Roland Clère - Academia.edu (original) (raw)
Papers by Roland Clère
Social Science Research Network, 2016
In this article, we discuss the impact of financial debt on shareholder value using a new approac... more In this article, we discuss the impact of financial debt on shareholder value using a new approach that aims: (a) to explain the effect that leverage from debt has on a stock's systematic risk, or what we shall call here "the systematic cost of leverage," and (b) to account for default risk in the cost of equity, or what we shall call here "the cost of default." Our assessment of systematic risk is based on a stochastic approach that is materially different from the one proposed by Hamada: the risk premium remunerates the investor for the probability of equity (expressed as market value) generating a return below that of the risk-free rate. Furthermore, the approach we use to account for default risk is derived from reduced-form models, but in this case, (a) we use real probabilities of default and not risk-neutral probabilities, and (b) we extend the approach to stocks. K E Y W O R D S adjusted present value, APV, cost of default, cost of equity, cost of leverage, credit risk, credit spread, debt leverage, default premium, default risk, default spread, levered beta, Modigliani and Miller, Pablo Fernandez, reduced-form model, Robert Hamada, Shareholder value, systematic risk, tax shield Π d D .
Journal of International Financial Management and Accounting, Aug 7, 2019
In this article, we discuss the impact of financial debt on shareholder value using a new approac... more In this article, we discuss the impact of financial debt on shareholder value using a new approach that aims: (a) to explain the effect that leverage from debt has on a stock's systematic risk, or what we shall call here "the systematic cost of leverage," and (b) to account for default risk in the cost of equity, or what we shall call here "the cost of default." Our assessment of systematic risk is based on a stochastic approach that is materially different from the one proposed by Hamada: the risk premium remunerates the investor for the probability of equity (expressed as market value) generating a return below that of the risk-free rate. Furthermore, the approach we use to account for default risk is derived from reduced-form models, but in this case, (a) we use real probabilities of default and not risk-neutral probabilities, and (b) we extend the approach to stocks. K E Y W O R D S adjusted present value, APV, cost of default, cost of equity, cost of leverage, credit risk, credit spread, debt leverage, default premium, default risk, default spread, levered beta, Modigliani and Miller, Pablo Fernandez, reduced-form model, Robert Hamada, Shareholder value, systematic risk, tax shield Π d D .
Social Science Research Network, 2017
Default risk is the forgotten factor when it comes to equity valuation. And yet, in this article,... more Default risk is the forgotten factor when it comes to equity valuation. And yet, in this article, we show that default risk has a bigger impact on equity values than it does on bond values. Our work is based on a default intensity model that we extrapolate to equities. This model does not presuppose a particular method for estimating distance to default. As a result, unlike Merton structural models, which only apply to indebted companies, it can be used to assess default risk for any company. Highlighting a default risk premium in the cost of capital calculation makes it possible to reconcile the CAPM with evaluation methods based on forecasts in the event of survival. At the same time, the CAPM and default risk can explain the vast majority of bond spreads. The test consisting of estimating "physical" implied default probabilities and the share of systemic risk included in corporate euro bond spreads at end-2015 led us to detect the likely existence of excessive remuneration of investment grade bonds. This finding corroborates identical conclusions reached earlier by other researchers. This potential market anomaly could indicate a windfall for investors. Performing this test again at various points in the economic and financial cycle would help establish whether the bond market is serving a free lunch to investors not bound by regulatory reserve requirements.
