Estimating the benefits and costs of forming business partnerships

I estimate a matching model of business-partnership formation to quantify the relative importance of productivity gains, financing gains, and the coordination failure of effort provision (moral hazard) among partners. Productivity gains account for 61% of the gain from the observed partnerships. For partners in the first quartile of the wealth distribution, however, financing accounts for 93% of the gain. The cost of moral hazard corresponds to 42% of the entire gain from partnerships. A loan policy specifically targeting partnerships is less effective in improving welfare than a conventional loan policy that provides loans to individual entrepreneurs.     

Public‐private partnerships versus traditional procurement: Innovation incentives and information gathering

A government agency wants a facility to be built and managed to provide a public service. Two different modes of provision are considered. In a public‐private partnership, the tasks of building and managing are bundled, whereas under traditional procurement, these tasks are delegated to separate private contractors. The two provision modes differ in their incentives to innovate and to gather private information about future costs to adapt the service provision to changing circumstances. The government agency’s preferred mode of provision depends on the information‐gathering costs, the costs of innovation efforts, and the degree to which effort is contractible.     

Contemporary public–private partnership: Towards a global research agenda

This paper reviews the research agenda lineage on public–private partnerships (PPPs) from Broadbent and Laughlin's seminal piece in 1999. The PPP phenomenon is viewed at five levels: project delivery, organisational form, policy, governance tool and as a phenomenon within a broader historical and cultural context. We argue that whilst a variety of research issues will continue to be relevant, five corresponding areas deserve future visibility for a renewed research agenda: (1) Financialisation of PPPs, (2) global PPP market actors, (3) internationalisation of policy on PPPs, (4) long‐term complex contracts as a governing regime and (5) PPPs in BRICS and developing countries.     

Accountability and corporate governance of public private partnerships

Brennan and Solomon (2008) identify six new frontiers in accountability and corporate governance research to stimulate research. This paper contributes to such research by devising a reporting framework and research agenda that relates to Brennan and Solomon's fourth frontier, sectors and context, focusing on the regulated hybrid organisational forms of Public Private Partnerships, which operate at the interface of the public and private sectors.As the framework shows, these organisations are subject to multiple influences and demands. There is a need for more and different reporting than is the norm under the private sector's decision-useful reporting framework. Although the framework focuses on what Mulgan (2000) describes as the core of accountability, it is not only a financial reporting framework but it also seeks to make concrete Kamuf's (2007) argument that accountability might include accounting through narrative as well as the prevailing numeric evaluation.The paper stresses the need for information to be accessible to the public, and in particular argues that a stream of information between the public and private sector partners needs to be developed and disseminated to achieve accountability for public money that is increasingly spent in the private sector.     

Estimating dynamic R&D choice: an analysis of costs and long‐run benefits

This article estimates a dynamic structural model of discrete Research and Development (R&D) investment and quantifies its cost and long‐run benefit for German manufacturing firms. The model incorporates linkages between R&D choice, product and process innovations, and future productivity and profits. The long‐run payoff to R&D is the proportional difference in expected firm value generated by the investment. It increases firm value by 6.7% for the median firm in high‐tech industries but only 2.8% in low‐tech industries. Simulations show that reductions in maintenance costs of innovation significantly raise investment rates and productivity, whereas reductions in startup costs have little effect.     

Dynamic ownership and private benefits

We quantify private benefits of control by estimating a structural model of optimal shareholding using data on the ownership dynamics of Italian public companies. In the model, shareholders must maintain a minimum stake in the company to extract control benefits, which leads to infrequent trading of large blocks, and which is consistent with the empirical evidence. We estimate that control benefits account for 2% (4%) of the market value of the equity (block), and controlling shareholders earn a sizeable premium from the block holding on top of the market value of the shares. Also, we provide evidence that large block ownership and ownership persistence are associated with higher stock returns.     

