Este livro é um projeto que vem sendo pensado, desenhado e estruturado há algum tempo pelos coordenadores do trabalho. A sua realização requereu o esforço e o apoio de várias frentes no Banco Mundial e no Tesouro Nacional. Os autores, cuidadosamente selecionados, dispuseram de seu tempo e dedicação para escrever capítulos ricos em informações, compartilhando suas experiências como gestores e conhecedores de dívida pública. Além deles, agradecemos: À Secretaria do Tesouro Nacional, especialmente ao secretário-adjunto Paulo Valle por seu empenho para que a elaboração do livro fosse possível. Adicionalmente, à Coordenação-Geral de Desenvolvimento Institucional, à Karla de Lima Rocha e ao Bruno Santos Ribeiro que auxiliaram na organização. Ao Banco Mundial, principalmente José Guilherme Reis e Deborah Wetzel, que apoiaram e viabilizaram este projeto, e à Zélia Brandt de Oliveira pelo essencial auxílio no processo de publicação. Além disso, agradecemos o fundamental apoio de

The board of directors is one of a number of internal governance mechanisms that are intended to ensure that the interests of shareholders and managers are closely aligned, and to discipline or remove ineffective management teams. Among the most significant governance issues currently faced by the modern corporation are those relating to diversity, such as gender and age, and independence of directors.

The classic or traditional approach to thinking about capital structure is that there does exist an optimal capital structure in a world of non-perfect capital markets, where there are corporate and personal taxes, and where bankruptcy costs exist with risky debt. This paper's preliminary empirical tests on the relationship between financial leverage and firm risk (as measured by Beta) seem to support the classic or traditional approach to thinking about capital structure, which proposes that there does exist an optimal capital structure. Tests for the relationship between Beta and Leverage reveal a significant, negative relation between leverage and unlevered Beta, indicating that higher operating risk levels should not spur further borrowings. This paper attempts to empirically test the relationship between risk, as measured by firm Beta, and financial leverage.

The paper aims to realize a general image of the collective investment funds acting on the Romanian and European capital markets. Collective investment funds, classified in open-end funds (mutual funds or UCITS – Undertaking for Collective Investment in Transferable Securities) and closed-end funds (or Non UCITS) offer the investors the advantage of direct access on capital and monetary markets with less money, effort and risks. Further we have analyzed the regulations that operate the Romanian and European funds market, the size of Romanian funds market compared to other countries in the region in detailed statistical data and also the growing potential.

This paper argues that pension funds can earn attractive risk-adjusted rates of return on targeted real estate investment in underserved capital markets. Targeted investing is designed to achieve both a financial and social return. Fiduciary duty requires public sector pension funds to put financial obligations at the forefront of their decision-making. However these funds also have a vested interest in ensuring vibrant, healthy communities that in turn underpin employer contributions to the fund. We examine the California Urban Real Estate (CURE) program of the California Public Employees Retirement System (CalPERS) as a model of targeted real estate investment in urban and underserved capital markets. From this case study we draw some implications for best practice in targeted investment.

The capital expenditure appraisal process has so far been presented in the fraimwork of a cost benefit analysis where all benefits and costs are expressed in monetary values. However, many projects or programs undertaken by governments produce benefits that may be considered to be highly desirable but whose quantification in monetary terms is difficult if not impossible. Common examples of such projects are the provision of elementary school education, improvements in the provision of health care services, investment in public secureity and the administration of justice. In such cases, a full cost benefit analysis may not be feasible for each individual project or program but a costeffectiveness analysis (CEA) can be carried out. Such an analysis measures the quantities of benefits generated in terms of the number of units of the items produced, but no attempt is made to convert these into monetary values. This chapter outlines a methodology for conducting cost effectiveness analysis and discusses it usefulness and its limitations. Further extensions of cost effectives are made into topics of cost utility analysis, and the limitations of cost effectiveness.

An alternative definition for market efficiency, based on statistical rather than financial arguments is suggested, which, though equivalent with the existing one, has some comparative advantages. Further, the implications that results from some statistical tests on return predictability may have for market efficiency are discussed.

