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on Business Economics |
| By: | Balleer, Almut (University of Bonn); van Rens, Thijs (CREI and Universitat Pompeu Fabra) |
| Abstract: | Over the past two decades, technological progress has been biased towards making skilled labor more productive. What does skill-biased technological change imply for business cycles? To answer this question, we construct a quarterly series for the skill premium from the CPS and use it to identify skill-biased technology shocks in a VAR with long run restrictions. We find that hours worked fall in response to skill-biased, but not in response to skill-neutral improvements in technology. Skill-biased technology shocks are associated with increases in the relative price of investment, indicating that capital and skill are substitutes in aggregate production. |
| Keywords: | skill-biased technology, skill premium, VAR, long-run restrictions, capital-skill complementarity, business cycle |
| JEL: | E24 E32 J24 J31 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4258&r=bec |
| By: | Kilponen , Juha (Bank of Finland Research); Vanhala, Juuso (Bank of Finland Research) |
| Abstract: | This paper focuses on productivity dynamics of a firm-worker match as a potential explanation for the ‘unemployment volatility puzzle’. We let new matches and continuing jobs differ in terms of productivity level and sensitivity to aggregate productivity shocks. As a result, new matches have a higher destruction rate and lower, but more volatile, wages than old matches, as new hires receive technology associated with the latest vintage. In our model, an aggregate productivity shock generates a persistent productivity difference between the two types of matches, creating an incentive to open new productive vacancies and to destroy old matches that are temporarily less productive. The model produces a well behaved Beveridge curve, despite endogenous job destruction and more volatile vacancies and unemployment, without needing to rely on differing wage setting mechanisms for new and continuing jobs. |
| Keywords: | matching; productivity shocks; new hires; continuing jobs; job flows; Beveridge curve; vintage structure |
| JEL: | E24 E32 J64 |
| Date: | 2009–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2009_015&r=bec |
| By: | Daouk, Hazem; Ng, David |
| Abstract: | Asymmetric volatility refers to the stylized fact that stock volatility is negatively correlated to stock returns. Traditionally, this phenomenon has been explained by the financial leverage effect. This explanation has recently been challenged in favor of a risk premium based explanation. We develop a new, unlevering approach to document how well financial leverage, rather than size, beta, book-to-market, or operating leverage, explains volatility asymmetry on a firm-by-firm basis. Our results reveal that, at the firm level, financial leverage explains much of the volatility asymmetry. This result is robust to different unlevering methodologies, samples, and measurement intervals. However, we find that financial leverage does not explain index-level volatility asymmetry, which is consistent with theoretical results in Aydemir, Gallmeyer and Hollifield (2006). |
| Keywords: | Volatility asymmetry, Financial leverage, Financial Economics, Research Methods/ Statistical Methods, G12, |
| Date: | 2009–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:ags:cudawp:51182&r=bec |
| By: | Jim Malley; Ulrich Woitek |
| Abstract: | Using a two-sector endogenous growth model, this paper explores how productivity shocks in the goods and human capital producing sectors contribute to explaining aggregate cycles in output, consump- tion, investment and hours. To contextualize our findings, we also assess whether the human capital model or the standard real business cycle (RBC) model better explains the observed variation in these aggregates. We find that while neither of the workhorse growth mod- els uniformly dominates the other across all variables and forecast horizons, the two-sector model provides a far better fit to the data. Some other key results are first, that Hicks-neutral shocks explain a greater share of output and consumption variation at shorter-forecast horizons whereas human capital productivity innovations dominate at longer ones. Second, the combined explanatory power of the two technology shocks in the human capital model is greater than the Hicks-neutral shock in the RBC model in the medium- and long-term for output and consumption. Finally, the RBC model outperforms the two-sector model with respect to explaining the observed variation in investment and hours. |
| Keywords: | endogenous growth, human capital, real business cycles, Bayesian estimation, VAR errors |
| JEL: | C11 C52 E32 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2009_23&r=bec |
| By: | Emmanuel Dhyne (National Bank of Belgium, Research Department; Warocqué Research Center, Université de Mons); Benoit Mahy (Warocqué Research Center, Université de Mons; Département d’Economie Appliquée, Université Libre de Bruxelles) |
