The Determinants of Capital Structure Choice: Evidence from Polish Companies

The main objective of this paper is to investigate which of the two competing capital structure theories – the pecking order of financing choices or the traditional static trade-off model – better describes the financing decisions in Polish companies traded on the Warsaw Stock Exchange (WSE). The data come from financial statements of the companies and cover a 5-year period, 2000–2004. First, a correlation is run in order to separate a set of significant factors influencing the capital structure from the list of the following independent variables: assets structure, profitability, growth opportunities, liquidity, firm size, product uniqueness, earnings volatility, non-debt tax shields, dividend policy, and the effective tax rate. Next, in order to test the relationship between capital structure and its potential determinants, multiple regression is run. The evidence generally suggests the relevance of the pecking order hypothesis in explaining the financing choices of Polish firms.

Corporate social responsibility and the ‘game of catallaxy’: the perspective of constitutional economics

The paper examines the issue of corporate social responsibility (CSR) from the perspective of constitutional economics, focusing on the distinction between a political community’s constitutional choice of the rules of the “market game,” and the market players’ sub-constitutional choice of strategies within these rules. Three versions of CSR-demands are identified and discussed, a “soft,” a “hard”, and a “radical” version. The soft version is concerned with the issue of how “socially responsible” corporations ought to play the market game within existing rules. The hard version is about how the rules of the market ought to be changed in order to induce “socially responsible” corporate behavior. And the radical version questions the compatibility of CSR and the logic of the market game, calling in effect for adopting some alternative economic regime.

Natural selection and rational decision: two concepts of optimization

There are two different kinds of optimization: “selection” and “rationality” optimization. Selection optimization characterizes competition in human and nonhuman societies sharing the same market or niche. “Rationality optimization”, on the other hand, characterizes human and nonhuman decision making processes. The two kinds of optimization generate the same result: agents end up behaving efficiently. Nonetheless, we should not downplay the differences between the two kinds of optimization. Otherwise, we would fail to capture the role of rationality in the development of the organism and possibly its implication for evolution.

Constitutional tariffs, incidental protection, and the Laffer relationship in the early United States

This article explores an early attempt to establish a constitutional constraint on tariffs utilizing the Laffer Curve relationship. In 1842 John Calhoun suggested that the curve’s revenue maximization apex could be used to differentiate between “Revenue” and “Protective” tariffs independently from the non-judiciable question of legislative motive. When admitted that a tax must actually be collected to remain constitutionally valid, the apex functions as a de facto upper tariff rate constraint. Despite subsequently falling in disfavor, Calhoun’s argument illustrates the importance of political economy on the constitutional level by recognizing conditions that induce policymakers to rationally raise tax rates at the expense.

On the integration of growth and business cycles

This paper discusses several approaches to generating the observed persistence in macro models and presents evidence in favor of models where endogenous technology adoption propagates transitory shocks into the medium term. Prepared for the Conference on “The Interrelation of Cycles and Growth” in honor of Gunther Tichy.

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The disadvantage of entrants: did transition eliminate it? The case of the Russian footwear industry (1992–2000)

Several studies have analyzed entry in developed capitalist economies coming to the conclusion that entrants are usually smaller, less productive and at higher hazard than incumbents. This study considers if this was the case also in the rather peculiar situation of those firms which entered during the period of transition from planned to market economy, in one of the ex-soviet countries. Additionally this work considers whether or not the uncertain environment generated by transition did activate a process of entry, as situations of uncertainty are generally supposed to do. The main result of this paper is that despite the fact that incumbents were firms created and organized to meet the objectives of the soviet regime, they were not outperformed by subsequently-created firms which were formed to match the needs of a transitional/quasi market economy. These results do not support “vintage” and “liability of obsolescence” models which suggest that new comers are better fitted to match new conditions.

Intra-industry differences in vertical integration, heterogeneous costs and pricing: the case of web hosting

In many differentiated product industries, both traditional and “new economy” activities, vertically integrated firms also supply inputs to apparent rivals in the downstream business. This generates heterogeneity between low- and high-sunk cost suppliers with implications for entry and competitive conduct. The web hosting market is typical with primary suppliers operating alongside resellers who rent server space from them. We explore the impact of competition in US hosting using a unique dataset covering 15,000 packages offered by 3,500 firms. The results suggest price is sensitive to competitor clustering in quality space; an outcome consistent with easy entry for resellers with ultra-low fixed costs.