SSRN Electronic Journal, 2017
Le risque de défaut est le grand oublié de l'évaluation des actions. Nous démontrons dans cet art... more Le risque de défaut est le grand oublié de l'évaluation des actions. Nous démontrons dans cet article que son effet sur la valeur est pourtant plus important pour une action que pour une obligation. Pour ce faire nous nous basons sur un modèle à fonction d'intensité de défaut que nous généralisons aux actions. Ce modèle qui ne présuppose pas du mode de calcul de la distance au défaut permet d'appréhender ce risque pour toutes les sociétés, qu'elles soient endettées ou non, à la différence des modèles structurels mertoniens, qui limitent cette mesure de risque aux seules sociétés endettées. La mise en évidence d'une prime de risque de défaut dans le calcul du coût du capital permet de réconcilier avec le MEDAF la pratique de l'évaluation qui se fonde sur des prévisions en cas de survie. Parallèlement le MEDAF et le risque de défaut permettent de justifier en grande partie les spreads obligataires. Le test consistant à estimer les probabilités implicites de défaut (« physiques ») et la part de risque systématique inclus dans les spreads obligataires en euro à fin 2015 conduit à détecter l'existence probable d'une surrémunération des obligations investment grade, corroborant des conclusions identiques obtenues préalablement par des voix différentes. Cette anomalie de marché potentielle pourrait constituer un effet d'aubaine pour les investisseurs. La réédition de ce test à des dates réparties sur l'ensemble du cycle économique et financier permettra d'établir si le marché obligataire sert bien des repas gratuits aux investisseurs non soumis à une contrainte de fonds propres par une quelconque réglementation.
SSRN Electronic Journal, 2016
In this article, we discuss the impact of financial debt on shareholder value using a new approac... more In this article, we discuss the impact of financial debt on shareholder value using a new approach that aims: (a) to explain the effect that leverage from debt has on a stock's systematic risk, or what we shall call here "the systematic cost of leverage," and (b) to account for default risk in the cost of equity, or what we shall call here "the cost of default." Our assessment of systematic risk is based on a stochastic approach that is materially different from the one proposed by Hamada: the risk premium remunerates the investor for the probability of equity (expressed as market value) generating a return below that of the risk-free rate. Furthermore, the approach we use to account for default risk is derived from reduced-form models, but in this case, (a) we use real probabilities of default and not risk-neutral probabilities, and (b) we extend the approach to stocks. K E Y W O R D S adjusted present value, APV, cost of default, cost of equity, cost of leverage, credit risk, credit spread, debt leverage, default premium, default risk, default spread, levered beta, Modigliani and Miller, Pablo Fernandez, reduced-form model, Robert Hamada, Shareholder value, systematic risk, tax shield Π d D .
Social Science Research Network, 2016
In this article, we discuss the impact of financial debt on shareholder value using a new approac... more In this article, we discuss the impact of financial debt on shareholder value using a new approach that aims: (a) to explain the effect that leverage from debt has on a stock's systematic risk, or what we shall call here "the systematic cost of leverage," and (b) to account for default risk in the cost of equity, or what we shall call here "the cost of default." Our assessment of systematic risk is based on a stochastic approach that is materially different from the one proposed by Hamada: the risk premium remunerates the investor for the probability of equity (expressed as market value) generating a return below that of the risk-free rate. Furthermore, the approach we use to account for default risk is derived from reduced-form models, but in this case, (a) we use real probabilities of default and not risk-neutral probabilities, and (b) we extend the approach to stocks. K E Y W O R D S adjusted present value, APV, cost of default, cost of equity, cost of leverage, credit risk, credit spread, debt leverage, default premium, default risk, default spread, levered beta, Modigliani and Miller, Pablo Fernandez, reduced-form model, Robert Hamada, Shareholder value, systematic risk, tax shield Π d D .
Journal of International Financial Management and Accounting, Aug 7, 2019
In this article, we discuss the impact of financial debt on shareholder value using a new approac... more In this article, we discuss the impact of financial debt on shareholder value using a new approach that aims: (a) to explain the effect that leverage from debt has on a stock's systematic risk, or what we shall call here "the systematic cost of leverage," and (b) to account for default risk in the cost of equity, or what we shall call here "the cost of default." Our assessment of systematic risk is based on a stochastic approach that is materially different from the one proposed by Hamada: the risk premium remunerates the investor for the probability of equity (expressed as market value) generating a return below that of the risk-free rate. Furthermore, the approach we use to account for default risk is derived from reduced-form models, but in this case, (a) we use real probabilities of default and not risk-neutral probabilities, and (b) we extend the approach to stocks. K E Y W O R D S adjusted present value, APV, cost of default, cost of equity, cost of leverage, credit risk, credit spread, debt leverage, default premium, default risk, default spread, levered beta, Modigliani and Miller, Pablo Fernandez, reduced-form model, Robert Hamada, Shareholder value, systematic risk, tax shield Π d D .
