Eleuterio Vallelado

Financial Constraints for Innovation in Brazil

ABSTRACT This paper analyzes the presence of financial constraints for investment in innovation in Brazil. Dynamic investment models are estimated for a panel dataset of 206 Brazilian non-financial firms in the period 1995–2006. Results show that innovation of Brazilian firms is subject to financial constraints in line with previous international evidence. Innovation of Brazilian firms is adversely affected by leverage and also depends on internally generated funds. The models presented incorporate relevant firm characteristics for financial constraints. Our findings suggest the need for further advances at micro- and macroeconomic levels in Brazil to mitigate the observed financial constraints.

Behavioral Decision-Making in Finance: An Overview and Assessment of Selected Research

ABSTRACT Everyday financial decisions are the product of diverse factors, including instinct, habit, emotion, reason, and social interaction. Psychologists have long aspired to unravel the determinants of intuitive judgment and choice. Slowly but surely, they have identified various psychological mechanisms that cause predictable decision biases. This survey puts special emphasis on behavioral research in finance that investigates information overload, emotion, social influence, and ambiguity aversion. It also discusses selected cognitive models that attempt to integrate the way individuals interpret and act upon information. In general, behavioral research casts serious doubt on the validity of some of the key insights of mainstream finance such as portfolio theory, the positive risk-return trade-off, and efficient markets.

Is the use of bank debt as a governance mechanism conditioned by the financial system? The cases of Chile and Spain

We test whether the use of bank debt as a governance mechanism is conditioned by the financial system in which firms operate. Our results indicate that the legal and institutional environment determines the use of bank debt to finance growth opportunities. Firms use bank debt to finance their growth opportunities when the countrys banking system contributes to solving agency and asymmetric information problems and avoiding information monopoly costs. The evolutionary process of the financial systems in each country means that market imperfections such as information asymmetry or agency costs can have a diverse influence on firms’ bank debt decisions.

An integrated model of capital structure to study the differences in the speed of adjustment to target corporate debt maturity among developed countries

In this paper, we propose an integrated model of capital structure to study the partial adjustment process to the optimal long term debt ratio. In our analysis, we consider the characteristics of the institutional environment as a factor that influences such adjustment. We use a sample of quoted firms from Germany, Denmark, Spain, Italy, USA, Australia, Belgium, UK and France for the period 1996-2008. The key findings are that the firms follow optimal long-term debt ratios. Such optimal ratios are determined by firm characteristics identified in the trade-off, pecking order and market timing theories and by the country institutional environment. We observe that in those countries with lower cost of adjustment, essentially in those where banks are the main source of funds, firms can reach their target debt ratio in half the time needed by those countries with higher adjustment costs.

Efectos de la regulación bursátil sobre la eficiencia de los mercados de valores. Comparación entre España y Reino Unido

RESUMEN Este trabajo presenta el primer estudio comparado sobre la rentabilidad obtenida por los directivos en sus operaciones con acciones propias en dos mercados de valores caracterizados por marcos legales diferentes: España y Reino Unido. Analiza si las diferencias en el grado de regulación y coerción del «abuso de mercado» producen diferencias en el grado de eficiencia del mercado. Esto permitirá expresarnos sobre el grado de efectividad de los denominados close periods o periodos de censura implantados en Reino Unido o sobre el mayor rigor en el cumplimiento de los plazos fijados por ley para el anuncio pùblico de las operaciones de directivos. Los resultados evidencian que las mayores restricciones establecidas en el Reino Unido no impiden que los directivos obtengan rentabilidades anormales, detectadas por igual en ambos países, pero sí contribuyen positivamente sobre la transparencia del mercado y la correcta formación de precios al favorecer la forma semi-fuerte de eficiencia.

Situational strength, individuals and investment decisions on a takeover

This paper focuses on the impact of non-financial factors on individual investment decisions when information on a takeover bid announcement is public. Our results indicate that individual traits modulate the impact of information clarity and source reliability on decision-making. Thus, when individual traits are ignored, we find that investors use situational variables to distinguish noises from news. However, information clarity is more helpful than source reliability to interpret the information and take action even when source reliability diminishes. In contrast, when individual traits are considered, we observe that not only the lack of clarity, but also the lack of source reliability reduces situational strength. Furthermore, under uncertainty, individuals who are intuitive and tolerant to ambiguity are more capable of distinguishing between relevant and irrelevant stimuli and are more likely to expect a drop in the target’s share price. Finally, we observe that proactivity, in situations of uncertainty, is more important on action than cognitive style and tolerance to ambiguity. Intuition and proactivity impact positively on trading, while proactivity fosters coherence between perception and decisions.

Beyond rational behaviour: the non-financial variables that condition shareholder action during a takeover

This article provides experimental evidence that bidder and target shareholders of a takeover announcement exhibit differences in their actions explained by individual traits and by the environment in which investors must decide. These variables should be considered when designing an adequate investor protection policy. Before the crisis, investor protection regulation was based on the rational behaviour hypothesis and characterized by an overreliance on disclosure and financial literacy strategies. However, the new European policy on financial services has acknowledged the lack of adequate protection, and has increased transparency and access to information for investors in MIFID II and MiFIR.

Is bank‐debt maturity contingent on the financial system?

Purpose The purpose of this paper is to determine whether bank debt‐maturity decisions are conditioned by growth opportunities, the firms’ ownership structure, or the institutional environment. Design/methodology/approach The empirical analysis is undertaken using an unbalanced panel data of Chilean and Spanish firms. Findings The results indicate that when banks are not allowed to become stockholders, managers use bank debt‐maturity as a corporate governance mechanism. When banks can participate in the ownership of the firms that they finance, short‐term bank debt can serve as a substitute for a governance mechanism. Originality/value The main contribution of this paper is the analysis of how differences in financial development among countries modify financial decisions by firms.

Bank Boards in Europe: Trade-Offs in Size, Composition, and Turnover

This chapter is a survey on papers reporting different results regarding the importance of bank boards for corporate governance in a highly regulated industry. The analysis focuses on three variables related to bank boards, namely, their size, composition, and the trade-offs effected within them. Furthermore, a descriptive analysis is carried out of boards of directors in European banks with regard to these variables and their evolution at two specific times, before and after the financial crisis.

European banks’ executive remuneration under the new European Union regulation

We review how the new European regulation of bank executive compensation could affect the future of banking in Europe. Although there is no conclusive empirical evidence on the relation between bank executive remuneration and the financial crisis, authorities have intensively regulated the compensation of bank managers to eliminate risk-taking incentives in the financial industry. However, the new regulation could have unintended consequences of creating an adverse selection problem at European banks, reducing the number of best-performing managers available for European banks, and motivating an excessive increase in fixed remuneration over total remuneration, altering the way incentive systems work.