Enrico Laghi

Beyond CAPM: estimating the cost of equity considering idiosyncratic risks

The present study proposes a new evaluation approach aimed at estimating the cost of equity through standardized models which consider an innovative set of firm-specific information on the main unsystematic risks which are typical of any business. Our objective is extending the Capital Asset Pricing Model (CAPM) by defining a standard formula for quantifying the premium for certain idiosyncratic risks as a function of a new set of firm-specific quantitative information. We define two econometric models, for listed and non-listed firms respectively, which consider five idiosyncratic risk factors: firm size, value factor, operating risks, financial structure and stock market price volatility. The models were tested on a sample of European non-financial companies. The empirical results show that while the CAPM systematically underestimates the cost of equity, the proposed models correctly estimate its expected value; furthermore, they show a slight improvement also in terms of estimates’ volatility. Due to their efficacy and ease of use, the proposed models represent a valid practical tool for investors, analysts and professional evaluators. This work contributes to the existing literature by proposing a typologically innovative extension of the CAPM set of explanatory variables, defining and testing new models for the estimation of the unsystematic risks’ spread of the cost of equity based on an original set of firm-specific accounting and market information.

Amendments to the IAS 41 and IAS 16 – Implications for accounting of bearer plants

Under the IAS-IFRS standards, agricultural activity is accounted for using a fair value model. In 2014, the IASB amended the accounting treatment for bearer plants with the aim to address some concerns that have emerged since the application of the IAS 41. Th e amendments require that bearer plants be accounted for like property, plant and equipment (IAS 16). In the paper, there are analysed the aspects introduced by these amendments, moving from the IASB project. In particular, the reasons that led to these amendments are explained and it is explored whether all the concerns previously identifi ed by accounting scholars and practitioners have been addressed. Moreover, there are identifi ed some possible obstacles to the practical application of the amendments to the IAS 41.

Does Intellectual Capital Affect Business Performance

The aim of this paper is to assess the impact of intellectual capital (IC) on firms’ financial performance with reference to a sample of companies operating in the European Union (EU) area during the period from 2006 to 2013. The analyses are further differentiated by country of domicile, industry sector, and historical period (pre-crisis and crisis). We investigate whether the value of the components of IC is a relevant factor that influences firms’ performance, proposing and testing a modified version of the value added intellectual capital (VAIC TM ) model which also considers country-specific differences in terms of default risk. The empirical results evidence the relevance of the information on IC disclosed by companies. Differences arise depending on the reference country, industry, and historical period examined. The main limitations of the research are the unbalanced structure of the sample among countries and industries and the specificity of the examined sample (listed firms applying IAS/IFRS system). The main implication of the study is that, since we demonstrate the value relevance of IC, our findings could be of interest for standard setters for defining a standard (qualitative and quantitative) level of information on human resources to be disclosed by companies in their financial statements. Our contribution to the literature is the proposal of some relevant modifications to the original VAIC TM model and providing new evidence on the

Estimating credit default swap spreads using accounting data, market quotes and credit ratings: the European Banks Case

The aim of this paper is to define a model for estimating the theoretical Credit Default Swap spread of European banks considering firms’ accounting data, market quotes, official ratings and macroeconomic variables. We detect a significant log-linear relation between Credit Default Swaps spreads and four explanatory variables determined on the basis of the stock price, the financial structure, the equity composition, the incidence of the reserve for loan losses on total loans, the official ratings and macroeconomic indicators of the country of domicile of each company. The empirical results show that for the period from 2008 to 2013 the model has a high statistical significance and a remarkable explanatory power. Our main contribution to the existing literature is the exploration of new determinants of banks’ credit risk and the provision of new evidence on the determinants of banks’ default risk in the crisis and post-crisis European context. Furthermore, we define a practical model for estimating Credit Default Swap spreads of banks suitable for professional use.

Key Factors in Delisting Process in Italy: Empirical Evidence

We investigated the characteristics and motives of Italian voluntary delisting observing a period of eleven years, 2001 to 2011. The final sample is made up of 53 industrial companies, compared with a control sample of 106 companies still listed in the period. Main goal is to assess if any signals can predict a delisting operation for listed companies in Italy and if Italian market shows differences with previous investigation in Continental Europe and US. Practical implications of results achieved can help to highlight on Public to Private phenomenon in Italy, still not enough observed considering the high number of delisted companies in the last decade relating to a relative small number of listed companies

Going Dark in Italy: Empirical Evidence on Last Decade

The purpose of the paper is to examine the characteristics and motives of Italian voluntary Public to Private transactions (PTPs) between 2001 and 2011 observing a final sample of more than 53 industrial companies, compared with a control sample of 106 companies still listed in the period. Main goal is to assess if any signals can predict a going private operation for listed companies in Italy and, if positive, Italian market shows differences with previous investigation in Continental Europe and US. Most of going private research is based on US samples, starting from 1980s, and on UK sample, both characterize by distinctive features related to governance (i.e., degree of openness of share capital, ability to control shareholder capital with low percentage). On the contrary, Italian market is closely characterized by presence of large shareholder, as family owner or historical owner, as observed for a large number of listed companies in Continental Europe (Faccio and Lang, 2002). After having briefly reviewed main contribution from most recent literature, this work provides test of different hypotheses trying to explain the delisting phenomenon In Italy considering a wide range of motivations. Practical implications of results achieved can help to highlight on Public to Private phenomenon in Italy, still not enough observed considering the high number of delisted companies in the last decade relating to a relative small number of listed companies.