Presentazione di PowerPoint

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The Luxembourg Wealth Study S.A.Di.Ba., Perugia,
Italy
DEFINING HOUSEHOLD WEALTH IN BUSINESS
Authors
R. Bonci, L. Cannari, G. Marchese and A. Neri
(Bank of Italy)
A. Karagregoriou (University of Cyprus)
Perugia, 27-29 January
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Objective
Identify the issues to deal with in order to
reconcile concepts and definitions about Wealth
in Business

• How? Analysis of the following questionnaires
• CySCF (University and Central Bank of Cyprus)
• SCF (Federal reserve)
• SFS (Statistics Canada)
• SHIW (Bank of Italy)

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Reconciling concepts and definitions
1. Define Household Wealth in Business
2. Harmonise questionnaire design
3. Define valuation criteria
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1. Define the concept of Wealth in Business
Household total business interests
The current market value of

• Non actively managed businesses (SCF, CySCF, SFS,
  SHIW)

• Actively managed businesses (SCF, CySCF, SFS,
  SHIW)

• Non residential properties (buildings, land,..)
  either leased out to others or not used (SCF,
  CySCF, SFS, SHIW)

• Family members personal assets used as
  collateral for business (SCF, CySCF)

• Loans from/to the household to/from the business
  (SCF, CySCF)

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Household Wealth in Business

• The current market value of actively managed
  businesses (SCF, CySCF, SFS, SHIW)

The value of all the assets directly used by the
household for the production of goods and
services destined to the market, net of
liabilities.
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2. Harmonise questionnaire design

• Define the concept of actively managed business

• Separate Wealth in Business from Housing Wealth

• Collect information on business value

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A firm is actively managed if...

• the household owns a significant share of equity
• - no prior threshold should be established
• - surveys should collect the share of ownership
• and

• the household plays a key influence in the
  planning of long-term objectives and strategies

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Separate wealth in business from housing wealth

• Principal residence might also be used for
  commercial or business purposes

SCF solution What part of this property is used
for (farm/ranch)ing?
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Collect information on business value

• The balance sheet approach (SHIW)

Separate information on all the main assets and
liabilities

• The direct approach (SCF, CySCF, SFS)

Only information on net equity
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Treatment of businesses owned by households
ESA95 Producer households are included in the
Household Sector. Surveys are required to
separate financial assets and liabilities (to be
included in Financial Accounts) from non
financial assets (to be included in the Capital
Account)
FFA Equity of the noncorporate sector are
recorded on the household sector balance sheet as
equity in noncorporate business. Surveys are
only required to collect the net equity of the
company.
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What approach?

• For micro macro comparison

ESA95
Balance Sheet approach
FFA
Direct approach

• For international comparisons only the net equity
  of the company could be used

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Alternative solutions for data collection
Level 1
Level 2
Level 3
(1.1) The current market value of non actively
managed businesses.
(1.1) The current market value of non actively
managed businesses.
(1.2.1) The current market value of net equity of
corporate businesses
(1) Total households investment in shares and
other equity
(1.2) The current market value of actively
managed businesses (Wealth in Business)
(1.2.2) The current market value of net equity of
unincorporated businesses outside the household
sector.
(1.2.3) The current market value of
unincorporated businesses included in the
household sector. For this category,
non-financial assets should be separated from
financial assets and liabilities.
(1.3.1) The current market value of non
residential properties (properties, land,...)
leased out to others, net of debts incurred for
their acquisition.
(1.3) The current market value of other household
real estate, net of debts incurred for their
purchase
(1.3.2) The current market value of other non
residential properties (properties, land,...)
owned by the household and not included in the
previous items 1.2.1, 1.2.2 1.2.3 and 1.3.1, net
of debts incurred for their acquisition.
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3. Define valuation criteria

• Differences in timing of collection

• Alternatives to entrepreneurs estimate

ESA95 provision (7.54)
The values of unquoted shares, which are not
regularly traded on organised markets, should be
estimated with reference to the values of quoted
shares. However, these estimates should take into
account differences between the two typed of
shares, notably their liquidity, and should
consider the reserves accumulated over the life
of the corporation and its branch of business
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Directions for future research

• Extend the analysis to other surveys

• Assess the accuracy of sample survey estimates

• Extend the analysis to alternative valuation
  criteria

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Relevance of the topic

• US (2001) the share of households holding net
  equity in businesses was 11, accounting for
  about 26 of total assets.

• Canada (1999) the share of households holding
  net equity in businesses was 19, accounting for
  about 12 of total assets.

• Italy (2002) the share of households holding
  net equity in businesses was 15, accounting for
  about 15 of total assets.

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Working definition of Household Wealth in
Business