Employment and wage effects of a payroll-tax cut—evidence from a regional experiment

In this paper, we evaluate the effects of a regional experiment that reduced payroll taxes by 3–6 percentage points for 3 years in northern Finland. We match each firm in the target region with a similar firm in a comparison region and estimate the effect of the payroll tax reduction by comparing employment and wage changes within the matched pairs before and after the start of the experiment. According to our results, the reduction in the payroll taxes led to an increase in wages in the target region. The point estimates indicate that the increase in wages offset roughly half of the impact of the payroll tax cut on the labor costs. The remaining labor cost reduction had no significant effects on employment.     

Who is Not Poor? Dreaming of a World Truly Free of Poverty

When the World Bank dreams of "a world free of poverty," whatshould it be dreaming? In measuring global income or consumptionexpenditure poverty, the World Bank has widely adopted the $1a day standard as a lower bound. Because this standard is basedon poverty lines in the poorest countries, anyone with incomeor expenditures below this line will truly be poor. But thereis no consensus standard for the upper bound of the global povertyline: above what level of income or expenditures is someonetruly not poor? This article proposes that the World Bank computeits lower and upper bounds in a methodologically equivalentway, using the poverty lines of the poorest countries for thelower bound and the poverty lines of the richest countries forthe upper bound. The resulting upper bound global poverty linewould be 10 times higher than the current lower bound and atleast 5 times higher than the currently used alternative lowerbound of $2 a day. And in tracking progress toward a world freeof poverty, the World Bank should compute measures of globalpoverty using a variety of weights on the depth and intensityof poverty for a range of poverty lines between the global lowerand upper bounds. For instance, rather than trying to artificiallyforce the global population of 6.2 billion (a billion is 1,000million) into just two categories "poor" and "not poor," withthe new range of poverty lines the estimates would be that 1.3billion people are "destitute" (below $1 a day), another 1.6billion are in "extreme poverty" (above $1 a day but below $2dollar a day), and another 2.5 billion are in "global poverty"(above extreme poverty but below the upper bound poverty line).      

Too much of a good incentive? The case of executive stock options

Using a utility-maximization framework, I show that the incentive to increase stock price does not always increase as more options are granted. Keeping the total cost of his compensation fixed, granting more options creates greater incentives to increase stock price only if option wealth does not exceed a certain fraction of total wealth. Beyond this critical level, granting more options actually reduces incentive effects and becomes counterproductive. In addition, stock options also create incentive to reduce (increase) idiosyncratic (systematic) risk. These incentive effects are sensitive to the choice of exercise price.     

Diverse management practices— a study of clinical managers

This article examines whether changes in the governance of public hospitals in Norway have affected the perceived practices of operational managers. A study involving a survey of and interviews with clinical managers in Norwegian hospitals has shown that managers considering themselves highly involved in management control practices. The managers' perception of their control activities was related to such institutional pressures as budget deficits, as well as to contextual variables such as department size. This article shows that clinical managers also use accounting information for purposes other than simply being accountable for meeting budgets.     

Investors’ perception of corporate governance: a spillover effect of Taiwan corporate scandals

The discovery of a series of corporate scandals in Taiwan between 16 June and 15 September 2004 offers a unique opportunity to investigate the perceptions of investors on the value of corporate governance, whilst avoiding any interactions with other exogenous factors such as the lower expected returns on all firms’ investment opportunities during the East Asian or Global financial crises. The main line of reasoning in this study is that at times when news of scandals flows into the market, the perceptions of certain type of investors will lead to a change in their trading habits for non-scandal portfolios. With a comprehensive analysis of order and trade data for all investors identified by investor code, it is found that a substantial proportion of investors ceased trading altogether during the scandal period. This response was particularly discernible among small and medium individuals, despite the fact that the firms in these portfolios were not associated with the scandals. We further examine the ordering behavior of those investors who still traded in the market. It shows that small individual investors began to enter the market more passively, regardless of whether the firms’ ownership structure. And they consistently underperformed in both ownership-structure portfolios. However, foreign institutions and large individuals place more aggressive orders for stocks in firms with strong cash-flow rights leverage and perform particularly well in those portfolios.     

Investment impact of tax loss treatment—empirical insights from a panel of multinationals

We analyze the impact of tax loss treatment on multinational investment. Basically, two effects of tax loss treatment can be expected. First, firms make their investment decisions considering potential future losses. Then, the various types of conceivable loss offset provisions affect investment decisions. Secondly, existing loss carryforwards resulting from losses in the past affect the tax rate elasticity of current investment decisions. Our empirical analysis is based on data of German multinationals. We pay particular attention to industries having a high probability to make losses. Our regression results suggest that a short carryforward time limit lowers investment in particular for firms with a high loss probability. We only find mixed evidence that group loss offsetting provisions foster investment. Concerning the effects of existing losses carried forward, we find a reduced tax rate elasticity of investment for companies shielded by loss carryforwards.     

