Stockholding: Participation, location, and spillovers

This paper provides the first joint analysis of household stockholding participation, location among stockholding modes, and participation spillovers. Our model matches observed participation, conditional and unconditional, and asset location patterns. We find that financial sophistication correlates strongly only with direct stockholding and mutual fund participation, while social interactions mainly influence stockholding through retirement accounts. Whether retirement account owners include stocks in their accounts strongly depends on owner characteristics, which is not the case with mutual fund owners and investment in stock funds. Stockholding is more common among retirement account owners, but mainly because of owner characteristics rather than of any participation spillovers from retirement account ownership.     

Dividends: Relevance,rigidity, and signaling

This paper uses a dynamic partial equilibrium model to explain a puzzle of dividend smoothing. In contrast to the Modigliani–Miller theory, I show that firm value depends on payout policy. The analysis implies that firms with more stable dividend stream are more valuable. This explains why dividends are rigid over time. A volatile component of dividends is introduced to reduce the likelihood of dividend omission in bad times while keeping the same historical average dividends. I show that the empirically observed positive relation between dividends and future firm performance is a statistical artifact driven by dividend smoothing. Thus, the empirical tests of dividend signaling theory might be misspecified.     

Incentives,wages, and promotions: theory and evidence

I study an incentive problem that has been largely ignored in the agency literature: incentives for repeated (human capital) investment. The optimal contract is very simple but still provides rich implications for incentive and wage structures in large organizations. The empirical evidence is presented using personnel records of health insurance claim processors in a large U.S. insurance company. These processors are white‐collar, nonmanagerial, female, service industry workers—a rapidly growing but rarely studied labor group. The empirical findings are consistent with the main features of the optimal contract.     

Innovation,diffusion, and trade: Theory and measurement

What are the sources of economic growth? This paper presents a multicountry growth model of innovation and the adoption of foreign technologies through trade. The costs of both domestic innovation and adopting foreign innovations are estimated using data on innovation, output and trade. A decomposition of the sources of growth shows that technology adoption accounts for about 65% of “embodied” growth in developing countries. Developed countries grow mainly through domestic innovation, which explains 75% of their “embodied” growth. Counterfactuals show how growth rates and levels of income would change if countries faced the same barriers to adoption and research productivity.     

Outperformance Certificates: analysis, pricing, interpretation, and performance

In this paper we introduce a new financial product named Outperformance Certificates. We study the €43 billion sample by examining 1,507 issues of the certificates outstanding in August 2005 issued by banks in Europe. We present formulas to price the certificates and empirically examine the profits in the primary market for issuing the certificates. We find that issuance of the certificates is profitable for the issuers in our sample. Issuers sell the certificate at prices 3–5 % above the fair value based upon the components of the underlying assets. We also find that the dividend yields and ex-dividend dates play an important role in the profitability of the certificates. The underlying securities tend to have high dividend yield and large market capitalization. We also find the certificates tend to mature soon after the ex-dividend dates of the underlying assets.     

Dividend Consistency: Rewards,Learning, and Expectations

The fact that many companies have a long track record of consistent dividend increases suggests that managers believe there is some benefit to establishing and maintaining such a pattern. Many companies, for example, follow a perennial policy of increasing the dividend in a particular quarter, maintaining it at the same level for the next three quarters, and then increasing it in the same quarter of the following year. But does the capital market reward companies for maintaining a consistent dividend policy? Do companies with a history of repeated dividend increases earn long‐term positive abnormal returns; and if so, how long do the returns persist? The authors find that companies earned significantly positive abnormal returns following each of the first five annual dividend increases, over and above the positive announcement‐month returns. Nevertheless, the reward decreases as the track record of dividend increases becomes longer. After the first dividend increase, companies enjoy significantly positive returns for the next two years. Companies that increase the dividend in the same quarter of the following year also enjoy significant positive returns, but returns that are smaller (and less statistically significant) than in the case of first‐time dividend increases. And as the dividend‐increase track record further lengthens, the size and statistical significance of the abnormal returns continues to shrink; and after the sixth dividend increase, the abnormal returns in the next twelve months are statistically indistinguishable from zero. In sum, although there is some support for maintaining a consistent dividend policy, the market response diminishes over time, and investors do not earn abnormal returns by buying stocks whose annual dividend has already been increased six or more times.     

SOUTH-SOUTH TRADE: Theory, Evidence, and Policy

Recently a number of commentators have argued that trade policyin developing countries should be deployed discriminatorilyto encourage the expansion of trade among southern countries.Such a strategy is seen as being central in the framing of anew international economic order. This article evaluates thearguments in favor of a relative expansion of South-South tradeand reviews the experience of developing countries with discriminatoryregional trading arrangements. It contends that the case forspecific policies to promote South-South trade is not convincingand that experience with discriminatory arrangements is notencouraging. The expansion of South-South trade can be expectedto continue in the context of multilateral trade expansion,and the potential gains are likely to be greater if this processis allowed to evolve freely in a multilateral setting.      

