Guido Max Mantovani

Voluntary Disclosure Strategies and the Cost of Capital of Italian Blue Chips

How do the Italian blue chips actually deal with disclosure about their business model? Does their disclosure strategies affect the cost of capital through a reduction in information risk premia? Performing a cluster analysis on the contents reported in annual reports, investor relations and press releases, the study firstly identifies four different disclosure strategies. Subsequently it uses an original model to extract the information risk premia from time series of stock prices and trading volumes time. The level of information risk premia is split between market-related and firm-specific drivers in order to compute their correlation with trading volume and the different disclosure strategies identified. Overlaps from results in cluster analysis and information risk premia determinants let us conclude that broad and exhaustive financial communication allows reduction of the cost of capital.

How to Rate and Score Private Companies? Evidence from the North Eastern Italian Districts

This paper proposes a new methodology for corporate return-to-risk assessment, to be adopted in case of private and unlisted companies. The consequent rating and scoring framework is sourced from the original Lintner’s certainty equivalent model but it is developed on an integrated concept of the corporate performance. The integration of the Lintner’s model with a corporate-based risk analysis is innerly fruitful in banking practices and credit allowances to SMEs, for which neither specific nor standard ratings seems to succeed. In fact, the lack of market data and comparable risk premium estimations might bias the perception of the corporate performance and generate misallocation in credit fundings. We suggest that the estimation of the certainty equivalent is less biasing than the estimation of risk premia. An empirical application of the new approach is proposed over a sample of manufacturing firms in the North-East regions of Italy, where the economic impact of SMEs is the highest and where such firms present best performances. Results from risk-adjusted profitability depicts a clear crowding-out effect: 26% of companies are funded without merit while 25% are underfunded.

Does the Corporate Governance Profile Really Impact on Firm Performance and Bank Allowances

This paper investigates whether there are relationships between corporate governance characteristics, firms’ performance, credit allocation and merit of credit. We hoped to find some influences of qualitative characteristics, which are often overlooked. The study look at 75,512 firms (European and not) analysed over 7 years. We find out: (i) significant differences between Countries’ corporate governance; (ii) no significant relations between firm performance, level of indebtedness and the adopted indicators; (iii) significant relationship between Integrated Rating and corporate governance indicators; (iv) maybe human capital is an important perspective for more efficient banking practices, but now it is not take into account.

Forecasting Bankruptcy: An European Analysis

Several studies investigated the predictability of financial distress. With this paper, we analyse the ability of Integrated Rating model to anticipate potential corporate crisis. In particular, we study bankrupt companies of four European Countries (Czech Republic, Spain, Italy, France, Slovakia, and the United Kingdom). We find that Integrated Rating model can forecast bankruptcy (assessing a negative merit of credit judgment) with an accuracy that exceeds 75%. Moreover, we test and determined that the merit of credit assessment is stable over time, and that, despite this, the banking system does not recognize when a company is not funded efficiently.

Is Basel the Right Gateway for a More Efficient Debt Market? An International Comparison

Current literature does not agree on the impact that Basel regulation is having onto the banking system, small and medium size enterprises (SMEs) and the single country economies. Moreover, recent crises cast some doubts on the efficacy of the regulation itself. With this paper, we investigate this issue by comparing the credit allocation capabilities of different countries. In particular, we compare two Anglo-Saxon Countries (the USA and the UK) with a group of eight European Countries where Basel rules are fully implemented. We find that, without the competition of well-developed risk capital markets, Basel regulation struggles to be effective.

Is There (a Methodology to Measure) a Corporate Governance Risk Premium into the Corporate Cost of Capital

The paper proposes to intend the firm as a nexus of stakeholder, each bearing return-to-risk expectations on the overall corporate performance. All stakeholders must achieve their own satisfaction by bargaining contracts that must be sustainable, i.e. keep alive in the long term both the firm and its stakeholders-network. Governance is intended as the mechanism that gives solution to the above puzzle. When market and contracts are complete, optimal solution can be easily found out. But when incompleteness emerges, governance can misallocate the firm performance between the stakeholders. Accordingly, the stakeholders will negotiate the visible-only arguments of contracts, and, this way, they bind even the invisible ones (i.e. those impacting anyway on their ex-post performance). This being the case, a Governance Risk Premium (GRP) emerges and incentivize a governance repackage. Such a GRP depends both on the actual grade of incompleteness of the financial markets but even on the one of the contracts as per their capability to allocate risk and growth through time. A framework to detect GRP is even proposed here. Its affordability is proved through an application to the Italian case which is characterized by 142bp GRP inside the cost of equity capital

Corporate Finance… What Else? The Case of the Productive Chain Networks in North-East Italy and the Scaffolding Finance Adopted by Their Leader

The Italian North-East district is a clear evidence of the presence of productive chain networks, in which firms tend to specialize in specific risk management. This generates new approaches in the theory of the firm. We investigate which are the implications for the financial activities of the clusters. The paper presents a methodology to identify firms according to their network role: LF, SF and standing alone firms (SA). Accordingly, empirical evidence about the capital raising activity of LF, SF and SA is reported, deploying the necessity of a new approach in finance, where “corporation” is no more the focus.

Beyond Stress Testing: Modelling Liquidity and Interest Rate Risks for (Real) Corporate Measures

The financial crisis exploited the poorness of real liquidity risk perception in the banking system. The paper suggests a wiser uses of econometrics tools can be more effective in detecting banking risk in order to reduce bias in the decision processes. A methodology to better focus the real bank exposition to interest rate risk is proposed fixing several bugs related to the assessment of its connections with: (i) the credit risk embedded in loans; (ii) the concentration risk of assets and liabilities relating to specific customers; (iii) the volume risk, particularly for unexpected changes. The Veneto Banca experience and performance are used as gymnasium for a possible method development aiming to propose a standard for a more comprehensive corporate risk approach in banking, even for Regulators.