Measuring the Restrictiveness of Trade Policy

This article provides an introduction to the trade restrictivenessindex (TRI), which equals the uniform tariff that is welfareequivalent to a given pattern of trade protection. Unlike standardmeasures of trade restrictiveness, the TRI has a solid theoreticalbasis, can incorporate both tariffs and quantitative restrictions,and can be adapted to construct the trade policy equivalentof domestic distortions. The article compares a number of applicationsand describes procedures for operationalizing the TRI on a personalcomputer. The authors conclude that the TRI has considerablepotential in empirical work.     

THE MULTIFIBRE ARRANGEMENT AND ITS EFFECTS ON DEVELOPING COUNTRIES

The MFA provides for bilateral quotas against textile and clothingexports from developing countries. Thus, although it is administeredunder the auspices of GATT, the MFA derogates two GATT principles:nondiscrimination and the avoidance of quantitative restrictions.The impact of the MFA on developing countries is examined inthe article. Four important short-term effects of the MFA onexporting developing countries are (a) the forgoing of exports,(b) the transfer of quota rents, (c) the shift to unrestrictedexporters, and (d) the upgrading of products. In the long termthe MFA discourages newcomers from becoming successful exportersof textile and clothing products. Although it also encouragesforeign investment in unrestricted developing countries, ingeneral the MFA is harmful to current and potential exportersof textiles and clothing in developing countries, and it benefitsdomestic producers of textiles and clothing in the importingindustrial countries.      

Federal Reserve Monetary Policy and Industry Stock Returns

Recent studies identify stock return patterns associated with changes in Federal Reserve monetary policy. We find that these return patterns prevail across sixteen industry stock indices. However, significant cross-industry variation exists as the apparel industry exhibits mean annual returns that are 50% higher under an expansive Fed policy than under a restrictive policy, while the same return difference for the oil industry is only 20%. This cross-industry variation suggests that monetary conditions may be used by investors to estimate different expected returns across industries. Furthermore, the findings support the view that monetary considerations should be considered in ex ante asset pricing models such as the CAPM.     

The impact of toxic chemical releases and their management on financial performance

This paper examines the extent to which environmental performance affects firm profitability, where environmental performance is measured by toxic chemical releases per sales dollar and toxic chemical management (treat, recycle, or recovery) per sales dollar. Conclusions are drawn based on a sample of U.S.-based publicly-traded companies that reported to the Environmental Protection Agency's Toxics Release Inventory (TRI) program between 2001 and 2017. The results show that publicly-traded companies that reduce emissions see an increase in their Tobin's q. In addition, the effects of reducing emissions, treating toxic chemicals to minimize their environmental impact, or combusting toxic chemicals for energy, are more significant for companies that consistently fall under the mandatory reporting requirements of the TRI program. However, recycling toxic chemicals is associated with negative financial consequences for these companies.     

中国及东盟成员国吸引外资税收政策的比较

本文分析了近年来东盟成员国吸引外资的税收优惠政策,通过比较,认为我国应该借鉴东盟成员国的成功经验,调整相应的税收政策,以加强我国对外资的吸引力,同时应提高外资在我国产业之间、地区之间的合理配置。     

The territorial futures of Europe: ‘Trends’, ‘Competition’ or ‘Cohesion’

The ESPON 2006 scenario project generated three integrated roll-forward scenarios (A roll-forward scenario is a scenario in which the hypotheses define the parameters at the start of the covered time period and the scenario then explores the unfolding of events based on theses hypotheses. This is opposed to a roll-backward scenario in which the situation at the end of the time period is defined and the scenario then explores the path to reach this situation.). In the trend scenario renewed efforts are made for the Lisbon strategy, demanding extra investments in R&D and education. Regional policy will also be continued with vigour. In the Competition Scenario bold decisions are made regarding Europe's continued prosperity. The Lisbon strategy takes precedence over institutional reform and other sectoral policies. In the Cohesion Scenario Europe is confronted with the challenge of fully integrating the various regions in Europe. The budgets for Regional Policy and Rural Development Policy are enhanced and targeted to the most needy regions. The scenarios are described as stories about the future, supported by model calculations and visualised by various maps. They concentrate on urban and rural development and on territorial developments in different parts of Europe, like North-West Europe, the Alpine Space and Central and Eastern Europe. In addition, a proactive, roll-back scenario explores the possibilities to combine competitiveness, cohesion and sustainability. A message, derived from the scenarios, is that independent of the explored policy options the European territory will be confronted with large challenges like a (rapid) decline of fossil energy resources and increasing impacts of climate change. The scenarios appear particularly helpful in the context of the current paradigm shift in European regional policy from a policy for balance to a policy for aggregate growth.     

