Piet Sercu - Academia.edu (original) (raw)
Papers by Piet Sercu
We propose a U-shaped relation between the relative weight of bank loans in total corporate debt ... more We propose a U-shaped relation between the relative weight of bank loans in total corporate debt and the firm's market-to-book ratio-a proxy for expected growth-which reconciles most existing theories. Using data on Japanese firms for 1983-97, we do find that, in the lower range of growth spectrum, firms with better prospects take more bonds in their debt mix: when the
SSRN Electronic Journal, 2000
We propose a U-shaped relation between the relative weight of bank loans in total corporate debt ... more We propose a U-shaped relation between the relative weight of bank loans in total corporate debt and the firm's market-to-book ratio-a proxy for expected growth-which reconciles most existing theories. Using data on Japanese firms for 1983-97, we do find that, in the lower range of growth spectrum, firms with better prospects take more bonds in their debt mix: when the firm's prospects improve, the benefits from private debt initially fall relative to its costs. In contrast, in the higher range of growth, firms with more growth potentials take more monitored debt, reflecting, amongst other factors, the higher information and contracting costs of public debt faced by extreme growers. We can explain the seemingly conflicting evidence that and Hoshi, provide in this respect. We also find that keiretsu firms do not behave significantly different from non-keiretsu ones, suggesting that keiretsu firms are fairly independent in their financing decisions and that extra costs and benefits from bank loans are either small or in reasonable balance. Firms that faced restrictions in issuing bonds, pre-1990, continue to behave differently from other firms long after the restrictions were lifted.
SSRN Electronic Journal, 2000
We test how keiretsu membership affects the required IRR on value (or cost of capital) and the IR... more We test how keiretsu membership affects the required IRR on value (or cost of capital) and the IRR on cost (or return on investment), 1974-95, of all listed non-financials in Japan. Rather than computing point estimates from aggregate data, we employ non-linear cross-sectional regression analysis of individual-firm data and we control for industry and .size factors in returns. We find that firms have added value-and significantly so-regardless of industry, size, and governance system. In terms of cost of capital, we find no evidence of a keiretsu advantage. In fact, within the segment of medium-and small-sized firms the keiretsu ones often have the higher expected return on value. In terms of return on investment, mid-and low-cap firms show no clear difference but top-league keiretsu firms notched up definitely lower numbers than did comparable non-keiretsu ones. Our interpretation is that keiretsu groups have cross-subsidized their larger member firms, a strategy that led the latter to over-invest.
SSRN Electronic Journal, 2000
Journal of Banking & Finance, 2012
JEL classification: G21 G28 G30 G32
Journal of Banking & Finance, 2009
Keywords: Debt mix Monitored debt Holdup Asymmetric information Growth New equity a b s t r a c t... more Keywords: Debt mix Monitored debt Holdup Asymmetric information Growth New equity a b s t r a c t Previous research shows that bank information production mitigates asymmetric information problems. However, this literature has ignored the concern that firms with better growth prospects are more vulnerable to bank rent extraction. This paper points out that funding competition from new equity as an effective natural mechanism solves this important concern. Using Japanese data from 1983 to 1997, we show that the relationship between loan-to-debt ratio and growth, while starting significantly negative (consistent with holdup theory), turns significantly positive towards the high end of the growth spectrum. We confirm that high-growth firms raise more new equity than do low growth firms and use more equity relative to bonds in external finance. This is consistent with a generalized Myers-Majluf framework. These results suggest that for high growth firms, when competition from public debt lessens due to increased growth-based valuations, competition from new equity steps in to restrain bank rent extraction.
Journal of Banking & Finance, 2000
In implementing a variance-minimizing cross or delta hedge, the regression coecient is often esti... more In implementing a variance-minimizing cross or delta hedge, the regression coecient is often estimated using data from the past, but one could also use estimators that are suggested by the random-walk or unbiased-expectations models and require just a single price. We compare the performances of various hedge ratios for three-month currency exposures, and ®nd that the price-based hedge ratios generally perform better than the regression-based ones. Speci®cally, all our regressions do systematically worse in the case of a delta hedge, and seem to beat the price-based hedge ratios only in the case of cross-or cross-and-delta problems where the two currencies are so distantly related ± like, e.g., hedging ITL/USD using JPY/USD ± that no risk manager would even consider them as hedges of each other. The poor performance of the regressions is all the more surprising as we correct the futures prices for errors-in-variables (synchronization noise, bid±ask bounce, and changing time to maturity).