Completeness,interconnectedness and distribution of interbank exposures—a parameterized analysis of the stability of financial networks

This paper assesses the impact of a certain structure of interbank exposures on the stability of a stylized financial system. Given a certain balance sheet structure of financial institutions, a large number of valid matrices of interbank exposures is created by a random generator. Assuming a certain loss given default, domino effects are simulated. The main results are, first, that financial stability depends not only on the completeness and interconnectedness of the network, but also on the distribution of interbank exposures within the system (measured by entropy). Second, looking at random graphs, the sign of the correlation between the degree of equality of the distribution of claims and financial stability depends on the connectivity of the financial system as well as on additional parameters that affect the vulnerability of the system to interbank contagion. Third, the more concentrated the assets are within a money center model, the less stable it is. Fourth, a money center model with asset concentration among core banks is less stable than a random graph with banks of homogeneous size.     

Diversification benefits of risk portfolio models: a case of Taiwan’s stock market

How to construct effective investment strategies is a core issue for modern finance. In this paper, we investigate the benefits of various models by rebalancing portfolios using the daily stock return data in Taiwan. We further consider investment constraints in portfolios to ensure the feasibility of their applications. Using five performance criteria, we find the risk models, particularly the CVaR, yield higher ex ante and ex post performance than a naïve buy-and-hold portfolio. The two-stage regressions show that high return benefits are associated with a bear market while high reduction in risk is positively related to high volatility. Though VaR is regarded as a standard model applied in the real world, our findings suggest that CVaR can serve as a good alternative.     

The Evolution of the Tax Structure of a Reforming Transitional Economy: Hungary 1988–98

The paper analyses the revenue-raising, distributional and incentive effects of the personal tax system in Hungary from the start of the transitional tax reforms of 1988 to 1998, and shows that the tax structure has converged to an almost linear form similar to the more heavily taxed EU countries. The 1998 pension reform has reversed a trend increase in average and marginal tax rates but marginal rates still appear too high for a country wishing to encourage growth and employment creation.     

Cosmopolitan risk community in a bowl: a case study of China’s good food movement

Abstract

Ulrich Beck fundamentally transformed our way of thinking about human interdependence through his three core theses on risk, individualisation and cosmopolitanisation. However, two commonly observed deficiencies in Beck’s grand theory were its Eurocentric orientation and a lack of empirical grounding. Based on 5 focus groups and 14 interviews with participants of the emerging Clean Food Movement in China, this paper extends the Beckian discussion outside Europe. Through examining how individuals understand both ‘traditional’ and ‘new’ risks associated with contemporary food consumption, this paper demonstrates that in the face of unpredictable and incalculable harms, risks are not seen as a ‘thing’, but are translated into ‘causal relations’. Subsequently, for Chinese stakeholders, the best way to safeguard food risks is to enact more visible and functioning interdependent relations in the food system. This in turn has given rise to new forms of communities which cut across conventional geographic, socio-economic and political boundaries. The paper deepens a Beckian theorisation in two ways. First, it demonstrates that the ‘enabling’ effect of risk towards a cosmopolitan society is not limited to obvious global crises, such as climate catastrophes and financial meltdown. In fact, the mundane yet intimate concern of putting ‘good’ food in one’s dinner bowl already presses actors to form new social solidarities that are cosmopolitan in nature. Second, it goes beyond Beck’s assertion that the risk society has culminated in a cosmopolitan moment, and explores how a performative cosmopolitan community reshapes the ‘relations of definition’ to mitigate risks on the ground.     

The use of multi‐level modelling in risk research. A secondary analysis of a study of public perceptions of genetically modified food

Many studies have examined the relationship between various individual variables and people's perceptions of genetically modified (GM) food. A problem with this type of research is that contextual factors are completely ignored. This article explores the use of multi‐level modelling in the field of risk research, by re‐analysing a recent British study of public perceptions of GM food. As the study employed a multi‐stage sampling strategy, it could be used to examine simultaneously the individual and spatial variation in trust and the acceptability of GM food. While the geographical variation in acceptability was largely due to compositional differences between the sampling points, a geographical variation in trust remained after controlling for individual differences. The analysis demonstrated that city‐dwellers commonly have more trust in the regulation of GM food than other respondents. Next to being associated with a number of socio‐demographic variables, both acceptability and trust were related strongly to voting intention. Moreover, the results suggest that there is a link between vulnerable groups, feelings of exclusion, and (dis)trust. The article is concluded by arguing that multi‐level modelling provides new opportunities for simultaneously examining the individual and contextual basis of public perceptions of controversial risk issues.     