Impacts of China's Accession to the World Trade Organization

This article presents estimates of the impact of China's accessionto the World Trade Organization. China is estimated to be thebiggest beneficiary (US$31 billion a year from trade reformsin preparation for accession and additional gains of $10 billiona year from reforms after accession), followed by its majortrading partners that also undertake liberalization, includingthe economies in North America, Western Europe, and Taiwan (China).Accession will boost manufacturing sectors in China, especiallytextiles and apparel, which will benefit directly from the removalof export quotas. Developing economies competing with Chinain third markets may suffer small losses. Accession will haveimportant distributional consequences for China, with the wagesof skilled and unskilled nonfarm workers rising in real termsand relative to those of farm workers. Possible policy changes,including reductions in barriers to labor mobility and improvementsin rural education, could more than offset these negative impactsand facilitate the development of China's economy.     

Price Effects of Preferential Market Access: Caribbean Basin Initiative and the Apparel Sector

Preferential trade arrangements should be evaluated by theireffect on prices rather than by their effect on the total valueof trade. This point is emphasized in the theoretical literaturebut rarely implemented empirically. This article analyzes theU.S. Caribbean Basin Initiative’s (CBI’s) impacton the prices received by eligible apparel exporters. The CBI’sapparel preferences are the most important and heavily usedunilateral preferences because of high trade barriers imposedon exports from the rest of the world. A fixed-effects generalizedleast squares (GLS) estimation is used to isolate the effectsof other factors (such as quality, exchange rates, and transactioncosts) and to identify the effects of tariff preferences. CBIexporters capture only about two-thirds of their preferencemargin despite the high degree of competition among importers.This translates into a 9 percent increase in the relative pricesthey receive, with some variance across countries and years.Countries specializing in higher value items capture more ofthe preference margin, and the implementation of the North AmericanFree Trade Agreement (NAFTA) has a negative effect. RemovingMultifibre Arrangement quotas significantly lowers the benefitsof CBI preferences.     

The relevance of environmental disclosures: Are such disclosures incrementally informative?

Establishing the information content of transparent voluntary environmental disclosures and the source of this information content is of fundamental importance for corporate social responsibility (CSR) practitioners. Our results indicate that: (1) incremental to information provided by current Toxics Releases Inventory (TRI) data, voluntary environmental disclosures provide valuation relevant information; (2) the various disclosure categories are similar in value relevance, implying that each category is informative of management’s current environmental strategies; (3) current TRI is positively associated with cost of capital but there is no association between voluntary environmental disclosures and cost of capital; and (4) taken together, the above results point to a signaling role for such disclosures and financial performance prediction as the means by which voluntary environmental disclosures enhance firm value. This advances the literature by pinning down the source of firm value enhancement of such disclosures. Our results suggest that a proactive environmental strategy and the signaling of such a strategy to investors can enhance a firm’s stock price, a finding which will assist CSR practitioners in convincing top management that proactive environmental strategies combined with transparent voluntary environmental disclosures are worthwhile.     

Insurance and economic policy uncertainty

Just as the world has witnessed the increased importance of the insurance sector over the past few decades, it has also witnessed a sharp rise in risks and uncertainties. Surprisingly, studies analyzing the relationship between economic policy uncertainty and the insurance sector are almost non-existent. Another major limitation of insurance literature is the choice of methodology. Most studies on the insurance sector do not take into consideration issues of heterogeneity and cross-sectional dependence, and are therefore subject to errors. To address the identified gaps, this research investigates the impact of economic policy uncertainty on insurance premiums in a panel of 15 countries over the period 1998–2016 by employing heterogeneous panel estimation techniques with cross-sectional dependence. The Durbin-Hausman cointegration tests of Westerlund (2008) confirm that a long-run relationship exists between the variables. Findings from the error correction based panel estimations show that the insurance sector is not immune to the effects of economic policy uncertainty. Economic policy uncertainty raises insurance premiums both in the short and long run, although the long-run impact is greater than the short-run impact. In addition, economic policy uncertainty exerts a bigger influence on non-life insurance premium than on life insurance premium, indicating that the economic risks covered by non-life insurance are more sensitive to uncertainty than the mortality and longevity risks covered by life insurance. Our findings further show that national income, education, population, financial development and institutional quality all raise insurance premiums, while inflation lowers insurance premiums.     

