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on Business Economics |
| By: | Walentin, Karl (Research Department, Central Bank of Sweden) |
| Abstract: | We explore the implications of shocks to expected future productivity in a setting with limited enforcement of financial contracts. As in Lorenzoni andWalentin (2007) optimal financial contracts under limited enforcement imply that to obtain external finance firms have to post collateral in terms of liquidation value of the firm. In contrast to earlier real one-sector models, we show that a model with this type of “collateral constraint” generates an increase in stock prices in response to positive news about future productivity, as well as the other properties of an expectation driven business cycle, that is, an increase in consumption, investment and hours. The positive stock price response is in line with Beaudry and Portier’s (2006) empirical results and the emerging standard view of expectation driven booms. |
| Keywords: | business cycles; news shocks; limited enforcement; stock prices |
| JEL: | E22 E32 E44 E51 |
| Date: | 2009–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0229&r=bec |
| By: | Carneiro, Anabela (University of Porto); Guimaraes, Paulo (University of South Carolina); Portugal, Pedro (Universidade Nova de Lisboa) |
| Abstract: | Using a longitudinal matched employer-employee data set for Portugal over the 1986-2005 period, this study analyzes the heterogeneity in wages responses to aggregate labor market conditions for newly hired workers and existing workers. Accounting for both worker and firm heterogeneity, the data support the hypothesis that entry wages are much more procyclical than current wages. A one-point increase in the unemployment rate decreases wages of newly hired male workers by around 2.8% and by just 1.4% for workers in continuing jobs. Since we estimate the fixed effects, we were able to show that unobserved heterogeneity plays a non-trivial role in the cyclicality of wages. In particular, worker fixed effects of new hires and separating workers behave countercyclically, whereas firm fixed effects exhibit a procyclical pattern. Finally, the results reveal, for all workers, a wage-productivity elasticity of 1.2, slightly above the one-for-one response predicted by the Mortensen-Pissarides model. |
| Keywords: | wage cyclicality, hires, firm-specific effects, compositional effects, labor productivity |
| JEL: | J31 E24 E32 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4174&r=bec |
| By: | Nirei, Makoto |
| Abstract: | This paper presents a model of endogenous fluctuations of investment and output at the business cycles frequencies. Aggregate investments fluctuate endogenously due to the strategic complementarity of micro-level lumpy investments. The investment fluctuations are transmitted to the output via variable utilization of capital. Simulations show that there is a range of parameter values under with the model economy exhibits a large magnitude of fluctuations and comovements in investment and output. |
| Keywords: | business cycles, lumpy investment, variable capacity utilization, nonlinear dynamics |
| JEL: | E32 E22 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:hit:iirwps:09-01&r=bec |
| By: | Lai, Chaoqun; Nirei, Makoto |
| Abstract: | This paper studies the effect of strategic complementarity among firms' lumpy investments on the fluctuations of aggregate investments. We investigate an extensive panel data set on Italian manufacturing firms. We first show that the fluctuations of fraction of firms that experience large investment rates in a region-year follow a double-exponential distribution. We then estimate the degree of the strategic complementarity within a region directly by estimating the firm's decision on lumpy investments. We propose a simple sectoral model which is capable of generating the double-exponential distribution for the aggregate fluctuations that arise from the strategic complementarity among firms' lumpy investments. We argue that the shape and magnitude of the aggregate fluctuations observed in the data are consistent with the degree of strategic complementarity estimated at the micro-level in the same data. |
| Keywords: | Strategic complementarity, endogenous effect, non-Gaussian fluctuations |
| JEL: | L16 E22 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:hit:iirwps:09-03&r=bec |
| By: | Francesco Giuli; Massimiliano Tancioni |
| Abstract: | The theoretical literature on business cycles predicts a positive investment response to productivity improvements. In this work we question this prediction from theoretical and empirical standpoints. We first show that a negative short-term response of investment to a positive technology shock is consistent with a plausibly parameterized new Keynesian DSGE model in which capital is firm-specific and monetary policy is not fully accommodative. Employing Bayesian techniques, we then provide evidence that permanent productivity improvements have short-term contractionary effects on investment. Even if this result emerges in both the firm-specific and rental capital specifications, only with the former the estimated average price duration is in line with microeconometric evidence. In the firm-specific capital model, strategic complementarity in price setting leads to a degree of price inertia which is higher than that implied by the frequency at which firms change their prices. |