Social Science Research Network, 2017
Default risk is the forgotten factor when it comes to equity valuation. And yet, in this article,... more Default risk is the forgotten factor when it comes to equity valuation. And yet, in this article, we show that default risk has a bigger impact on equity values than it does on bond values. Our work is based on a default intensity model that we extrapolate to equities. This model does not presuppose a particular method for estimating distance to default. As a result, unlike Merton structural models, which only apply to indebted companies, it can be used to assess default risk for any company. Highlighting a default risk premium in the cost of capital calculation makes it possible to reconcile the CAPM with evaluation methods based on forecasts in the event of survival. At the same time, the CAPM and default risk can explain the vast majority of bond spreads. The test consisting of estimating "physical" implied default probabilities and the share of systemic risk included in corporate euro bond spreads at end-2015 led us to detect the likely existence of excessive remuneration of investment grade bonds. This finding corroborates identical conclusions reached earlier by other researchers. This potential market anomaly could indicate a windfall for investors. Performing this test again at various points in the economic and financial cycle would help establish whether the bond market is serving a free lunch to investors not bound by regulatory reserve requirements.
SSRN Electronic Journal, 2017
Le risque de défaut est le grand oublié de l'évaluation des actions. Nous démontrons dans cet art... more Le risque de défaut est le grand oublié de l'évaluation des actions. Nous démontrons dans cet article que son effet sur la valeur est pourtant plus important pour une action que pour une obligation. Pour ce faire nous nous basons sur un modèle à fonction d'intensité de défaut que nous généralisons aux actions. Ce modèle qui ne présuppose pas du mode de calcul de la distance au défaut permet d'appréhender ce risque pour toutes les sociétés, qu'elles soient endettées ou non, à la différence des modèles structurels mertoniens, qui limitent cette mesure de risque aux seules sociétés endettées. La mise en évidence d'une prime de risque de défaut dans le calcul du coût du capital permet de réconcilier avec le MEDAF la pratique de l'évaluation qui se fonde sur des prévisions en cas de survie. Parallèlement le MEDAF et le risque de défaut permettent de justifier en grande partie les spreads obligataires. Le test consistant à estimer les probabilités implicites de défaut (« physiques ») et la part de risque systématique inclus dans les spreads obligataires en euro à fin 2015 conduit à détecter l'existence probable d'une surrémunération des obligations investment grade, corroborant des conclusions identiques obtenues préalablement par des voix différentes. Cette anomalie de marché potentielle pourrait constituer un effet d'aubaine pour les investisseurs. La réédition de ce test à des dates réparties sur l'ensemble du cycle économique et financier permettra d'établir si le marché obligataire sert bien des repas gratuits aux investisseurs non soumis à une contrainte de fonds propres par une quelconque réglementation.
SSRN Electronic Journal, 2016
In this article, we discuss the impact of financial debt on shareholder value using a new approac... more In this article, we discuss the impact of financial debt on shareholder value using a new approach that aims: (a) to explain the effect that leverage from debt has on a stock's systematic risk, or what we shall call here "the systematic cost of leverage," and (b) to account for default risk in the cost of equity, or what we shall call here "the cost of default." Our assessment of systematic risk is based on a stochastic approach that is materially different from the one proposed by Hamada: the risk premium remunerates the investor for the probability of equity (expressed as market value) generating a return below that of the risk-free rate. Furthermore, the approach we use to account for default risk is derived from reduced-form models, but in this case, (a) we use real probabilities of default and not risk-neutral probabilities, and (b) we extend the approach to stocks. K E Y W O R D S adjusted present value, APV, cost of default, cost of equity, cost of leverage, credit risk, credit spread, debt leverage, default premium, default risk, default spread, levered beta, Modigliani and Miller, Pablo Fernandez, reduced-form model, Robert Hamada, Shareholder value, systematic risk, tax shield Π d D .