| Abstract: | This paper aims to document and analyse the use of fixed-term contracts (FTC) and to analyse the dynamics of labour adjustment by type of labour contract at the firm level, drawing on the detailed breakdown of both the labour force and labour entries and exits that are available in the "Belgian Firms' Social Balance Sheets" dataset. It also aims to investigate the structure of labour adjustment costs by type of labour contract, using the methodology proposed by Goux, Maurin and Pauchet (2001). Results first indicate that flexible labour contracts are not only used to facilitate short-term labour adjustment but also as a screening device. The findings also suggest that when a firm decides to introduce flexible labour into its production process, it does also this to meet long-run objectives such as implementing minimising costs innovations. It is further estimated that the introduction of FTCs does not seem to affect the speed of indefinite-term contracts (ITC) adjustment. Our results also tend to indicate that the FTC is a key adjustment variable in response to cost shocks and to unexpected demand fluctuations while, in response to expected fluctuations in output, firms then prefer to adjust their level of permanent employment. Finally, and as far as the structure of labour adjustment costs in Belgium is concerned, the marginal recruitment cost under an ITC represents 12.4% of the marginal termination cost of ITC, while the marginal cost associated with the recruitment under an FTC only accounts for 0.8% of its ITC counterpart |
| Keywords: | labour dynamics, fixed-term contract, indefinite-term contract, agency workers |
| JEL: | J23 J32 J63 J82 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:200907-02&r=bec |
| By: | Yolanda Rebollo Sanz (Department of Economics, Universidad Pablo de Olavide) |
| Abstract: | A discrete-time multivariate hazard model is applied to investigate whether an individual’s employment history conditions her chances of eventually obtaining a permanent contract in the Spanish labour market. This study differentiates the incidence of lagged duration dependence from occurrence dependence and individual employment history conditions are not exclusively defined in terms of the number of temporary contracts and job interruptions experienced by the worker, but also by the diversity of her past employers. My analysis focuses on Spanish labour market entrants aged between 18 and 29 for the 1995-2006 period, and performs the estimation by three age cohort groups separately to control for heterogeneity in initial conditions. The results suggest that some workers may become “trapped” in the temporary employment bracket, since their chances of obtaining a permanent contract seem to drop after some months of accumulating several temporary contracts under the same employer between bouts of unemployment. By contrast, moving from one firm to another as a temporary worker might have a positive influence on exit rates to permanent employment. Hence, this paper highlight that it is important to take into account whether or not the worker remains in the same firm when accumulating temporary contracts to test for the stepping stone effect of temporary contracts. |
| Keywords: | Event history model, lagged duration dependence, occurrence dependence, stepping stone effect, firm mobility, Multiple Spells duration models, Job Interruptions |
| JEL: | J41 J63 J68 C41 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:pab:wpaper:09.07&r=bec |
| By: | Gersbach, Hans |
| Abstract: | Insurance contracts contingent on macroeconomic shocks or on average bank capital could be a way of insuring against systemic crises. With insurance, banks are recapitalized when negative events would otherwise cause a write down of capital or even bank insolvency. In a simple model we illustrate the working of these contracts and how insurance could be achieved. We identify the main pitfalls of this approach: the insurance capacity of an economy may be too limited, insurance must be mandatory, insurance does not curb excessive risk taking (unobservable or observable), the insurers may go bankrupt in crises, and managerial restrictions on a rising bank equity capital limit insurance. Finally we discuss some complementary regulatory measures to foster the effectiveness of crisis insurance. In particular, we suggest mandatory purchase of insurance contracts against systemic crises by managers of large banks. |
| Keywords: | automatic recapitalization; banking crises; banking regulation; financial intermediation; insurance contracts |
| JEL: | D41 E4 G2 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:7342&r=bec |
| By: | Hammad Qureshi (Department of Economics, Ohio State University) |
| Abstract: | The idea that expectations about future economic fundamentals can drive business cycles dates back to the early twentieth century. However, the standard real business cycle (RBC) model fails to generate positive comovement in output, consumption, labor-hours and investment in response to news shocks. This paper proposes a simple and intuitive solution to this puzzling feature of the RBC model, based on a mechanism that has strong empirical support: learning-by-doing (LBD). First, we show that the one-sector RBC model augmented by LBD can generate aggregate comovement in response to news shock about technology. Second, we show that in the two-sector RBC model, LBD along with an intratemporal adjustment cost can generate sectoral comovement in response to news about three types of shocks: i) neutral technology shock, ii) consumption technology shock, and iii) investment technology shock. We show that these results hold for contemporaneous technology shocks and for different specifications of LBD. |
| Keywords: | News Shocks, Learning-by-Doing, Pigou Cycles |