| Keywords: | firm-specific capital, NK-DSGE model, technology shocks, investment dynamics, Bayesian inference. |
| JEL: | E32 E22 C11 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:sap:wpaper:120&r=bec |
| By: | Baldwin, John R.; Gibson, Bob; Wang, Yanling |
| Abstract: | This paper examines the characteristics of plants in the manufacturing sector undergoing changes in ownership to further our understanding of the underlying causes of mergers and acquisitions. Previous Canadian studies (Baldwin 1995; Baldwin and Caves 1991) compare the performance of merged plants at the beginning and the end of the 1970s. This paper examines annual changes that occurred over the 1970s, 1980s, and 1990s to provide a longer-run perspective. In doing so, it outlines the amount of change taking place (both the number of plants affected and the share of employment) and the characteristics of plants that led to their takeover. Differences between foreign and domestic takeovers are also examined. |
| Keywords: | Manufacturing, Business performance and ownership, Entry, exit, mergers and growth, Small and medium-sized businesses |
| Date: | 2009–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp5e:2009056e&r=bec |
| By: | Enrico Colombatto; Arie Melnik |
| Abstract: | We use a simple model to analyze the funding stage of new firms and characterize the directional causality between the ir capital structure and the length of prior working experience that entrepreneurs possess. In this light, we test a set of predictions by considering a sample of firms founded by Italian entrepreneurs in the period 1992-2004. We obtain three main results. First, we confirm the evidence presented in the literature, whereby the size of the firm has a significant effect on capital structure. Second, we find that previous working experiences of entrepreneurs in full-time employment (before founding a new firm) have a positive impact on the debt-to-asset ratio of newly founded firms. Third, we show that firms with access to subsidized government debt are able to increase the ir share of debt in total liabilities, even when the size of the subsidy is small. |
| JEL: | M13 L26 G32 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:icr:wpicer:08-2008&r=bec |
| By: | Morihiro Yomogida (Faculty of Economics, Sophia University); Laixun Zhao (Research Institute for Economics and Business Administration, Kobe University) |
| Abstract: | This paper develops a general equilibrium model with a vertical production structure to examine the relationship between offshore outsourcing and international migration,especially emphasizing their effects on the wages of skilled and unskilled workers. Two-way outsourcing (simultaneous insourcing and outsourcing) in skilled-labor intensive services arises due to product differentiation and scale economies, and outsourcing in unskilled-labor intensive processing occurs because of factor endowment differences. The tractability of the model allows us to rank outsourcing and migration, according to the wages of both types of workers. Finally, we also analyze under what conditions outsourcing and international migration are complements or substitutes. |
| JEL: | F11 F12 F16 F22 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:241&r=bec |
| By: | Haan, Marco A. (University of Groningen); Moraga-Gonzalez, Jose L. (University of Groningen) |
| Abstract: | We model the idea that when consumers search for products, they first visit the firm whose advertising is more salient. The gains a firm derives from being visited early increase in search costs, so equilibrium advertising increases as search costs rise. This may result in lower firm profits when search costs increase. We extend the basic model by allowing for firm heterogeneity in advertising costs. Firms whose advertising is more salient and therefore raise attention more easily charge lower prices in equilibrium and obtain higher profits. As advertising cost asymmetries increase, aggregate profits increase, advertising falls and welfare increases. |
| Keywords: | Advertising; attention; consumer search; saliency; |
| JEL: | D83 L13 M37 |
| Date: | 2009–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0794&r=bec |
| By: | Fabio Canova; Matteo Ciccarelli; Eva Ortega |
| Abstract: | We study the effects that the Maastricht treaty, the creation of the ECB, and the Euro changeover had on the dynamics of European business cycles using a panel VAR and data from ten European countries - seven from the Euro area and three outside of it. There are slow changes in the features of business cycles and in the transmission of shocks. Time variations appear to be unrelated to the three events of interest and instead linked to a process of European convergence and synchronization. |
