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on Business Economics |
| By: | Petter Osmundsen; Frank Asche; Bård Misund; Klaus Mohn |
| Abstract: | High oil prices are normally expected to stimulate exploration and the development of new oil and gas fields. But over the last few years, financial analysts have focused strongly on short-term accounting return (RoACE) for benchmarking and valuation, and this has led to high capital discipline among oil and gas companies. We analyse how high oil prices can be explained in terms of an implicit capacity game between the oil companies, and explore the stability of the current equilibrium. Our approach is an investigation of a key assumption among financial analysts, namely the presumed positive relation between RoACE and stock market valuation. Based on panel data for 11 international oil and gas companies, we seek to establish econometric relations between market valuation on one hand, and simple financial and operational indicators on the other. Our findings do not support the perceived positive relation between reported RoACE and market-based multiples. Recent evidence also suggests that the stock market is increasingly concerned about reserve replacement and sustained profitable growth. The current high-price equilibrium is therefore hardly stable. |
| JEL: | M21 M41 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1412&r=bec |
| By: | DEWATRIPONT, Mathias; TIROLE, Jean |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:601&r=bec |
| By: | Julien Hugonnier (HEC, University of Lausanne and FAME); Erwan Morellec (Simon School of Business, University of Rochester) |
| Abstract: | In the standard real options approach to investment under uncertainty, agents formulate optimal policies under the assumptions of risk neutrality or perfect capital markets. However in most situations, corporate executives face incomplete markets either because they receive compensation packages that restrict their portfolios or because cash flows from the firm's investment opportunities are not spanned by those of existing assets. The present paper examines the impact of managerial risk aversion on investment decisions when the manager is exposed to idiosyncratic risk. In the paper, the investment policy selected by the manager reflects a trade-off between his incentives to reduce risk and the need to ensure sufficient efficiency to prevent control challenges. The analysis demonstrates that risk aversion induces the manager to speed up investment, leading to a significant erosion of the value of the option to wait and to investment near the zero net present value threshold. |
| Keywords: | Incomplete markets; Risk aversion; Real options |
| JEL: | G11 G12 G13 |
| Date: | 2004–05 |
| URL: | http://d.repec.org/n?u=RePEc:fam:rpseri:rp122&r=bec |
| By: | Dirk Hackbarth (Finance Department, Kelley School of Business, University of Indiana); Jianjun Miao (Department of Economics, Boston University); Erwan Morellec (HEC, University of Lausanne and FAME) |
| Abstract: | This paper develops a framework for analyzing the impact of macroeceomic conditions on credit risk and dynamic capital structure choice. We begin by observing that when cash flows depend on current economic conditions, there will be a benefit for firms to adapt their default and financing policies to the position of the economy in the business cycle phase. We then demonstrate that this simple observation has a wide range of implications for corporations. Notably, we show that our model can replicate observed debt levels and the countercyclicality of leverage ratios. We also demonstrate that it can reproduce the observed term structure of credit spreads and generate strictly positive credit spreads for very short maturities. Finally, we characterize the impact of macroeconomic conditions on the pace and size of capital structure changes, and debt capacity. A number of new predictions follow. |
| Keywords: | Dynamic capital structure; Credit spreads; Macroeconomic conditions |
| JEL: | G12 G32 G33 |
| Date: | 2004–05 |
| URL: | http://d.repec.org/n?u=RePEc:fam:rpseri:rp125&r=bec |
| By: | George Kapetanios; M. Hashem Pesaran |
| Abstract: | This paper considers alternative approaches to the analysis of large panel data models in the presence of error cross section dependence. A popular method for modelling such dependence uses a factor error structure. Such models raise new problems for estimation and inference. This paper compares two alternative methods for carrying out estimation and inference in panels with a multifactor error structure. One uses the correlated common effects estimator that proxies the unobserved factors by cross section averages of the observed variables as suggested by Pesaran (2004), and the other uses principal components following the work of Stock and Watson (2002). The paper develops the principal component method and provides small sample evidence on the comparative properties of these estimators by means of extensive Monte Carlo experiments. An empirical application to company returns provides an illustration of the alternative estimation procedures. |
| Keywords: | cross section dependence, large panels, principal components, common correlated effects, return equations |
| JEL: | C12 C13 C33 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1416&r=bec |
| By: | George W. Evans; Seppo Honkapohja |