| JEL: | E3 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:osu:osuewp:09-06&r=bec |
| By: | Vasyl Golosnoy; Jens Hogrefe |
| Abstract: | The dates of U.S. business cycle are reported by NBER with a considerable delay, so an early notion of turning points is of particular interest. This paper proposes a novel sequential approach designed for timely signaling these turning points. A directional cumulated sum decision rule is adapted for the purpose of on-line monitoring of transitions between subsequent phases of economic activity. The introduced procedure shows a sound detection ability for business cycle peaks and troughs compared to the established dynamic factor Markov switching methodology. It exhibits a range of theoretical optimality properties for early signaling, moreover, it is transparent and easy to implement |
| Keywords: | Business cycle; CUSUM control chart; Dynamic Factor Markov switching models; Early signaling; NBER dating |
| JEL: | C44 C50 E32 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1527&r=bec |
| By: | Martin M. Andreasen (Bank of England and CREATES) |
| Abstract: | This paper argues that a specification of stochastic volatility commonly used to analyze the Great Moderation in DSGE models may not be appropriate, because the level of a process with this specification does not have conditional or unconditional moments. This is unfortunate because agents may as a result expect productivity and hence consumption to be inifinite in all future periods. This observation is followed by three ways to overcome the problem. |
| Keywords: | Great Moderation, Productivity shocks, and Time-varying coe¢ cients |
| JEL: | E10 E30 |
| Date: | 2009–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2009-29&r=bec |
| By: | Charoenrook, Anchada; Daouk, Hazem |
| Abstract: | This paper contributes empirical evidence to the on-going debate on short sales. Our examination of how market-wide short-sale restrictions affect aggregate market returns focuses on two main questions: What is the effect of short-sale restrictions on skewness, volatility, the probability of market crashes, and liquidity? What is the effect on the market expected return or cost of capital? We report new data on the history of short-selling and put option trading regulations and practices from 111 countries, and create a short-selling feasibility indicator for the analysis of stock market indices around the world. We find that when short-selling is possible, aggregate stock returns are less volatile and there is greater liquidity. When countries start to permit short-selling, aggregate stock price increases, implying lower a cost of capital. There is no evidence that short-sale restrictions affect either the level of skewness of returns or the probability of a market crash. Collectively, our empirical evidence suggests that allowing short-selling enhances market quality. |
| Keywords: | Short-sale constraints, Stock returns, Cost of capital, International finance, Financial Economics, G15, G12, |
| Date: | 2009–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:ags:cudawp:51180&r=bec |
| By: | Ojo, Marianne |
| Abstract: | This paper not only recommends means whereby principal-agent problems could be addressed, but also considers various ways in which the external auditor and audit committees contribute as corporate governance tools. The impact of bank regulations on risk taking and the need for a consideration of ownership structures are amongst other issues which are considered. In acknowledging the issues raised by ownership structures, it considers theories such as the banking theory and corporate governance theory. It also considers other alternatives whereby risk taking could be controlled. In recommending the external auditor’s expertise to address principal agent problems, it draws attention to the audit committee’s roles, both as a vital and complementary corporate governance tool, and also considers recurring problems which still persist with some financial reporting standards. It also highlights the importance of measures which need to be in place if the external auditor’s contribution to corporate governance is to be maximised. |
| Keywords: | agency; theory; external; auditor; banking; regulation; risk |
| JEL: | K2 D21 G3 G0 A10 M4 |
| Date: | 2009–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:15989&r=bec |
| By: | Nordberg, Morten (The Ragnar Frisch Centre for Economic); Kverndokk, Snorre (The Ragnar Frisch Centre for Economic) |
| Abstract: | We use a dependent competing risks hazard rate model to investigate individual sickness absence behaviour in Norway, on the basis of register data covering more than 2 million absence spells. Our findings are: i) that business cycle improvements yield lower work-resumption rates for persons who are absent, and higher relapse rates for persons who have already resumed work; ii) that absence sometimes represents a health investment, in the sense that longer absence ‘now’ reduces the subsequent relapse propensity; and iii) that the work-resumption rate increases when sickness benefits are exhausted, but that work-resumptions at this point tend to be short-lived. |
| Keywords: | Absenteeism; Dependent risks |
| JEL: | C41 J22 |
| Date: | 2009–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:oslohe:2003_017&r=bec |
| By: | Kiyotaka Nakashima; Makoto Saito |