| Keywords: | Business cycles, EuropeanMonetary Union, Panel VAR, Structural changes |
| JEL: | C15 C33 E32 E42 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1158&r=bec |
| By: | Muge Adalet (The Treasury) |
| Abstract: | Using a unique dataset that covers all exporting firms in New Zealand from 1996 to 2007, this paper analyses the patterns of their product mix, how it changes over time and how this relates to firm characteristics. We suggest that looking at the relative importance of added and dropped products is as important as firm entry/exit in reallocation of resources. We find that in the cross section, multi-product firms are more productive than single product ones. Changes to product mix by New Zealand exporters occur frequently, suggesting that New Zealand exporters are dynamic and there is “creative destruction” at the product level. It is also shown that dropping products is more likely to happen than adding products, suggesting the difficulty of entering new markets and products. We also show that products with a smaller share of total exports and products that have been exported for a short period of time are more likely to be dropped by a firm. The results make a good case for product-firm characteristics being an important part of export decisions and suggest that more work should be done on this link. |
| Keywords: | Product churning; product market entry and exit; volatility of earnings; multi product firms; creative destruction |
| JEL: | D21 E23 L11 L60 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:nzt:nztwps:09/01&r=bec |
| By: | Lisa Crosato (Università di Milano-Bicocca); Sergio Destefanis (University of Salerno, CELPE and CSEF); Piero Ganugi (Università Cattolica del Sacro Cuore, Piacenza) |
| Abstract: | This paper explores the relationship between firm size distribution and technology. We analyse firm technology across selected manufacturing industries by means of a non-parametric production analysis, the Free Disposal Hull approach (Deprins et al., 1984; Kerstens and Vanden Eeckaut, 1999) and appraise the links between size and scale elasticity, finding a clear inverse relationship. Building on this result, we inquire whether the shape of the firm size distribution is related to a particular pattern of scale elasticities. We rely on the Zipf Plot (Stanley et al., 1995) of the Pareto IV distribution, which is concave up to a given threshold, and then approximately linear. Firms in the concave part of the plot are overwhelmingly found to experience increasing returns to scale. On the contrary, firms in the linear part are mainly characterised by constant returns to scale. |
| JEL: | L11 L6 D20 C14 |
| Date: | 2009–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:228&r=bec |
| By: | Erwan MORELLEC (Ecole Polytechnique Federale de Lausanne (EPFL), Swiss Finance Institute and CEPR); Boris NIKOLOV (University of Lausanne and Swiss Finance Institute); Norman SCHURHOFF (University of Lausanne and Swiss Finance Institute) |
| Abstract: | This paper examines the impact of managerial entrenchment on corporate financing decisions. We build a dynamic contingent claims model in which financing policy results from a trade-off between tax benefits, agency conflicts, and contracting frictions. In our setting, managers do not act in the best interest of shareholders, but rather pursue private benefits at the expense of shareholders. Managers have discretion over financing and dividend policies. However, shareholders can remove the manager at a cost. Our analysis demonstrates that entrenched managers restructure less frequently and issue less debt than optimal for shareholders. We take the model to the data and use observed financing choices to provide firm-specific estimates of the degree of managerial entrenchment. Using structural econometrics, we find that costs of control challenges of 2-7% on average (.8- 5% at median) are sufficient to resolve the low-and zero-leverage puzzles and explain the time series of observed leverage ratios. Our estimates of the agency costs vary with variables that one expects to determine managerial incentives. Governance mechanisms significantly affect the value of control and firms’ financing decisions. |
| Keywords: | dynamic capital structure; private benefits of control; structural estimation |
| JEL: | G12 G31 G32 G34 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp0910&r=bec |
| By: | Belton M. Fleisher (Department of Economics, Ohio State University); Dinghuan Hu (China Academy of Agricultural Sciences); William McGuire (Department of Agricultural, Environmental, and Development Economics, Ohio State University); Xiaobo Zhang (International Food Policy Research Institute (IFPRI)) |
