Contributions published at Finance (Kjell G. Nyborg)

Initial public offerings (IPOs) are one of the most important events during the life of a company and in corporate finance. They are also the foundation for the existence of equity markets. Thus, IPOs have been studied extensively. Even though an IPO could be regarded as a simple buy and sell transaction, there are some problems that make the IPO a very complex procedure. These problems are, for example, the difficulty to assess the quality of the company, the uncertainty about the future prospects of the company, and the inevitable, but very understandable, reluctance of the pre-IPO owners and managers to share private information on the company with the public. The complexity of these problems and of businesses in general led to the existence of different IPO methods, underwriting contracts, share types, a plentitude of pre-IPO owners, and many other nuances that play into the IPO process. This paper has the objective to study characteristics of IPOs from an ex-post perspective in an exploratory fashion. As an IPO is highly complex, this paper solely focuses on the three IPO characteristics, which received the most attention in academic literature.

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Die Europäische Union sucht ein Instrument, um Steuereinnahmen zur Bewältigung der letzten Finanzkrise zu generieren und die Finanzmärkte zu stabilisieren, damit künftige Krisen vermieden werden können. Diese Arbeit analysiert die Europäische Finanztransaktionssteuer auf ihre Tauglichkeit bezüglich dieser Aufgaben und zeigt die wesentlichen Ansatzpunkte der Steuer im Kontext der makroökonomischen Mechanismen mit ihren Möglichkeiten und Grenzen auf. Die Analyse lässt die Schlussfolgerung zu, dass eine erhebliche Steuereinnahme möglich ist, welche aber von den geschätzten Werten auch stark abweichen kann. Weiter sind marktstabilisierende Wirkungen unbestritten, jedoch sind die Ursachen von Finanzkrisen zu unberechenbar, als dass sie mit einer solchen Massnahme vollständig vermieden werden könnten.

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This paper begins with the description of general characteristics of Credit Default Swaps. Studying the opaque OTC market leads to the analysis of the case of AIG and its contribution to the financial crisis. Accordingly, we examine the current developments and changes in the world of CDS. Furthermore, liquidity is in focus of an empirical analysis through the examination of CDS bid-ask-spreads and volume data, which is compared with the liquidity of corresponding stocks. We find reduced liquidity during 2007 and 2008 in stocks and CDS market as well as a negative correlation of the liquidity by comparing different proxies.

Vorliegende Bachelorarbeit widmet sich den steuerlichen Fragestellungen, welche die kon-zerninterne Nutzung und der Transfer von IP innerhalb einer multinationalen Unternehmens-gruppe hervorbringen. Die Möglichkeiten von IP in der Steuerplanung werden aufgezeigt und es wird auf die steuerlichen Rahmenbedingungen eingegangen. Ein Schwerpunkt liegt auf der Festlegung von Verrechnungspreisen für IP. Es wird erläutert wie in der Praxis Verrech-nungspreise für den Transfer von IP als auch für Lizenzzahlungen bestimmt werden und wel-che Herausforderungen dabei bestehen. Es zeigt sich, dass die von der OECD vorgeschlage-nen Verrechnungspreismethoden nur begrenzt angewendet werden können und daher auch Methoden aus der finanziellen Bewertung, insbesondere einkommensbasierte Methoden, hin-zugezogen werden.

Vorliegende Bachelorarbeit liefert vor dem Hintergrund der aktuellen Diskussion einen qualitativen Beitrag zum Thema „Aggressive Steuerplanung von Konzernen“. Zunehmend treffen internationale Wertschöpfungsketten auf bestehende nationale Steuergesetze. Um die Konzernsteuerquote zu senken, optimieren multinationale Konzerne ihre Strukturen und verschieben Steuersubstrat in niedrig besteuerte Gebiete. Die OECD, die EU und die G20 Staaten verfolgen das Ziel stärker gegen aggressive Steuerplanung vorzugehen. Die Umsetzung von konkreten Massnahmen gestaltet sich auf Grund unterschiedlichster rechtlicher, politischer und wirtschaftlicher Interessen als äusserst schwierig und steht noch am Anfang. Die Schweiz als attraktiver Standort für Konzerne muss mit einer weiteren Druckverschärfung auf die Steuerprivilegien rechnen.

Die vorliegende Arbeit widmet sich dem Thema der korrekten Behandlung von Umrechnungsdifferenzen im Jahresabschluss. Diese Differenzen entstehen bei der Währungsumrechnung der Buchführung. Für Aufregung hat dabei der Bundesgerichtsentscheid vom 01.10.2009 gesorgt. Denn seit diesem Urteil ist es untersagt Umrechnungsdifferenzen erfolgswirksam zum behandeln, was jedoch bisher das übliche Vorgehen in der Praxis darstellte. Es gilt diesen Streitpunkt sowie offene Fragen und Unklarheiten aufzuarbeiten.

