When is cash good or bad for firm performance?

Research summary: Cash can create shareholder value when used for adaptation to unfolding contingencies, but can also reduce value when appropriated by other stakeholders. We synthesize arguments from the behavioral theory of the firm, economic perspectives like agency theory, and the value‐creation versus value‐appropriation literatures to argue that the implications of cash for firm performance are context‐specific. Cash is more beneficial for firms operating in highly competitive, research‐intensive, or growth‐focused industries that are typical of contexts requiring adaptation in the face of uncertainties. Conversely, cash is more detrimental to performance in firms that are poorly governed, diversified, or opaque, as are typical of contexts where stakeholder conflicts, information asymmetries, or power imbalances can encourage value appropriation by other stakeholders. Managerial summary: Cash can create shareholder value when used for adaptation to unfolding contingencies, but can also reduce value when appropriated by other stakeholders. While cash‐rich firms have higher performance on average, with those in the 75th percentile having a market‐to‐book value 15 percent higher than those in the 25th percentile, we find that the performance benefits of cash depend on the context. Cash is more beneficial for firms operating in highly competitive, research‐intensive, or growth‐focused industries that are typical of contexts requiring adaptation in the face of uncertainties. Conversely, cash is more detrimental to performance in firms that are poorly governed, diversified, or opaque, as are typical of contexts where stakeholder conflicts, information asymmetries, or power imbalances can encourage value appropriation by other stakeholders. Copyright © 2015 John Wiley & Sons, Ltd.     

Temporal Evolution of Mortality Indicators

Abstract

In Spain, as in other developed countries, significant changes in mortality patterns have occurred during the 20th and 21st centuries. One reflection of these changes is life expectancy, which has improved in this period, although the robustness of this indicator prevents these changes from being of the same order as those for the probability of death. If, moreover, we bear in mind that life expectancy offers no information as to whether this improvement is the same for different age groups, it is important and necessary to turn to other mortality indicators whose past and future evolution in Spain we are going to study. These indicators are applied to Spanish mortality data for the period 1981–2008, for the age range 0–99. To study its future evolution, the mortality ratios have to be projected using an adequate methodology, namely, the Lee-Carter model. Confidence intervals for these predictions can be calculated using the methodology that Lee and Carter apply in their original article for expected lifetime confidence intervals, but they take into account only the error in the prediction of the mortality index obtained from the ARIMA model adjusted to its temporal series, excluding other sources of error such as that introduced by estimations of the other parameters in the model. That is why bootstrap procedures are preferred, permitting the combination of all sources of uncertainty.     

Factors influencing the decision to hire contract labour by Indian manufacturing firms

ABSTRACT

Over a third of workers employed in the Indian formal manufacturing sector are ‘contract’ workers – hired through the services of labour contractors, facing lower wages and no job security in relation to regular workers. We investigate the role of a variety of factors that influence the decision of employers to hire in contract workers, using information from a specially commissioned survey of manufacturing firms. While there are immediate cost advantages that tilt firms towards hiring in contract labour, a counterforce has employers favouring regular workers in firms that have a large proportion of their workforce concentrating on production activity – probably instances where long-term human capital investment by regular workers is important for the firm.

Abbreviation: CLA: Contract Labour (Regulation and Abolition) Act, 1970 ASI: Annual Survey of Industries NIC: National Industrial Classification MSME: Micro, Small and Medium Enterprises SEZ: Special Economic Zone ICRIER: Indian Council for Research on International Economic Relations     

Strategy-proof and individually rational social choice functions for public good economies: A note

Summary. Serizawa [3] characterized the set of strategy-proof, individually rational, no exploitative, and non-bossy social choice functions in economies with pure public goods. He left an open question whether non-bossiness is necessary for his characterization. We will prove that non-bossiness is implied by the other three axioms in his characterization. Received: October 17, 1997; revised version: January 19, 1998     

CO-MOVEMENTS IN INTERNATIONAL EQUITY MARKETS

We examine the co-movements of equity returns in four major international markets by characterizing the time-varying cross-country covariances and correlations. Using a generalized positive definite multivariate GARCH model, we find that the Japanese and U.S. stock markets have significant transitory covariance, but zero permanent covariance. The other pairs of markets examined display significant permanent and transitory covariance. We also find that, while conditional correlations between returns are generally small, they change considerably over time. An event analysis suggests that basing diversification strategies on these conditional correlations is potentially beneficial.     

Assessing the effectiveness of fire prevention strategies

ABSTRACT

The authors examined the process of assessing the effectiveness of fire prevention within a Fire and Rescue Service in north west England, demonstrating how this was applied in practice. The approach to fire prevention strategy assessment included overall fire and rescue service performance, performance in relation to different population segments, cost per head performance, and multi-agency collaboration to support an effectiveness-based rather than outcomes-based performance assessment.     

Relational contracts with subjective peer evaluations

We study optimal dynamic contracting for a firm with multiple workers where compensation is based on public performance signals and privately reported peer evaluations. We show that if evaluation and effort provision are done by different workers (e.g., consider supervisor‐agent hierarchy), first‐best can be achieved even in a static setting. However, if each worker both exerts effort and reports peer evaluations (e.g., consider team setting), effort incentives cannot be decoupled from truth‐telling incentives. This makes the optimal static contract inefficient. Relational contracts based on public signals increase efficiency. Interestingly, the optimal contract may ignore signals that are informative about effort.     

Political Risk and Irreversible Investment

The objective of this article is two-fold. First, we developa theoretical model to investigate the impact of political riskon irreversible investment. Second, we apply our model to ananalysis of the effects of risk of separation of the provinceof Quebec from the Canadian federation. We model the probabilityof a regime switch using the properties of the electoral processand examine the response of investment to changes in the riskof separation. We consider the impact of investors' perceptionof the risk of separation and financial market volatility separately.We show that political risk has a depressing impact on investmenteven if the "bad" regime has never been observed in the sample.(JEL Codes: E22, D92, O16, O11)     

Walking to transit: An unexpected source of physical activity

Using data from a regional survey carried out in Montreal, this paper shows empirical evidence that modal shift from car to transit contributes to the volume of daily physical activity. First, the paper presents a method to calculate the walking distance related to transit trips, and a totally disaggregate trip assignment model. The walking distance involved in every transit trip is then associated to the individuals' characteristics to estimate the number of steps made by the population in the whole transit system.Results show that, in average, a transit trip involves 1250 steps, required to access and egress the network as well as to transfer between routes or modes. Thus, a round trip represents 2500 steps, which account for 25% of the recommended volume of physical activity per day. Hence, analysis shows that the volume of walking varies according to attributes of the traveler (general decrease with age, higher for men) and of the trip (study and work trip involve more steps, the use of train generates more steps). A regression model confirms that these variables significantly affect the number of steps involved in transit trips. Such positive outcome, for the traveler himself, is an innovative argument to promote the use of transit that is also aligned with current sustainable transportation goals.