| Abstract: | The rational expectations hypothesis swept through macroeconomics during the 1970’s and permanently altered the landscape. It remains the prevailing paradigm in macroeconomics, and rational expectations is routinely used as the standard solution concept in both theoretical and applied macroeconomic modelling. The rational expectations hypothesis was initially formulated by John F. Muth Jr. in the early 1960s. Together with Robert Lucas Jr., Thomas (Tom) Sargent pioneered the rational expectations revolution in macroeconomics in the 1970s. We interviewed Tom Sargent for Macroeconomic Dynamics. |
| JEL: | E00 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1434&r=bec |
| By: | Giorgio Bellettini; Carlotta Berti Ceroni |
| Abstract: | This paper studies the determinants of immigration policy in an economy with entrepreneurs and workers where a trade union has monopoly power over wages. The presence of the union leads a benevolent government to implement a high level of immigration and induces a welfare loss not only from an aggregate point of view, but even from the point of view of workers. In the politico-economic equilibrium where interest groups lobby for immigration, we show the condition under which workers are no longer hurt by the presence of the union. |
| JEL: | F22 J51 J61 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1421&r=bec |
| By: | Aurora Trif |
| Abstract: | Abstract Whilst most studies on the transformation of industrial relations (IR) in Eastern Europe focus on the common trends, this paper examines variations in IR practices at company level. It uses a revised version of the exchange model to analyse the evidence from nineteen case studies in Romania. As the exchange model argues that capital and labour are involved in a rational exchange, it would be expected that if a negative sum game occurs, the rational choice of the actors would be to move towards a zero or positive sum game. However, evidence indicates that nine companies investigated seem to have a long-term equilibrium with a negative sum game for capital and labour. It is argued that this is able to occur because, in addition to capital and labour, the government and, sometimes, the top management are key actors involved in complex games that sum to zero. The paper suggests that differences in the power relations between these four actors lead to variations in the IR types employed at company level within a country. The main contribution of the paper is twofold: firstly, it cites original evidence for the diversity of IR practices at company level; secondly, it operationalises a revised version of the exchange model that could be used in further research to explain the variations in IR at the company level in Eastern Europe. Overall, it aims to contribute to a deeper understanding of variations in IR at the company level. Zusammenfassung Im Gegensatz zur Mehrzahl der Studien über die Transformation der Arbeitsbeziehungen in Osteuropa, die sich mit allgemeinen Trends beschäftigen, werden in diesem Discussion Paper die Unterschiede in der Praxis der Arbeitsbeziehungen auf Unternehmensebene betrachtet. Als Raster für die Klassifikation von neunzehn rumänischen Unternehmen wird eine überarbeitete Version des Exchange Model entwickelt. Dieses Modell argumentiert, dass die Kapital- und die Arbeitnehmerseite rationale Tauschpartner in einem Aushandlungsspiel sind. Bei einem sich abzeichnenden Negativsummenspiel wäre somit davon auszugehen, dass die rationalen Entscheidungen der Akteure bewirken, dass sich die Konstellation in Richtung auf ein Nullsummenspiel oder ein Positivsummenspiel auflösen wird. In der Praxis jedoch ist bei neun der untersuchten Firmen ein langfristiges Gleichgewicht mit einem Negativsummenspiel für Kapital und Arbeit festzustellen. Dies wird damit begründet, dass als weitere Schlüsselakteure die Regierung und zuweilen auch die Leitung der Unternehmen in komplexe Nullsummenspiele eingebunden sind. Die Autorin geht davon aus, dass es die Unterschiede in den Machtbeziehungen dieser vier Akteure sind, die zu unterschiedlichen „Typen“ von Arbeitsbeziehungen in Unternehmen innerhalb eines Landes führen. Das Discussion Paper trägt auf zweifache Weise zur Diskussion bei: Zum einen weist es eine Vielfalt von unterschiedlichen Formen der Arbeitsbeziehungen auf Unternehmensebene nach; zum anderen bietet die entwickelte überarbeitete Version des Exchange Model einen Ansatzpunkt für die zukünftige Erforschung der Arbeitsbeziehungen in den Unternehmen Osteuropas. |
| Keywords: | industrial relations; Romania; East-Central Europe; post-Communism; transition processes; game theory |
| Date: | 2005–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:erp:mpifgx:p0066&r=bec |
| By: | COLLARD, Fabrice; FÈVE, Patrick; GHATTASSI, Imen |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:3719&r=bec |
| By: | Erwan Morellec (HEC, University of Lausanne and FAME); Alexei Zdhanov (University of Rochester) |
| Abstract: | This paper presents a dynamic model of takeovers based on the stock market valuations of merging firms. The model incorporates competition and imperfect information and determines the terms and timing of takeovers by solving option exercise games between bidding and target shareholders. The implications of the model for returns to stockholders are consistent with the available evidence. Notably, the model predicts that (1) returns to target shareholders should be larger than returns to bidding shareholders, and (2) returns to bidding share-holders can be negative if there is competition for the acquisition of the target. In addition, the model generates new predictions relating these returns to the drift, volatility and correlation coefficient of the bidder and the target stock returns and to the dispersion of beliefs regarding the benefits of the takeover. |