| Abstract: | We use two rounds of surveys, in 2000 and 2008, in the Zhili Township children’s garment cluster in Zhejiang Province to examine in depth its evolution. Firm size has grown on average in terms of output and employment, and increasing divergence in firm sizes has been associated with a significant increase in specialization and outsourcing among firms in the cluster. Although initial investments have more than tripled, they remain low enough so that formal bank loans remain an insignificant source of finance. Accompanying lower entry barriers, there have been an increasing number of firms in the cluster, which have driven down profit and bid up wages, particularly since the year 2000. Facing severe competition, more firms have begun to upgrade their product quality. By the year 2007, nearly half of the sampled had established registered trademarks and nearly 20 percent had become ISO certified. Declining profit ratios to initial investment and stagnant TFP imply that the future of this industry is likely to rest on using more advanced technology and higher ratios of capital to labor, which imply increases in firm size and initial investment. Thus traditional sources of finance that do not require honest, efficient, and transparent courts are likely to fade as the need for improved legal and financial institutions become critical factor influencing China’s growth prospects. |
| JEL: | L22 O14 P23 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:osu:osuewp:09-05&r=bec |
| By: | DE VILLEMEUR, Etienne; FLOCHEL, Laurent; VERSAEVEL, Bruno |
| JEL: | C72 D43 L13 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:11169&r=bec |
| By: | Jolian McHardy (Department of Economics, The University of Sheffield); Michael Reynolds; Stephen Trotter |
| Abstract: | We introduce a new regulatory concept: the independent profit-maximising agent, as a model for regulating a network monopoly. The agent sets prices on cross-network goods taking either a complete, or arbitrarily small, share of the associated profit. We examine welfare and profits with and without each agent type under both network monopoly and network duopoly. We show that splitting up the network monopoly (creating network duopoly) may be inferior for both firm(s) and society compared with a network monopoly "regulated" by an agent and that society always prefers any of the four agent regimes over network monopoly and network duopoly. |
| Keywords: | Network, Monopoly, Agent |
| JEL: | D43 L13 R48 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2009003&r=bec |
| By: | Toshiaki Watanabe; Masato Ubukata |
| Abstract: | This article analyzes whether daily realized volatility, which is the sum of squared intraday returns over a day, is useful for option pricing. Different realized volatilities are calculated with or without taking account of microstructure noise and with or without using overnight and lunch-time returns. The both ARFIMA and ARFIMAX models are employed to specify the dynamics of realized volatility. The former can capture the long-memory property and the latter can also capture the asymmetry in volatility depending on the sign of previous day's return. Option prices are derived under the assumption of risk-neutrality. For comparison, GARCH, EGARCH, and FIEGARCH models are estimated using daily returns, where option prices are derived by assuming the risk-neutrality and by using the Duan (1995) method in which the assumption of risk-neutrality is relaxed. Main results using the Nikkei 225 stock index and its put options prices are: (1) the ARFIMAX model with daily realized volatility performs best, (2) applying the Bartlett adjustment to the calculation of realized volatility to take account of microstructure noise does not improve the performance while the Hansen and Lunde (2005a) adjustment without using overnight and lunch-time returns improves the performance, and (3) the Duan (1995) method does not improve the performance compared with assuming the risk neutrality. |
| Keywords: | ARFIMA, GARCH, Microstructure Noise, Option, Realized Volatility |
| JEL: | C22 C52 G13 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:hst:ghsdps:gd09-066&r=bec |
| By: | Oh, Donhyun (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Heshmati, Almas (Technology Management, Economics and Policy Program, Seoul National University) |
| Abstract: | This study proposes an alternative methodology for measuring environmentally sensitive productivity growth. The rationale of this methodology is to consider the features of technology appropriately by excluding a spurious technical regress based on the macroeconomic perspective. In order to consider this condition and to develop an alternative index, a directional distance function and the concept of the successive sequential production possibility set are combined. With this combination, the conventional Malmquist-Luenberger productivity index is modified to give the alternative sequential environmentally sensitive productivity index. This proposed index is employed in measuring productivity growth and its decomposed components of OECD countries for the period 1970-2003. We distinguish two main empirical findings. First, even though the components of the conventional Malmquist-Luenberger productivity index and the proposed index are different, the developments of productivity are similar. Second, unlike in previous studies, the efficiency change is the main contributor to the earlier study period, whereas the effect of technical change has prevailed over time. |