Cooper and Nyborg (2008) derive a tax-adjusted discount rate formula under a constant proportion leverage policy, investor taxes and risky debt. However, their analysis assumes zero recovery in default. We extend their framework to allow for positive recovery rates. We also allow for differences in bankruptcy codes with respect to the order of priority of interest payments versus repayment of principal in default, which may have tax consequences. The general formula we derive differs from that of Cooper and Nyborg when recovery rates in default are anticipated to be positive. However, under continuous rebalancing, the formula collapses to that of Cooper and Nyborg. We provide an explanation for why the effect of the anticipated recovery rate is not directly visible in the general continuous rebalancing formula, even though this formula is derived under the assumption of partial default. The errors from using the continuous approximation formula are sensitive to the anticipated recovery in default, yet small. The ‘cost of debt’ in the tax adjusted discount rate formula is the debt’s yield rather than its expected rate of return.

Covered Bonds are an important source of refunding for banks in Europe and have recently become popular in countries like Australia, New Zealand and US. Covered bonds currently represent the second largest asset class just after sovereign bonds in almost every European country. The total amount of outstanding covered bonds is currently approximately 2.4 trillion euro. The current discussion about the asset encumbrance has increased voices for an issuance limit for banks in the European countries. This paper discusses how the common rating agencies produce their ratings and examines their approaches of rating covered bonds. As the rating agencies publish a lot of information about their methodology but do not disclose how the rating is generated, one goal of this paper is to show how the unadulterated pool data , the legal frameworks, the issuer rating, the rating of the country the issuer is based in and the general structure have an influence on the covered bond rating. Furthermore, it examines how the rating agencies analyse this data to be able to produce a rating. The three big rating agencies are paid by the organisations whose debt they rate. Due to this conflict of interest the independence of these ratings is questionable. Today, there are still high barriers to market entry and the market structure can best be described as an oligopoly. I expect that this fact is mirrored in the rating distribution and in the scores derived by the rating agencies to describe the cover pool. Therefore, it might be possible to generate a rating approach that is able to produce ratings which are leading. Several parameters such as the LTRO introduced by the ECB in 2011 and the issuance limits of covered bonds have an influence on the covered bonds and their ratings. In this paper I try to show some of these effects. As mortgage covered bonds have become much more important than public covered bonds over the last years, the latter are not treated in this thesis.

This study investigates whether balance sheet and income statement measures of commercial and savings banks can be used as predictors of their failures. Detecting banks in distress is particularly important for regulators due to the serious and costly consequences of bank failures for the whole economy. First research work addressing this question goes back to the early 1930s. Later, the seminal publications by Beaver (1966) and Altman (1968) marked the beginning of the modern eld of bankruptcy prediction. Many researchers searched for better explaining nancial and non-nancial variables as well as better performing statistical methods in subsequent studies. Up to today, however, neither a superior statistical method nor an obviously outstanding set of explanatory variables have been found yet.

The paper contributes to the literature on corporate cash holdings by showing that there is a financial markets channel that affects corporations’ cash holdings. Leaning on the literature on stock price feedback to firm fundamentals, we advance the hypothesis that firms with more liquid stocks hold more cash, ceteris paribus, as ammunition to defend against negative cascades or stimulate positive ones. This contrasts with an alternative view that firms with more liquid stocks are less financially constrained and therefore hold relatively less cash. The evidence favors the cascade/cash as ammunition hypothesis, also with respect to its predictions regarding growth opportunities and cash holdings. As a robustness check, we use the introduction of tick size decimalization in 2001 as a natural experiment where liquidity was exogenously shocked. We also find evidence of two-way causality; a higher level of stock liquidity leads to more cash holdings, and vice versa.

The three-month Swiss franc Libor serves as a reference rate for the Swiss National Bank (SNB). As a first step, the thesis aims to assess whether the reference rate was subject to risk premia during the financial market turmoil. The emergence of risk premia could have jeopardized the effectiveness of monetary policy which is evaluated as a second step. The results suggest that the reference rate was driven by credit and liquidity risk premia during the financial market turmoil. However, the SNB’s monetary policy proved to be effective to counteract the disturbances on the Swiss franc interbank market.