Public private partnerships: Incentives, risk transfer and real options

Private financing of large-scale infrastructure projects through public private partnerships (PPPs) has grown in recent decades. Together with changes in conventional construction procedures, there have been changes in the project financing model. The use of PPPs raises questions as to the role of the private sector in infrastructure provision and the conditions governing the long-term contractual relationships between the private and public sectors. In some early examples of PPPs, the government guaranteed a minimum profitability over the cash flows using a set of contractual terms which transferred some of the risk of the project from the private provider back to the government. Using a large toll road project, the Melbourne CityLink Project, as a case study we show how the imposed conditions can be treated as real options, how these options affect the incentive to invest and how the public sector may be transferring considerable value to the private sector through government guarantees.     

Public sector reforms and public private partnerships: Overview and research agenda

The purpose of this editorial paper is to introduce the special issue and outline its majorthemes. This special issue of Accounting Forum aims to stimulate interdisciplinary and critical research on public sector reforms, particularly in the context of Public Private Partnerships and other public sector organisations. The editorial also seeks to provide a research agenda and new directions for more research in the field, considering the ambiguities of this hybrid organisational forms and the complexity of accounting and accountability reforms.     

The costs and benefits of short sale disclosure

In this study, we examine the impact of a market-wide mandatory disclosure policy on short selling on the Tokyo Stock Exchange. We find that average short selling slightly declined while investors’ shorting strategies changed significantly in response to the disclosure. Previously highly shorted stocks were shorted less and shorting activity shifted toward smaller and riskier stocks, suggesting that retail investors became the more likely short sellers. Short sales became more trend-chasing, prices became less informative, and short-term price volatility increased. Overall, the pricing efficiency benefits of short selling declined after the mandatory disclosure policy.     

The costs and benefits of the Form 5500 annual report

The author suggests that although the Form 5500 annual report may help to reduce legal violations, it may do so in an unnecessarily expensive way that serves the economic interests of some professional groups. In particular, his investigation suggests that the CPA audit provides questionable benefits and amounts to a special interest group's extraction of rents through the regulatory process.     

Inside the black box: Bank credit allocation in China’s private sector

This study examines how the Chinese state-owned banks allocate loans to private firms. We find that the banks extend loans to financially healthier and better-governed firms, which implies that the banks use commercial judgments in this segment of the market. We also find that having the state as a minority owner helps firms obtain bank loans and this suggests that political connections play a role in gaining access to bank finance. In addition, we find that commercial judgments are important determinants of the lending decisions for manufacturing firms, large firms, and firms located in regions with a more developed banking sector; political connections are important for firms in service industries, large firms, and firms located in areas with a less developed banking sector.     

Continuous reporting benefits in the private debt capital market

The study is an experiment, administered over the Internet, measuring the effect that continuous reporting has on a company's ability to secure private debt capital. Specifically, we test whether commercial loan officers would be more willing to increase the probablity of loan acceptance to a mid-sized company operating in a continuous reporting environment than they would a company that operates in a traditional reporting environment. We find that high risk companies providing financial information to the lender on a daily basis have a higher probability of loan acceptance than do companies providing financial information to the lender on a quarterly basis. We did not find any results for low risk companies, suggesting the potential benefits of continuous reporting might not accrue to those type companies. The results were robust for both new and existing banking relationship scenarios. We did not find any results for the interest rate variable. The results of this study have significant implications for companies determined to be high risk. Commercial loans are the life-support for many companies, and failure to secure a line-of-credit could have devastating consequences for these high-risk companies.     

The costs and benefits associated with inventor CEOs

This paper examines various firm policies that highlight the potential tradeoffs associated with hiring CEOs with hands-on innovation experience. In addition to generating more patents, innovative CEOs also convert those patents into new services and products, as proxied by new trademark registrations. On the other hand, innovative CEOs do not receive higher pay compared to non-innovative CEOs, suggesting that innovative CEOs may receive other nonpecuniary benefits. Furthermore, innovative CEOs invest more in R&D leading to lower efficiency, hold more cash, and utilize less debt. In spite of these costs, it appears that hiring innovative CEO is still optimal for firms. We find that the improvements in corporate governance do not lead to changes in firm policies, suggesting that shareholders are willing to tolerate the potential costs associated with innovative CEOs.     