| Keywords: | efficiency change; environmentally sensitive; productivity growth index; directional distance function; Malmquist-Luenberger; productivity index; productivity; sequential production; possibility set; technical change |
| JEL: | D24 D57 D61 |
| Date: | 2009–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0181&r=bec |
| By: | Parker, Simon C. (University of Western Ontario) |
| Abstract: | I explore the factors that determine whether new business opportunities are exploited by starting a new venture for an employer ('nascent intrapreneurship') or independently ('nascent entrepreneurship'). Analysis of a nationally representative sample of American adults gathered in 2005-06 uncovers systematic differences between the drivers of nascent entrepreneurship and nascent intrapreneurship. Nascent entrepreneurs tend to leverage their general human capital and social ties to organize ventures which sell directly to customers, whereas intrapreneurs disproportionately commercialize unique new opportunities which sell to other businesses. Implications of the findings are discussed. |
| Keywords: | nascent entrepreneurship, intrapreneurship, sample selection |
| JEL: | L26 M13 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4195&r=bec |
| By: | Erwan MORELLEC (Ecole Polytechnique Federale de Lausanne (EPFL), Swiss Finance Institute and CEPR); Norman SCHURHOFF (University of Lausanne and Swiss Finance Institute) |
| Abstract: | This paper develops a tractable real options framework to analyze the effects of asymmetric information on investment and financing decisions when firms require external funds to finance investment. Our analysis shows that corporate insiders can signal their private information to outside investors using the timing of investment and the firm's debt-equity mix. Several important contributions follow from this result. First, we show that firms' equilibrium investment strategies differ significantly from those implied by standard real options models with perfect information. In particular, informational asymmetries erode the option value of waiting to invest and induce firms with good prospects to speed up investment, leading to overinvestment. Second, we demonstrate that informational asymmetries may not translate into a financing hierarchy. Most notably, we find that equity issues can be more attractive than debt issues even for firms with ample debt capacity, providing a rationale for the stylized fact that small high-growth firms do not behave according to the pecking order theory. |
| Keywords: | asymmetric information; financing decisions; investment timing |
| JEL: | G13 G14 G31 G34 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp0909&r=bec |
| By: | BIAIS, Bruno; WEILL, Pierre-Olivier |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:20653&r=bec |
| By: | Collie, David R. (Cardiff Business School) |
| Abstract: | A two-country model of the FDI versus export decisions of firms is analysed. The analysis considers both the Cournot duopoly and the Bertrand duopoly models with differentiated products. It is shown that the static game is often a prisoners' dilemma where both firms are worse off when they both undertake FDI. To avoid the prisoners' dilemma, in an infinitely-repeated game, the firms can collude over their FDI versus export decisions. Then, a reduction in trade costs may lead firms to switch from exporting to undertaking FDI when trade costs are relatively high. Also, collusion over FDI may increase welfare. |
| Keywords: | Collusion; Trade Liberalisation; Foreign Direct Investment; Cournot Oligopoly; Bertrand Oligopoly; Infinitely-Repeated Game |
| JEL: | F12 F23 L13 L41 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2009/8&r=bec |
| By: | Éric Jacquier; Sheridan Titman; Atakan Yalçin |
| Abstract: | Via the well-known financial leverage effect, decreases in stock prices cause an increase in the levered equity beta for a given unlevered equity beta. However, as growth options are more volatile and have higher risk than assets in place, a price decrease may decrease the unlevered equity beta via an “operating leverage” effect. This is because decreases in prices can be associated with a proportionately higher loss in growth options than in assets in place. Most of the existing literature focuses on the financial leverage effect. This paper examines both effects. Our empirical results show that, contrary to common belief, the operating leverage effect largely dominates the financial leverage effect, even for highly levered firms that presumably have few growth options. We link variations in betas to measurable firm characteristics that proxy for the proportion of the firm invested in growth options. We show that these proxies jointly predict a large fraction of cross-sectional differences