Journal of Banking & Finance, 1997
We estimate daily Vasicek, CIR, and spline models on Belgian data and compare the trading profits... more We estimate daily Vasicek, CIR, and spline models on Belgian data and compare the trading profits that can be made on the basis of the model residuals. Abnormal returns are negatively related to lagged mispricing. Contrarian strategies-buying underpriced bonds, and especially selling overpriced bonds-yield significant abnormal returns even when the trade is delayed by up to five days after observing the mispricing. The spline model seems to overfit the data and is least able to detect mispricing. Large model residuals are more likely to be the result of model misspecification or -estimation than are small or medium-sized residuals.
ABSTRACT that have substantially improved content as well as presentation. All remaining errors a... more ABSTRACT that have substantially improved content as well as presentation. All remaining errors and ambiguities remain the authors’.
Review of Business and Economics, 2009
Investors who want to profitably trade stocks which they believe to be undervalued or overvalued ... more Investors who want to profitably trade stocks which they believe to be undervalued or overvalued are facing not just transaction costs: also cash constraints and short-selling restriction can hinder them. Intuitively, the more onerous friction may seem to be short-selling: borrowing shares ...
In this paper we reconsider the estimated deadweight costs for the emerging countries implied by ... more In this paper we reconsider the estimated deadweight costs for the emerging countries implied by the mean-variance portfolio model developed by Cooper and Kaplanis (1994) and general- ized by Sercu and Vanp¶ee (2007). We show both theoretically and empirically that estimated implicit investment costs are mostly driven by estimated risk if home bias is strong, which is particularly the case
We propose to use two futures contracts in hedging an agricultural commodity commitment to solve ... more We propose to use two futures contracts in hedging an agricultural commodity commitment to solve either the standard delta hedge or the roll-over issue. Most current literature on dual-hedge strategies is based on a structured model to reduce roll-over risk and is somehow difficult to apply for agricultural futures contracts. Instead, we propose to apply a regression based model and a naive rules of thumb for dual-hedges which are applicable for agricultural commodities.
While intuition suggests that governance and transparency at the corporate level are primordial f... more While intuition suggests that governance and transparency at the corporate level are primordial for a country's international appeal, foreign portfolio investors appear to care first and foremost about transparency, predictability and honesty at the government level. This is, at least, what our analysis of international portfolio holdings implies. Our estimates further indicate that (i) a feasible improvement of government corruption, economic policy transparency and especially institutional quality can trigger an economically substantial rise in foreign interest for the stocks of that country; and (ii) an amelioration in country-level governance variables creates significantly higher eects on foreign equity demand than an improvement in traditional macroeconomic policy indicators.
In light of the well-known empirical failures of the one-factor CAPM, mutual-fund performance eva... more In light of the well-known empirical failures of the one-factor CAPM, mutual-fund performance evaluation should venture beyond the one-factor type of performance analysis. In this paper we introduce momentum and size factors into the picture, and evaluate the performance of a large set of equity funds managed in Belgium. There is a fairly strong exposure to the small-firm effect, but the evidence of momentum chasing is less clear-cut and, if anything, seems to be negative. As in other studies, the average fund underperforms.