What's in a Name? An Experimental Examination of Investment Behavior

A fundamental unresolved issue is whether information asymmetries underlie investors predisposition to invest close to home (i.e., domestically or locally). We conduct experiments in the United States and Canada to investigate agents portfolio allocation decisions, controlling for the availability of information. Providing participants with information about a firms home base, without disclosing its specific identity, is not sufficient to change investment behavior. Rather, participants need to know a firms name and home base. Additional evidence indicates that participants have a greater perceived familiarity with local and domestic securities and, in turn, invest more in such securities.The authors thank Ann Gillette, Josef Zechner (the editor), and two anonymous referees for helpful comments and acknowledge the financial support of the Federal Reserve Bank of Atlanta, Georgia Tech, and Social Sciences and Humanities Research Council of Canada. The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System.     

The challenge of a rising skill premium for redistributive taxation

The present paper analyzes the challenge to redistribution programs posed by an increase in the skill premium. The skill premium affects both the profitability of education and the profitability of migration. We propose a two country, median voter model, where the equilibrium tax policy is shaped by the desire of the median voter to promote skill formation and to avoid emigration of skilled individuals. Our paper shows that the effect of an increase in the skill premium on redistributive programs depends on the initial level of the skill premium. Below a critical level, an increase in the skill premium is met by an increase in the tax rate. Beyond this level, however, a further rise in the skill premium leads to a fall in the tax rate, and hence a sharp increase in post-tax inequality.     

Does the signature of a CPA matter? Evidence from Taiwan

This paper employed aquestionnaire survey to investigate the opinions of audit report stakeholders in Taiwan regarding the regulation of signatures in audit reports. The Public Company Accounting Oversight Board (PCAOB) proposed these regulations in 2009, and again in 2011 with a slight alteration. Most respondents agree that having the engagement partner sign the audit report could increase the accountability of CPAs. In addition, the participants believed that knowledge of the name of the engagement partner is important for the users of audit reports. Both of these views are consistent with the views voiced by the PCAOB. Most of the respondents also believe that the regulation of signatures would increase the legal responsibility of the engagement partner and minimize the role of firms in the auditing process. Finally, the respondents felt that the engagement partner has a much greater responsibility when their signature is in the audit report than when it is disclosed elsewhere, indirectly supportingthe second proposal of the PCAOB, which, rather than having the engagement partner sign their name on the audit report, simply lists the names of engagement partners elsewhere.     

Connected board of directors: A blessing or a curse?

This study attempts to identify the connection between the board of directors (BoD) and the controlling shareholder. We investigate how this connection affects the corporate governance practice and market performance of Hong Kong listed firms. Our results reveal that close connections between the BoD and the controlling shareholder have a negative effect on corporate governance practice. Our findings also indicate a lower market valuation for firms with a connected BoD. The evidence suggests that the market discounts the value of firms with a connected BoD. The evidence seems to reinforce the importance of the role of independent non-executive directors (INEDs) to enhance the independence of BoD.     

The optimal asset allocation of the main types of pension funds: a unified framework

The existing literature deals with the optimal investment strategy of defined benefit (DB) or defined contribution (DC) pension plans. This article’s objective is to compare the optimal policies of different types of pension plans. This is done by first defining an original framework, which is based on the distinction between the nature of the guarantee—which can be internal or external—offered by or to a pension fund. This framework allows to establish links between optimization programs of DC, DB and targeted money purchase schemes. The case of an internal guarantee appears as a standard portfolio insurer’s problem. The second kind of guarantee, not analyzed in the literature yet with regard to the resulting optimal policy, is characterized by the existence of an option in the final wealth definition. Four funds are present in the internal guarantee optimal allocation: the speculative component, the preference independent guarantee- and contribution-hedge terms and the preference dependent state variable-hedge fund. The external guarantee program, solved with an original method using the principles of standard options theory, yields an optimal policy incorporating the delta of the option embodied in the final wealth definition. The conclusion is that the resulting optimal portfolio policy becomes riskier.

Computing exponential moments of the discrete maximum of a Lévy process and lookback options

We present a fast and accurate method to compute exponential moments of the discretely observed maximum of a Lévy process. The method involves a sequential evaluation of Hilbert transforms of expressions involving the characteristic function of the (Esscher-transformed) Lévy process. It can be discretized with exponentially decaying errors of the form O(exp (−aM ^b )) for some a,b>0, where M is the number of discrete points used to compute the Hilbert transform. The discrete approximation can be efficiently implemented using the Toeplitz matrix–vector multiplication algorithm based on the fast Fourier transform, with total computational cost of O(NMlog (M)), where N is the number of observations of the maximum. The method is applied to the valuation of European-style discretely monitored floating strike, fixed strike, forward start and partial lookback options (both newly written and seasoned) in exponential Lévy models. This research was supported by the National Science Foundation under grant DMI-0422937.