FOREIGN DIRECT INVESTMENT IN MEXICO,CRIME, AND ECONOMIC FORCES

This paper re‐examines inflows of foreign direct investment (FDI) in the 32 subnational Mexican states based on quarterly data from 2005 to 2015, which includes rising drug‐related crimes. We estimate our models using panel data methods by type of crime, state‐level indicators (real wages and electricity consumption), macroeconomic forces (the real exchange rate and interest rate), and a dummy variable for the financial crisis of 2008–2009. We employ a flexible lag‐length method and find that homicides and thefts have negative and statistically significant effects on FDI, while other crimes have no effects. Subsample work suggests higher negative effects in the most violent states. (JEL F15, F21, F23, F36)     

Institutional Constraints,Stakeholder Pressure and Corporate Environmental Reporting Policies

Within the theoretical framework of socio‐political economics, and more specifically of stakeholder theory, this work examines whether companies operating under different institutional constraints and stakeholder pressure tend to emphasize different models of corporate environmental reporting. Furthermore, the paper tests whether different corporate environmental reporting policies are driven by the countries' corporate governance systems. A sample of 3931 international companies was examined through a logistic biplot and conditional mean linear regression models. The main results reveal that companies follow two distinct environmental reporting approaches, which depend on specific stakeholders and institutional requirements. The first model, which is followed by firms within codified law countries, mostly focuses on water and emissions. The second approach, mainly followed by companies operating in common law countries, emphasizes materials and energy issues. This finding reveals that companies gradually modify their environmental strategies to make themselves more compatible with the characteristics of the social and institutional environment, which will result in several corporate benefits. The paper provides several outstanding implications for companies' strategic managers, national institutions and firms' stakeholders, especially for investors and customers. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment     

Evaluating the Technical Provisions for Traditional Brazilian Annuity Plans: Continuous-Time Stochastic Approach Based on Solvency Principles

This article presents an approach for evaluating the liabilities of traditional Brazilian annuity plans, using a continuous-time stochastic approach based on modern solvency principles. The technical provisions are obtained by means of conditional expectation, under a real-world measure and considering the peculiar characteristics of each plan and the financial guarantees and profit participations (bonus and dividend plans) embedded in the annuity plans. We assume that policyholder behavior is not optimal, but we also illustrate a calculation of provision assuming optimal policyholder behavior to show the differences between both assumptions. In this article all explicit provisions formulas are derived, and several relevant conclusions about the values of these provisions are discussed.     

On the index tracking and the statistical arbitrage choosing the stocks by means of cointegration: the role of stock picking

In this paper, we propose a new methology for Index Tracking (IT) by means of cointegration which provides some significant improvements on that field. As the quality of the tracking portfolio (TP) depends highly on the stock selection procedure, we propose picking the stocks using a model selection technique based on optimizing the cointegration level of the TP and the benchmark index instead of selecting, as in previous papers the assets by ad hoc decisions. To illustrate an empirical application of these techniques we use daily closing prices in the Dow Jones Industrial Average (DJIA) index over two different periods; one period which goes from 1 January 1990 to 31 December 2001 previously used by other authors, and the bear and a turmoil period, which goes from January 2007 to May 2012, inside the current financial crisis. Using only five assets we are able to successfully track the DJIA index and our results improve the IT technique based on cointegration that chooses stocks with maximum capitalization level. We also have compared our results with a more traditional procedure based on correlation and again our results reveal superiority. The empirical illustration not only has been focused on the TP itself, but has also been extended to tracking the index with an added profitability of 5, 10, 15 or 20% and to long-short strategies, producing profitable results.     

Inference on factor structures in heterogeneous panels

This paper develops an estimation and testing framework for a stationary large panel model with observable regressors and unobservable common factors. We allow for slope heterogeneity and for correlation between the common factors and the regressors. We propose a two stage estimation procedure for the unobservable common factors and their loadings, based on Common Correlated Effects estimator and the Principal Component estimator. We also develop two tests for the null of no factor structure: one for the null that loadings are cross sectionally homogeneous, and one for the null that common factors are homogeneous over time. Our tests are based on using extremes of the estimated loadings and common factors. The test statistics have an asymptotic Gumbel distribution under the null, and have power versus alternatives where only one loading or common factor differs from the others. Monte Carlo evidence shows that the tests have the correct size and good power.     

Government size,composition of public expenditure,and economic development

This paper analyzes the effects of government size and of the composition of public expenditure on economic development. Using the system-GMM estimator for linear dynamic panel data models, on a sample covering up to 156 countries and 5-year periods from 1980 to 2010, we find that government size as a percentage of GDP has a quadratic (inverted U-shaped) effect on the growth rate of the Human Development Index (HDI). This effect is especially pronounced in developed and high-income countries. We also find that the composition of public expenditure affects development, with the share of five subcomponents exhibiting nonlinear relationships with HDI growth.     

Optimal close-to-home biases in asset allocation

This article studies optimal portfolio decisions with (long-term) liabilities for small open economy based investors, including the optimality of currency hedging (Walker (2008a). Chile is the home country of the representative investor, but results are likely to hold more generally. The problem is set up as in [Sharpe & Tint, 1990] and [Hoevenaars et al., 2007]. Hedging the liabilities and the consumption currency may imply optimal close-to-home biases, defined as overweighting asset classes which are highly correlated with local ones. The implementation challenges include: developing a methodology to estimate expected returns in local (real) currency; estimating the covariance matrix allowing for serial and crossed-serial correlations; and checking the results' robustness using a resampling method. The findings are: (i) portfolios always have optimal close-to-home biases, beyond the investment in local fixed income to hedge liabilities; (ii) currency hedging reduces investment in close-to-home asset classes, (iii) but has ambiguous effects on welfare — detected with the resampling method; (iv) currency hedged long-term US bonds are useful for hedging local interest rate risk; and (v) liabilities give access to high risk-return portfolios, not affecting otherwise the overall shape of the efficient regions. This article can be useful to investors based on small open economies, including pension funds, insurance companies, sovereign wealth funds and Central Banks.     

The Impact of Managerial Environmental Perceptions on Corporate Entrepreneurship: Towards Understanding Discretionary Slack's Pivotal Role

abstract    This study seeks to further delineate how a firm's competitive environment influences the firm's pursuit of entrepreneurial activities. To do so, we develop and test a parsimonious model that establishes the role of discretionary slack as a salient mediating mechanism through which managerial environmental perceptions influence corporate entrepreneurship. In addition, we examine two contingencies that further explain discretionary slack's impact on corporate entrepreneurship, including managements' market sensing capacity and use of outcome-based incentives. Using single- and multi-source survey data from 495 small- to medium-sized firms, we find support for our model and its associated hypotheses. Specifically, we find that discretionary slack is significantly influenced by managerial perceptions of environmental munificence and dynamism and, in turn, mediates the impact of these perceptions on corporate entrepreneurship. In addition, we find that discretionary slack's impact on corporate entrepreneurship is significantly enhanced by managements' market sensing capacity but, interestingly, not by outcome-based incentives.     

Warning: retention may be dangerous to your organization's health

In times of personnel shortages, we too often think we must avoid turnover at all costs. Yet some turnover is desirable and much needed. Retaining the wrong individuals can obstruct the very changes essential for our organizations' survival.