Giovanni Marseguerra

Dividend Policy and Stock Price Volatility

The idea that speculative prices fully and correctly reflect available information is central to modern financial economic theory. However, there is growing evidence that the capital markets may not be informationally efficient and a significant strand of research in the financial economics literature suggests that changes in speculative prices are too volatile to be accounted for by changes in information on economic fundamentals alone. Figure 1, page 64, (from A. Kleidon, 1986a) plots the real value of the Standard and Poor’s annual composite index of the U.S. stock market over the past century alongside the ex post realized present value of future dividends 16. Plots like these 17 show clearly that the stock market has exhibited large fluctuations relative to the baseline of the ex post perfect foresight value. Indeed, at times the real S&P stock market index has been more than twice and at times less than half of what its smoothly-growing ex post perfect foresight value turned out to be. Similar considerations hold for the U.K. Stock Market. Shiller (1981) and LeRoy and Porter (1981) argued that such high volatility relative to perfect foresight fundamental posed severe difficulties for the Efficient Market Hypothesis (EMH). The point here is that a good forecast has to be less variable than, or at most as variable as, the quantity forecasted. Consequently, plots like Figures 1 and 2 seem to contradict the assumption that the current price is a good forecast of the perfect foresight fundamental. Thus, this excess volatility of the market appeared to be strong evidence against the EMH.

Cooperative Innovation: In Quest of Effective Partners. Evidence from Italian Firms

In recent years, rapid technological change, shorter product life cycles and globalization have deeply transformed the current competitive environment. These changes are inducing firms to face stronger competitive pressures which push them to develop new products, improve production processes or implement new technologies. Thus, firms need to continually acquire new knowledge and innovate. At the same time, entrepreneurs have become aware that technological innovation is less and less dependent on an isolated effort of an individual firm. For small- and medium-sized enterprises (SMEs), R&D cooperation with sources of external knowledge is becoming increasingly essential for fostering innovation activities. Using firm-level data from the Community Innovation Survey for the years 2006–2008 (CIS 2008) and applying a Heckman probit model with sample selection, we analyze the determinants of cooperative innovation for the different types of partners (competitors, customers, suppliers, universities and government laboratories). Results show that internal and external R&D acquisitions, public financial support, as well as belonging to a scientific sector or to a business group are significant determinants of choice in collaborations, although with different magnitude across various types of collaborations.

Debt financing and real estate investment timing decisions

The paper analyses the interaction between investment and financing decisions in a real option framework. In our model, the owner of an undeveloped real estate property (the asset in place) has the option to decide whether and when to develop/abandon his property. We show that debt financing induces the firm to invest earlier than in the pure equity financing case. Moreover, the incentive to anticipate the investment decisions increases with the amount of debt.

Investimenti irreversibili, interazione strategica e opzioni reali: analisi teorica ed applicazioni

The real option approach to investments can simply be considered as the extension of financial option theory to options on real (i.e. non-financial) assets. This approach underlies the need to consider the value of flexibility coupled to irreversible investment decisions in an uncertain environment. As main result, the theory offers the conclusion that it may be better to delay an investment even when its immediate net present value is positive. Aim of this paper is to critically survey some of the most recent advances of this literature with a special attention to the recent studies which emphasize the strategic relevance of the interactions among the investment decisions of firms.

R&D, capital structure and ownership concentration: evidence from Italian microdata

Abstract The purpose of the article is to provide some evidence on the interconnection between capital structure, R&D investment and ownership concentration using a unique panel data-set of Italian firms. We study the effect of R&D intensity on leverage for two groups of firms which are different in terms of their degree of ownership concentration. Our results suggest for Public Limited Companies, a nonlinear relationship between R&D intensity and leverage, with the latter first increasing and then decreasing. Interestingly, the same result is not found to hold true for Private Limited Companies, which are characterized by a more concentrated ownership.

The Effect of Risky Debt on R&D Investment

This paper investigates the interaction between investment decisions, company bankruptcy, and capital structure. We model young and innovative enterprises which face the possibility of making irreversible investments in R&D with uncertain returns, financed through risky debt. Uncertainty comes from two different sources: the technological success of the project and the return from investment. In an optimal investment setting, where uncertainty creates an incentive to delay investment decisions, we find the optimal threshold of entry (invest) and exit (bankruptcy), investigating both the case of infinite and finite debt maturity. We show that the potential loss of the investment option in the event of default, reduces the value of waiting and provides equity holders with an incentive to accelerate the investment. Thus the results of the model here presented seem to imply an active role for financial institutions but traditional loans may not be the most suitable solution to finance risky investment. In line with recent recommendations of the European Investment Bank (EIB, 2013), traditional bank lending might need to be reinforced through further instruments, such as loan guarantees and securitisation.

The Effect of Publicly Available Information

We now examine how the market inference procedure is affected by the large amount of publicly available information. In the previous Chapter the process of signal extraction from dividends has been studied in a very simplified framework assuming that no information was available to the market except dividends and earnings. This description of the interaction between firms and shareholders is clearly unrealistic since in fact almost every firm is subject to close market’s scrutiny and a large amount of information is produced by financial analysts to help investors to select the best stocks.

Ownership and Investments: A Numerical Example

This Chapter is devoted to the analysis of a numerical example. In Chapter 8 above we compared the structure of ownership and corporate governance in a group with those of a multidivisional firm and we established, in a rather general framework, conditions on the integrated ownership of the group’s controlling investor which make the multidivision preferable for minority shareholders (see Proposition 8.1). We also derived some comparative static results concerning how changes in the group’s ownership structure affect resources and values in member firms (see Proposition 8.2). In this appendix we will take a quadratic approximation of the value function (8.2) and we will repeat the analysis developed in the preceeding Chapter. The advantage of this approach is that, under a quadratic approximization, is possible to obtain a closed form solution of the constrained maximization problem (8.1), so that the influence of ownership structure on corporate investment decisions can be directly analyzed.

Corporate Grouping and Resource Allocation

This Chapter is devoted to analyze how resources are allocated among member firms in a hierarchical business group. Investment decisions taken within this organizational structure will be compared with those taken within the classical multidivisional firm. The above issues will be addressed from the perspective of minority (or non controlling) shareholders, that is it will be investigated how the latter are affected by the group’s organizational structure.

Volatility of Prices and Volatility of Dividends

The theoretical model which we present in this chapter is an attempt to develop a framework of analysis sufficiently general to study the volatility of stock prices when markets are efficient but with no a priori specification on the distribution of the relevant stochastic processes. To this aim, we shift the attention from dividends to earnings and we take as the exogenous source of uncertainty the innovation in the present discounted value of earnings. We use the following notation in the rest of this chapter: p t and d t are the price and dividend per share at time t, Nt is the number of shares outstanding at time t, Xt is total earnings and B t is debt at time t. The (fixed) interest rate will be denoted by r and the discount factor by γ = (1 + r)−1. We will use the notation e t to indicate the innovation in the present discounted value of earnings per share, i.e.