A Simple Method for Estimating the Marketability Discount of Large Blocks of Shares

Author(s):

Enrique Schroth

 et al.
Topic:
Finance

An inherent difficulty in estimating the value of large blocks of shares is the need to account for their limited marketability. To date, there are no estimates of the marketability discount that explicitly take into account the illiquidity of the market for corporate control. In this article, results from previous work by the authors are used to produce a simple method to estimate the marketability discount under different firm, industry and macroeconomic scenarios. This method is applicable to public firms that have non-traded controlling blocks of shares, as well as fully private firms, and it helps investors determine what discounts to apply on top of the more traditional valuation methods (multiples based methods, DCF analysis).

Updated: 31/12/2014
Comments: 13
Views: 5,020

Strategic Default and Equity Risk Across Countries

When a firm is in financial distress, its shareholders and debt holders may benefit from a debt renegotiation to avoid an inefficient bankruptcy or liquidation. The prospect of a debt reduction through a renegotiation may, however, induce shareholders to default even if the firm is solvent. The view that shareholders may default for strategic rather than for solvency reasons has proved useful in understanding, among other things, the theoretical determinants of corporate bond spreads, dividend policies, the optimal debt structure, and the valuation of debt and equity.

This paper asks whether the option of shareholders to default strategically on the firm's debt explains differences in firms' equity risk across countries. It claims that the risk of equity should be lower for firms that operate in countries where the insolvency procedure favours debt renegotiations

Updated: 28/12/2014
Comments: 9
Views: 2,536

Optimal customer selection for cross-selling of financial services products

Author(s):

Jens Nielsen

 et al.

In this research a new methodology for optimal customer selection in cross-selling of financial services products, such as mortgage loans and non life insurance contracts, is presented. Financial services companies tend to possess significant databases and a long relationship with each customer. In this situation the challenge becomes to use the database in general and specific knowledge of the individual target to estimate the probability of a cross-sale, the cost of a cross-sale attempt, the average discounted future profit and the uncertainty of the profit of the entire cross-sale attempt for that individual. Once reliable estimates for the stochastics of the cross-sale process have been established, one can optimise the cross-sale profit according to a variety of criteria including return and risk. In this paper, we first consider the simple question of optimising the average profit, but we also consider one version of adjusting for risk when optimising cross-sale profits. Our extensive case study is taken from non-life insurance, where our sales probability model is provided to us by the company that also provided us with the data.

Updated: 05/01/2015
Comments: 10
Views: 2,981

Dynamic Debt Runs and Financial Fragility: Evidence from the 2007 ABCP Crisis

Author(s):

Enrique Schroth

 et al.
Topic:
Finance
Industry:
Banking

Debt runs played a central role in the financial crisis of 2007-2008, reigniting the debate about their causes and how they can be prevented. This research uses the 2007 asset-backed commercial paper (ABCP) crisis as a basis to study the determinants of debt runs.

This paper can may be of specific interest to financial institutions, as it has clear implications about the design of off-balance sheet investments, the degree of maturity mismatch between debt and assets, the strength of the credit guarantees and, most importantly, exactly how much leverage is unsafe. This discussion is timely, given the efforts by the Vickers report and the Liikanen report to address the problems of shadow banking.

Updated: 20/12/2013
Comments:
Views: 4,725

Investor protection, taxation and dividends

Author(s):

Meziane Lasfer

 et al.

In this article Mohammed Alzahrani and Meziane Lasfer look at how dividend payments of firms listed in 24 OECD member countries are affected by different levels of investor protection. Previous evidence that firms in high investor protection countries pay higher dividends in the presence of tax costs of dividends is reassessed.

Updated: 17/10/2012
Comments:
Views: 2,587

Adding Prior Knowledge to Quantitative Operational Risk Models

Author(s):

Jens Nielsen

 et al.

An analysis of the fundamental issues that arise in practice when modeling operational risk data. This paper addresses the statistical problem of estimating an operational risk distribution, both abundant data situations and when available data is challenged from the inclusion of external data or because of underreporting.

Updated: 01/01/2015
Comments: 4
Views: 2,707

Insights into customer insight

How can you drive consistently high quality customer insights through all levels of a business? Professor of Consumer Marketing, Vince Mitchell, explains how the role of the customer insight department is changing.

Updated: 10/10/2012
Comments:
Views: 2,558

SMEs in selected countries in East Asia

Author(s):

Li Xue Cunningham

Topic:
Strategy
Industry:
Any Industry

With a sustained high single to double digit economic growth and development in recent decades, East Asian economies are increasingly playing the role of a global growth pole, and are fast emerging as a manufacturing and information technology hub of the world economy. One of the key characteristics of the East Asia region is the presence and importance of a significant small and medium-sized enterprises (SME) sector, comprising the majority of enterprises in all the region's economies.

The paper examines the issues and challenges to East Asian SMEs in a renewed global market environment. The importance of SMEs in their respective nation's economy is demonstrated, and the difficulties, challenges, and opportunities for SMEs in the new economic environment after the 2008 financial crisis are discussed.

Updated: 05/01/2015
Comments: 17
Views: 3,094

Investigating the broken-heart effect

Author(s):

Jaap Spreeuw

 et al.

The traditional assumption made in life insurance about the independence of the remaining lifetimes of a couple has come under greater scrutiny recently.

In this paper, the researchers postulate that dependence between coupled lifetimes is of a short-term type. Evidence is found that mortality rates increase after the death of a partner and, in addition, that this phenomenon diminishes over time.

Updated: 06/01/2015
Comments: 7
Views: 4,121