Thursday 16th July 2015 at 2.00 pm – Room 6, Department of Sociology and Social Research, via Verdi 26
TITLE: A dynamic model for optimal covenants in loan contracts
PRESENTER: MARINA TULYAKOVA
Covenants are an important part of debt contracts and are a valid instrument for resolving the conflicts of interest between borrowers and lenders. Although substantial empirical work in this field has been done, few studies have elaborated a theoretical model for covenant pricing. Taking into account the recent findings of increased probability of covenant violations in repeated borrowing and frequent covenant renegotiations even outside of default, it is becoming more important to investigate the optimal covenant strength in loan contracts in order to better allocate control rights ex ante and to minimize the costs of renegotiations for both parties.
This study develops a model that determines covenant strength index at which debt should be written down in a way that minimizes expected losses for a bank subject to the rising restructuring costs. The approach that explores dynamic contingent claim models is applied to the problem. The dynamics of the optimal covenant strength with respect to various model parameters is investigated. Different modifications to the initial model are considered which are important in exploring more realistic model setting: introduction of firesale price in the model, information asymmetry and the modeling of evolution of the firm value as jump diffusion process.
The model can support the development of more effective internal risk-management procedures for banks to assess their expected loss rates in order to protect themselves against incurring significant losses in cases of possible insolvencies of firms.
TITLE: Managerial Practices, Organization and Import Decisions in Transition countries
PRESENTER: MARIA LITVINOVA
Trade liberalization for a long time has been seen as an optimal solution for stimulating the development in Transition countries. After around twenty years of transition it can be said that the this solution doesn't work equally for all the countries of the region. However, the heterogeneity in the response to the trade liberalization within the transition region hasn't been yet deeply and systematically analysed. The reasons for such heterogeneity can be hidden in the adjustment of the organizational structures to the changing economic conditions after trade liberalization.
Presented research is aimed at the analysis of the endogenous organizational adjustments to the trade liberalization taking into account initially di erent rm characteristics, such as international trade participation and management quality. International trade participation and management quality of a rm has been widely illustrated to a ect the rm performance. Thus, the di erence in these ex-ante internal rm characteristics can explain the heterogeneity in the organizational adjustments to trade liberalization. Consequently, presented research merging models of endogenous organizational structure with widely accepted heterogeneity in rms' characteristics attempts explaining the diferent infuence of trade liberalisation in Transition countries.