Shadow costs of incomplete information and short sales in the valuation of the firm and its assets

This paper presents a simple framework for the valuation of compound options within shadow costs of incomplete information and short sales. The shadow cost includes two components. The first component is the product of pure information cost due to imperfect knowledge and heterogeneous expectations. The second component represents the additional cost caused by the short-selling constraint. Information costs are linked to Merton's (1987. Journal of Finance 42, 510) model of capital market equilibrium with incomplete information, CAPMI. This model is extended by Wu et al. (1996. Review of Quantitative Finance and Accounting, 7, 136) who propose an incomplete-information capital market equilibrium with heterogeneous expectations and short sale restrictions, GCAPM. This model is used in our paper to provide for the first time in the literature analytic solutions for derivatives in the presence of both shadow costs of incomplete information and short sales.When deriving the compound call option formula, we consider a call option on a stock, which is itself an option on the assets of the firm. Our methodology incorporates shadow costs of incomplete information and short sales on the firm's assets as well as the effects of leverage in the capital structure. The formula can be useful in the valuation of several corporate liabilities in the presence of information uncertainty and short sales constraints about the firm and its cash flows. Our analysis can be used for the valuation of several real options.     

Effectiveness of independent boards of UCITS funds

In order to protect fund investors against conflicts of interest with fund management companies, US funds have mandatory independent directors, but this obligation is not required under the European Union Undertakings for Collective Investment in Transferable Securities (UCITS) Directive. Nevertheless, a considerable number of UCITS funds do have independent directors. Whether independent directors should also be mandatory in Europe has been a topic of ongoing debate. Using a sample of Luxembourg UCITS, we test the hypothesis that more independent boards add value for investors through lower costs and/or better investment performance, but we fail to find supporting evidence, even for funds with a higher risk of conflicts of interest. Oversight by independent depositaries and institutional shareholders does not seem to be effective either. It appears that board attitude and the sponsor distribution model are more important since we find evidence that boards that prioritise cost monitoring have lower costs and that independent sponsor funds have better performance. These results question the effectiveness of self-regulation or formal regulation requiring independent board members.     

Identifying airline cost economies: An econometric analysis of the factors affecting aircraft operating costs

This paper provides the results of an econometric analysis of the influences of airline characteristics on the average operating costs per aircraft movement. The analysis combines a comprehensive selection of airline-output variables, airline-fleet variables, and airline-market variables. The results confirm the existence of economies of density, economies of load factor, economies of aircraft utilisation and economies of aircraft size. The paper does not provide evidence of economies of scale, economies of stage length or economies of fleet commonality. Furthermore, airlines that additionally operate full freighters, airlines that are members of a worldwide alliance and airlines that operate a multi-hub system face higher average operating costs per aircraft movement. Surprisingly, the regression results demonstrate that airlines that use newer aircraft have higher average operating costs per aircraft movement, suggesting that ownership costs (depreciation and leasing costs) of new aircraft outweigh the increasing maintenance costs of old aircraft. Finally, the results show that airlines that have a dominant position at their hubs or bases have higher operating costs per aircraft movement, implying that the absence of serious competitive pressure enables airlines to charge higher ticket prices and, with that, leads to a limited focus on cost savings.     

“暴力征地”现象的产权经济学解释

文章认为国内出现的大量的"暴力征地"现象是由两个原因造成的:一个是中国土地产权的残缺,尤其是土地使用权和转让权的限制,另一个是交易费用,包括量度费用和信息费用,在此基础上推出的两个含义都得到了事实的验证。     

Financial components of FDI and choice of capital structure: an analysis for 30 OECD countries

Even though the choice of capital structure depends on the three different financial components of foreign direct investment (FDI), previous research has regarded FDI as unidimensional rather than multidimensional. This study addresses new findings in the FDI area and investigates the relevant determinants of capital structure in 30 OECD countries from 2006 to 2014 within the framework of a simultaneous equation model. Our primary findings reveal that each component has its own deterministic features driven by relevant policy variables and risks in the market. While an increase or decrease in equity capital shows the ability of the host country to attract new investments, the subsequent components are mostly used to adjust the equity capital investment exposure.     

The Load Model: an alternative to QALY

Background: QALYs are widely used in health economic evaluation, but remain controversial, largely because they do not reflect how many people behave in practice. This paper presents a new conceptual model (Load Model) and illustrates it in comparison with the QALY model.

