Banking, Capital Markets and Corporate Governance by H. Osano, T. Tachibanaki

By H. Osano, T. Tachibanaki

Banking, Capital Markets and company Governance explores the fragility of the banking approach, company governance, and the expanding securitization of company finance. The members handle the subsequent matters: The effect of banking in the course of a difficulty in offering an incentive for the managers of failing banks to restructure their resources; the way financial and felony associations can regulate the administration of banks and corporations; and the consequences of raises within the securitization of company finance and the quantity of monetary innovation.

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Let suppose the value of liquidation asset is as follows. If the value is L at t = 0, the asset value at t = 1 becomes  L with 0:5 L ‡ with 0:5 26 Liquidity Demand of the Corporate Sector In this situation, the expected net capital gain is positive, but keeping this asset as the liquidity asset does not contribute to implement the project if is suf®ciently large. This result has an important implication for macroeconomic problems. Suppose some ®rms have the equity of a ®rm as the liquidity asset.

We assume here that each ®rm is symmetric and thus any other kinds of portfolio cannot decrease the variance of this market portfolio. In this situation, the value of the liquidity asset must ¯uctuates at t = 1 since the value of the market portfolio ¯uctuates. min ) is suf®ciently small. min † > k …19† Under this assumption, the liquidity value is suf®ciently high to implement the additional investments for the ex ante shock. Even if the insuf®cient liquidity problem does not exist, the ¯uctuation of the liquidity value generates the soft budget problem.

Let us de®ne R0 as the minimum necessary payment for the project, that is R0 ˆ I � A ‡ sk PH …7† Then the project is not realised if R < R0 , since investors cannot expect suf®cient return from the project. A second problem arises when the ex ante liquidity shock occurs and the ®rm does not have suf®cient liquidity. Even if k < PH R (this means this additional investment is desirable), the additional investment only gives negative net present value to the investors as long as k > PH R. Thus this project should be terminated if the ®rm does not have suf®cient liquidity assets which can be used for the liquidity shock.

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