We generalize the Cooper and Kaplanis (1994) methodology for estimating the costs that could reco... more We generalize the Cooper and Kaplanis (1994) methodology for estimating the costs that could reconcile international portfolio holdings with CAPM predictions. First, we simultaneously estimate inward and outward investment costs and even interactions between home and host country. Second, the risk aversion parameter is estimated rather than postulated. Third, we detect costs for domestic investments. We find that the home bias in equity portfolios is related to a mixture of market frictions, such as information asymmetries, institutional factors and explicit costs. Over the period 2001-2004, the average implicit investment costs range from 0.26 (US) to 16 (Turkey) percent per annum. JEL classification: G11, G15, F36
We propose a U-shaped relation between the relative weight of bank loans in total corporate debt ... more We propose a U-shaped relation between the relative weight of bank loans in total corporate debt and the firm's market-to-book ratio-a proxy for expected growth-which reconciles most existing theories. Using data on Japanese firms for 1983-97, we do find that, in the lower range of growth spectrum, firms with better prospects take more bonds in their debt mix: when the
SSRN Electronic Journal, 2000
We propose a U-shaped relation between the relative weight of bank loans in total corporate debt ... more We propose a U-shaped relation between the relative weight of bank loans in total corporate debt and the firm's market-to-book ratio-a proxy for expected growth-which reconciles most existing theories. Using data on Japanese firms for 1983-97, we do find that, in the lower range of growth spectrum, firms with better prospects take more bonds in their debt mix: when the firm's prospects improve, the benefits from private debt initially fall relative to its costs. In contrast, in the higher range of growth, firms with more growth potentials take more monitored debt, reflecting, amongst other factors, the higher information and contracting costs of public debt faced by extreme growers. We can explain the seemingly conflicting evidence that and Hoshi, provide in this respect. We also find that keiretsu firms do not behave significantly different from non-keiretsu ones, suggesting that keiretsu firms are fairly independent in their financing decisions and that extra costs and benefits from bank loans are either small or in reasonable balance. Firms that faced restrictions in issuing bonds, pre-1990, continue to behave differently from other firms long after the restrictions were lifted.
SSRN Electronic Journal, 2000
We test how keiretsu membership affects the required IRR on value (or cost of capital) and the IR... more We test how keiretsu membership affects the required IRR on value (or cost of capital) and the IRR on cost (or return on investment), 1974-95, of all listed non-financials in Japan. Rather than computing point estimates from aggregate data, we employ non-linear cross-sectional regression analysis of individual-firm data and we control for industry and .size factors in returns. We find that firms have added value-and significantly so-regardless of industry, size, and governance system. In terms of cost of capital, we find no evidence of a keiretsu advantage. In fact, within the segment of medium-and small-sized firms the keiretsu ones often have the higher expected return on value. In terms of return on investment, mid-and low-cap firms show no clear difference but top-league keiretsu firms notched up definitely lower numbers than did comparable non-keiretsu ones. Our interpretation is that keiretsu groups have cross-subsidized their larger member firms, a strategy that led the latter to over-invest.
SSRN Electronic Journal, 2000
Journal of Banking & Finance, 2012
JEL classification: G21 G28 G30 G32
Journal of Banking & Finance, 2009
Keywords: Debt mix Monitored debt Holdup Asymmetric information Growth New equity a b s t r a c t... more Keywords: Debt mix Monitored debt Holdup Asymmetric information Growth New equity a b s t r a c t Previous research shows that bank information production mitigates asymmetric information problems. However, this literature has ignored the concern that firms with better growth prospects are more vulnerable to bank rent extraction. This paper points out that funding competition from new equity as an effective natural mechanism solves this important concern. Using Japanese data from 1983 to 1997, we show that the relationship between loan-to-debt ratio and growth, while starting significantly negative (consistent with holdup theory), turns significantly positive towards the high end of the growth spectrum. We confirm that high-growth firms raise more new equity than do low growth firms and use more equity relative to bonds in external finance. This is consistent with a generalized Myers-Majluf framework. These results suggest that for high growth firms, when competition from public debt lessens due to increased growth-based valuations, competition from new equity steps in to restrain bank rent extraction.
Journal of Banking & Finance, 2000
In implementing a variance-minimizing cross or delta hedge, the regression coecient is often esti... more In implementing a variance-minimizing cross or delta hedge, the regression coecient is often estimated using data from the past, but one could also use estimators that are suggested by the random-walk or unbiased-expectations models and require just a single price. We compare the performances of various hedge ratios for three-month currency exposures, and ®nd that the price-based hedge ratios generally perform better than the regression-based ones. Speci®cally, all our regressions do systematically worse in the case of a delta hedge, and seem to beat the price-based hedge ratios only in the case of cross-or cross-and-delta problems where the two currencies are so distantly related ± like, e.g., hedging ITL/USD using JPY/USD ± that no risk manager would even consider them as hedges of each other. The poor performance of the regressions is all the more surprising as we correct the futures prices for errors-in-variables (synchronization noise, bid±ask bounce, and changing time to maturity).
