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.     

Demand fluctuations and capacity utilization under duopoly

Summary.  This paper studies the impact of uncertain demand on firms’ capacity decisions when they operate in an oligopolistic environment. We define a two-stage game where firms choose capacity in the first stage without knowing which state of Nature is going to realize, and output levels in the second, knowing which state is realized. We prove the existence of a symmetric subgame perfect equilibrium at which firms are in excess capacity compared with the capacity they would choose in the Cournot certainty equivalent game. Received: May 17, 1996; revised version July 31, 1996     

Price Competition When Consumersare Uncertain About Which Firm Sells Which Quality

In this paper we analyze the properties of price equilibria in a duopoly market where firms sell vertically differentiated products, consumers being uncertain about which firm sells which quality. Both existence and properties of price equilibria are characterized by the beliefs of the consumers' population about the distribution of quality between firms.     

Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher''s Commodity Points Revisited

We propose that analysis of purchasing power parity (PPP) and the law of one price should explicitly take into account the possibility of “commodity points”—thresholds delineating a region of no central tendency among relative prices, possibly due to lack of perfect arbitrage in the presence of transaction costs and uncertainty. More than 80 years ago, Heckscher stressed the importance of such incomplete arbitrage in the empirical application of PPP. We devise an econometric method to identify commodity points. Price adjustment is treated as a nonlinear process, and a threshold autoregression offers a parsimonious specification within which both thresholds and adjustment speeds are estimated by maximum likelihood methods. Our model performs well using post-1980 data, and yields parameter estimates that appear quite reasonable: adjustment outside the thresholds might imply half-lives of price deviations measured in months rather than years, and the thresholds correspond to popular rough estimates as to the order of magnitude of actual transport costs. The estimated commodity points appear to be positively related to objective measures of market segmentation, notably nominal exchange rate volatility.J. Japan Int. Econ.December 1997,11(4), pp. 441–479. Department of Economics, University of California, Berkeley, California 94720-3880; and Department of Economics, Northwestern University, Evanston, Illinois 60208-2600.     

Knowledge production and publishing in Africa

This article explores the practice of ‘knowledge production’ and ‘publishing’ in Africa. Knowledge production and publishing in Africa has been and still is dominated by Western experts, most of whose interests do not serve Africa. Powerful social groups in post-colonial Africa construct knowledge about Africa from the sites of universities. Ordinary people also produce knowledge, most of which is elaborated through unwritten forms, and actually contest dominant modes of knowing. Publishing in Africa ought to be controlled by Africans if African states are to realise the dream of an African renaissance. African governments ought to invest in knowledge production and publishing. African intellectuals with university education should work with ordinary African intellectuals to create new sites of knowledge. Knowledge production and publishing is not an ideologically neutral phenomenon. Therefore, African governments should create, and not thwart, conditions conducive to knowledge production and publishing that is self-interrogating.     

Assessing Applied Protection across the World*

This paper presents MAcMap–HS‐6, a database providing a consistent, ad valorem equivalent measure of tariff duties and tariff rate quotas for 163 countries and 208 partners, at the six‐digit level of the Harmonized System (5111 products), accounting for all preferential agreements. We describe the methodology used to compute and aggregate an ad valorem equivalent of applied protection. Emphasis is placed on minimizing the endogeneity bias in the aggregation procedure, while acknowledging structural differences in export specialization. The resulting quantitative assessment is illustrated by giving an overview of applied protection across the world in 2001, in terms of average as well as distribution.     

Opportunistic tendencies in IJVS with the Japanese: The effects of culture,shared decision making,and relationship age

This study investigated how partners' self-reported opportunism and shared decision making varied by culture in international joint ventures (IJVs) with the Japanese. Data were gathered by a mail survey of senior officials in IJVs located in 11 host countries. Significant differences were found between partners from Western cultures and the Japanese, but not between other Asians and the Japanese. Indirect effects suggest that shared decision making neutralizes cultural tendencies toward opportunism. Results indicated that opportunistic tendencies did not diminish as the IJV relationship aged, and that shared decision making did diminish as the relationship aged.     

New Evidence on the Performance Advantages of Multihospital Systems

This study analyzes the performance effects of proprietary, multihospital systems. It is shown that the organizational structure of these systems may affect the operating costs of member hospitals. Estimating a cost function for Florida hospitals and controlling for other factors, the average costs of HUMANA hospitals are empirically about 17 percent lower, while the costs of other leading chains are about 12 percent lower than not-for-profit institutions. These results contrast with earlier studies that found no such differences. Furthermore, the cost differential that exists between system and non-system hospitals can be largely attributed to technical efficiencies arising from chain ownership.     

Critical thinking and communication skills: Integration and implementation issues

This article describes issues associated with implementing an integrated approach to critical thinking and communication skills within accounting courses. The article builds on the work of Hirsch and Collins (1988) and discusses the following issues: (a) the collaboration of accounting and English faculty, (b) types of assignments, (c) assignment design, (d) the feedback process, (e) revisions in courses to accommodate a communication skills program, and (f) resources and motivation. The examples offered are from management/cost accounting courses, but our experience suggests that such an integrated approach to teaching critical thinking and both oral and written communication skills works well within most accounting and other business courses. However, individual programs will need to be tailored in order to address the issues defined here in ways that best fit their mission, goals, and resources.