Suchergebnisse

This paper analyzes the different definitions and expressions of political risk and proposes a broad and more inclusive definition regarding its origins and effects. Regarding the effects of political risk on corporate investment decisions, this paper shows the multitude of ways by which the different expressions of political risk may influence both positively and negatively the value of investment opportunities and the decisions of firms to invest. Finally, it proposes different lines of research addressing some of the weaknesses identified in the existing literature ; Correia acknowledges research support from Ministerio de Ciencia e Innovación (Proyecto - MCI ECO2009-12551)

We develop a structural model for valuing bank balance sheet components such as the equity and debt value, the value for the government when the bank is operated by private shareholders including the present value of a possible future bailout, the bailout value incurred by the government following the abandonment of the private shareholders, and, moreover, some price and risk parameters, including the funding cost spread and the banks'probability of default. The structural model implies an abandonment threshold, at which if total income drops below this threshold, private shareholders abandon the bank. In this case, the shareholders lose part (or all) of the capital that they hold in the bank, the creditors lose part or all of their debt, and the government receives a portion (or all) of the capital and all of the debt that is not recovered by creditors. Hence, we assume that part of the capital can be lost due to financial distress or to cover bankruptcy costs. We use the model framework to assess the impact of capital-based macro-prudential policy measures and focus in particular on assessing the difference that an assumed bail-in as opposed to bail-out regime can make.

In this paper, we construct a structural model to determine the costs of a bank rescue considering bail-outs and bail-ins. In our model, a government assumes the equity stake under unlimited liability upon abandonment of the original equity holders. The model determines an abandonment trigger such that if total income drops below this trigger, private shareholders abandon the bank. Given this trigger, the model also determines the bank rescue costs, the expected time to the bank rescue and the bank rescue probabilities. A static analysis of our model produces several empirically testable hypotheses. The model was explored in a sample of southern European countries considering alternative assumptions regarding parameter estimates and the behavior of operational costs. The model results regarding the rescue costs are reasonable, but the model also predicts bank rescues, estimates equity values, performs welfare analyses and estimates the impact of different macro- and micro-prudential policies. The empirical exercise we present, highlights the importance of the assumptions made regarding the behavior of the operational costs by showing dramatic differences in results in a sample of countries that otherwise appear to share important cultural and geographical proximities.

We build a Real Options model to assess the importance of private provisionand the impact of expropriation risk on investment timing, investmentvolumes, governmental costs and social welfare. We consider two types ofbusinesses (essential and non essential businesses) and two stages (operatingand investment opportunities), and answer questions regarding three maintopics: the firm's reaction to expropriation risk, the government drivers toexpropriate, and the costs this generates in terms of welfare. We find thatthe firm makes suboptimal investment decisions. When we endogenize thereputational costs of expropriation, results show that the decision of the governmentregarding the level of political risk will largely depend on the typeof business. However, in terms of welfare it is never optimal to expropriate