Journal of Banking & Finance, 1997
We estimate daily Vasicek, CIR, and spline models on Belgian data and compare the trading profits... more We estimate daily Vasicek, CIR, and spline models on Belgian data and compare the trading profits that can be made on the basis of the model residuals. Abnormal returns are negatively related to lagged mispricing. Contrarian strategies-buying underpriced bonds, and especially selling overpriced bonds-yield significant abnormal returns even when the trade is delayed by up to five days after observing the mispricing. The spline model seems to overfit the data and is least able to detect mispricing. Large model residuals are more likely to be the result of model misspecification or -estimation than are small or medium-sized residuals.
ABSTRACT that have substantially improved content as well as presentation. All remaining errors a... more ABSTRACT that have substantially improved content as well as presentation. All remaining errors and ambiguities remain the authors’.
Review of Business and Economics, 2009
Investors who want to profitably trade stocks which they believe to be undervalued or overvalued ... more Investors who want to profitably trade stocks which they believe to be undervalued or overvalued are facing not just transaction costs: also cash constraints and short-selling restriction can hinder them. Intuitively, the more onerous friction may seem to be short-selling: borrowing shares ...
In this paper we reconsider the estimated deadweight costs for the emerging countries implied by ... more In this paper we reconsider the estimated deadweight costs for the emerging countries implied by the mean-variance portfolio model developed by Cooper and Kaplanis (1994) and general- ized by Sercu and Vanp¶ee (2007). We show both theoretically and empirically that estimated implicit investment costs are mostly driven by estimated risk if home bias is strong, which is particularly the case
We propose to use two futures contracts in hedging an agricultural commodity commitment to solve ... more We propose to use two futures contracts in hedging an agricultural commodity commitment to solve either the standard delta hedge or the roll-over issue. Most current literature on dual-hedge strategies is based on a structured model to reduce roll-over risk and is somehow difficult to apply for agricultural futures contracts. Instead, we propose to apply a regression based model and a naive rules of thumb for dual-hedges which are applicable for agricultural commodities.
While intuition suggests that governance and transparency at the corporate level are primordial f... more While intuition suggests that governance and transparency at the corporate level are primordial for a country's international appeal, foreign portfolio investors appear to care first and foremost about transparency, predictability and honesty at the government level. This is, at least, what our analysis of international portfolio holdings implies. Our estimates further indicate that (i) a feasible improvement of government corruption, economic policy transparency and especially institutional quality can trigger an economically substantial rise in foreign interest for the stocks of that country; and (ii) an amelioration in country-level governance variables creates significantly higher eects on foreign equity demand than an improvement in traditional macroeconomic policy indicators.
In light of the well-known empirical failures of the one-factor CAPM, mutual-fund performance eva... more In light of the well-known empirical failures of the one-factor CAPM, mutual-fund performance evaluation should venture beyond the one-factor type of performance analysis. In this paper we introduce momentum and size factors into the picture, and evaluate the performance of a large set of equity funds managed in Belgium. There is a fairly strong exposure to the small-firm effect, but the evidence of momentum chasing is less clear-cut and, if anything, seems to be negative. As in other studies, the average fund underperforms.
We generalize the Cooper and Kaplanis (1994) methodology for estimating the costs that could reco... more We generalize the Cooper and Kaplanis (1994) methodology for estimating the costs that could reconcile international portfolio holdings with CAPM predictions. First, we simultaneously estimate inward and outward investment costs and even interactions between home and host country. Second, the risk aversion parameter is estimated rather than postulated. Third, we detect costs for domestic investments. We find that the home bias in equity portfolios is related to a mixture of market frictions, such as information asymmetries, institutional factors and explicit costs. Over the period 2001-2004, the average implicit investment costs range from 0.26 (US) to 16 (Turkey) percent per annum. JEL classification: G11, G15, F36