Order aggressiveness and order book dynamics

In this paper, we study the determinants of order aggressiveness and traders’ order submission strategy in an open limit order book market. Applying an order classification scheme, we model the most aggressive market orders, limit orders as well as cancellations on both sides of the market employing a six-dimensional autoregressive conditional intensity model. Using order book data from the Australian Stock Exchange, we find that market depth, the queued volume, the bid-ask spread, recent volatility, as well as recent changes in both the order flow and the price play an important role in explaining the determinants of order aggressiveness. Overall, our empirical results broadly confirm theoretical predictions on limit order book trading. However, we also find evidence for behavior that can be attributed to particular liquidity and volatility effects.

How useful is generalized Darwinism as a framework to study competition and industrial evolution?

The role of Darwinist concepts in evolutionary economics has long been a contentious issue. The controversy has recently been rekindled by the proposal of a “Universal” or “generalized” Darwinism, which holds that the ontology of all evolutionary systems accords to the Darwinist scheme of variation, selection and inheritance. This paper focuses on the application of the generalized Darwinist framework to the analysis of markets and industries. It argues that selection and inheritance concepts narrowly construed after the biological example are of limited usefulness. As an alternative to the ‘top–down’ approach of Universal Darwinism, the development of ‘bottom–up’ theories is advocated.

Thought experiments, counterfactuals and comparative analysis

This article discusses the problem of “thought experiments” in Austrian economics and takes as a starting point Lawrence Moss’ argument on the divide between the older Austrian economists—for whom thought experiments were crucial—and the new generation that, in Moss’ view, has “abandoned” such methods. The article is an attempt not only to bridge this alleged divide but also to contribute to the development of the Austrian methodology. It is argued that what may be perceived as “abandonment” bolsters rather than precludes the role of thought experiments in the Austrian paradigm. The article identifies an entire family of comparative and counterfactual analysis research strategies available to the Austrians, all enjoying a solid epistemological and methodological grounding. The “comparative-counterfactual analytics” pattern threads together the conjectural histories, spontaneous orders and empirical case studies of the contemporary Austrians, with the classic tradition of older works. Consequently, the recent evolution of Austrian scholarship should not be seen as an aberration or abandonment but as a deliberate, natural and commendable development.

Are residual economic relationships normally distributed? Testing an assumption of neoclassical economics

In both theoretical and applied contexts, neoclassical economics typically assumes that residual economic relationships are mean-zero, finite-variance, normally distributed random variables. However, many have challenged this view, from various perspectives. The Austrian economists, specifically in the tradition of Mises and Rothbard, reject outright the effort to mathematically model human choices. This Austrian view is often derided as unscientific. However, some of the most mathematically sophisticated work in financial economics also rejects the orthodox bell curve. In this paper, we test Benoit Mandelbrot’s “stable Paretian” hypothesis on ten major macroeconomic data sets and reject the normal distribution in nine of them. We further argue that the stable Paretian hypothesis (and, more generally, the field of “chaos theory”) is far more compatible with the Austrian position than one might initially suspect.

Defying the ‘Juncker curse’: can reformist governments be re-elected?

European policy makers, notably in the euro area, seem to take for granted that the electorate will punish them for bold reform in product and labour markets. This may explain why progress in the euro area has been comparatively limited. This paper posits and, using a dataset for 21 OECD countries, shows that this fear of electoral backlashes is unfounded, provided that financial markets work well. The mechanisms involved are relatively straightforward: well functioning financial markets “bring forward” future yields of structural reform to the present, thus permitting to overcome possible short-run costs. As a result, the electorate tend to reward, not punish, reformist governments. This has important implications for the design of structural reform packages, with financial market reforms being an essential ingredient beside product and labour market reforms.

Transaction tax and stock market behavior: evidence from an emerging market

This study examines the impact of a stamp tax rate increase on market behavior, using data from two stock exchanges in China. We find that when the tax rate increases from 0.3 to 0.5% (which implies that the transaction cost increases by about 1/3) trading volume decreases by 1/3. This implies an elasticity of turnover with respect to a stamp tax of −50% and an elasticity of turnover with respect to transaction cost of −100%. The markets’ volatility significantly increases after the increase in the tax rate. Furthermore, the change in the volatility structure indicates that the markets become less efficient in the sense that shocks are less quickly assimilated in the markets.