| Abstract: | Using secondary market data on corporate bonds issued in Japan between 1997 and 2005, this paper explores the determinants of the credit spread of corporate bond rates over interest swap rates. We find that credit spreads properly reflect financial factors at the firm level, including debt-to-equity ratios, volatility, and maturity, particularly for longer-term bonds. In addition, an economy-wide factor common among bond issues unable to be captured by firm-level factors, plays an important role in determining credit spreads, and these economy-wide effects to a great extent cancel out firm-level factors for some subsample periods. We also identify possible factors responsible for the significant economy-wide effects. |
| Keywords: | credit spreads, corporate bonds, market liquidity |
| JEL: | G12 G13 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:hst:ghsdps:gd09-68&r=bec |
| By: | Albrecht, James (Georgetown University); Björklund, Anders (SOFI, Stockholm University); Vroman, Susan (Georgetown University) |
| Abstract: | We examine the evolution of the Swedish wage distribution over the periods 1968-1981 and 1981-2000. The first period was the heyday of the Swedish solidarity wage policy with strongly equalization clauses in the central wage agreements. During the second period, there was more scope for firm-specific factors to affect wages. We find a remarkable compression of wages across the distribution in the first period, but in the second period, wage growth was quite uniform across the distribution. We decompose these changes across the distribution into two components – those due to changes in the distribution of characteristics such as education and experience and those due to changes in the distribution of returns to those characteristics. The wage compression between 1968 and 1981 was driven by changes in the distribution of returns, but between 1981 and 2000, the change in the distribution of returns was neutral with respect to inequality. |
| Keywords: | wage compression, unionization, quantile regression |
| JEL: | J31 J51 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4246&r=bec |
| By: | L. C. Hunter (Intellectual Property Research Institute of Australia, The University of Melbourne and School of Business and Management, University of Glasgow); Elizabeth Webster (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Anne Wyatt (UQ Business School, University of Queensland) |
| Abstract: | This paper aims to show how firms account for expenditure on their intangible investments and how this influences their decision making processes. Evidence from our survey of 614 large Australian companies show that (1) firms do not systematically identify and separate expenditures on intangible investment from expenditures on tangible investment and operating expenditures; and (2) this leads to an information gap that adversely affects the firm’s internal processes for evaluating the decision to invest in intangibles. The paper builds a deductive argument for the use of the general purpose financial reporting system (GAAP) to separate and report the expenditures on intangibles by corporations in a way that is consistent and comparable across firms and over time. Our evidence suggests that investment decisions by management and investors, where intangibles are involved, are likely to be based more on rules-of-thumb than objective evidence. |
| Keywords: | managerial accounting system; GAAP accounting system; expenditures on intangible investment, rate of return |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:iae:iaewps:wp2009n12&r=bec |
| By: | David H. Autor; David Dorn |
| Abstract: | After a decade in which wages and employment fell precipitously in low-skill occupations and expanded in high-skill occupations, the shape of U.S. earnings and job growth sharply polarized in the 1990s. Employment shares and relative earnings rose in both low and high-skill jobs, leading to a distinct U-shaped relationship between skill levels and employment and wage growth. This paper analyzes the sources of the changing shape of the lower-tail of the U.S. wage and employment distributions. A first contribution is to document a hitherto unknown fact: the twisting of the lower tail is substantially accounted for by a single proximate cause--rising employment and wages in low-education, in-person service occupations. We study the determinants of this rise at the level of local labor markets over the period of 1950 through 2005. Our approach is rooted in a model of changing task specialization in which `routine' clerical and production tasks are displaced by automation. We find that in labor markets that were initially specialized in routine-intensive occupations, employment and wages polarized after 1980, with growing employment and earnings in both high-skill occupations and low-skill service jobs. |
| JEL: | E24 J24 J31 J62 O33 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15150&r=bec |
| By: | Geng Li |