in betas. These results have important implications on the predictability of equity betas, hence on empirical asset pricing and on portfolio optimization that controls for systematic risk. <P>En vertu de l’effet de levier financier bien connu, les baisses du cours des actions produisent une hausse du bêta des capitaux propres avec facteur d’endettement par rapport à un bêta donné des capitaux propres sans facteur d’endettement. Toutefois, étant donné que les options de croissance sont plus volatiles et présentent un risque plus élevé que les actifs en place, une baisse de leur prix peut contribuer à diminuer le bêta des capitaux propres sans facteur d’endettement à cause de l’effet de « levier d’exploitation ». Ce phénomène s’explique par le fait que les baisses de prix peuvent être associées à une perte proportionnellement plus élevée dans le cas des options de croissance par rapport aux actifs en place. La plupart des études existantes mettent l’accent sur l’effet de levier financier. Le document actuel se penche sur les deux effets. Nos résultats empiriques démontrent que, contrairement à la croyance répandue, l’effet de levier d’exploitation domine largement l’effet de levier financier, même dans le cas des firmes dont le facteur d’endettement est élevé et qui, vraisemblablement, ont peu d’options de croissance. Nous établissons un lien entre les variations dans les bêtas et les caractéristiques mesurables des firmes qui représentent la proportion investie dans les options de croissance. Nous démontrons que ces données indirectes prédisent conjointement une forte proportion de différences transversales dans les bêtas. Les résultats ont une incidence importante sur la prévisibilité des bêtas des capitaux propres et, par le fait même, sur la fixation empirique des prix des actifs et sur l’optimisation du portefeuille qui limite le risque systématique. |
| Keywords: | financial leverage effect, growth options, risk , effet de levier financier, options de croissance, risque |
| Date: | 2009–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2009s-26&r=bec |
| By: | Jang-Ting Guo (Department of Economics, University of California Riverside); Kevin J. Lansing (Federal Reserve Bank of San Francisco) |
| Abstract: | This paper examines the quantitative relationship between the elasticity of capital-labor substitution and the conditions needed for equilibrium indeterminacy (and belief-driven áuctuations) in a one-sector growth model. Our analysis employs a ìnormalizedîversion of the CES production function so that all steady-state allocations and factor income shares are held constant as the elasticity of substitution is varied. We demonstrate numerically that higher elasticities cause the threshold degree of increasing returns for indeterminacy to decline monotonically, albeit very gradually. When the elasticity of substitution is unity (the Cobb-Douglas case), our model requires increasing returns to scale of around 1.08 for indeterminacy. When the elasticity of substitution is raised to 5, which far exceeds any empirical estimate, the threshold degree of increasing returns reduces to around 1.05. We also demonstrate analytically that laborÃs share of income becomes pro-cyclical as the elasticity of substitution increases above unity, whereas laborÃs share in postwar U.S. data is countercyclical. This observation, together with other empirical evidence, indicates that the elasticity of capital-labor substitution in the U.S. economy is actually below unity. |
| Keywords: | Capital-Labor Substitution, Equilibrium Indeterminacy, Capital Utilization, Real Business Cycles, Labor Income |
| JEL: | E30 E32 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:ucr:wpaper:200804&r=bec |
| By: | Michel Magnan |
| Abstract: | Did fair value accounting play a role in the current financial crisis? This appendix explores the issue. Fair value accounting implies that assets and liabilities get measured and reflected on a firm`s financial statements at their market value, or close substitutes. Extensive academic research done over the past 20 years shows that financial statements that reflect the market values of assets or liabilities provide information that is relevant to investors. In other context, fair value accounting is just a messenger carrying bad news. In contrast, there is also another research stream which is quite critical of the perceived merits of fair value accounting, and which worries about how it undermines what constitutes the core of financial reporting. More specifically, it is argued that fair value accounting is difficult to verify, may be based on unreliable assumptions or hypotheses and provides management with too much discretion into the preparation of financial statements. Hence, according to this view, fair value accounting is not necessarily a neutral or unbiased messenger. Moreover, fair value accounting creates a circular dynamic in financial reporting, with markets providing the input for the measurement of many assets, thus affecting reported earnings which are then used