Found 424 article(s) in category 'Financial Services'

No More Dizzying Earnings Adjustments

No More Dizzying Earnings Adjustments. Robert Pozen, June 21, 2016, Opinion. “Whether Microsoft’s $26.2 billion purchase of LinkedIn makes sense might depend on where you look. Glancing at LinkedIn’s press release for the full year 2015, you will see a prominent projection for “adjusted” earnings this year of $950 million. Yet if you closely read the press release and its appendix, you can figure out that the company’s projected 2016 earnings under GAAP, the generally accepted accounting principles required in securities filings, are minus $240 million.Link

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Dollar Pricing Redux

Dollar Pricing Redux. Gita Gopinath, June 13, 2016, Paper, “A country’s exchange rate is at the center of economic and political debates on currency wars and trade competitiveness. The real consequences of exchange rate fluctuations depend critically on how firms set prices in international markets. Recent empirical evidence has challenged the dominant ‘producer currency’ pricing and ‘local currency’ pricing paradigms in the literature. In this paper we propose a new paradigm, consistent with the empirical evidence and characterized by three features: pricing in dollars, strategic complementarity in pricing and imported inputs in production. We call this the ‘dollar pricing’ paradigm and contrast its theoretical predictions with prior approaches in a general equilibrium New Keynesian model. We then employ novel data for Colombia to evaluate the implications of exchange rate fluctuations associated with commodity price shocks and show that the findings strongly support the dollar pricing paradigm.Link

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Publish the Secret Rules for Banks’ Living Wills

Publish the Secret Rules for Banks’ Living Wills. Hal Scott, June 10, 2016, Opinion. “The Federal Reserve and the Federal Deposit Insurance Corp. recently determined that five of America’s largest banks do not have credible plans to go through bankruptcy without relying on extraordinary government support. If these five firms— J.P. Morgan Chase, Bank of America, Wells Fargo, Bank of New York Mellon and State Street—can’t develop “living wills” that satisfy regulators, then the Dodd-Frank Act authorizes the government to break them up as soon as 2018.Link

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Doing Bad by Doing Good? Theft and Abuse by Lenders in the Microfinance Markets of Uganda

Doing Bad by Doing Good? Theft and Abuse by Lenders in the Microfinance Markets of Uganda. Catherine Duggan, June 2016, Paper. “Microcredit transactions in developing countries create risks for borrowers that are routinely overlooked in the literature. This paper argues that common microfinance-lending methodologies that allow lenders to collateralize loans and unilaterally collect this security create opportunities for malicious lenders to steal from clients in good standing. In places where any lender can simply call itself a “microfinance institution” (MFI), opportunistic lenders can use the halo effect associated with microfinance to encourage borrowers to make themselves unusually vulnerable to theft. Evidence of these abuses can be seen in a case study of Uganda, where theft and fraud by a small number of microfinance institutions created a large-scale crisis and contributed to a precipitous decline in trust in the financial sector as a whole.Link

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The Volcker Rule as structural law: implications for cost-benefit analysis and administrative law

The Volcker Rule as structural law: implications for cost-benefit analysis and administrative law. John Coates, 2016, Paper. “The Volcker rule, a key part of Congress’s response to the financial crisis, is best understood as a “structural law,” a traditional Anglo-American technique for governance of hybrid public-private institutions such as banks and central banks. The tradition extends much farther back in time than the Glass-Steagall Act, to which the Volcker Rule has been unfavorably (but unfairly) compared. The goals of the Volcker Rule are complex and ambitious, and not limited to reducing risk directly, but include reshaping banks’ organizational cultures. Another body of structural laws, part of the core of administrative law, attempts to restrain and discipline regulatory agencies, through process requirements such as cost-benefit analysis (CBA). Could the Volcker rule be the subject of reliable, precise, quantified CBA? Given the nature of the Volcker rule as structural law, its ambitions, and the current capacities of CBA, the answer is clearly “no,” as it would require regulators to anticipate, in advance of data, private market behavior in response to novel activity constraints.Link

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Expectations and investment

Expectations and investment. Andrei Shleifer, May 2016, Paper. “Using micro data from the Duke University quarterly survey of Chief Financial Officers, we show that corporate investment plans as well as actual investment are well explained by CFOs’ expectations of earnings growth. The information in expectations data is not subsumed by traditional variables, such as Tobin’s Q or discount rates. We also show that errors in CFO expectations of earnings growth are predictable from past earnings and other data, pointing to the extrapolative structure of expectations and suggesting that expectations may not be rational. This evidence, like earlier findings in finance, points to the usefulness of data on actual expectations for understanding economic behaviour.Link 

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A Debt Agenda for the G7

A Debt Agenda for the G7. Martin Feldstein, May 23, 2016, Opinion. “On May 26-27, the heads of the Group of Seven leading industrial countries will gather in Japan to discuss common security and economic problems. A major common problem that deserves their attention is the unsustainable increase in the major developed countries’ national debt. Failure to address the explosion of government borrowing will have adverse effects on the global economy and on debt-burdened countries themselves.Link

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Risk Neglect in Equity Markets

Risk Neglect in Equity Markets. Malcolm Baker, Spring 2016, Paper. “The link between measures of risk and return within the equity market has been very weak over the past 47 years: in the United States, returns on high-risk stocks have cumulatively fallen short of the returns on low-risk stocks, during a period when the equity market as a whole experienced high returns relative to Treasury bills. In the spirit of Fischer Black’s 1993 article “Beta and Return,” published in this journal, the author takes seriously the idea that this evidence reflects a risk anomaly—a mispricing of risk for behavioral and institutional reasons—and revisits the associated implications for investing and corporate finance, examining asset allocation, high leverage in financial firms, low leverage in industrial firms, private equity, venture capital, and bank capital regulation along the way. Many of these implications fit nicely with Black’s original conjectures, and the author highlights refinements and additions to the original list.Link

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Pay Now or Pay Later? The Economics within the Private Equity Partnership

Pay Now or Pay Later? The Economics within the Private Equity Partnership. Victoria Ivashina, Josh Lerner, March 26, 2016, Paper. “The article focuses on the importance of equity partnerships that are essential to the professional service and investment sectors. It examines private equity partnerships and shows that the allocation of fund economics to individual partners is divorced. It mentions that departures of senior partners have negative effects on the ability of funds to raise additional capital.Link

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