What do dividends tell us about earnings quality?

Over the past 30 years, there have been significant changes in the distribution of earnings—cross-sectional variation has increased, with increasing left skewness—as well as in corporate payout policy, with many fewer firms paying dividends and the emergence of stock repurchases. We investigate whether the informativeness of payout policy with respect to earnings quality changes over this period. We find that the reported earnings of dividend-paying firms are more persistent than those of other firms and that this relation is remarkably stable over time. We also find that dividend payers are less likely to report losses and those losses that they do report tend to be transitory losses driven by special items. These results do not hold as strongly for stock repurchases, consistent with them representing less of a commitment than dividends.     

China's capital flight: Pre- and post-crisis experiences

We study China's illicit capital flow and document a change in its pattern. Specifically, we observe that China's capital flight, especially the one measured by trade misinvoicing, exhibits a weakened response in the post-2007 period to the covered interest disparity, which is a theoretical determinant of capital flight. Further analyses indicate that the post-2007 behavior is influenced by quantitative easing and other factors including exchange rate variability, capital control policy and trade frictions. Our study confirms that China's capital flight pattern and its determinants are affected by the crisis event. Further, both the canonical and additional explanatory variables have different effects on different measures of capital flight. These results highlight the challenges of managing China's capital flight, which requires information on the period and the type of capital flight that the policy authorities would like to target.     

The effect of non-recurring items on analysts’ earnings forecasts

This article discusses the effects of non-recurring profits and losses on statement users’ decision-making processes from the perspective of securities analysts. We examine the relationship between analysts’ forecast revisions and firms’ non-recurring earnings. We find that 1) non-recurring gains and losses can influence analysts’ earnings forecast revision; 2) compared with non-recurring items resulting from policy changes, analysts are more concerned about those attributed to changes in business scope; 3) if listed companies use non-recurring items to turn losses into gains during earnings management, it will weaken the effects of non-recurring items on analysts’ earnings forecast revision. The results suggest that non-recurring items that result from changes in business scope incorporate information that users need for the future operation of the business. This article verifies the information relevance of non-recurring items and provides evidence for the necessity of non-recurring item disclosure.     

The Impact of Changes in Job Security Regulations in India and Zimbabwe

Employment laws in India and Zimbabwe require employers to obtainpermission from the government to retrench or lay off workers.The effect of these laws on the demand for employees in 64 manufacturingindustries is examined using time series data. Little evidenceis found indicating slower adjustments in employment levelsand hence retardation in any structural adjustment followingthe new laws. However, in both countries a substantial declinein the demand for employees (other things equal) followed thenew legislation. In Zimbabwe it is difficult to be precise abouta causal connection between the drop in the demand for labor(allowing for concurrent increased wages) and the new legislationbecause enactment occurred simultaneously with Independence;however, the current economic climate induced high levels ofinvestment in capital but not investments in long-term commitmentsto employees. But in India further evidence supports a causalconnection: larger establishments covered by the job securityregulations tended to experience a decline in the demand forlabor while smaller, uncovered enterprises in the same industriesdid not; moreover the decline in demand for employees acrossindustries in India was larger where the private sector predominates,where larger establishments covered by the new laws are important,and where a smaller proportion of employees are union members.Thus in both countries the policy implemented to protect jobsmay have resulted in far fewer jobs.     

Domestic and foreign trade credit in the Netherlands an econometric analysis

In this study the determinants of both domestic and foreign trade credit are investigated. Data were obtained from about 1600 industrial firms in The Netherlands with 100 or more employees and covering the period 1957–1971. The main findings are as follows. In the first place, (net) trade credit turns out to be a structural source of funds for the weaker firms in the simple. Secondly, these weaker firms receive more (net) trade credit when monetary policy is tightened (this could be an argument for the authorities to pursue a general monetary policy). Finally, it appears that it is especially the buyer (debtor) who may ‘lead’ or ‘lag’ international payments in the short run.     