by analysts and investors to assess a firm’s market value. If markets become volatile, as has been the case in recent months, reported earnings also become more volatile, thus feeding investors apprehensions. Therefore, since fair value accounting is associated with more volatile and less conservative financial statements and, it may have allowed managers to delay the day of recognition as well as distorted investors and regulators’ perceptions of financial performance and stability at the end of the financial bubble. However, once the economic pendulum swung back, fair value accounting may have magnified their views as to the severity of the current financial crisis, hence accelerating some negative trends. <P>La comptabilisation à la juste valeur a-t-elle joué un rôle dans la crise financière actuelle ? Cette question fait l’objet de la présente annexe. La comptabilisation à la juste valeur implique que les actifs et les passifs sont mesurés et constatés aux états financiers d’une firme selon leur valeur marchande ou selon de proches substituts. Les recherches universitaires exhaustives qui ont été effectuées au cours des 20 dernières années démontrent que les états financiers reflétant la valeur marchande des actifs ou des passifs fournissent une information pertinente pour les investisseurs. Dans ce contexte, la comptabilisation à la juste valeur n’est que l’indication de mauvaises nouvelles. À l’opposé, il existe un autre axe de recherche qui est très critique à l’égard des avantages attribués à la comptabilisation à la juste valeur et qui s’inquiète du fait que ce modèle fragilise l’essence même de l’établissement des états financiers. Plus particulièrement, certaines études font valoir que la comptabilisation à la juste valeur est difficile à vérifier, qu’elle peut être fondée sur des postulats ou des hypothèses peu fiables et qu’elle accorde trop de pouvoirs discrétionnaires aux gestionnaires en ce qui a trait à l’établissement des états financiers. Ce point de vue laisse donc à penser que la comptabilisation à la juste valeur ne transmet pas nécessairement un message neutre et objectif. Qui plus est, la comptabilisation à la juste valeur crée une dynamique circulaire sur le plan de la présentation de la situation financière puisque les marchés fournissent les données utilisées pour mesurer de nombreux actifs, influençant ainsi les bénéfices constatés qui sont ensuite consultés par les analystes et les investisseurs en vue d’établir la valeur marchande d’une firme. Si les marchés deviennent volatils, comme ce fut le cas au cours des derniers mois, les bénéfices constatés deviennent aussi plus volatils, alimentant ainsi l’appréhension des investisseurs. Par conséquent, la comptabilisation à la juste valeur étant associée à des états financiers plus volatils et moins conservateurs, cela peut avoir permis aux gestionnaires de retarder la constatation et de fausser les perceptions des investisseurs et des organismes de réglementation concernant le rendement et la stabilité financière à la fin de la bulle financière. Toutefois, au retour du balancier, la comptabilisation à la juste valeur peut avoir amplifié leur interprétation de la gravité de la crise financière actuelle, augmentant ainsi certaines tendances négatives. |
| Keywords: | fair-value Accounting, governance, risk management, comptabilité à la juste valeur, gouvernance, gestion du risque |
| Date: | 2009–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2009s-27&r=bec |
| By: | Michel Magnan |
| Abstract: | Did fair value accounting play a role in the current financial crisis? This appendix explores the issue. Fair value accounting implies that assets and liabilities get measured and reflected on a firm`s financial statements at their market value, or close substitutes. Extensive academic research done over the past 20 years shows that financial statements that reflect the market values of assets or liabilities provide information that is relevant to investors. In other context, fair value accounting is just a messenger carrying bad news. In contrast, there is also another research stream which is quite critical of the perceived merits of fair value accounting, and which worries about how it undermines what constitutes the core of financial reporting. More specifically, it is argued that fair value accounting is difficult to verify, may be based on unreliable assumptions or hypotheses and provides management with too much discretion into the preparation of financial statements. Hence, according to this view, fair value accounting is not necessarily a neutral or unbiased messenger. Moreover, fair value accounting creates a circular dynamic in financial reporting, with markets providing the input for the measurement of many assets, thus affecting reported earnings which are then used by analysts and investors to assess a firm’s market value. If markets become volatile, as has been the case in recent months, reported earnings also become more volatile, thus feeding investors apprehensions. Therefore, since fair value accounting