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NEWSLETTER of March 3, 2023

The following content has been added at finexpert:

Semi-Annual DACH Market Report

ValueTrust, finexpert and the Institute of Management Accounting and Auditing at WU Vienna publish the twelfth edition of the ValueTrust DACH Capital Market Study (version: December 31, 2022). In our DACH Capital Market Study, we derive valuation parameters and cost of equity in a comprehensive manner for Germany, Austria and Switzerland to provide a sound basis for investment decisions. We present current valuation levels based on stock market multiples and estimate the cost of equity using four different methods for twelve different industries. >more

Studies > Performance

M&G Investments
For many investors, 2022 represented the end of the more than decade-long bull run of the 2010s. Rampant inflation, hawkish monetary policies, geopolitical tensions, market volatility and spread decompression were the standout themes. The impact for European loans was a dislocation to yields of c.10%, levels not seen since the early 2010s. For long-term investors, we believe this provides an interesting investment opportunity for a senior secured defensive asset class with typically higher risk-adjusted returns than comparable credit risk asset classes. Here we present our observations on the trends and drivers of the European loan market in 2023. >more

Studies > Performance

European Investment Bank
Political strife caused by the war in Ukraine, an energy crisis and tightening credit are hitting EU firms just as they were beginning to emerge from the COVID-19 crisis. While the pandemic was a major shock, sizable policy support enabled firms to survive and transform. Relatively easy access to funding also helped them weather the crisis. Pandemic support has since been pulled back, however, and now firms are grappling with high inflation, instability and tighter credit conditions. These combined pressures are souring firms’ outlook. The report provides insight into the state of the European economy and its ability to withstand these crises while also becoming greener and more digital. The analysis is based on the EIB Group’s annual Investment Survey, which surveyed 13 000 firms in the European Union from April until July 2022 on their performance, investment, financing issues and challenges. >more

Studies > Alternative Investments

Bain & Company
It’s easy to think of Dickens and A Tale of Two Cities when looking back on 2022. The first six months resembled 2021: incredible numbers of deals, lots of exits, and substantial funds committed to the chase for the next five years. Then came the Federal Reserve’s rate hike in June. That move — and those that followed globally — signified the end of cheap debt in buyout markets and raised strong concerns about persistent inflation. Recession fears spooked banks from providing leveraged loans, and the dominoes fell from there, toppling year-end totals for deals, exits, and fund-raising. >more

Studies > Macro

World Bank Group
International Debt Report (IDR), formerly International Debt Statistics (IDS), is a longstanding annual publication of the World Bank featuring external debt statistics and analysis for the 121 low- and middle-income countries that report to the World Bank Debtor Reporting System (DRS). The content coverage of IDR 2022 includes: 1) analyses of external debt stock and flows from 2010 to 2021 for these countries, 2) an assessment of the evolution of the creditor composition of external debt over the past decade with particular emphasis on the emergence of non-traditional bilateral creditors and private creditors and how this has impacted the structure of borrowers’ public debt portfolios and debt servicing costs which complicate the debt restructuring process. >more

Research Papers > Corporate Finance

Claudia Custodio, Diana Bonfim, and Clara C. Raposo
We use variation in the access to a government credit certification program to estimate the financial and real effects of supporting small firms. This program was first implemented during the global financial crisis, but has remained active ever since, allowing us to analyze its effects both during recessions and recoveries. Eligible firms have access to government loan guarantees and a credit quality certification. We estimate real effects using a multidimensional regression discontinuity design. We find that eligible firms borrow more and at lower rates than non-eligible firms, allowing them to increase investment and employment during crises. Industry-level analysis shows reduced productivity heterogeneity in more exposed industries, which is consistent with improved credit allocation. However, when the economy is recovering the effects of the program are less pronounced and centered on the certification component. The cost-per-job in the recovery period is half of the one estimated for the crisis period (5,784€ and 11,788€, respectively). >more

Research Papers > Risk Management

Zacharias Sautner, Laurence van Lent, Grigory Vilkov, and Ruishen Zhang
We develop a method that identifies the attention paid by earnings call participants to firms' climate change exposures. The method adapts a machine learning keyword discovery algorithm and captures exposures related to opportunity, physical, and regulatory shocks associated with climate change. The measures are available for more than 10,000 firms from 34 countries between 2002 and 2020. We show that the measures are useful in predicting important real outcomes related to the net-zero transition, in particular, job creation in disruptive green technologies and green patenting, and that they contain information that is priced in options and equity markets. >more

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