Estimating product‐specific and multiproduct economies of scale with data envelopment analysis

Nonparametric cost frontier estimation and subsequent analysis of the relative efficiency of firms has historically been conducted without critically examining the shape of the cost frontier. The shape of the cost frontier has been examined using additional parametric estimation methods to recover potential cost savings from multiproduct and product‐specific economies of scale. This paper presents and tests an approach to estimate multiproduct and product‐specific economies of scale using data envelopment analysis. Data for the study are simulated assuming an underlying production technology. Nonparametric estimates of efficiency, multiproduct scale, product specific scale, and scope economies are compared to those of the assumed production technology. Results show that the nonparametric approach accurately estimates multiproduct economies of scale and product‐specific economies of scale under alternative inefficiency distributional assumptions.     

Does Brazilian allowance for corporate equity reduce the debt bias? Evidences of rebound effect and ownership-induced ACE clientele

We analyse if the Brazilian Allowance for Corporate Equity (ACE-type system) reduces the debt tax bias. Specifically, we study if the continuous treatment effect of interest on equity negatively affects the level of financial leverage. We find that the tax policy implemented is similar to the deductible cash dividends and not to an ACE. The empirical implication is that the interest on equity treatment increases the debt tax bias, producing a rebound effect to what is expected for this policy on the risk-taking behaviour and corporate capital structure. This rebound effect is homogeneous in firms with different financial constraints status. There are evidences that shareholders influence the cash distribution policy, adjusting the later to their own tax preferences. Therefore, there may be an “ACE clientele effect” induced by heterogeneity in tax preferences among shareholders.     

Interbank market failure and macro-prudential policies

This paper analyses the effects of several macro-prudential policy measures on the banking sector and its linkages to the macroeconomy. We employ a dynamic general equilibrium model with sticky prices, in which banks trade excess funds in the interbank lending market. We find that an increase in the liquidity requirement effectively reduces the impact of an interbank shock on the real and financial sector, while an increased capital requirement propagates only through nominal variables as inflation and interest rates. We conclude that stricter liquidity measures which limit inside money creation, dampen the severity of a breakdown in interbank lending. Targeting interbank financing directly through liquidity measures along with a moderate capital requirement generates lower welfare losses. We thereby provide a comprehensive rationale in favor of the regulatory measures in Basel III.     

Diversification strategy,efficiency, and firm performance: Insight from emerging market

We investigate further the inconsistencies of the diversification-performance link by introducing efficiency as moderating factor. A data of 319 firms was used to conduct a panel data analysis excluding the financial sector industries and the results show three important findings. First, industrial diversification shows a significant contribution in performance improvement while international diversification shows no effect on performance. Yet, international-conglomerate shows a significant negative relationship with performance. Meanwhile, the efficiency results are contrary to our conjecture. We find that efficiency is a factor to enhance performance, but it is not the moderating variable on the diversification-performance link. This implies that the efficiency of the firm has no connection with the link between diversification and performance.     

Why do banks choose to finance with equity?

A majority of U.S. banks between 1973 and 2012 held equity capital significantly beyond the required minimum. We study the risk-return tradeoff in connection with a bank’s capital structure, and identify several new significant market factors that drive the level of equity capital in banks. During normal growth periods, bank leverage is negatively related to a level of competition and loan portfolio diversification, while high bank leverage is associated with low past liquidity. During recessions and expansions, the roles of those factors change following distortions in risk-return tradeoff. In distress, when banks approach regulatory capital requirements, market determinants of book leverage lose their significance; however, leverage does not decrease until a bank is within 1% of the minimal capital threshold.     

The odd notion of “reversible investment”

Irreversible investment and the attendant concept of real-option value have been well discussed. Complete reversibility has been frequently invoked but less studied, especially for the case of lumpy investment typically considered in capital budgeting. We examine a simple lumpy investment problem for the full range, from complete irreversibility to completely reversibility, with a focus on the latter. The optimal stopping rules under complete reversibility are to invest when the project generates enough net cash flow to cover Jorgenson’s opportunity cost of investment and to disinvest when it does not. Given the static nature of these rules, net present value as a timing criterion under reversibility is not pertinent. Investments that are partially reversible have much in common with completely irreversible investments but nothing in common with completely reversible investments. The case of reversible investment provides a foil for understanding that the distinguishing feature of investment as treated in corporate finance is that it entails at least some irreversibility.     

Performance evaluation of China's air routes based on network data envelopment analysis approach

Air routes are among the most important elements of civil aviation transport. Airlines' operations are mainly dependent on the structure and layout of air routes. This paper first divides the production process of air routes into two stages, allocation and transport, based on air route operational characteristics. Then, two network data envelopment analysis (DEA) models are proposed to analyze the efficiency of the system, allocation, passenger transport, and freight transport of 477 air routes. The research result demonstrates that the different constraints on intermediate measure in the network DEA models do affect the air routes’ efficiency significantly; Most air routes have high allocation efficiency and passenger transport efficiency, while they have low freight transport efficiency. Furthermore, the efficiencies of 82 airports are also analyzed after aggregating the efficiencies of the air routes.     

Contribution of suppression difficulty and lessons learned in forecasting fire suppression operations productivity: A methodological approach

We propose an economic analysis using utility and productivity, and efficiency theories to provide fire managers a decision support tool to determine the most efficient fire management programs levels. By incorporating managers’ accumulated fire suppression experiences (capitalized experience) in the analysis we help fire managers determine fire suppression productivity and efficient budget allocation. Furthermore, monitoring of the management index (MI) helps identify operational deficiencies in the different districts where the analysis is applied. This is so because internally the area contraction factor (ACF) provides information regarding the effectiveness of fire suppression operations by including a comparison ratio between the area affected and the potential fire area without suppression actions. We used the Almonaster fire that occurred in 2008 in the Huelva Province, Spain as a case study to test the applicability of the methodology. Our evaluation showed that the combinations of firefighting resources assigned to the Almonaster fire resulted in a fire suppression efficiency of only 33%, measured as the ratio between damages avoided and suppression costs involved.     

Understanding overall output efficiency in public transit systems: The roles of input regulations,perceived budget and input subsidies

This paper examines the combined effects of subsidies, regulations and perceived budget on overall output and technical efficiency in a sample of single-mode bus transit systems using an indirect production function. The main findings are that the average transit system is 67.21% output efficient and systematic and stochastic technical inefficiencies decrease output. In addition subsidies increase output, regulations decrease output and the overall budget effect is an increase in output. Additionally, it identifies the characteristics of two groups of transit systems whose perceived costs after subsidies and regulations are either less or greater than actual total costs.     

Does uncertain demand affect service quality?

The purpose of this article is to investigate the impact of demand uncertainty on labor intensity as well as service quality. Theoretical predictions are mixed: on the one hand, risk aversion leads hotels to choose a lower level of capital in response to demand uncertainty, thereby leading to higher labor intensity; on the other hand, the demand-enhancing benefit of service quality may be weakened due to demand uncertainty, thereby leading to a lower service quality decision. Using the data of international tourist hotels in Taiwan, this article shows that demand uncertainty leads to a positive impact on hotels’ labor intensity. In addition, hotels located in markets with a higher degree of concentration, having more diversified revenue sources, or belonging to hotel chains also tend to exhibit higher labor intensity.