An international study of internal audit function quality

We investigate organisational and environmental factors that influence firms’ incentives to develop high-quality internal audit functions (IAFs) by using a unique international sample formed by matching proprietary data from a global internal auditor survey with public data obtained from Worldscope. Concerning organisational factors, we find that a positive relationship exists between IAF quality and firm complexity and confirm that complex firms have a higher demand for monitoring and advising and, therefore, a greater need for formal controls. In addition, IAF quality is positively related to board monitoring and audit committee diligence but negatively associated with CEO power, which suggests that IAF quality is influenced by other key players in corporate governance. Regarding environmental factors, we document that IAF quality is positively associated with industry competition, which implies that a firm’s incentive for a high-quality IAF is enhanced when confronted with greater environmental uncertainty. Furthermore, IAF quality has a significantly positive relationship with our self-constructed index of IAF requirements included in national corporate governance codes, which indicates that strong home-country corporate governance codes play a role in fostering IAF development.     

Service Quality,Competition, and Regulatory Policies in the Postal Sector

This paper presents a simple model which illustrates the possible policy- and welfare-implications of endogenous product selection in the postal sector. The cost of a unit of mail depends on its "quality" (e.g., speed of delivery) and on the type and location of the addressee (firms, urban households, and rural households). Senders have inelastic demands and differ in their willingness to pay for quality. Addressees are passive but their utility may affect social welfare. Two operators play a two-stage game, first choosing qualities and then prices. We first show that the equilibrium with two private (profit maximizing) operators results in an inefficient provision of quality. Then, we consider the mixed (Nash) equilibrium with one private and one (welfare maximizing) public operator. If the budget constraint of the public firm is not binding, this equilibrium is shown to be first-best efficient even if social welfare accounts for the utility of addressees. If the budget constraint is binding, the mixed equilibrium is not efficient but yields a higher level of welfare than the private equilibrium. Finally, we study the impact of minimum quality standards within our setting.     

A nonparametric analysis of multi-product oligopolies

We develop revealed preference tests for models of multi-product oligopoly, building on the work in Carvajal et al. (Econometrica 81(6):2351–2379, 2013). We analyze a Cournot model with multiple goods and show that it has testable restrictions when at least one good is produced by two or more firms. We also develop a revealed preference test for Bertrand oligopoly in a setting where each firm produces a single differentiated good, and these goods are potentially substitutes for each other. Our tests require qualitative assumptions on the shape of the demand curves and (in the Bertrand case) their evolution across observations, but they do not rely on the estimation of market demand.     

The factor content of regional bilateral trade: The role of technology and demand

The Heckscher–Ohlin–Vanek (HOV) model in its strict form has been strongly rejected by the data. Relaxing some assumptions of the standard HOV model is key to find improvements in its performance. We apply the Davis and Weinstein (2001) methodology to analyse the validity of the HOV model using regions rather than countries. Surprisingly, our results using data for 17 Spanish regions are similar to theirs with international data for OECD countries. Accounting for technological differences improves the predictive capacity of the factor proportions model and including trade costs and geography reduces significantly the missing trade problem. However, relaxing the assumption of factor price equalisation does not improve the performance of the HOV model in a regional setting.     

No-arbitrage, state prices and trade in thin financial markets

We examine how non-competitiveness in financial markets affects the choice of asset portfolios and the determination of equilibrium prices. In our model, potential arbitrage is conducted by a few highly specialized institutional investors who recognize and estimate the impact of their trades on financial prices. We apply a model of economic equilibrium, based on Weretka (, 2007a), in which price effects are determined endogenously as part of the equilibrium concept. For the case in which markets allow for perfect insurance, we argue that the principle of no-arbitrage asset pricing is consistent with non-competitive behavior of the arbitragers and extend the fundamental theorem of asset pricing to the non-competitive setting.     

Endogenous monetary policy and the liquidity effect

We compare the transmission mechanism of exogenous and endogenous monetary policies in a calibrated small open economy model with nominal and real rigidities. Under an exogenous monetary policy rule it takes implausible values of the intertemporal elasticity of substitution and the price adjustment costs to generate the liquidity and overshooting effects. Endogenous rules with strong feedback to inflation and output help to reproduce the response of the nominal interest and exchange rates to unanticipated monetary policy shocks that characterize the transmission mechanism of standard sticky price models. The liquidty and overshooting effects are always obtained when the model is augmented with a Taylor interest rate rule.JEL Classification: E32, E43Javier Andrés acknowledges support of CICYT grant SEC2002-0026. We thank the comments of two anonymous referees and the editor, Jordi Caballé, to an earlier version of the paper. The views expressed here are those of the authors and do not represent the view of the Banco de España.     

Risk and rationalization—The role of affect and cognitive dissonance for sexual risk taking

In spite of increased awareness of HIV/AIDS, high levels of sexual risk taking persist among individuals in HIV susceptible groups. The lack of behavioral change has long puzzled both researchers and policy makers. In this paper, an attempt is made to disentangle mechanisms underlying excessive sexual risk taking. Drawing on ideas from psychology, related to decision-making processes and risk evaluation, an intertemporal model is developed and analyzed. More specifically, the theoretical model merges psychological theories of affect-induced myopia and cognitive dissonance with economic theory of utility maximization. The results of the theoretical analysis suggest that, if sexual arousal is associated with shortsighted behavior, the fear of an HIV infection may reduce the effect of HIV information campaigns via the effect of cognitive dissonance. The results further suggest that policy aimed to increase awareness of rationalization tendencies may constitute an important complement to existing AIDS policies.     

New evidence on wages and employment in worker cooperatives compared with capitalist firms

This article presents new econometric evidence on the comparative behavior of worker cooperatives and capitalist firms, highlighting the differences in wages and employment responses. We use a comprehensive panel data set that covers the entire population of cooperatives and their capitalist counterparts registered in the social security records in Uruguay from April 1996 to December 2005. We analyze the data to study the employment and wage decisions in both types of enterprises, the results of which suggests that their adjustment mechanisms to idiosyncratic price changes and macroeconomic shocks may differ greatly. The data set also allows us to estimate wage and employment variations for members and non-members of cooperatives separately, and provides an empirical test for the so-called degeneration hypothesis. Our findings are broadly consistent with previous studies for Italian cooperatives and plywood cooperatives in the United States. As studies of this kind are so few, our research provides a significant contribution to the empirical literature on labor managed firms. Moreover, comparing worker cooperatives and capitalist firms offers an exceptional opportunity to determine how control by workers may lead to different organizational behavior.     

Home alone and often unprepared – intercultural communication training for expatriated partners in German MNCs

This article reports the results of a study of partners who accompany the expatriated representatives of multinational corporations (MNCs) on overseas missions and identifies that they are mostly home alone and often unprepared. Following a review of the literature on issues related to expatriated partners, in particular intercultural communication training (ICT), the article presents the findings of empirical research conducted in Germany on current ICT trends for expatriated partners. The study identifies the ICT methods German MNCs use to support these partners before and during international assignments. The authors surveyed 141 German expatriated partners who went on overseas missions to 36 countries. The results of this research project indicate that traditional ICT is only provided to the minority of partners in German MNCs, follows no predictable time pattern, and is mostly perceived as rather useless by participants. Particular attention is paid, however, to the target culture in the ICT design. Non-traditional ICT methods, such as Look-&-See Trips, are rather generously taken advantage of.