Monetary policy and covered interest parity in the post GFC period: Evidence from the Australian dollar and the NZ dollar

After the global financial crisis (GFC), most major currencies had higher interest rates than the US dollar on forward contract because of increased demand for the US dollar as international liquidity. However, unlike the other major currencies, the Australian dollar and the NZ dollar had lower interest rates than the US dollar on forward contract in the post GFC period. The purpose of this paper is to explore why this happened through estimating the covered interest parity (CIP) condition. In the analysis, we focus on a unique feature of Australia and New Zealand where short-term interest rates remained significantly positive even after the GFC. The paper first constructs a theoretical model where increased liquidity risk causes deviations from the CIP condition. It then tests this theoretical implication by using daily data of six major currencies. We find that both money market risk measures and policy rates had significant effects on the CIP deviations. The result implies that unique monetary policy feature in Australia and New Zealand made deviations from the CIP condition distinct on the forward contract.     

VALUATION IMPLICATIONS OF EXCEPTIONAL AND EXTRAORDINARY ITEMS

This paper uses a valuation framework to examine whether exceptional and extraordinary items (as traditionally defined) have the same valuation implications with income from ordinary activities. British company data covering an 11-year (1980–90) period are used. The empirical model used in the study posits a log-log relationship between income from ordinary activities, exceptional and extraordinary items, and book value of equity at the previous accounting year-end and market prices. There is some evidence that both exceptional and extraordinary items are priced by the market and that extraordinary items may not be combined with exceptional items or with income from ordinary activities.     

Textiles and Clothing in a New Round of Trade Negotiations

Because developing countries generally have a comparative advantagein the production of labor-intensive textiles and clothing,the liberalization of trade in these products is critical totheir prospects for increasing foreign exchange earnings. Thenew round of trade negotiations is likely to be less importantfor trade in textiles and clothing, however, than were the recentrenegotiations of the fourth Multifibre Arrangement (MFA). Asthe MFA remains in effect until July 1991, this limits the rangeof measures which can be altered in the interim. Nonetheless,textile trade will influence the process and outcome of thecurrent negotiations because of the overlap of textile tradedisputes with other broader trade issues. These include tariffs,the rollback of tariffs and quotas, voluntary export restraints,and other nontariff barriers, all of which have been appliedto textiles trade at various times. Each of these measures hasan influence on trade flows and a cost to both the importingand exporting countries. Any proponents of liberalization oftrade in textiles and clothing must not only be familiar withthese costs but also must be knowledgeable about the economicand political forces which have initiated and sustained theprotective measures. The following discussion suggests thatthere are groups and transitional approaches which may favorsome progress in textile trade liberalization in the currentround of negotiations.     

Changes in Income Distributions and the Role of Tax‐Benefit Policy During the Great Recession: An International Perspective

In this paper, we examine the impact of the economic crisis and the policy reaction on inequality and relative poverty in four European countries: France, Germany, Ireland and the UK. The period examined, 2008–13, was one of great economic turmoil, yet it is unclear whether changes in inequality and poverty rates over this time period were mainly driven by changes in market income distributions or by tax‐benefit policy reforms. We disentangle these effects by producing counterfactual (‘no reform') scenarios using tax‐benefit microsimulation and representative household surveys for each country. For the first stage of the Great Recession, we find that the policy reaction contributed to stabilising or even decreasing inequality and relative poverty in the UK, France and, especially, Ireland. Market income changes nonetheless pushed up inequality and relative poverty in France. Relative poverty increased in Germany as a result of policy responses combined with market income changes. Subsequent policy reforms, in the later stage of the crisis, had markedly different cross‐country effects, decreasing overall poverty in France, increasing it in Ireland, and giving mixed effects for different subgroups in Germany and the UK.     

The new Form 8-K disclosures

The Securities and Exchange Commission (SEC) has mandated new disclosure requirements in Form 8-K, which became effective on August 23, 2004. The SEC expanded the list of items that have to be reported and accelerated the timeliness of these reports. This study examines the market reactions to 8-Ks filed under the new SEC regime and investigates whether periodic reports (10-K/Qs) became less informative under the new 8-K disclosure rules. We observe that the newly required 8-K items constitute over half of all filings and that most firms disclose the required items within the new shortened period (four business days). We find that all disclosed items (old and new) are associated with abnormal volume and return volatility around both the event and the SEC filing dates, and some items have significant return drifts after the SEC filings. Surprisingly, we find that the information content of periodic reports has not diminished by the more expansive and timely 8-K disclosures under the new guidance, possibly indicating that investors may use periodic filings to interpret the effects of material events that had been disclosed earlier.