finance.docx

Finance Research Letters, 2016

Following our earlier paper on the subject, we present a general closed formula to value the interest savings due to a multi-firm cash-pool system. Assuming normal distribution of the accounts the total savings can be expressed as the product of three independent factors representing the interest spread, the number and the correlation of the firms, and the timedependent distribution of the cash accounts. We derive analytic results for two special processes one characterizing the initial build-up period and the other describing the mature period. The value gained in the stationary system can be thought of as the interest, paid at the net interest spread rate on the standard deviation of the account. We show that pooling has substantial value already in the transient period. In order to increase the practical relevance of our analysis we discuss possible extensions of our model and we show how real option pricing technics can be applied here.

Annals of Finance, 2006

2013

Proceedings of the International Conference on Business Excellence, 2021

The registered capital of the company by shares is divided into fractions known as shares, which, unlike the parts of interests or social parts, represent negotiable instruments, presenting first of all the advantage of being negotiable and freely transferable, subject to limitations that could be introduced by the associates by the constitutive act. Therefore, in exchange for the contributions made to registered capital of the company by shares, the associates receive a number of shares corresponding to the value of these contributions, which represents a certain fraction of its registered capital. Taking into account the negotiable nature of the shares, the quality of shareholder derives and is more related to the quality of owner of shares, dissociating itself from that of signatory of the company’s constitutive act, obliged, inter alia, to make contributions, the latter quality being relevant only at the moment of incorporation of the company. Actually, during the existence of t...

2019

Working paper (Federal Reserve Bank of Cleveland)

Journal of Business Venturing, 1993

The Net Present Value (NPV) Rule provides the basic principle underlying the sharing of ownership in a new venture. Theprinciple oftenfails because the entrepreneur and the venture capjtal~st cannot agree on the potential pro~tabiii~ value of the venture. First, the venture capitaiist may simply have a less optimistic interpretation of the data related to the venture's pro@ potential. We refer to this discrepancy between the expectation of the entrepreneur and that of the venture capitalist as the expectation gap. Second, the venture capitalist knows that for the venture's potential to be realized, the entrepreneurlmanager must devote his full effort to the success of the organization. This is not a problem if the entrepreneur owns the entire project. Once the ownership is shared, however, especially when the venture capitalists own the majority of the shares, the entrepreneur has a jinancial incentive to apply less than the diligence required to control costs and protect the interests of the outside equity holders. This financial incentive arises because any perk, including leisure or shirking, consumed by the entrepreneur does not have to be shared with the venture capitalist, while every dollar saved does. This is not solved by the venture capitalist acquiring a larger percentage of the company. That will only exacerbate the problem as it decreases the cost to the entrepreneur of each dollar of the company's funds spentfor the perk. We refer to this as the motivation problem. In the article, we show how stock options can be used to deal effectively with both problems. First, stock options are always worth more to the optimist than to the pessimist. Thus, there will be a reverse valuation gap with respect to the stock options. We show that by issuing stock options to the entrepreneur, it is possible to close the expectation gap. To solve the motivation problem, the entrepreneur's stake must be increased to the extent where the cost to him of excessive consumption of perks will be as high as the benefit he derives. This can be accomplished by taking advantage of two valuation characteristics of stock options. First, stock options are worth only a fraction of the value of the underlying equity shares. Thus, it

SSRN Electronic Journal, 2000

2005

International Journal of Accounting and Financial Reporting, 2012

The main purpose of this paper is to theoretically compare three structural models presenting several similarities and using financial statements within the context of real options theory. The models are those suggested by i) Leland (1994); ii) Goldstein, Ju and Leland (2001) and iii) Sarkar and Zapatero (2003). The analysis emphasizes convergence conditions of the three models based on their respective dynamic equations. The results show that the first two models represent special cases of the third one. The paper also presents a new equity and debt valuation method. Keywords: Structural model, Financial statement, Equity, EBIT, Mean reversion, Contingent claim, Convergence.