| Keywords: | takeovers; real options; competition; learning. |
| JEL: | G13 G34 |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:fam:rpseri:rp126&r=bec |
| By: | U. Witt; C. Zellner |
| Abstract: | New knowledge with commercial potential is continually created in academic institutions. How is it turned into economically valuable businesses? This paper argues that the transfer is an entrepreneurial process. To understand this, the actions and the constraints characteristic for the entrepreneurial reshaping of the division of labor must be recognized. In the case of knowledge-based entrepreneurship, specific constraints result from the peculiarities of scientific knowledge – epitomized by contrasting tacit and encoded knowledge. Scientifically trained labor is required for transferring both forms of knowledge. However, the mode of transfer differs crucially and shapes the organizational form of commercializing new scientific knowledge. |
| JEL: | L23 M13 O31 O32 |
| URL: | http://d.repec.org/n?u=RePEc:esi:evopap:2005-04&r=bec |
| By: | Maurice Kugler; Hillel Rapoport |
| Abstract: | In a global context foreign direct investment (FDI) and migration substitute one another in the matching process between workers and firms. However, as labor flows can lead to the formation of business networks, migration can actually facilitate FDI in the long-run. We first present a stylized model for a small open economy illustrating these offsetting effects. We then use U.S. data on bilateral labor inflows and capital outflows to measure the extent of contemporaneous substitutability and dynamic complementarity between migration and FDI. We find that brain drain and FDI inflows are negatively correlated contemporaneously but that skilled migration is associated with future increases in FDI inflows. We also find suggestive evidence of substitutability between current migration and FDI for migrants with secondary education, and of complementarity between past migration and FDI for unskilled migrants. |
| Keywords: | brain drain, foreign direct investment inflows, migrant ties and business networks |
| JEL: | F22 F43 O41 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1455&r=bec |
| By: | Michael D. Hurd (RAND and NBER); Susann Rohwedder (RAND) |
| Abstract: | The simple one-good model of life-cycle consumption requires “consumption smoothing.” According to previous results based on partial spending and on synthetic panels, British and U.S. households apparently reduce consumption at retirement. The reduction cannot be explained by the simple one-good life-cycle model, so it has been referred to as the retirement-consumption puzzle. An interpretation is that at retirement individuals discover they have fewer economic resources than they had anticipated prior to retirement, and as a consequence reduce consumption. This interpretation challenges the life-cycle model where consumers are assumed to be forward looking. Using panel data on anticipated consumption changes at retirement and on recollected consumption changes following retirement, we find that the median recollected change in spending at retirement is zero and that the recollections are broadly consistent with anticipations. Based on a measure of total spending in true panel we find that the actual mean and median changes are slightly positive. Therefore, we find no retirement-consumption puzzle. |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp096&r=bec |
| By: | Mary A. Silles (Institute of Economics, University of Copenhagen) |
| Abstract: | This paper uses longitudinal data for the UK to investigate the observed correlation between computer use at work and labor market earnings. Our findings suggest that there are no returns to computer use at work. This is evidence against the productivity interpretation of these returns and supports the view that the premium can be attributed to unobserved characteristics. |
| Keywords: | technological change; earnings |
| JEL: | I21 J31 |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuieca:2005_05&r=bec |
| By: | Alex Gaudeul (University of East Anglia - Norwich & ESRC Centre for Competition Policy) |
| Abstract: | This paper models the competition between two production models: open- source and proprietary. An open-source and a proprietary project are put into competition. The open-source organization suffers from imperfect coordination between its volunteers and it will serve their needs in preference to those of the broader population. Commercial ventures are better coordinated and their user-orientation will lead them to develop better interfaces with users. However, open-source products are free, while an entrepreneur must pay its workers and will maximize profits by excluding some users though price. The paper derives conditions which determine the nature and size of the market for each type of product. Network effects encourage better coordination in open-source production and may deter the emergence of a proprietary alternative. Proprietary entrepreneurs specialize into niche markets when network effects are low, and compete directly with open- source products when network effects are high. |
| Keywords: | Open Source Software; Network Externalities; Information Goods; Intellectual Property; Duopoly; Production Systems; Competition; Non-Profit; Volunteer Organizations. |
| JEL: | D23 H41 L13 L22 L31 L86 O34 O38 |
| Date: | 2005–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504024&r=bec |