is associated with more volatile and less conservative financial statements and, it may have allowed managers to delay the day of recognition as well as distorted investors and regulators’ perceptions of financial performance and stability at the end of the financial bubble. However, once the economic pendulum swung back, fair value accounting may have magnified their views as to the severity of the current financial crisis, hence accelerating some negative trends. <P>La comptabilisation à la juste valeur a-t-elle joué un rôle dans la crise financière actuelle ? Cette question fait l’objet de la présente annexe. La comptabilisation à la juste valeur implique que les actifs et les passifs sont mesurés et constatés aux états financiers d’une firme selon leur valeur marchande ou selon de proches substituts. Les recherches universitaires exhaustives qui ont été effectuées au cours des 20 dernières années démontrent que les états financiers reflétant la valeur marchande des actifs ou des passifs fournissent une information pertinente pour les investisseurs. Dans ce contexte, la comptabilisation à la juste valeur n’est que l’indication de mauvaises nouvelles. À l’opposé, il existe un autre axe de recherche qui est très critique à l’égard des avantages attribués à la comptabilisation à la juste valeur et qui s’inquiète du fait que ce modèle fragilise l’essence même de l’établissement des états financiers. Plus particulièrement, certaines études font valoir que la comptabilisation à la juste valeur est difficile à vérifier, qu’elle peut être fondée sur des postulats ou des hypothèses peu fiables et qu’elle accorde trop de pouvoirs discrétionnaires aux gestionnaires en ce qui a trait à l’établissement des états financiers. Ce point de vue laisse donc à penser que la comptabilisation à la juste valeur ne transmet pas nécessairement un message neutre et objectif. Qui plus est, la comptabilisation à la juste valeur crée une dynamique circulaire sur le plan de la présentation de la situation financière puisque les marchés fournissent les données utilisées pour mesurer de nombreux actifs, influençant ainsi les bénéfices constatés qui sont ensuite consultés par les analystes et les investisseurs en vue d’établir la valeur marchande d’une firme. Si les marchés deviennent volatils, comme ce fut le cas au cours des derniers mois, les bénéfices constatés deviennent aussi plus volatils, alimentant ainsi l’appréhension des investisseurs. Par conséquent, la comptabilisation à la juste valeur étant associée à des états financiers plus volatils et moins conservateurs, cela peut avoir permis aux gestionnaires de retarder la constatation et de fausser les perceptions des investisseurs et des organismes de réglementation concernant le rendement et la stabilité financière à la fin de la bulle financière. Toutefois, au retour du balancier, la comptabilisation à la juste valeur peut avoir amplifié leur interprétation de la gravité de la crise financière actuelle, augmentant ainsi certaines tendances négatives. |
| Keywords: | fair-value Accounting, governance, risk management, comptabilité à la juste valeur, gouvernance, gestion du risque |
| Date: | 2009–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2009s-25&r=bec |
| By: | Camilo SERRANO (University of Geneva); Martin HOESLI (University of Geneva (HEC and SFI), University of Aberdeen, Bordeaux Ecole de Management) |
| Abstract: | Securitized real estate returns have traditionally been forecasted using economic variables. However, no consensus exists regarding the variables to use. Financial and real estate factors have recently emerged as an alternative set of variables useful in forecasting securitized real estate returns. This paper examines whether the predictive ability of the two sets of variables differs. We use fractional cointegration analysis to identify whether long-run nonlinear relations exist between securitized real estate and each of the two sets of forecasting variables. That is, we examine whether such relationships are characterized by long memory, short memory, mean reversion (no long-run effects) or no mean reversion (no long-run equilibrium). Empirical analyses are conducted using data for the U.S., the U.K., and Australia. The results show that financial and real estate factors generally outperform economic variables in forecasting securitized real estate returns. Long memory (long-range dependence) is generally found between securitized real estate returns and stocks, bonds, and direct real estate returns, while only short memory is found between securitized real estate returns and the economic variables. Such results imply that to forecast securitized real estate returns, it may not be necessary to identify the economic variables that are related to changing economic trends and business conditions. |
| Keywords: | Fractional Cointegration, Fractionally Integrated Error Correction Model (FIECM), Forecasting, Multifactor Models, Securitized Real Estate, REITs |
| JEL: | G11 C53 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp0908&r=bec |