Earnings Smoothing,Cash Flow Volatility,and CEO Cash Bonus

Prior studies generally relate managers’ decisions to smooth earnings to their desire to maximize their overall compensation and to smooth their consumption. However, earnings smoothing could also be driven by the firm's expected benefits from reporting a smooth earnings stream. Our paper provides empirical support for the latter explanation of earnings smoothing. Specifically, we find that while CEO bonus on average increases with earnings smoothing, the increase is larger when the firm's cash flow volatility is higher. Further, CEO bonus is shielded from the negative effects of lower earnings arising from the need to report a smoother earnings stream.     

Persistence of small-scale,family farms in India: A note

Abstract

The paper analyses the proliferation of small scale family farms in India. It contends that widespread involuntary unemployment in the rural economy is the chief reason for this phenomenon. The problem can be considered as that of coordination failure. The paper attempts to show that such a problem can be overcome through planned, investment promotion by the state, which by reducing unemployment induces the entry of capitalist farmers.     

An explanation of share tenancy in terms of unemployment,social norms and power

Due to persistent unemployment, peasant families in developing countries tend to employ more labour on the leased in land plots than a capitalist would. In labour surplus societies, therefore, landlords may earn higher surplus from leasing out land than from self-cultivation. By endogenising disguised unemployment this paper shows that greater power and unity of landlords and conservative social norms may explain the persistence of share tenancy in developing economies.     

Resolving the paradox of social standards and export competitiveness

Over the last decade there has been increasing international pressure on countries to raise ‘social standards’ (i.e. production standards based on environmental and labor conditions). Currently, the World Trade Organization does not allow countries to impose minimum standards on imports based on environmental or labor standards because it is assumed to undermine competition. There is no consensus in the empirical literature, however, to support this claim. In fact, the evidence suggests that while stronger environmental standards hurt competitiveness, stronger labor standards do the opposite. This paper offers one possible explanation for this paradox. In a simple model of incomplete information, externally imposed standards may either increase or decrease the competitiveness of infant firms from developing countries depending on the degree of complementarity between the standard and the production of high-quality goods.     

North–South Trade and Pollution Migration: The Debate Revisited

The paper examines the effect of freer North–South trade in goods on pollution, commodity terms-of-trade and national welfare, utilizing a factor endowment framework. North and South are distinguished in terms of the relative endowment of a pollution causing natural resource: South is relatively more resource abundant. Compared to the analysis of Copeland and Taylor (1994)—which is the central work so far on this subject—this paper internalizes the commodity terms-of-trade impact of individual environment policies. It is derived that if countries specialize completely in the free-trade equilibrium, both are induced to reduce their pollution as compared to autarky. It is interesting and paradoxical that the South also reduces its pollution, despite specializing in the pollution-intensive good. Again, contrary to common perception, free trade may entail an overall terms-of-trade loss for the North, while South will always have a positive change in the terms-of-trade. Finally, inspite of better environment, free trade may cause both the countries to gain or lose in terms of aggregate welfare. This research has benefitted from comments received at the conference on International Dimension of Environment Policy organized by the European Science Foundation and Tilburg University, October 7–12, 2000 Kerkrade, The Netherlands and the International Conference on Environment and Development organized by CITD, School of International Studies, JNU, April 7–8, 2005, New Delhi, India, as well as those received from two anonymous referees. A small section of this research was published in Mehra and Das (2002).     

Money for nothing: The dire straits of medical practice in Delhi,India

The quality of medical care received by patients varies for two reasons: differences in doctors' competence or differences in doctors' practice. Using medical vignettes, we evaluated competence for a sample of doctors in Delhi. One month later, we observed the same doctors in their practice. We find three patterns in the data. First, doctors do less than what they know they should do. Second, the more competent the doctor, the greater the effort exerted. Third, competence and practice diverge in different ways in the public and private sectors. Urban India pays a lot of “Money for Nothing”: in the private sector there is a lot of expenditure on unnecessary drugs. In the public sector, education subsidies and salary payments translate into little (and in small clinics, very little) effort and care. Provider training has a small impact on the actual quality of advice; under the circumstances, awareness campaigns to create a more informed clientele may be the best option.     

Variance-ratio Statistics and High-frequency Data: Testing for Changes in Intraday Volatility Patterns

Variance-ratio tests are routinely employed to assess the variation in return volatility over time and across markets. However, such tests are not statistically robust and can be seriously misleading within a high-frequency context. We develop improved inference procedures using a Fourier Flexible Form regression framework. The practical significance is illustrated through tests for changes in the FX intraday volatility pattern following the removal of trading restrictions in Tokyo. Contrary to earlier evidence, we find nodiscernible changes outside of the Tokyo lunch period. We ascribe the difference to the fragile finite-sample inference of conventional variance-ratio procedures and a single outlier.     

Walk or wait? An empirical analysis of street crossing decisions

We examine the behaviour of pedestrians wishing to cross a stream of traffic at signalized intersections. We model each pedestrian as making a discrete crossing choice by comparing the gaps between vehicles in traffic to an individual‐specific ‘critical gap’ that characterizes the individual's minimal acceptable gap. We propose both parametric and nonparametric approaches to estimate the distribution of critical gaps in the population of pedestrians. To estimate the model, we gather field data on crossing decisions and vehicle flows at three intersections in New Delhi. The estimates provide information about heterogeneity in critical gaps across pedestrians and intersections, and permit simulation of the effect of changes in traffic light sequences on pedestrian crossing behaviour and waiting times. Copyright © 2005 John Wiley & Sons, Ltd.     

International Joint Venture And Host-Country Policies

In the presence of international joint ventures, effects of policies like foreign equity cap, trade protection and domestic resource requirement restriction towards equity sharing and welfare are analysed. Foreign equity cap reduces host country's welfare. Trade protection lowers equity share for the local firm. It has a first-order source of welfare gain as the internal efficiency of the firm improves. Also, there is a first-order loss resulting from a leakage effect, since a part of the surplus goes to a foreign firm. A marginal domestic resource requirement restriction enhances the joint surplus of the venture and social welfare.     

The power of control: the acquisition decisions of newly public dual-class firms

Many private firms that go public opt for a dual-class share structure which gives insiders stronger voting power, at the expense of shareholder democracy. We examine how the dual-class structure influences the merger decisions of newly public firms, which have a notable appetite for acquisitions. Specifically, we compare acquisition activity, method of payment choice, and the long-run value implications of acquisitions by newly public single-class and dual-class US companies. Our results show that dual-class IPO firms make relatively more acquisitions in innovative industries and are less likely to pay with stock as compared to single-class IPO firms. The reluctance of dual-class firms to pay with stock is positively related to the wedge between the insiders’ voting rights and cash-flow rights. We also find that newly-public dual-class acquirers perform better in the long-run than newly-public single-class acquirers, mainly due to dual-class acquisitions in innovative industries. Our multivariate analysis shows that these findings hold after controlling for relevant risk factors associated with industry, deal, and firm specific characteristics. These results suggest that the dual class structure may enable newly-public firms to make better M&A decisions after going public.