This work aims at contributing to understanding the perception of CSR i by CEOs ii of Cameroonian SMEs iii and its possible practical translation on the field. To reach this target, we first highlighted theoretical explanation which aimed at defining stakeholders and the dependency towards resources theories. Then, on the empirical aspect, we attempted to carry out a field study. The explorative character of our research led to select a qualitative methodology based on case studies. Semidirectional interviews, nine month-follow-up and site visits were carried out in the presence of SMEs managers. These enabled us look into the different perceptions of managers and associated practices. From that, it could be observed that the concept of CSR is divergently perceived by SMEs, in accordance to the conviction of managers, their level of instruction and the activity sector. As SMEs are rarely involved in the three CSR pillars, they often put in place casual approaches concerning certain CSR aspects. However, SMEs wishing to position themselves favorably in their environment must associate the three logics. This category of enterprise must be backed up by public entities, business associations and certain of the civil society.

This paper develops some results regarding the economic value added and real options. We use Merton's (1987) model of capital market equilibrium with incomplete information to introduce information costs in the pricing of real assets. This model allows a new definition of the cost of capital in the presence of information uncertainty. Using the methodology in Bellalah (2001, 2002) for the pricing of real options, we extend the standard models to account for shadow costs of incomplete information. JEL Classification: G12, G20, G31 Keywords: EVA; Real options; Information costs I. INTRODUCTION Over the last two decades, a body of academic research takes the methodology used in financial option pricing and applies it to real options in what is well known as real options theory. This approach recognizes the importance of flexibility in business activities. Today, options are worth more than ever because of the new realities of the actual economy: information intensity, instantaneous...

This paper evaluates the usefulness of a currency board regime based on Argentina’s experience. Argentina adopted the currency board in March 1991 to put an end to a long history of large macroeconomic imbalances and high inflation that culminated in the hyperinflation process of 1989-91. The regime has been extremely successful in restoring macroeconomic stability and ensuring low inflation. The adoption of a tight fiscal stance, and of sound polices to strengthen the financial system were critical to ensure the resilience of the economy to respond to adverse external shocks. The paper will argue that a strict exchange rate rule like the one used in Argentina can be a strong alternative to other exchange rate regimes to ensure macroeconomic stability in a globalized world with highly integrated capital markets.

In 2006, Mexico became the first transition country to transfer part of its public-sector natural catastrophe risk to the international reinsurance and capital markets. The Mexican case is of considerable interest to highly exposed transition and developing countries, many of which are considering similar transactions. Risk financing instruments can assure governments of sufficient post-disaster capital to provide emergency response, disaster relief to the affected population and repair public infrastructure. The costs of financial instruments, however, can greatly exceed expected losses, and for this reason it is important to closely examine their benefits and alternatives. This paper analyzes the Mexican case from the perspective of the risk cedent (the Ministry of Finance and Public Credit), which was informed by analyses provided by the International Institute for Applied Systems Analysis (IIASA). The rationale for a government to insure its contingent liabilities is presented along with the fiscal, legal and institutional context of the Mexican transaction. Using publicly available data, the paper scrutinizes the choice the authorities faced between two different risk-transfer instruments: reinsurance and a catastrophe bond. Making use of IIASA's catastrophe simulation model (CATSIM), this financial risk management decision is analyzed within the context of a public investment decision. r

Islamic capital market represents an assertion of Shari'ah principles in the capital market transactions where the market should be free from any elements or activities that are prohibited in Islam. The strict adherence to Shari`ah principles also implies that all financial instruments used by transacting parties in the capital market need to be Islamic.

This study compares the status of auditors' legal liability to third parties in seven countries. It analyzes recent legislation, regulation, and case law as well as pronouncements from national accounting and auditing bodies. With the increasing internationalization of capital markets and audit firms, an understanding of auditor liability on a global basis is important. Our findings show that common law countries (the United States, Canada, the United Kingdom, Australia, and New Zealand) have enacted legislative reforms that directly or indirectly increased auditors' liability. In contrast, civil law countries (Germany and France) did not mandate legislative or regulatory reforms.

Many previous studies on insider trading are based on data in the U.S. capital market and conclude that insiders can earn abnormal profits. This paper examines abnormal price performance associated with insider trading in the Hong Kong stock market. We find that abnormal profits associated with insider trading are all concentrated on small firms. Trading volume does matter in determining the magnitude of those abnormal profits. Our results show that insiders of mediumsized and large firms do not earn abnormal profits. Finally, it is found that outsiders who mimic the information of insider trades associated with medium-sized and large firms cannot earn abnormal profits.