| Abstract: | We study variations in housework time and leisure consumption when workers are subject to labor market work hours constraints that prevent them from working the optimal number of hours. Using data from two large nationwide longitudinal surveys, we first document that such constraints are widespread--about 50 percent of all households in our sample had been bound by such constraints in at least one year, highlighting the significance of studying household behaviors in labor markets under binding constraints. Our analysis reveals strong heterogeneity and asymmetry in workers' reactions to this type of market constraint that are difficult to reconcile with standard preferences and home production technology. In particular, we find that the ceilings on market work hours induce workers to increase time spent on housework, including cooking, and to reduce vacation time. In contrast, floors on market work hours do not significantly affect time spent on housework, but may boost vacation time. On net, workers constrained by hours ceilings (floors) appear to have more (less) leisure time. Meanwhile, the response to hours ceilings are more pronounced among unmarried households. We also find some evidence that the magnitude of the effects of market hours constraints increases with the persistence of these constraints. Our results are robust to a number of variations in measurement metrics, econometric specifications, sample selection criteria, and data sources. We argue that the empirical results documented in this paper can be taken as additional moments conditions against which equilibrium models with home production are calibrated. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2009-21&r=bec |
| By: | Charoenrook, Anchada; Daouk, Hazem |
| Abstract: | The skewness of the conditional return distribution plays a significant role in financial theory and practice. This paper examines whether conditional skewness of daily aggregate market returns is predictable and investigates the economic mechanisms underlying this predictability. In both developed and emerging markets, there is strong evidence that lagged returns predict skewness; returns are more negatively skewed following an increase in stock prices and returns are more positively skewed following a decrease in stock prices. The empirical evidence shows that the traditional explanations such as the leverage effect, the volatility feedback effect, the stock bubble model (Blanchard and Watson, 1982), and the fluctuating uncertainty theory (Veronesi, 1999) are not driving the predictability of conditional skewness at the market level. The relation between skewness and lagged returns is more consistent with the Cao, Coval, and Hirshleifer (2002) model. Our findings have implications for future theoretical and empirical models of time-varying market return distributions, optimal asset allocation, and risk management. |
| Keywords: | Conditional skewness, Conditional Volatility, Predicting Skewness, Aggregate market returns, International finance, Financial Economics, Marketing, Research Methods/ Statistical Methods, G12, C1, |
| Date: | 2009–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:ags:cudawp:51181&r=bec |
| By: | Dostie, Benoit (HEC Montreal); Jayaraman, Rajshri (European School of Management and Technology (ESMT)) |
| Abstract: | This paper asks whether adversity spurs the introduction of process innovations and increases the use of managerial incentives by firms. Using a large panel data set of workplaces in Canada, our identification strategy relies on exogenous variation in adversity arising from increased border security along the 49th parallel following 9/11. Our longitudinal difference-in-differences estimates indicate that firms responded to adversity by introducing new or improved processes, but did not change their use of managerial incentives. These results suggest that the threat of bankruptcy may provide impetus for improving efficiency. |
| Keywords: | process innovation, managerial incentives, efficiency, natural experiment |
| JEL: | L20 O31 M52 J33 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4261&r=bec |
| By: | Yi Wen |
| Abstract: | The profession has been longing for closed-form solutions to consumption functions under uncertainty and borrowing constraints. This paper proposes an analytical approach to solving buffer-stock saving models with both idiosyncratic and aggregate uncertainties. It is shown analytically that an individual’s optimal consumption plan under uncertainty follows the rule of thumb: Consumption is proportional to a target wealth with the marginal propensity to consume depending on the state of the macroeconomy. The method is applied to addressing two long- standing puzzles: the "excess smoothness" and "excess sensitivity" of consumption with respect to income changes. Some of my findings sharply contradict the conventional wisdom. |
| Keywords: | Saving and investment ; Income |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2009-26&r=bec |
| By: | Luigi Guiso; Paola Sapienza; Luigi Zingales |
| Abstract: | We use survey data to study American households’ propensity to default when the value of their mortgage exceeds the value of their house even if they can afford to pay their mortgage (strategic default). We find that 26% of the existing defaults are strategic. We also find that no household would default if the equity shortfall is less than 10% of the value of the house. Yet, 17% of households would default, even if they can afford to pay their mortgage, when the equity shortfall reaches 50% of the value of their house. Besides relocation costs, the most important variables in predicting strategic default are moral and social considerations. Ceteris paribus, people who consider it immoral to default are at 77% less likely to declare their intention to do so, while people who know someone who defaulted are 82% more likely to declare their intention to do so. The willingness to default increases nonlinearly with the proportion of foreclosures in the same ZIP code. That moral attitudes toward default do not change with the percentage of foreclosures is likely to derive from a contagion effect that reduces the social stigma associated with default as defaults become more common. |