Methods: Load is the average annual weight attributed to morbidity and mortality over a defined period, using weightings based on preference judgements. Morbidity Load is attributed to states of illness, according to their perceived severity. When people are in full health, Load is zero (no morbidity). Death is treated as an event with negative consequences, incurred in the year following death. Deaths may be weighted equally, with a fixed negative weight such as ?100, or differ according to the context of death. After death, Load is zero. In a worked example, we use the standard gamble method to obtain a weighting for an illness state, for both Load and QALY models. A judge is indifferent between certainty of 1.5 years’ illness followed by death, or a 50/50 chance of 1.5 years’ full health or 1-year illness, each followed by death. The weightings calculated are applied to a hypothetical life, 72 years in full health followed by 3 years with illness then death, using both models. Three other hypothetical outcomes are also compared.

Results: For an example life, the relative size of the morbidity component compared with the mortality component is much higher in the Load model than in the QALY model. When comparing alternative outcomes, there are also substantial differences between the two models.

Conclusions: In the Load model the weight of morbidity, relative to mortality, is very different from that in the QALY model. Given the role of the QALYs in economic evaluation, the implications of an alternative, which generates very different results, warrant further exploration.     

Pro-market institutions and outward FDI of emerging market firms: An institutional arbitrage logic

We offer new theory and evidence regarding the effects of pro-market institutions on outward foreign direct investment (FDI) of emerging market firms (EMFs). Drawing on the logic of institutional arbitrage, we integrate the escapism and exploitation mechanisms of EMF internationalization into a unified theoretical context. We propose an inverted U-shaped relationship between host market-supporting institutions (MSI) and the investment scale of an EMF’s FDI project in the country, showing an escape-driven upward slope for low-to-medium MSI levels and an exploitation-driven downward slope for medium-to-high MSI levels. We supplement this main argument with two boundary conditions: the alleviating effect of home market liberalization (HML) and the strengthening effect of home government subsidies (HGS), demonstrating the coexistence and variation of pro- and anti- market institutions in an emerging market. Using information on 1,450 FDI projects conducted by 288 Chinese listed firms in 116 host countries, we obtain supportive evidence for the predicted relationships between the three institutional forces. This study enriches the literatures on institutional arbitrage and pro-market institutions with evidence from EMFs.     

Testing the fire-sale FDI hypothesis for the European financial crisis

Using a panel of corporate transactions in 27 EU countries from 1999 to 2012, we investigate the impact of the financial crisis on the market for corporate assets. In particular, we test the ‘fire-sale FDI’ hypothesis by analyzing the number of cross-border transactions, the price of corporate assets and the impact of credit and macroeconomic conditions. According to the fire-sale FDI hypothesis, countries affected by a crisis attract foreign buyers selling assets at a discount. We find a dampening effect of the crisis on cross-border transactions in all EU countries. Although countries with higher sovereign default risk and lower economic demand attracted more foreign buyers in the crisis, lower domestic credit is associated with less cross-border transactions. Corporate assets in crisis countries are cheaper, particularly if domestic credit is low; however, these findings are not limited to the crisis period. This pattern is strikingly different from the East Asian and Latin American financial crises. Overall, we find little evidence for ‘fire-sale FDI’ suggesting an integrated European market without significant frictions.     

Healthcare costs of stroke and major bleeding in patients with atrial fibrillation treated with non-vitamin K antagonist oral anticoagulants

Objective: To assess long-term healthcare costs related to ischemic stroke and systemic embolism (stroke/SE) and major bleeding (MB) events in patients with non-valvular atrial fibrillation (NVAF) treated with non-vitamin K antagonist oral anticoagulants (NOACs).

Materials and methods: Optum’s Clinformatics Data Mart database from 1/2009–12/2016 was analyzed. Adult patients with ≥1 stroke/SE hospitalization (index date) were matched 1:1 to patients without stroke/SE (random index date), based on propensity scores. Patients with an MB event were matched to patients without MB. All patients had an NOAC dispensing overlapping index date, ≥12?months of eligibility pre-index date, and ≥1 NVAF diagnosis. The observation period spanned from the index date until the earliest date of death, switch to warfarin, end of insurance coverage, or end of data availability. Mean costs were evaluated: (1) per-patient-per-year (PPPY) and (2) at 1, 2, 3, and 4?years using Lin's method.

Results: The cost differences were, respectively, $48,807 and $28,298 PPPY for NOAC users with stroke/SE (n?=?1,340) and those with MB (n?=?3,774) events compared to controls. Cost differences of patients with vs without stroke/SE were $49,876, $51,627, $57,822, and $60,691 at 1, 2, 3, and 4?years post-index, respectively (p?p?Limitations: Limitations include unobserved confounders, coding and/or billing inaccuracies, limited sample sizes over longer follow-up, and the under-reporting of mortality for deaths occurring after 2011.

Conclusions: The incremental healthcare costs incurred by patients with vs without stroke/SE was nearly twice as high as those of patients with vs without MB. Moreover, each additional year up to 4?years after the first event was associated with an incremental cost for patients with a stroke/SE or MB event compared to those without an event.