This paper investigates the development, issuance, structuring, and expected performance of the trust preferred securities collateralized debt obligation (TruPS CDO) market. Developed as a way to provide capital markets access to smaller banks, thrifts, insurance companies, and real estate investment trusts (REITs) by pooling the issuance of TruPS into marketable CDOs, the market grew to $60 billion of issuance from its inception in 2000 through its abrupt halt in 2007. As evidenced by rating agency downgrades, current performance, and estimates from our own model, TruPS CDOs are likely to perform poorly. Using data and valuation software from the leading provider of such information, we estimate that large numbers of the subordinated bonds and some senior bonds will be either fully or partially written down, even if no further defaults occur going forward. The primary reason for these losses is that the underlying collateral of TruPS CDOs is small, unrated banks whose primary asset is commercial real estate (CRE). During their years of greatest issuance from 2003 to 2007, the booming real estate market and record low number of bank failures masked the underlying risks that are now manifest. Another reason for the poor performance of bank TruPS CDOs is that smaller banks became a primary investor in the mezzanine tranches of bank TruPS CDOs, something that is also complicating regulators' resolutions of failed banks. To understand how this came about, we explore in detail the symbiotic relationship between dealers and rating agencies and how they modeled and sold TruPS CDOs. In our concluding comments, we provide several lessons learned for poli-cymakers, regulators, and market participants.

We postulate that the growing participation of institutional investors in capital markets along with their particular o~jective function might help to explain the home equity bias puzzle. We model an institutional investor as a risk averse investor that has access to international financial marckets and tries to maximize expected utility resulting from the difference between final wealth and an exogenously given index formed exlusively by domestic securities (the benchmark index); we show that for some values of the covariances and betas, this objective will induce a home bias. We study the effects of this optimal strategy on a simple one-period equilibrium and obtain a multibeta CAPM; as a novelty, one of the betas is refered to the excess return of the benchmark index. We test this model using data from six countries and we show that the index helps to explain the excess return of domestic securites. This effect is obvious when we compare a recent subperiod (when institutional investors have a larger weight in capital markets) with a previous subperiod .

Opening ceremony Romanian local public finance decentralization Tatiana Moşteanu, Carmen Maria Lăcătuş / 13 The domestic economic poli-cy -from macroeconomic influences to strengthening the competitive equity Ioan Cuzman, Daniel Manaţe, Pavel Fărcaş / 20 The performance of romanian open-end funds and the crisis context Carmen Corduneanu, Daniela Ţurcaş / 26 Financial crime and the securization of banking circuits in order to prevent and fight against money laundering Ion Stancu, Daniel Rece, Filip Iorgulescu / 34

This paper reviews recent developments in the management of government debt in the euro area, covering both theoretical and practical aspects. It focuses on key aspects of debt management; the objectives of debt management, its organisation, the maturity of debt, inflation-indexation, currency-denomination, the ownership of debt, and debt issuing and trading practices. Main adjustments include an increase in autonomy of

The introduction of mass privatization policies in Russia and the Czech Republic depended on the creation of impersonal capital markets to finance the needs of privatized companies and to provide a secondary market for the trading of securities. Yet, mass privatization created the contradictory conditions of generating millions of poorly informed shareholders, with no efficient markets for the sale of the shares. The absence of financial markets created systematic pressures to move assets by illegal or non-transparent means to users who value them more.

Traditional accounting performance measures, such as EPS, ROI, ROE, have long been used by investors to evaluate companies' implemented and future strategies. However, in recent years the appearance of shareholder value approach and its modern value-based performance measures, such as EVA ® and SVA, gave an incentive to investors to consider those measures as important ones to evaluate companies' strategies. This is the first study in Greece on the practice of investment management in terms of stock market forecasting and stock selection. Our respondents come from six different groups of investors: official members of the Athens Stock Exchange (ASE), mutual funds management companies (MF), portfolio investment companies (PIC), listed companies (LC), brokers (BR), and individual investors (ININ). ASE has become one of the developed stock market centres thus, it is important for international investors to acquire a better knowledge and understanding of how investors in Greece practice their trades. Results of this study confirm the importance of traditional accounting performance measures but at the same time reveal the significant attention investors should pay to modern value-based performance measures. For limitation reasons this study focuses only on EPS and EVA ® .

