Competitive Neutrality in Access Pricing

This article examines the notion of competitive neutrality when setting access prices for vertically integrated bottleneck networks. In contrast to the claims of regulated firms (for example, Telstra), it is not possible to argue that access charges that involve unit prices in excess of short‐run marginal cost reflect competitive neutrality. That is, we demonstrate that in general models of downstream oligopoly, upstream prices that differ from marginal cost are not competitively neutral in the sense of placing integrated and non‐integrated firms on an equal basis.     

On the importance of systematic risk factors in explaining the cross-section of corporate bond yield spreads

In this paper we examine the importance of systematic equity market factors in explaining the cross-sectional variation in yield spreads on corporate debt. Based on a sample of 1771 corporate bonds over the period from January 1985 to March 1998, we find that once the default-related variables are controlled for, bond betas or sensitivities to aggregate equity market risks have very limited explanatory power. This is in contrast to [Elton, E.J., Gruber, M.J., 2001. Explaining the rate spread on corporate bonds. Journal of Finance 56, 247–277] who find that market factors tied to expected returns are predominantly important, but who do not control for these variables (i.e. the relevant variables from structural models), possibly biasing their estimates. On the other hand, our finding that the systematic factors exhibit some limited explanatory power suggests that the standard contingent claims approach may not fully apply. This finding is consistent with previous research that bond betas are not completely irrelevant once market frictions are introduced. Overall, the evidence provides empirical support for the proposition that structural models capture important elements of corporate bond yield spread determination and equity market systematic factors are by no means predominant.     

Making Financial Goals and Reporting Policies Serve

The main. nancial goal of Progressive Insurance, the third largest underwriter of auto insurance in the U.S., has remained the same since the late 1960s. Expressed in three words, "96 and grow," the goal tells the company's managers to pursue all growth opportunities while maintaining a "combined ratio" no higher than 96, or what amounts to a minimum 4% spread between revenues (premiums) and costs (including expected losses). Thanks in part to the clarity of mission provided by this goal, the company has produced an average 15% rate of growth in revenues and earnings, along with a remarkably stable 15% return for its shareholders, since going public in 1971.
Progressive's simplicity and clarity of mission is also partly responsible for another of the company's distinctive policies: product pricing that, while disciplined, is aggressive and highly decentralized. Having invested some $500 million per year developing statistical models for pricing individual customer risks and acquisition costs, the company was among the. rst in its industry to underwrite "non-standard" risks. And aided by sophisticated pricing models, each of Progressive's 100 or so local product managers are charged with adapting those models to come up with premiums for their own regions.
To go along with its strategic and organizational innovations, Progressive also has an innovative disclosure policy. Apart from SEC reports, the company's communications seldom mention earnings or earnings per share, and the company has never provided earnings guidance. With the passage of Reg. FD in late 2000, the company brie. y considered offering guidance. But in the spring of 2001, the board decided instead to provide monthly releases of its realized combined ratio. Since adoption of this new disclosure policy, Progressive has seen a 50% drop in the volatility of its stock price.     

Exchange Rate Pass‐through: The Role of Regime Changes

We consider the effect on the degree of exchange rate pass‐through of the exchange rate regime in operation. We test the hypothesis that pass‐through will be lower under a float as firms may be reluctant to pass appreciations or depreciations on to their customers when there is a strong chance that they will be subsequently reversed. Taylor’s hypothesis that pass‐through will be lower in a low‐inflation environment is also considered. Both hypotheses are assessed in relation to the price of manufactured imports into New Zealand and we find that, whereas the shift to a float dramatically lowered the degree of pass‐through, the later shift to a low‐inflation regime has no significant additional effect on the pass‐through relationship.     

Bondholder Wealth Effects in Mergers and Acquisitions: New Evidence from the 1980s and 1990s

We examine the wealth effects of mergers and acquisitions on target and acquiring firm bondholders in the 1980s and 1990s. Consistent with a coinsurance effect, below investment grade target bonds earn significantly positive announcement period returns. By contrast, acquiring firm bonds earn negative announcement period returns. Additionally, target bonds have significantly larger returns when the target's rating is below the acquirer's, when the combination is anticipated to decrease target risk or leverage, and when the target's maturity is shorter than the acquirer's. Finally, we find that target and acquirer announcement period bond returns are significantly larger in the 1990s.     

Changing Agricultural Markets: Industrialization and Vertical Coordination in the Dry Edible Bean Industry

The agricultural sector is undergoing a transformation that is altering marketing relationships to better serve customer needs. These changes are drawing consumers, processors, and farmers into closer marketing relationships, improving the flow of information up the supply chain, and enabling firms to better meet customer demand. This paper uses case studies to analyze this process as it is occurring in the dry edible bean industry. A major finding is that contracts are not necessarily used in these new marketing relationships. Other factors—such as quality monitoring, certification procedures, and reputation—were also found to be highly important.     

THE PRIVATE FINANCE INITIATIVE IN LOCAL GOVERNMENT

This paper distinguishes between the Private Finance Initiative (PFI) and the more general Public Private Partnerships (PPP). It traces the growth of the initiative since its start in 1992 to the current day and considers the implications of PFI for the public finances. A number of economic issues are discussed including bidding costs, financing costs and whole life costing. The importance of risk transfer in the value for money analysis of PFI projects is emphasised and the extent to which risk actually is transferred is questioned. Finally, the contribution of PFI towards modernising public service is recognised but the Audit Commission's recommendation that a wider range of procurement tools ought to be considered is noted.     

RESIDUAL WAGE DISPARITY AND COORDINATION UNEMPLOYMENT*

How much of residual wage dispersion can be explained by an absence of coordination among firms? To answer, we construct a dynamic directed search model with identical workers where firms can create high‐ or low‐productivity jobs and are uncoordinated in their offers to workers, calibrated to the U.S. economy. Workers can exploit ex post opportunities once approached by firms, and can conduct on‐the‐job search. The stationary equilibrium wage distribution is hump‐shaped, skewed significantly to the right, and, with baseline parameters, generates residual dispersion statistics 75–90% of those found empirically. However, the model underestimates the average duration of unemployment.     

Corporate giving in the USA: a model for meeting Russia's expanding social needs?

In the USA, corporations make substantial contributions to public‐serving organisations with no expectation of financial gain. This paper explores the factors that have encouraged corporate giving in the USA and compares them to circumstances in the emerging capitalist economy of Russia. The outlook for the emergence of a corporate giving model in Russia similar to that of the USA is poor, but improving. To make it work, organisational recipients of corporate generosity need to trust their benefactors, and corporations need to believe that their contributions of surplus profits make good business sense. Copyright © 2004 Henry Stewart Publications