Devaluation: Keynesian trade models and the monetary approach: The role of nominal and real wage rigidity

Labor market assumptions provide the crucial ingredients by which we distinguish between a Keynesian and a classical monetary trade model (monetary approach). Domestic and foreign goods are perfect substitutes and the law of one price holds. This minimal model should be appreciated as an income-cum-price specie flow mechanism although the long-run equilibrating process is not discussed in any detail. The paper stresses the interplay between demand pull and cost-push factors as a result of exchange rate changes.     

Hedge fund liquidity and performance: Evidence from the financial crisis

We investigate how share restrictions affect hedge fund performance in crisis and non-crisis periods. Consistent with prior research, we find that in the pre-crisis period more illiquid funds generate a share illiquidity premium compensating investors for limited liquidity. In the crisis period, this share illiquidity premium turns into an illiquidity discount. Hedge funds with more stringent share restrictions invest more heavily in illiquid assets. While share restrictions enable funds to manage illiquid assets effectively in the pre-crisis period, they seem insufficient to ensure effective management of illiquid portfolios in the crisis. In a crisis period, funds holding illiquid portfolios experience lower returns and alphas, also when share restrictions are controlled for. Funds with an asset–liability mismatch perform particularly poorly and experience the strongest outflows. Share restrictions are also a proxy for incentives as investors cannot immediately withdraw their money after poor performance. We show that higher incentive fees can offset the share illiquidity discount in the crisis period.     

Rethinking the policy of contracting out Social Services to non-governmental organizations

The article describes, analyzes and evaluates the lessons and dilemmas resulting from the Government's policy of contracting out with non-governmental organizations for the provision of three types of services: foster care, adoption and home care services for the elderly. The dilemmas are: structural tension between governmental control and autonomy of provider organizations; power?–?dependence relations between the Government and the providers, the choice option available to clients; the ethical, moral and professional aspects of contractualism; the myth of innovative programs initiated by provider organizations; service quality versus price of services; and accountability of provider organizations to their stakeholders. Based on the lessons learned, the article highlights the need to rethink the strategy of contracting out and reassess the role of the Government in providing social services.     

Exploring the link between internationalization of top management and accounting quality: The CFO’s international experience matters

This study examines whether and how top management internationalization is associated with accounting quality. We combine upper echelons perspectives, agency theory, human capital theory and accounting research, and demonstrate that top management internationalization mitigates the level of managerial discretion in financial reporting. By decomposing the top management team, our analysis reveals that higher levels of accounting quality are associated with the internationalization of the CFO, not the internationalization of the CEO. In particular, we find that CFO’s international education and international work experience are important factors in higher accounting quality.     

Leadership Structure and Corporate Governance in Switzerland*

The question of whether the CEO should also serve as chairman of the board continues to be a controversial issue in corporate governance. While “agency cost” arguments would lead one to advocate separation of the top decision‐making and control functions, there are efficiency and coordination arguments for vesting the powers of the CEO and chair in the same person. And helping to keep the controversy alive, the empirical evidence on U.S. companies is inconclusive, with no clear loss of value associated with having combined CEO/chairmen. The authors use their recent research on Swiss companies, for which separation of the CEO and chair has long been the rule, to shed light on whether one leadership structure clearly dominates. But like most previous studies of U.S. companies, the authors report no evidence of a systematic difference in valuation between companies with combined and those with dual leadership. The authors also investigated whether companies with CEO‐chairmen use other governance mechanisms to counteract potential agency problems associated with giving the CEO effective control. Consistent with this hypothesis, the authors report that CEO/chairmen tend to have larger percentage ownership than CEOs who are not chairmen, but at the same time they find that the value of the firm appears to rise with increases in CEO equity holdings up to a certain point—around 40–50%— and then declines with further increases above that point. The suggestion here is that the potential for agency costs associated with combining the two leadership functions appears to be managed by providing larger—though not too large—equity incentives for CEO/chairmen. Finally, the authors investigated whether firm value is significantly related to firm‐level corporate governance as measured by a broad survey‐based index for a representative sample of Swiss firms. The results show a positive and significant relationship between the governance index and firm value—one that proves robust after controlling for a series of other governance mechanisms related to ownership structure and board characteristics as well as the possible “endogeneity” of these mechanisms.