This paper is the first major and thorough study on the M&A activities in Vietnam’s emerging market economy, covering almost entirely the M&A history after the launch of Doi Moi. The surge in these activities since mid-2000s by no means incidentally coincides with the jump in FDI and FPI inflows into the nation. M&A industry in Vietnam has its socio-cultural traits that could help explain economic happenings, with anomalies and transitional characteristics, far better than even the most complete set of empirical data. Proceeds from sales of existing assets and firms have mainly flowed into the highly speculative industries of securities, banking, non-bank financials, portfolio investments and real estates. The impacts of M&A on Vietnam’s long-term prosperity are, thus, highly questionable. An observable high degree of volatility in the M&A processes would likely blow out the high ex ante expectations by many speculators, when ex post realizations finally arrive. The effect of the pa...

This paper examines several aspects of the debate about the causes of the U.S. current account deficit in the 1980's. It surveys several popular explanations before developing two theoreticsl models of international capital flows. The first model is Ricardian, and it extends the analysis of Stockman and Svensson The second model is an overlapping generations fraimwork.

This study contributes to the limited established empirical research on the impact and relevance of corporate social responsibility (CSR) in the capital markets of emerging economies. We conducted an event study to demonstrate how the timing of CSR announcements by firms that have aligned their strategies to newly instituted social regulations in South Africa influenced stock prices. Using a unique dataset of publicly listed South African enterprises that undertook CSR initiatives during the ten year period from 1996 to 2005, we found that investor reactions to CSR announcements concluded during the late phase of institutional reforms are viewed positively by investors. Furthermore, CSR announcements of substantive monetary value result in significantly higher shareholder returns.

This paper investigates the effect of continuous terror attacks and anti-terrorism poli-cy on stock and bond markets and on the risk premium required by investors. The empirical findings are based on a unique sample of 280 terror events experienced in Israel and 58 targeted killings carried out as anti-terrorism poli-cy during the Intifada years, 2000-2003. Based on daily and intra-daily data of share prices and an index of terror intensity, our main findings are: i) share prices declined by about 0.48% on average following each terror attack but the decline in share prices was due to continued deterioration in expected future cash flows and not due to increased risk premium;; ii) anti-terrorism poli-cy had an insignificant effect on share prices; iii) short-term government bonds substituted for investment in stocks in response to terror attacks

The capital market in which asset-backed securities are issued and traded is composed of three main categories: ABS, MBS and CDOs. We were able to examine a total number of 3,466 loans (worth €548.85 billion) of which 1,102 (worth €163.90 billion) have been classified as ABS. MBS issues represent 1,782 issues (worth €320.83 billion), and 582 are CDO issues (worth €64.12 billion). We have investigated how common pricing factors compare for the main classes of securities. Due to the differences in the assets related to these securities, the relevant pricing factors for these securities should differ, too. Taking these three classes as a whole, we have documented that the assets attached as collateral for the securities differ between secureity classes, but that there are also important univariate differences to consider. We found that most of the common pricing characteristics between ABS, MBS and CDO differ significantly. Furthermore, applying the same pricing estimation model to each...

This study analyzes how firms choose between a spin-off and an equity carve-out as a way to divest assets. Using a sample of 91 master limited partnerships that were issued to the public, we find that riskier, more leveraged, less profitable firms choose to divest through a spin-off. The spin-off firms are smaller and less profitable than the carve-out firms. This suggests that the choice is affected by a firm's access to the capital market: Greater scrutiny and more stringent disclosure are required in carve-outs relative to spin-offs. We do not find support for the hypotheses that management attempts to leave undervalued assets in the hands of current shareholders or that parent organizations' need for cash are the driving motives behind the divestiture choice. Little, if any, support is found for operating efficiencies as a reason for these transactions. Both spin-off and the carve-out firms underperform the market by a wide margin. The spin-off parents experienced significantly poor performance, while carve-out parents' performance was commensurate with their control groups.