The benefits and costs of geographic diversification in banking

We estimate the benefits of geographic diversification within states and across states for bank risk and return for all U.S. bank holding companies from 1994 to 2008, and assess whether such benefits depend on bank size. For small banks, only intrastate diversification increases risk-adjusted returns and reduces default risk while for very large institutions only interstate expansions are beneficial but only in terms of default risk. In all cases the relationship is hump-shaped indicating that at some point, the possible agency costs associated with banks getting wider and more geographically diversified outweigh the benefits. Our results indicate that small banks and very large banks could still benefit from further geographic diversification.     

The economic costs and benefits of UK defence exports

This study examines the economic costs and benefits to the UK of a 50 per cent cut in UK defence exports from the average level of 1998 and 1999. The net impact on the government budget is estimated to be an ongoing loss of between around £40 million and £100 million a year: around 0.2–0.4 per cent of the total UK defence budget. In addition, there is estimated to be a one‐off net adjustment cost, spread over five years, of between £0.9 billion and £1.4 billion. A further more speculative adjustment cost (estimated at around £1.1 billion) could result if the loss of income associated with the ‘terms‐of‐trade£ effect were also included. In terms of the wider debate about defence exports, the results of this study suggest first that the economic effects of the reduction in defence exports are relatively small and largely one‐off, and secondly that the balance of arguments about UK defence exports should be determined mainly by non‐economic factors.     

信息透明度与控制权私利关系研究——来自中国上市公司的经验证据

控制权私利的隧道行为和隐蔽特征源于信息的不透明.本文首次系统地从信息透明度角度,研究信息透明度与控制权私利的关系.研究表明,法律制度与媒体信息披露能够显著抑制控制权私利,企业每股收益和两权分离度与控制权私利呈显著正相关关系,而总市值则呈显著负相关.这表明,控股股东实施两权分离或者向上市公司输送利润,其真实目的就是为了攫取控制权私利;而扩大企业规模,则能够显著抑制控股股东攫取私利.     

Cross‐region and cross‐sector asset allocation with regimes

Cross‐region and cross‐sector asset allocation decisions are one of the most fundamental issues in international equity portfolio management. Equity returns exhibit higher volatilities and correlations, and lower expected returns, in bear markets compared to bull markets. However, static mean–variance analysis fails to capture this salient feature of equity returns. We accommodate the nonlinearity of returns using a regime switching model across both regions and sectors. The regime‐dependent asset allocation potentially adds value to the traditional static mean–variance allocation. In addition, optimal allocation across sectors provide greater benefits compared to international diversification, which is characterized by higher returns, lower risks, lower correlations with the world market and a higher Sharpe ratio.     

Estimates of the macroeconomic costs of cyber‐attacks

This paper estimates the macroeconomic losses related to the cyber‐attacks originating from the information and communications technology (ICT) and the financial sectors. The study accounts for the interdependency of various economic sectors and looks to the cascading effect of cyber‐attacks on production network in the United States and leading Organisation for Economic Co‐operation and Development countries with the help of the input–output methodology and the World Input–Output Database. Our results suggest that cyber‐attacks that affect the ICT and finance sectors result in losses which also impact different economic sectors, due to cascading effects.     

Equity financing in a Myers–Majluf framework with private benefits of control

This paper generalizes the Myers and Majluf (1984) model by introducing an agency cost structure based on private benefits of control. This new model predicts that many corporate finance variables each have opposing effects on under- and overinvestment. Private benefits exacerbate overinvestment but, interestingly, a small amount of private benefits can enhance firm value by alleviating underinvestment. Likewise, an increase in insider ownership alleviates overinvestment but aggravates underinvestment. When private benefits are small, the adverse effect of insider ownership on underinvestment tends to dominate. When there are considerable private benefits, the incentive-alignment effect of insider ownership is pronounced. Additionally, this model reconciles existing equity financing theories on announcement effects. It helps resolve the puzzle that small-growth firms do not seem to have an asymmetric information disadvantage when they issue new equity.