The heteroskedasticity-consistent covariance estimator in accounting

The main purpose of this paper is to compare the White (1980) heteroskedasticity-consistent (HC) covariance matrix estimator with alternative estimators. Many regression packages compute the White (1980) heteroskedasticity-consistent (HC) covariance matrix estimator. The common procedure in Accounting and Finance research to deal with the heteroskedasticity problem is based on this estimator, despite its worse finite-samples properties when compared with other consistent estimators. In this paper we compare several HC covariance matrix estimators based on a sample of 3706 European listed companies from Austria, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden and the United Kingdom. We conclude that HC standard errors increase when finite-samples more appropriate estimators are considered and in the most part of countries the Ohlson (1995) model coefficients estimates became statistically insignificant. This can be explained by the high leverage points in the design matrix. To the best of our knowledge it is the first time that these alternative estimators are compared with the one of White (1980) in accounting research.     

Choosing between Time and State Dependence: Micro Evidence on Firms' Price‐Reviewing Strategies

Because of recent findings based on survey data, it is now well known that firms differ from each other with respect to their price‐reviewing strategies. While some firms review their prices at fixed intervals of time, others prefer to perform price revisions in response to changes in economic conditions. Some theories have been suggested to explain this. However, empirical evidence on the relative importance of the factors that determine the different strategies of firms is virtually non‐existent. In this paper, we help to fill this gap by investigating the factors that explain why firms follow time‐dependent, state‐dependent, or both time‐ and state‐dependent price‐reviewing rules. We find that the strategies of firms vary with firm characteristics that have a bearing on the importance of information costs, with the variability of the optimal price, and with the sensitivity of profits to non‐optimal prices.     

Sovereign Risk and Out‐of‐Equilibrium Exchange Rate Dynamics

We show that the sovereign risk premium contains important information on short‐run exchange rate dynamics in emerging economies. Net foreign assets serve as the key link between both variables, which acts as a “crude form of collateral.” We present two sets of empirical evidence. First, we show that increases in net foreign assets provide a statistically significant reduction on emerging markets sovereign risk premium. Then, we show that out‐of‐sample forecasts using realized values for the sovereign risk premium have a satisfactory performance when evaluated across three metrics: the mean squared error ratio, the direction of change statistic, and the consistency criterion.     

Pricing real options under the constant elasticity of variance diffusion

Much of the work on real options assumes that the underlying state variable follows a geometric Brownian motion with constant volatility. This paper uses a more general assumption for the state variable process that better captures the empirical regularities found in commodity markets. We use the constant elasticity of variance diffusion, where volatility is a function of underlying asset prices, and we provide analytic solutions for perpetual American options. We show that a firm that uses the standard lognormal assumption is exposed to significant errors of analysis, which may lead to nonoptimal investment and disinvestment decisions. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark 31:230–250, 2011     

Quality of schooling and inequality of opportunity in health

This paper explores the role of quality of schooling as a source of inequality of opportunity in health. Substantiating earlier literature that links differences in education to health disparities, the paper uses variation in quality of schooling to test for inequality of opportunity in health. Analysis of the 1958 NCDS cohort exploits the variation in type and quality of schools generated by the comprehensive schooling reforms in England and Wales. The analysis provides evidence of a statistically significant and economically sizable association between some dimensions of quality of education and a range of health and health-related outcomes. For some outcomes the association persists, over and above the effects of measured ability, social development, academic qualifications and adult socioeconomic status and lifestyle.     

Examining the role of cultural exposure in improving intercultural competence: implications for HRM practices in multicultural organizations

Abstract

This paper examines the relationship between the breadth and depth of cultural exposure (CE), intercultural sensitivity and intercultural competence to draw implications that can improve recruitment and staff development practices in organizations with a culturally diverse workforce. Findings from a survey (N = 214) in Australia support the notion that intercultural competence is a broader concept that requires a deep exposure to other cultures as compared to intercultural sensitivity. The findings suggest that breadth of CE has limited potential whereas depth of CE is more beneficial in improving an individual’s intercultural abilities. Implications are drawn based on the findings of the study such that organizations are able to recruit and develop employees who are truly interculturally inclined and can effectively navigate the challenges of working in today’s multicultural organizations.     

Structural VAR Estimation with Exogeneity Restrictions

ABSTRACT Exogenous variables arise quite naturally in macroeconomic models of small open economies. In these models overidentification is also a common feature. In the presence of exogeneity restrictions and overidentification the usual two-steps approach to the estimation of structural VAR's is not equivalent to Maximum Likelihood (ML). We propose a simple modification of that usual approach which produces ML estimators.     

An input-output approach to the measurement of the information economy

This study presents a set of methods based on input-output analysis to measure the size and structure of a country's information economy. Published current national data bases do not identify even the broad contours of a country's information economy. The methodology which is stylised algebraically using input-output modelling unravels the latent information economy. Both the primary or marketed information activities and the non-marketed or secondary information activities are measured. The interdependencies of the primary and secondary information sectors with the non-information sectors such as agriculture and manufacturing are examined. Linkages and multipliers are also calculated using consistent approaches. Finally, the methodology is empirically validated using Australia as a case-study and the results are discussed.The author acknowledges with thanks useful comments by referees of the journal on an earlier draft of this paper. The author is also grateful to Professor D.Mc Lamberton of the University of Queensland and Professor M. Jussawalla of the East-West Center, Hawaii, for their encouragement and support given to this study.     

An Approach to Support Negotiation Processes with Imprecise Information Multicriteria Additive Models

This paper discusses the possible uses of the VIP (Variable Interdependent Parameters) Analysis software and methodology in negotiation support. VIP Analysis is a decision support tool that incorporates complementary approaches to deal with the aggregation of multi-criteria performances under imprecise information. Its purpose is to support the evaluation of a discrete set of alternatives according to multi-attribute additive value functions. We propose extensions of the methodology of VIP Analysis to address explicitly the differences among the actors in terms of the weights space.     

The stock of external sovereign debt: Can we take the data at ‘face value’?

The stock of sovereign debt is typically measured at face value. Defined as the undiscounted sum of future principal repayments, face values are misleading when debts are issued with different contractual forms or maturities. In this paper, we construct alternative measures of the stock of external sovereign debt for 100 developing countries from 1979 through 2006 that correct for differences in contractual form and maturity. We show that our alternative measures: (1) paint a very different quantitative, and in some cases also qualitative, picture of the stock of developing country external sovereign debt; (2) often invert rankings of indebtedness across countries, which historically defined eligibility for debt forgiveness; (3) indicate that the empirical performance of the benchmark quantitative model of sovereign debt deteriorates by roughly 50% once model-consistent measures of debt are used; (4) show how the spread of aggregation clauses in debt contracts that award creditors voting power in proportion to the contractual face value may introduce inefficiencies into the process of restructuring sovereign debts; and (5) illustrate how countries have manipulated their debt issuance to meet fiscal targets written in terms of face values.