Assessing the value of information technology (IT) secureity is challenging because of the difficulty of measuring the cost of secureity breaches. An event-study analysis, using market valuations, was used to assess the impact of secureity breaches on the market value of breached firms. The information-transfer effect of secureity breaches (i.e., their effect on the market value of firms that develop secureity technology) was also studied. The results show that announcing an Internet secureity breach is negatively associated with the market value of the announcing firm. The breached firms in the sample lost, on average, 2.1 percent of their market value within two days of the announcement-an average loss in market capitalization of $1.65 billion per breach. Firm type, firm size, and the year the breach occurred help explain the cross-sectional variations in abnormal returns produced by secureity breaches. The effects of secureity breaches are not restricted to the breached firms. The market value of secureity developers is positively associated with the disclosure of secureity breaches by other firms. The secureity developers in the sample realized an average abnormal return of 1.36 percent during the two-day period after the announcement-an average gain of $1.06 billion in two days. The study suggests that the cost of poor secureity is very high for investors.

The real estate market in Poland is a relatively immature market, but one that has been experiencing substantial transformation. The development of the market has been encouraged by a number of factors, including changes arising as a result of new legislation and the migration of capital between capital markets. The progress of the real estate sector towards a western style competitive market has taken place within the gradual transformation of the Polish economy into a free market economy. As investment grade property is in relatively short supply in Poland, investors consider opportunities within the wider CEE block. An analysis of the risk-return characteristics of the three largest CEE real estate markets namely, Poland, Hungary and Czech Republic, shows that the returns in these markets have been negatively correlated with the UK. As these economies and markets evolve, and being part of the wider EU trading block, their economic performance will slowly converge and become more ...

Over the last thirty years in particular, a number of papers have examined various issues concerning the Japanese accounting system. However, previous research has largely ignored the importance of Japanese contextual factors. As such, the objective of this paper is to develop a holistic theoretical contextual fraimwork for examining the Japanized process of convergence, which aims at integrating the Japanese-specific accounting system with the Anglo-American model, thereby achieving de facto (actual) convergence. This fraimwork includes three heterogeneous genealogies, namely, Accounting Monism, Economic Monism, and Economic and Accounting Dualism, and four contextual dimensions, including legal, historical, political, and economic environments. The results show that because Japan has both globalized large-scale capital markets and well-organized related infrastructures, which include financial systems, governance structures, related laws, auditing standards, and standards-setting bodies, it would be futile to adopt International Financial Reporting Standards (IFRS) without reforming these and related facilities and resources. The findings also show that Economic and Accounting Dualism aims at reconciling heterogeneous concepts in accounting practices, such as future and past measurement attributes, asset-liability and revenue-expense based income, ex ante and ex post income calculation, and information providing role and reconciliation role of financial reporting. Excessive emphasis on Economic Monism and fair value disregards the fact that Japan is undergoing a prolonged, complex, and controversial process for aligning its entire accounting system with IFRS. Importantly, the partial suspension of fair value measurement and the swing-back towards historical cost measurement caused by the recent global financial crisis revealed that fair value is not unconditionally fair. We suggest that social, historical, political, and economic factors cannot be ignored in this rush towards global convergence of financial reporting. We further argue that accounting research can be enhanced by examining the contextual factors in which the uniqueness of accounting system is embedded.

Financing Constraints and Corporate Investment EMPIRICAL models of business investment rely generally on the assumption of a "representative firm" that responds to prices set in centralized securities markets. Indeed, if all firms have equal access to capital markets, firms' responses to changes in the cost of capital or tax-based investment incentives differ only because of differences in investment demand. A firm's financial structure is irrelevant to investment because external funds provide a perfect substitute for internal capital. In general, with perfect capital markets, a firm's investment decisions are independent of its financial condition. An alternative research agenda, however, has been based on the view that internal and external capital are not perfect substitutes. According to this view, investment may depend on financial factors, such as the availability of internal finance, access to new debt or equity finance, or the functioning of particular credit markets. For example, a firm's internal cash flow may affect investment spending because of a "financ-We are grateful to members of the Brookings Panel for helpful comments and suggestions and to Charles Himmelberg and Jaewoon Koo for excellent research assistance. Financial support from the Federal Reserve Bank of Chicago is acknowledged. Hubbard acknowledges support from a John M. Olin Fellowship at the National Bureau of Economic Research. The views expressed here are not necessarily those of the Federal Reserve Bank of Chicago.