| JEL: | D12 G18 G21 G33 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15145&r=bec |
| By: | Steinbacher, Matej; Steinbacher, Matjaz; Steinbacher, Mitja |
| Abstract: | In the paper we test a homogenous agent version of the Montgomery's (1991) non-cooperative wage posting model. The inclusion of intrinsic costs, related to the uncertainty when changing the alternative agents are already using, alters the outcome of the model in two respects: firstly, it significantly prolongs the convergence-time to the equilibrium, and, more importantly, it may lead to the wage dispersion, irrespective of equally-productive-agent proposition, something not present in the model of Montgomery. |
| Keywords: | Job-search model; wage posting; wage dispersion; numerical optimization |
| JEL: | J31 D83 C15 C73 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:16114&r=bec |
| By: | Kilponen, Juha (Bank of Finland Research) |
| Abstract: | This paper derives and estimates an aggregate Euler consumption equation which allows one to compare the importance of collateral constraints and non-separability of consumption and leisure as alternative sources of excess sensitivity of consumption to current income. Estimation results suggest that during a severe financial distress both non-separability and collateral constraints are needed to capture excess sensitivity of consumption to current economic conditions. During more tranquil times, evidence on collateral effects is more limited and non-separability is sufficient to make the Euler consumption equation agree well with the data. |
| Keywords: | housing; financial distress; excess sensitivity of consumption |
| JEL: | E21 E32 E44 |
| Date: | 2009–03–24 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2009_009&r=bec |
| By: | Alex Dickson; Roger Hartley |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:man:sespap:0911&r=bec |
| By: | Albuquerque, Rui; Schroth, Enrique |
| Abstract: | We study the determinants of private benefits of control in negotiated block transactions. We estimate the block pricing model in Burkart, Gromb, and Panunzi (2000) explicitly accounting for both block premia and block discounts in the data. The evidence suggests that the occurrence of a block premium or discount depends on the controlling block holder's ability to fight a potential tender offer for the target's stock. We find evidence of large private benefits of control and of associated deadweight losses, but also of value creation by controlling shareholders. Finally, we provide evidence consistent with Jensen's free cash flow hypothesis. |
| Keywords: | Block pricing; block trades; control transactions; deadweight loss; private benefits of control; structural estimation |
| JEL: | G12 G18 G34 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:7358&r=bec |
| By: | Galina Hale; Assaf Razin; Hui Tong |
| Abstract: | Data show that better creditor protection is correlated across countries with lower average stock market volatility. Moreover, countries with better creditor protection seem to have suffered lower decline in their stock market indexes during the current financial crisis. To explain this regularity, we use a Tobin q model of investment and show that stronger creditor protection increases the expected level and lowers the variance of stock prices in the presence of credit crunches. There are two main channels through which creditor protection enhances the performance of the stock market: (1) The credit-constrained stock price increases with better protection of creditors; (2) The probability of a credit crunch leading to a binding credit constraint falls with strong protection of creditors. These mechanisms are consistent with the patterns observed in the cross-country data. We find that except for OECD countries with low creditor protection, stock market return is negative in the crisis years and positive in non-crisis years. |
| JEL: | F4 G0 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15141&r=bec |
| By: | Xavier Freixas; Antoine Martin; David Skeie |
| Abstract: | A major lesson of the recent financial crisis is that the ability of banks to withstand liquidity shocks and to provide lending to one another is crucial for financial stability. This paper studies the functioning of the interbank lending market and the optimal policy of a central bank in response to both idiosyncratic and aggregate shocks. In particular, we consider how the interbank market affects a bank's choice between holding liquid assets ex ante and acquiring such assets in the market ex post. We show that a central bank should use different tools to manage different types of shocks. Specifically, it should respond to idiosyncratic shocks by lowering the interest rate in the interbank market and address aggregate shocks by injecting liquid assets into the banking system. We also show that failure to adopt the optimal policy can lead to financial fragility. |
| Keywords: | Interbank market ; Banks and banking, Central ; Bank liquidity ; Interest rates |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:371&r=bec |
