Pierre-Armand Michel

Development Path and Capital Structure of Belgian Biotechnology Firms

This study investigates the relationship between the evolution of real options values and associated financing policies for Belgian companies in the sector of bio-industries. Each firms situation regarding the relevant types of real options is stylistically represented through a scenario tree. The consumption of a time-to-build or a growth option is respectively considered as a success or a failure in company development. Empirically, several variables enable us to locate each company along the tree at any time. The study of transitions leads us to discover that failures tend to trigger higher leverage, unlike in the trade-off theory. Yet, the increases in debt maturity, in lease and in convertible financing confirm our predictions. Overall, we emphasize evidence of undercapitalization and of proper, yet insufficient, use of hybrid financing by biotech companies.

Penalties and Optimality in Financial Contracts: Taking Stock

A popular view of limited liability in financial contracting is that it is the result of societal preferences against excessive penalties. The view of most financial economists is instead that limited liability emerged as an optimal institution when, in the absence of a clear limit on economic agents liability, the development of some economic activities might have been thwarted. Viewing the institution from the perspective of optimal legal system design allows us to better understand the current debate on it. We present a broad history of penalties in financial contracts to highlight the interactions between technology, legal environments, purpose of the financial relationship, and contractual provisions. We show that harsh monetary and non-pecuniary penalties are not mere relics from a bygone era and, at the same time, that limited liability is far from a recent institution. We then discuss trade-offs associated with legal mandates of either unlimited or limited liability, both for the contracting parties and for the rest of Society. We identify two broad patterns. First, the toughness of liability rules and bankruptcy laws decreases as exogenous sources of uncertainty become relatively more important, and increases with the opportunity for moral hazard (related to diligence, risk taking, or deception). Second, bankruptcy laws become more lenient as the scope for labor specialization and the returns to human capital or entrepreneurship increase.

A Look at the Validity of the CAPM in Light of Equity Market Anomalies: The Case of the Belgian Common Stocks

We re-examine the pricing of common stocks on the Belgium Stock Exchange in light of two related phenomena recently reported in the literature: the size effect and risk-premia seasonality. When these two phenomena are ignored we cannot reject the hypothesis that the behavior of common stock prices conform to the CAPM. However, when size and seasonality are accounted for in the stochastic process that generates stock returns, the hypothesis that the CAPM describes (and explains) the pricing of common stocks must be rejected, even during the month of January despite the presence of a positive systematic risk premium and the absence of an unsystematic risk premium during that month.

New evidence on beta stationarity and forecast for belgian common stocks

Abstract Based on a comprehensive sample of 170 securities traded continuously on the Brussels Stock Exchange from December 1966 to December 1983 this paper presents evidence which indicates that the stationarity of beta-coefficients is not as strong as reported in previous studies which were based on smaller samples. It is shown, however, that beta forecast can be generally improved using an adjustment method and that the improvement is highest for portfolios of increasing size.