of small-cap firms in Canada

Purpose - – The purpose of this paper is to examine the interaction between corporate governance and capital structure for small publicly traded firms in Canada. Design/methodology/approach - – The authors hand-collect data for all companies listed on the Canadian junior stock exchange and construct measures of corporate governance. The authors focus on a time period when the sample firms were unregulated in their governance choices. Since firms decide simultaneously on the level of corporate governance provisions and capital structure, the authors use simultaneous equation models as well as instrumental variables analysis to address endogeneity. Findings - – The authors find that a strong relation exists between small-firm capital structure and corporate governance practices. Firms with low level of collateralizable assets have low leverage and chose better corporate governance provisions. All else equal, the firms with better corporate governance are more likely to issue new equity than debt. Overall the results support theories that predict a link between corporate governance and financing policy, where small-cap firms with low debt capacity incur costly shareholder protection to facilitate access to equity financing. Originality/value - – The authors contribute to prior research by providing the first empirical evidence on the choice and impact of corporate governance on capital structure for junior small- and micro-cap firms.