Die Schweiz sieht sich zunehmendem Druck seitens der EU ausgesetzt bezüglich der privilegierten Besteuerung. Die EU bezeichnet das den Steuerstatus inhärente „ring-fencing“ als wettbewerbsverzerrend und damit unvereinbar mit dem Freihandelsabkommen. Liechtenstein hat sich mit der Steuergesetzrevision vom 1. Januar 2011 ein neues attraktives und EU-konformes Steuergesetz verpasst. Die Arbeit befasst sich mit dieser Steuergesetzrevision als Vorbild für die zukünftige Unternehmensbesteuerung in der Schweiz. Die Arbeit zeigt, dass sich Liechtenstein bis zu einem gewissen Mass als Vorbild für die Schweiz eignet. Trotzdem haben auf Schweizer Seite weitere Anpassungen zu erfolgen, um eine möglichst adäquate Kompensation der privilegierten Besteuerung zu erreichen.

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We study bailouts of banks that suffer from debt overhang problems and have private information about the quality of their assets-in-place and new investment opportunities. Menus of bailout plans are used as a screening device. Constrained optimality involves overcapitalization and nonlinear pricing, with worse types choosing larger bailouts. When investment opportunities follow the assets, we derive an equivalence result between equity injections and asset buyouts. The larger capital outlay under asset buyouts can be offset by borrowing against the assets. If investment opportunities follow the bank, equity injections offer more upside to the bailout agency. This may reduce or enhance efficiency, depending on whether screening intensity is needed mostly on assets-in-place or new investments.

This dissertation includes three research papers, two of which are empirical studies and one of which illustrates a mechanism through a theoretical model. The first paper focuses on the effect of stock market liquidity on corporate cash holdings. This paper provides empirical evidence that stock market liquidity has a positive impact on cash holdings. The two main competing hypotheses are cascade hypothesis and financial constraints hypothesis. Subrahmanyam and Titman (2001) study the cascade mechanism through which stock prices affect cash flows. In this paper, the cascade hypothesis states that firms with more liquid stocks need more cash holdings to avoid negative cascades or to stimulate positive cascades, whereas the financial constraints hypothesis states that firms with more liquid stocks need less cash holdings because more liquid stocks indicate less cost of external financing and then less financial constraints. The empirical findings support the cascade hypothesis. Causality is carefully tested through a decimalization test, which is designed based on the tick decimalization in stock markets in 2001. Furthermore, a test by a system of simultaneous equations suggests that there is a two-way causality between stock market liquidity and cash holdings. The second paper studies the causal impact of stock short sales on corporate cash holdings. Short sellers benefit from the drop of stock prices, which provides strong incentive to dig on the dark side of firms. For example, short sellers actively investigate target firms and aggressively spread negative research reports among stakeholders (e.g. capital providers, customers, suppliers, and employees). Short sales facilitate the incorporation of negative information into stock prices. Attacks of short sellers isolate firms from stakeholders, increase the cost of external financing, and decrease operational cash flow. Firms should be wary of short selling activities in financial markets. Precautionary motive drives the firms hold cash as the ammunition for the battle with short sellers and as unconditional liquidity support during negative events. This paper provides empirical evidence that short-selling pressure has a positive impact on cash holdings. The results are robust after controlling for relevant firm characteristics, heterogeneity of belief, investors' holding horizons, institutional monitoring incentives, and other information channels (such as financial analysts). A test by a system of simultaneous equations supports the causal impact of short sales on cash holdings and excludes the reverse causality. This paper also sheds light on a better understanding of the determinants of short-selling activities in financial markets. The third paper proposes a theoretical model to demonstrate a mechanism by which financial markets affect corporate policies when managers do not learn from financial markets. The existing research on the real effect of financial markets on corporate policies depends on the assumption that corporate managers learn from prices in financial markets when making corporate policies (Chen, Goldstein and Jiang, 2007; Bond, Goldstein and Prescott, 2010; Edmans, Goldstein, and Jiang, 2012; Fresard, 2012). The manager-learning argument is reasonable and intuitive. However, given the fact that managers naturally have an informational advantage with regard to the firms they operate, will financial markets affect corporate policies if managers do not need to learn from financial markets? This paper suggests a channel based on the interaction between managers and other stakeholders. This paper extends the idea in Subruhmanyam and Titman (2001) by considering financial constraints of the new investment and adding a firm manager in the model structure. The manager has private information and does not need to learn from financial market. However, other stakeholders, such as customers, suppliers, capital providers, may learn from security prices, and their actions affect corporate cash flows and may generate new investment opportunities. Therefore, even if managers do not need to learn from financial markets, they still can not ignore financial markets when making corporate policies.

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