Risk Management: History,Definition, and Critique

The study of risk management began after World War II. Risk management has long been associated with the use of market insurance to protect individuals and companies from various losses associated with accidents. Other forms of risk management, alternatives to market insurance, surfaced during the 1950s when market insurance was perceived as very costly and incomplete for protection against pure risk. The use of derivatives as risk management instruments arose during the 1970s, and expanded rapidly during the 1980s, as companies intensified their financial risk management. International risk regulation began in the 1980s, and financial firms developed internal risk management models and capital calculation formulas to hedge against unanticipated risks and reduce regulatory capital. Concomitantly, governance of risk management became essential, integrated risk management was introduced, and the chief risk officer positions were created. Nonetheless, these regulations, governance rules, and risk management methods failed to prevent the financial crisis that began in 2007.     

Shareholder Value: Principles, Declarations, and Actions

This paper is about shareholder value. We examine whether welfare considerations justify that target and whether competitive markets force firms to pursue it. We also argue that shareholder value is strictly an ill-defined goal. We report evidence from a large sample of listed firms across the world that many managers do not even mention shareholders in their mission statements. However, firms that do disclose a commitment to shareholders seem to perform better in terms of stock price and operating performance.     

Corporate failures: Declines,collapses, and scandals

Numerous collapses and corporate scandals of large corporations have underscored the impact of corporate conduct on capital markets and society as a whole. These failures have highlighted the need for regulators to rethink regulatory frameworks and enforcement, and for corporations to rework their organizational structures and focus on business ethics. Establishing a clear understanding of the drivers of corporate failure is therefore key. In this paper, we review recent research that extends the debate on the causes and consequence of corporate failures.     

Entrepreneurial Spawning: Experience,Education, and Exit

We investigate the career dynamics of high‐tech entrepreneurs by analyzing the exit choice of entrepreneurs: to act as a business angel, to found another firm, or to become dependently employed. Our detailed data from CrunchBase indicate that founders are more likely to stick with entrepreneurship as a serial entrepreneur or as an angel investor in cases where the founder had prior experience either in founding other startups or working for a startup, or had a “jack‐of‐all‐trades” education.     

Information, Search, and House Prices: Revisited

Buyers pay different prices for nearly identical homes. One explanation for this is that housing markets are thin, resulting in price bargaining between sellers and buyers. If the relative bargaining power of buyers varies, so will sales prices. One hypothesis is that the relative bargaining strength of buyers coming from outside the local market relative to that of local residents is weak, because distant buyers have high search costs and may know less about the nuances of the local market. Our results, based upon a large number of single-family home transactions from the state of Florida, lend support to this hypothesis. Another related hypothesis is that buyers?? price expectations are anchored to prices they were accustomed to at their previous residence. Hence, if they come from high price markets they will tend to pay more for their new home. This hypothesis is also supported by our results.     

Cross-holdings: estimation issues, biases, and distortions

Cross-bolding occurs when listed corporations own securitiesissued by other corporations. We analyze the effect of cross-holdingson market capitalization and return measures as well as implicationsfor econometric testing of asset pricing theories. We show thatcross-holdings generally distort standard market return andrisk measures. The magnitudes of such distortions are calculatedfor simulated economies by using a variety of crossholding patterns.In addition, cross-holdings are shown to induce non-stationarityin the covariance matrix of security returns. We examine theeffect of this nonstationarity for estimating efficient frontiersand factor structures. We also discuss the implications forrisk-return estimates in equilibrium asset pricing models.     

Health care : Planning, policies, and incentives

In theory, health planning is a detailed and rational corporate attempt to handle broad social problems. But in practice it tends to be incremental—an institutionalised bargaining system which too often neglects the larger issues in favour of marginal adjustments. Mixed scanning, the detailed examination of selected, feasible proposals, combines the best features from theory and practice. Implementation still depends on the recognition of powerful interest groups (eg doctors, managers) and the inclusion of incentives to redirect their activities. Better planning does not guarantee better health—the influence of lifestyle and environment must not be neglected.     

Mortgage Redlining: Race,Risk, and Demand

Charges that geographical redlining is widely practiced by mortgage lenders and is associated with racial discrimination have received much attention. However, empirical research in this area has yet to document a convincing answer to the question of whether redlining even exists. Much of the previous research in this area has suffered from failure to account for variations in risk, and/or failure to adequately control for geographical differences in demand. This study addresses these problems in an effort to determine whether the disparity in the flow of mortgage credit can be explained by differences in risk and demand.