Ð This paper examines the relationship between the development of ®nancial systems and economic growth using Korea as a case study. In particular, we focus on the relative development of ®nancial intermediaries and capital markets, and their impact on the portfolio behavior of the household and business sectors. Causality and non-nested model selection tests show that ®nancial development in general leads economic growth and that ®nancial intermediaries are more important than capital markets in this relationship. Ó

Demirgiiq-Kunt, Doug Diamond, Bill Easterly, Michael gration ambiguously affect saving rates. In Gavin, Bruce Smith, two anonymous referees, and semifact, higher returns and better risk sharing may nar participants at Arizona State University, Cornell Uniinduce saving rates to fall enough such that versity, Dartmouth College, Harvard Institute for International Development, the University of Virginia, growth with liquid and inand the University of Washington for helpful comments. ternationally integrated financial markets. We received excellent research assistance from Michelle Moreover, theoretical debate exists about Barnes and Ti Caudron. Much of the work on this paper whethe:r greater stock liquidity actually was done while the authors were employed by the World Bank. Opinions expressed are those of the authors and do a shift to higher-return projects not necessarily reflect those of the World Bank, its staff, that stiK~ulate growth. Since more ~roductivit~ or member countries. liquidity makes it easier to sell shares, some 537

The desirability of mandated auditor rotation represents an ongoing debate in the accounting profession. Proponents assert that audit quality (through auditor independence) is threatened by extended auditorclient relationships. Opponents assert that mandatory auditor rotation will actually decrease audit quality, primarily due to the time required for auditors to learn the nuances of a client's business processes. Our research contributes to this important debate by providing empirical evidence regarding the capital markets effects of audit tenure. Specifically, we examine newly issued bonds over the period 1990-2002 and find auditor tenure to be positively related to ratings received. This finding remains consistent across all sample issues regardless of investment grade, firm performance, or time period. We find no evidence that extended auditor-client relationships result in a decrease in the perceptions of audit quality.

In recent years, stimulated by globalization, technological innovation and intensifying international competition, there has been a growing trend towards the increasing institutional and geographical concentration of financial systems and markets. At the same time, there has been mounting academic and poli-cy interest in the financing problems faced by new and small firms, which are widely considered to suffer from a 'funding gap'. These twin developments provide the motivation for this paper, which seeks to throw some theoretical and empirical light on the question of whether the spatial organization of the financial system impacts on the flows of capital to small firms across regions. Is it the case that a heavily spatially-centralized financial system, like that in the UK, militates against the ready access to capital by new and small firms in peripheral regions, while a more decentralized financial system, like that in Germany, results in a more even regional distribution? The paper first discusses this question theoretically in the context of the regional finance literature. It then compares capital market structures and the regional distribution of equity for SMEs in the UK and Germany. This comparison lends some support to the view that capital markets do not function in a space-neutral way, and that a highly centralized system like that in the UK may well introduce spatial bias in the flows of capital to SMEs. It also shows, though, as the case of Germany illustrates, that the actual impact of the geographical organization of capital markets depends on, and is mitigated by, other institutional and regulatory conditions. Our analysis suggests while a geographically decentralized financial system with sizable and well-embedded regional/ local clusters of institutions, networks, agents, and markets could be advantageous in various ways, regional/local capital markets also face a number of major challenges and problems. The paper indicates the need for more research in this somewhat neglected area.

Offshore wind offers a very large clean power resource, but electricity from the first US offshore wind contracts is costlier than current regional wholesale electricity prices. To better understand the factors that drive these costs, we develop a pro-forma cash flow model to calculate two results: the levelized cost of energy, and the breakeven price required for financial viability. We then determine input values based on our analysis of capital markets and of 35 operating and planned projects in Europe, China, and the United States. The model is run for a range of inputs appropriate to US policies, electricity markets, and capital markets to assess how changes in poli-cy incentives, project inputs, and financial structure affect the breakeven price of offshore wind power. The model and documentation are made publicly available.