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Inputs and institutions as conservative elements

Ludwig von Mises argued that capital goods were “conservative elements” that constrain future production decisions. Similarly, social capital and institutions also constrain future production decisions. These insights are applied to the institutional transformation of the post-Reconstruction American South. It is argued that the structure of social capital that developed in the South was inappropriate to the formal institutions that emerged as a result of the Civil War and Reconstruction. The tensions between institutions and social capital are examined in the context of racist lynching.

Political pressures and the credibility of regulation: can profit sharing mitigate regulatory risk?

When price-cap rules determine the structure of prices for a long period, they suffer a credibility problem and introduce an element of risk especially if a firm’s profits are “too large”. Profit sharing may be seen as a device to pre-determine price adjustments and thus to decrease regulatory risk. We analyse the effects of profit sharing on the incentives to invest, using a real option approach. Absent credibility issues, a well designed profit sharing system may be neutral relative to a pure price cap. With regulatory risk, profit sharing is preferable to a pure price-cap one, if it intervenes for high enough profit levels.

A critique of the new comparative economics

We examine the “new comparative economics” as proposed by Djankov et al. (2003) and their use of the concept of an institutional possibilities frontier. While we agree with their general argument that one must consider a variety of institutions and their respective social costs, including legal systems and cultural characteristics, when comparing the performance of different economic systems, we find various complications and difficulties with the framework they propose. We propose that a broader study of clusters of institutions and such newly emerging forms as the new traditional economy may be better suited as ways to approach the study of comparative economics in the era after the breakdown of the old comparison of market capitalism and command socialism that came to an end with the breakup of the Soviet Union.

When and why do Austrian companies issue shares?

This paper examines the issuance of share capital via the Vienna Stock Exchange between 1985 and 2004. Evidence is supplied concerning the aggregate factors that help to explain the time-series variation in both the numbers of and proceeds from initial public offerings (IPOs) and seasoned equity offerings (SEOs). Results indicate that there is no cyclical sensitivity of issues, but that firms successfully time their offerings to take advantage of high stock market valuations and the associated low cost of equity capital. Corporate indebtedness and interest rates are significant determinants of SEOs in statistical and economic terms. The proceeds from IPOs, rather than funds raised by firms already listed, are used to finance subsequent investment.

A Knowledge-Based Economy: New Directions of Macromodelling

Development of “new economies” leading to economies mostly based on knowledge implies the construction of new long-term macroeconometric models. They should incorporate the impacts of new technologies being endogenized, as well as human capital. The paper discusses several issues related to the extension of the notion of production function. They cover first of all the measurement and explanation of total factor productivity (TFP), the role of domestic and foreign R&D expenditures, as well as educational expenditures. The discussion is extended to include proposals to construct new submodels explaining the sections of research and education and also the ICT industries.

The role of controls in the international financial crisis

The impact of the great financial crisis that started in the United States with the implosion of “subprime” loans has drawn the public’s attention on one of the most innovative branches of financial market, the famous derivatives. The financial crisis and the involvement of major banking institutions thus call for some thinking about the concept of control in Italy and in a globalized world. In Italy, even though the scale of the risks connected with transactions in derivatives is limited, some banks may have damaged their reputations by pushing complex derivative products onto unwitting clients. Apart from reassurance and all kinds of justifications, and without arguing whether this was deliberate or not, the monetary authorities, Consob, and ABI have clearly reported the risk of a world financial crisis too late.

A sectoral taxonomy of educational intensity

This paper classifies 49 manufacturing and service industries according to their educational workforce composition. Statistical cluster techniques are applied to data for the USA, Germany, France, the UK and Austria. Industries are first classified separately for each country, providing an appropriate tool for the analysis of national micro-data. Later, the paper proposes a common consensus classification, enabling comparative international studies. Validation of the cluster solution reveals considerable robustness to variations over time and between countries. Finally, regression analyses and ANOVA decompositions on various measures of sector performance confirm a significant tendency towards “education-biased structural change” between industries.