Foreign competition and the durability of US firm investments

How does the exposure to product market competition affect the investment horizon of firms? We study if firms have an incentive to shift investments toward more short‐term assets when exposed to tougher competition. Based on a stylized firm investment model, we derive a within‐firm estimator using variation across investments with different durabilities. Exploiting the Chinese World Trade Organization (WTO) accession, we estimate the effects of product market competition on the composition of US firm investments. Firms that experienced tougher competition shifted their expenditures toward investments with a shorter durability. This effect is larger for firms with lower total factor productivity.     

Exit Options in Corporate Finance: Liquidity versus Incentives

This paper provides a first study of the optimal design of active monitors'exit options in a problem involving a demand for liquidity and costly monitoring of the issuer. Optimal incentives to monitor the issuer may involve restricting the monitor's right to sell her claims on the firm's cash-flow early. But the monitor will then require a liquidity premium for holding such an illiquid claim. In general, therefore, there will be a trade off between incentives and liquidity. The paper highlights a fundamental complementarity between speculative monitoring in financial markets (which increases the informativeness of prices) and active monitoring inside the firm: in financial markets where price discovery is better and securities prices reflect the fundamentals of the issuer better, the incentive cost of greater liquidity may be smaller and active monitoring incentives may be preserved. The paper spells out the conditions under which more or less liquidity is warranted and applies the analysis to shed light on common exit provisions in venture capital financing.     

How Does a Development Moratorium Affect Development Timing Choices and Land Values?

This paper investigates how a development moratorium affects choices of development timing and land values in a framework where both the value of developed property evolves stochastically and the development costs are fully irreversible. We assume that a regulator initially announces that land is not allowed to be developed during a finite period of time in the future. A developer, thus, must decide whether to develop land before the timing ordinance is imposed, or after it expires. The development moratorium reduces the developer’s option value from waiting and, thus, accelerates development. We also use simulation analysis to demonstrate how the other factors that relate to the demand and supply conditions of the real estate market affect this accelerating effect.     

THE CHANGING VOLATILITY OF THE SOUTH AFRICAN ECONOMY

During the last decade economic literature explored the presence of and reasons for what became known as “the great moderation” in the US and other G7 countries. “The great moderation” describes the decrease in economic volatility experienced in many of the G7 countries. This paper finds that in South Africa volatility is also not constant (it even finds that there are autoregressive conditional heteroskedastic effects present) and that volatility also decreased, particularly since 1994. Following the literature, the paper explores several reasons for this decrease and finds that smaller shocks, better monetary policy and improvements in the financial sector that place less liquidity constraints on individuals and allow them to manage their debt better are some of the main reasons for the reduction in the volatility of the South African economy. The literature on the G7 also suggests that better inventory management contributed to the lower volatility. However, this seems not to be true for South Africa.     

Managers’ Corporate Entrepreneurial Actions and Job Satisfaction

Through the development and extension of theories and scholars’ subsequent empirical analyses of significant, theoretically grounded research questions, the knowledge about corporate entrepreneurship (CE) and its successful use continues to advance. Moreover, the literature suggests important relationships between the corporate environment, managers’ entrepreneurial behavior and successful implementation of corporate entrepreneurship actions. In an attempt to test some of those relationships, we describe an empirical study of 523 managers that examines the relationships among the antecedents to managers’ entrepreneurial behavior, a decision to implement entrepreneurial actions, and resulting job satisfaction and reinforcement practices.