| By: | David A. Love; Paul A. Smith; David Wilcox |
| Abstract: | We develop a simple model of pension financing to study the effects of pension risk on shareholder value. In the model, firms minimize costs, total compensation must clear the labor market, and a government pension insurer guarantees a portion of promised benefits. We find that in the absence of mispriced pension insurance, the optimal pension strategy under most specifications is to immunize all sources of market risk. Mispriced pension insurance, however, gives firms the incentive to introduce risk into their pension promises, offering an explanation for some of the observed prevalence of risky pensions in the real world. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2009-20&r=bec |
| By: | Eslava, Marcela (Universidad de los Andes); Haltiwanger, John C. (University of Maryland); Kugler, Adriana (University of Houston); Kugler, Maurice (Wilfrid Laurier University) |
| Abstract: | We use plant output and input prices to decompose the profit margin into four parts: productivity, demand shocks, mark-ups and input costs. We find that each of these market fundamentals are important in explaining plant exit. We then use variation across sectors in tariff changes after the Colombian trade reform to assess whether the impact of market fundamentals on plant exit changed with in creased international competition. We find that greater international competition magnifies the impact of productivity, and other market fundamentals, on plant exit. A dynamic simulation that compares the distribution of productivity with and without the trade reform shows that improvements in market selection from trade reform help to weed out the least productive plants and increase average productivity. In addition, we find that trade liberalization increases productivity of incumbent plants and improves the allocation of activity within industries. |
| Keywords: | trade liberalization, plant exit, market selection |
| JEL: | F43 L25 O47 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4256&r=bec |
| By: | Jens H. E. Christensen; Jose A. Lopez; Glenn D. Rudebusch |
| Abstract: | In response to the global financial crisis that started in August 2007, central banks provided extraordinary amounts of liquidity to the financial system. To investigate the effect of central bank liquidity facilities on term interbank lending rates, we estimate a six-factor arbitrage-free model of U.S. Treasury yields, financial corporate bond yields, and term interbank rates. This model can account for fluctuations in the term structure of credit risk and liquidity risk. A significant shift in model estimates after the announcement of the liquidity facilities suggests that these central bank actions did help lower the liquidity premium in term interbank rates. |
| Keywords: | Banks and banking, Central ; Bank liquidity |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2009-13&r=bec |
| By: | Juselius , Mikael (Universtiy of Helsnki RUSEG and Hanken School of Economics and HECER); Kim, Moshe (Universitat Pompeu Fabra); Ringbom, Staffan (Hanken School of Economicsn and HECER) |
| Abstract: | Persistent shifts in equilibria are likely to arise in oligopolistic markets and may be detrimental to the measurement of conduct, related markups and intensity of competition. We develop a cointegrated VAR (vector autoregression) based approach to detect long-run changes in conduct when data are difference stationary. Importantly, we separate the components in markups which are exclusively related to long-run changes in conduct from those explained solely by fundamentals. Our approach does not require estimation of markups and conduct directly, thereby avoiding complex problems in existing methodologies related to multiple and changing equilibria. Results from applying the model to US and five major European banking sectors indicate substantially different behavior of conventional raw markups and conduct-induced markups. |
| Keywords: | markups; cointegration; VAR; macroeconomic fundamentals; competition; banking |
| JEL: | C32 C51 G20 L13 L16 |
| Date: | 2009–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2009_012&r=bec |
| By: | Bent Jesper Christensen (University of Aarhus and CREATES); Morten Ørregaard Nielsen (Queen's University and CREATES); Jie Zhu (University of Aarhus and CREATES) |
| Abstract: | We extend the fractionally integrated exponential GARCH (FIEGARCH) model for daily stock return data with long memory in return volatility of Bollerslev and Mikkelsen (1996) by introducing a possible volatility-in-mean effect. To avoid that the long memory property of volatility carries over to returns, we consider a filtered FIEGARCH-in-mean (FIEGARCH-M) effect in the return equation. The filtering of the volatility-in-mean component thus allows the co-existence of long memory in volatility and short memory in returns. We present an application to the daily CRSP value-weighted cum-dividend stock index return series from 1926 through 2006 which documents the empirical relevance of our model. The volatility-in-mean effect is significant, and the FIEGARCH-M model outperforms the original FIEGARCH model and alternative GARCH-type specifications according to standard criteria. |
| Keywords: | FIEGARCH, financial leverage, GARCH, long memory, risk-return tradeoff, stock returns, volatility feedback |
| JEL: | C22 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1207&r=bec |