The income elasticity of mortgage loan demand

One explanation for the emergence of the housing market bubble and the subprime crisis is that increases in individuals’ income led to higher increases in the amount of mortgage loans demanded, especially for the middle class. This hypothesis translates to an increase in the income elasticity of mortgage loan demand before 2007. Using applicant‐level data, we test this hypothesis and find that the income elasticity of mortgage loan demand in fact declines in the years before 2007, especially for the mid‐ and lower‐middle income groups. Our finding implies that increases in house prices were not matched by increases in loan applicants’ income.     

Managerial effect or firm effect: Evidence from the private debt market

This paper provides evidence that the managerial effect is a key determinant of firms’ cost of capital, in the context of private debt contracting. Applying the novel empirical method developed by an earlier study to a large sample that tracks the job movement of top managers, we find that the managerial effect is a critical and significant factor that explains a large part of the variation in loan contract terms more accurately than firm fixed effects. Additional evidence shows that banks “follow” managers when they change jobs and offer loan contracts with preferential terms to their new firms.     

International competitiveness of Turkish agriculture: a case for horticultural products

This paper defines competitiveness as the ability of a country to increase its share of domestic and export markets, especially when they have a comparative advantage in a product and can produce at a lower opportunity cost. This paper briefly covers the theoretical information on this topic and provides empirical evidence of how domestic resource cost (DRC) can determine international competitiveness. A country is said to have a comparative advantage in the production of tradable goods if that country's production is efficient; if not, then it has a comparative disadvantage. The concept of comparative advantage has two meanings: The first definition states that efficiency of production is compared to two or more trading nations, and when the nations with the lowest opportunity costs are relatively more efficient, they have a comparative advantage. The other meaning of comparative advantage refers to the efficiency of different kinds of production within the domestic economy, which are compared in terms of earnings or savings of a unit of foreign exchange. Turkey seems to have a comparative advantage in plant products that do not exhibit economies of scale and are relatively labour-intensive, i.e. fruits and vegetables eliminating border and non-tariff barriers to trade in agriculture would allow both sides to exploit their comparative advantages better.     

Market ambiguity and individual investor information demand

We examine whether ambiguity in the market leads to an increase in information demand by individual investors. Drawing on the asset-pricing model proposed by Mele and Sangiorgi (2015), which incorporates market ambiguity, we measure individual information demand using daily Google searches and measure market ambiguity using a metric based on the market trades of institutional investors. We find that individual investors increase their information demand during periods of greater market ambiguity. We also provide evidence that information demand from individual investors spikes around earnings announcement days primarily when market uncertainty is driven by net-selling activity. Overall, these results suggest that the disagreement among institutional investors either represents uncertainty or contributes to the uncertainty related to a stock, leading to increased demand for information from individual investors.     

Abnormal real operations,real earnings management,and subsequent crashes in stock prices

We study the impact of firms’ abnormal business operations on their future crash risk in stock prices. Computed based on real earnings management (REM) models, firms’ deviation in real operations (DROs) from industry norms is shown to be positively associated with their future crash risk. This association is incremental to that between discretionary accruals (DAs) and crash risk found by prior studies. Moreover, after Sarbanes–Oxley Act (SOX) of 2002, DRO’s predictive power for crash risk strengthens substantially, while DA’s predictive power essentially dissipates. These results are consistent with the prior finding that managers shift from accrual earnings management to REM after SOX. We further develop a suspect-firm approach to capture firms’ use of DRO for REM purposes. This analysis shows that REM-firms experience a significant increase in crash risk in the following year. These findings suggest that the impact of DRO on crash risk is at least partially through REM.     

Volatility Linkages Among Gold Futures in Emerging Markets

We aim to detect the cross-border volatility linkages among gold futures in emerging markets, which still remain an untapped area. China, India, Japan, Taiwan, Turkey, and U.S. futures markets are included in the sample. The volatility linkage analyses confirm the existence of volatility transmission among the majority of the sample countries’ gold futures. This article carries vital inferences and implications for policy makers and investors. The policy making is particularly important for China, which is a relatively isolated market. From investors’ perspective, the results indicate that the risk diversification and cross-market hedging opportunities in the emerging gold futures markets are quite limited.     

Motivating high‐impact innovation: Evidence from managerial compensation contracts

We investigate the relationship between Chief Executive Officer (CEO) compensation and firm innovation and find that long‐term incentives in the form of options, especially unvested options, and protection from managerial termination in the form of golden parachutes are positively related to corporate innovation, and particularly to high‐impact, exploratory (new knowledge creation) invention. Conversely, non‐equity pay has a detrimental effect on the input, output and impact of innovation. Tests using the passage of an option expensing regulation (FAS 123R) as an exogenous shock to option compensation suggest a causal interpretation for the link between long‐term pay incentives, patents and citations. Furthermore, we find that the decline in option pay following the implementation of FAS 123R has led to a significant reduction in exploratory innovation and therefore had a detrimental effect on innovation output. Overall, our findings support the idea that compensation contracts that protect from early project failure and incentivize long‐term commitment are more suitable for inducing high‐impact corporate innovation.     

The art of retaining seasonal employees: three industry-specific leadership styles

The majority of leadership studies have centered on various leadership approaches, but there is limited research that has focused on seasonal employee leadership (SEL) in the hospitality literature. Hence, there is a need to develop a new leadership model which could help to understand how to retain seasonal employees in the hospitality industry. This study divided seasonal employees into three types by using semi-structured interviews and document analysis. These are suspended employees (Type-A), seasonal trainee (Type-B), and spoon-feeding employees (Type-C). Three different leadership styles were developed according to each type of seasonal employees; suspending leadership for type A, mentor leadership for type B, and spoon-feeding leadership for type C. The study makes an important contribution to the leadership literature by aligning employee types with different leadership styles in the hospitality industry.     

Bilateral Trade Agreements and the Feasibility of Multilateral Free Trade

We studied how the pursuit of bilateral free‐trade agreements (FTAs) affects the likelihood of achieving multilateral free trade. We derive and compare the stable Nash equilibria of two games of trade liberalization: in the FTA game, each country can either form an FTA with one of its trading partners or both of them or none of them, whereas in the (restricted) No FTA game, purely bilateral FTAs are not permitted. The major result is that there exist circumstances under which the freedom to pursue (discriminatory) bilateral FTAs is necessary for achieving multilateral free trade.