MARTEL Jocelyn

Chapter 1: How Should Investment Fund Behavior and Performance React to Fund Size? The Role of Liquidity Frictions.A number of empirical studies have investigated how mutual funds do react to incoming financial resources. As long as liquidity constraints are narrow, fund managers tend to upscale already existing positions without looking for new investment opportunities. Concomitantly, performance of funds decreases which is explained by the expansion of size-driven liquidity costs. We put forward a model of asset allocation that accounts for market liquidity frictions and recovers the inverse relation between fund size and fund performance. The model prescribes how fund portfolio managers should react as financial resources enter the fund. We estimate the model on S&P 600 stock data and investigate optimal allocation behavior under fund size increase. We obtain that to confine the negative effect of liquidity frictions on performance, portfolio diversification should be increased under fund size increase. In particular, once a certain fund size is attained, fund managers should incorporate new investments which enhances portfolio diversity and reduces liquidity-driven performance erosion.Chapter 2: The Role of Financial Market Liquidity on Investment Performance in the US Energy Equity.A large portion of financial investment in the energy sector goes through the stock market channel. Energy equity funds often ground their decisions on ex ante marked-to-market performance ranking of alternative opportunities. We put forward a liquidity-adjusted Sharpe ratio and show that liquidity frictions do affect investment performance ranking. Empirical analysis of the NYSE energy equity segment shows that imperfect liquidity may lead to rank reversal of investment opportunities compared to the standard marked-to-market assessment. This phenomenon is shown to be increasingly relevant with the share listed companies have in the renewable energy business. Market liquidity frictions may thus blur regulators’ policies aimed at attracting capital for investment in new energy areas. In particular, renewable energy policy makers should consider the ability of financial market regulators to improve stock market liquidity as a means to trigger the effectiveness of their policy.Chapter 3 Monetary Measurement of Risk: A Critical Overview.Risk assessment must cope with ever more stringent regulatory requirements in a context of rapidly evolving financial practices and new emerging risks. We put forward a critical overview of the theory of monetary risk measures. Relying on economical arguments, we suggest that properties defining coherent risk measures might not be desirable and rehabilitate Value-at-Risk. We present convex measures of risk, introduced by the literature to overcome some drawbacks of coherent risk measures, and especially to account for market liquidity risk. Finally, an economic capital allocation experiment is conducted which compares outputs obtained using alternatively Expected Shortfall (coherent) or the entropic risk measure (convex).

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This empirical paper investigates the paths leading to the resolution of financial distress for a sample of small and medium-sized French firms in default, focusing in particular on their decisions between bankruptcy and informal (out-of-court) renegotiations. The procedure is depicted as a sequential game in which stakeholders first decide whether to engage in an informal renegotiation. Second, conditional on opting for renegotiation, the debtor and its creditors may succeed or fail in reaching an agreement to restructure the firm’s capital structure. We test different hypotheses that capture (i) coordination and bargaining power issues, (ii) informational problems, (iii) firm characteristics, and (iv) loan characteristics. The empirical implementation is based on sequential LOGIT regressions. First, we find that the likelihood of informal renegotiations increases with loan size and the proportion of long-term debt. These two results support the argument that size matters when deciding whether to opt for informal renegotiation. Second, the probability of a successful renegotiation decreases when (i) the bank in charge of handling the process is the debtor’s “main” creditor and when (ii) the firm is badly rated and its management is considered faulty. Third, the estimations show that collateral plays a significant role in the first stage of the renegotiation process. However, it does not impact the likelihood of success in reaching a renegotiated agreement. Finally, some banks are clearly better than others at leading successful renegotiation processes.

The four chapters of this thesis analyze the way in which the different aspects of bankruptcy law influence the economic results of a bankruptcy proceeding, in particular the degree of debt recovery by creditors. The first chapter shows that bankruptcy laws have different creditor voting requirements depending on their legal origin such as: English origin, French origin, German origin and Nordic origin. The second chapter argues that the national use of reorganization proceedings is favored by less strict acceptance processes. The third chapter shows that Eastern European bankruptcy systems offer stronger protection of secured claims than in the case of public claims. A higher concentration of debt decreases the recovery rates in the case of liquidation proceedings. The estimates confirm the existence of two interaction effects between the classes of Eastern European creditors: the spillover effect and the rivalry effect. The last chapter proposes a theoretical model that predicts that debtors have strong incentives to propose reorganization plans to creditors with suboptimal cost sharing regardless of the orientation of the bankruptcy legal environment including a pro-creditor orientation or a pro-debtor orientation.