Labour unions and leverage: evidence from firm-level union data

ABSTRACT

Using firm-level labour union data from Japan, this paper investigates the effect of labour unions on firm leverage. We find that as union coverage increases, both the level of and extent of change in leverage decreases. These relations remain robust when a firm falls into deficit. We also find that firms with higher union coverage have a higher interest coverage ratio. In addition, we find that firms with higher union coverage are less likely to choose issuing debt compared to issuing equity when they face financial distress. Our results imply that significant employee influence enhanced by labour unions increases fixed costs, crowds out the firm’s debt capacity and consequently reduces the firm’s leverage.     

Optimal pair-trading strategy over long/short/square positions—empirical study

Suzuki [Automatica, 2016, 67, 33–45] solves the optimal, finitely iterative, three-regime switching problem for investing in a mean-reverting asset that follows an Ornstein–Uhlenbeck price process and find explicit solutions. The remarkable feature of this model is that the investor can explicitly take either a long, short or square position and can switch the position, with transaction costs, during the investment period. We run empirical simulations of such multiple-regime switching models. There are very few such attempts in the existing literature because it is difficult to find, first, an explicit solution to the problem and second, appropriate financial assets that follow the artificial stochastic process required by the mathematical model. According to the Monte Carlo simulations of the optimal pair-trading strategy, the mean daily Sharp ratio is more than 2.3, whereas the mean Sharp ratio for the historical simulation of the ‘stub’ pairs (combinations of parent/subsidiary companies) is 0.6886. We believe that the results obtained from performing the empirical simulations are remarkable and consider that the optimal switching strategy of the rigorous mathematical model is applicable to businesses in the real world. For the reference many pseudo-program codes are added, which can help to replicate the optimal trading strategies.     

Does oligopsony power matter in price support policy design? Empirical evidence from the Thai Jasmine rice market

In the oligopsony market, farmers may receive low prices and policy analysis assuming perfect competition can yield serious bias results. In this paper, we estimate oligopsony power between processors and farmers and evaluate the welfare impact of the paddy pledging program (PPP), a generous price support program in the Thai Jasmine rice market, with an imperfect competition model. We develop a model that consists of rice supply equation and derived demand equation. We then simultaneously estimate these equations using system estimation methods to recover oligopsony power parameters. Finally, we use these parameters to assess the welfare impact of the price support program. Using annual panel data running from crop marketing year 2001/2002–2015/2016 and exploiting the institutional feature of the PPP, we find strong evidence of some oligopsony power, a moderate level of oligopsony price distortion, and a negative relationship between price support and oligopsony power. We also find that the PPP is inefficient but effective in income redistribution. Moreover, the program benefits both farmers and consumers. With better policymaking decisions, the PPP can be efficient by setting a suitable support price. Therefore, our results show that in the case of the Thai Jasmine rice market, the generally accepted “wisdom” about agricultural price support policy does not necessarily hold, and price support can be designed to improve the efficiency of the market.     

Effects of Lightness‐Location Congruency on Consumers’ Purchase Decision‐Making

A considerable body of psychological and neuroscientific research has demonstrated the existence of robust sensory correspondences between various features, attributes, or dimensions of experience in different sensory modalities. Despite findings indicating the importance of sensory correspondences to human information processing, research on purchase decision‐making has not to date focused sufficiently on this phenomenon. The present study examines how the lightness of packaging colors, and the location of products on a display shelf interact to affect consumers’ purchase decision‐making via perceived visual heaviness. As predicted, a display with light (dark) colored products positioned in the upper (lower) shelf positions increases shoppers’ perceptual fluency and facilitates their visual search, thus leading to the suggestion that “light” (heavy) locations are most appropriate for light (dark) colored products. Moreover, the lightness‐location congruent display is shown to influence people's choice behavior positively as well. This research also demonstrates that when consumers consider the lightness (in terms of their weight) of the products, they are more likely to choose light (vs. dark) colored products located in the upper shelf positions. These results therefore demonstrate that consumers’ purchase decision‐making may be promoted by in‐store environments designed to be congruent with their sensory correspondences.     

Disaster‐Relief Logistics With Limited Fuel Supply

Disaster‐relief logistics consists of providing adequate emergency supplies rapidly to the affected people so as to minimize human suffering and death. This study empirically examines the impact that the shortage of fuel, a commonly encountered problem in many disaster situations, can have on the effectiveness of disaster‐relief logistics operations. We focus on investigating the following two issues: (1) whether the shortage of fuel is more damaging in attaining logistical goals than the equivalent‐sized shortage in emergency supplies themselves, and (2) what types of vehicles should be used when the fuel supply is limited. Results suggest that the shortage of fuel may be more damaging than the shortage of emergency supplies, and that smaller trucks may be preferred to larger trucks when the shortage of fuel becomes severe.     

Residential rents and price rigidity: Micro structure and macro consequences

Why was the Japanese consumer price index for rents so stable even during the period of the housing bubble in the 1980s? To address this question, we use a unique micro price dataset which we have compiled from individual listings (or transactions) in a widely circulated real estate advertisement magazine. This dataset contains more than 700,000 listings of housing rents over the last 20 years. We start from the analysis of microeconomic rigidity and then investigate its implications for aggregate price dynamics, closely following the empirical strategy proposed by Caballero (Caballero and Engel, 2007). We find that 90% of the units in our dataset had no change in rents per year, indicating that rent stickiness is three times as high as in the United States. We also find that the probability of rent adjustment depends little on the deviation of the actual rent from its target level, suggesting that rent adjustments are not state-dependent but time-dependent. These two results indicate that both the intensive and extensive margins of rent adjustments are small, resulting in a slow response of the CPI for rent to aggregate shocks. We show that the CPI inflation rate would have been higher by 1% point during the bubble period, and lower by more than 1% point during the period following the burst of the bubble, if Japanese housing rents were as flexible as those in the United States.     

‘An Incomplete Contract Approach to Eurozone Fiscal Governance’ – Commitment vs. Flexibility

In this paper, we take an incomplete contract approach to Eurozone Fiscal Governance between the European Commission (EC) and any heavily debt member state, Greece in particular. Incomplete contract approach makes possible to put a long process of Eurozone Fiscal Governance into an extensive form game in which a renegotiation procedure is incorporated. We theoretically reveal the conflict of interests between the EC (Germany) and Greece over the Greek debt repayment plan proposed in 2015. We show that the Greek’s position is consistent with incomplete contract theory, but that the EC (Germany) does not allow the renegotiation for restructuring for growth-oriented debt repayment program proposed by the Greek government because the EC (Germany) judges that the commitment effect (on fiscal austerity) is greater than the flexibility one (pro-growth effect). This will undoubtedly provide a novel and interesting approach to Eurozone Fiscal Governance.