Comment on “The weighted average cost of capital is not quite right”

One of the most important equations in modern finance theory and practise is the WACC textbook formula accounting for the capital structure and resulting tax consequences on valuing a stream of cash flows. In the article “The weighted average cost of capital is not quite right” published in this paper by Richard A. Miller in February 2009, the correctness of this formula is questioned and so-called “nonlinear WACC” are derived. This paper shows that the statements in Miller’s article are questionable themselves and that the standard WACC approach nevertheless yields correct results.     

“The weighted average cost of capital is not quite right”: A rejoinder

Richard Miller's reply (2008) to my comment (2008) on his claim (2007) that the standard WACC formula fails to correctly remunerate shareholders and bondholders raises crucial questions on the nature of the project's debt that he considers in his calculations. To clarify this point, I here introduce several possible definitions of a loan associated with a project, and discuss their respective relevance for a WACC calculation. In addition, Mr. Miller's suggestion that the standard WACC formula is not quite right remains unsubstantiated.     

A note on “Evolution of Preferences”

A surprising result in Dekel et al. (2007) states that strict Nash equilibria might cease to be evolutionary stable when agents are able to observe a signal that fully reveals the opponent’s preferences, even if the frequency of the signal is very low. I show that when the signal a player receives on her opponent’s preferences is almost uninformative, all strict Nash equilibria are evolutionary stable, no matter the frequency of the signal.     

The distribution of income between labor and capital is not stable: But why is that so and why does it matter?

I review the literature on labor's share of national income in developed and developing countries. These shares have varied systematically over the post-World War II period, rising until the late 1970s and then falling until now. Explanations for the decline in labor's share include technical progress, globalization and a decline in labor's bargaining power, but none of these explanations can account for both the rise and the decline of labor shares over time and for the similar pattern in developed and developing countries. However, movements in oil prices can account for these movements if energy is included in the production function. Such an explanation has broad implications for income distribution, energy conservation and for the modern theory of growth.     

A quality and risk-adjusted cost function for banks: Evidence on the “too-big-to-fail” doctrine

We estimate a multiproduct cost function model incorporating measures of bank output quality and the probability of failure. We model a bank's uninsured deposit price as an endogenous variable depending on the bank's output level, output quality, financial capital level, and risk measures. Accounting for these aspects in the cost model significantly affects measures of scale and scope economies. We find evidence that the too-big-to-fail doctrine significantly affects the price a bank pays for its uninsured deposits. For large banks, an increase in size, holding default risk and asset quality constant, significantly lowers the uninsured deposit price.     

A research on the threshold effect of human capital structure upgrading and industrial structure upgrading—based on the perspective of path dependence

Quality & Quantity - This paper considers that industrial structure upgrading (ISU) means a larger market size, however, ISU often faces huge challenges such as human capital mismatches, which...     

A re-examination of the “zero is enough” hypothesis in the emergence of financial stylized facts

In recent years, a growing literature has claimed that the market microstructure is sufficient to generate the so-called stylized facts without any reference to the behaviour of market players. Indeed, qualitative stylized-facts can be generated with zero-intelligence traders (ZITs) but we stress that they are without any quantitative predictive power. In this paper we show that in most of the cases, such qualitative stylized facts hide unrealistic price motions at the intraday level and ill-calibrated return processes as well. To generate realistic price motions and return series with adequate quantitative values is out-of-reach using pure ZIT populations. To do so, one must increasingly constrain agents?? choices to a point where it is hard to claim that their behaviour is completely random. In addition we show that even with highly constrained ZIT agents, one cannot reproduce real time series from these. Except in a few cases, first order moments of ZITs never equal real data ones. We therefore claim that stylized facts produced by means of ZIT agents are useless for financial engineering.     

Commentary on “The meaning of ‘talent’ in the world of work”

This paper provides a commentary on the article in this Special Issue on “The meaning of ‘talent’ in the world of work”, welcoming its analysis of the definition, meaning and conceptualisation of talent and seeking to develop further its research recommendations. In particular, it argues that the relationships between talent and gifts should be further explored, proposes that exploring its use in other languages than English would be useful, and suggests comparing its identification and development in management and other fields, especially sport and the arts. It also proposes multidisciplinary research and research into talent and talent management in various contexts, including sectorial, cultural, institutional and structural contexts. Finally, it proposes that factors which influence how talent is identified need further analysis, and perspectives from resource-based theories, ethical theories, development economics, and social capital theories should be utilised.     

The Impact of Respondent and Interviewer Characteristics on the Number of “No Opinion” Answers

In this article we analyse the number of no opinion answers to attitude items. We argue that that number can be considered as a count variable that should be analysed using Poisson regression or negative binomial regression. Since we're interested in the effect of both respondent and interviewer characteristics on the number of no opinion's we use multilevel analysis that takes into account the hierarchical structure of the data. As a consequence multilevel Poisson regression and multilevel negative binomial regression are applied. Our analysis shows that answering no opinion is related to some sociodemographic respondent characteristics. In addition we find a significant interviewer effect, but we are not able to explain that effect in terms of interviewer variables.     

“Less is more” or “more is better”? The effect of asymmetric information distribution on market efficiency and wealth inequality

Journal of Economic Interaction and Coordination - We provide experimental and empirical evidence on the role of information distribution and accuracy in solving market inefficiency and the related...     

The non-relevance of the elusive holy grail of asset pricing tests: The “true” market portfolio does not alter CAPM validity conclusions

Empirical evaluations of CAPM usually attach a caveat that rejection is conditional on the choice of market proxy. We explore the criticality of the proxy choice disclaimer. Using different proxies and comprehensive simulations of the unobserved “true” market in Fama–MacBeth tests of CAPM, we find that the significance (t-statistics) corresponding to betas remain consistently unaltered, even if the proxy is a small fraction of or has a low correlation with the true market. The constancy of t-statistics persists in a simulated true-CAPM world as well: if CAPM is indeed valid, the choice of proxy is unlikely to reject it erroneously. Identity of the elusive true market portfolio and the choice of representative proxy cannot overturn conclusions on validity of CAPM based on Fama–MacBeth tests. Roll’s Critique, incontrovertible in theory, may be quite forgiving in practice – CAPM cannot be resurrected by a “closer” approximation of the elusive true market portfolio when it has commonly been rejected.     

The influence of international oil price fluctuation on the exchange rate of countries along the “Belt and Road”

In recent years, the international crude oil price has become increasingly volatile. It influences the exchange rate changes of relevant countries through economic growth, price level, international balance of payments, and other channels. Such exchange rate fluctuations have caused certain risks for the development of China’s “Belt and Road” Initiative. This article analyzes the impact of oil price changes on the exchange rates of countries. Because the fluctuation of oil prices and exchange rates has shown the characteristics of multiple time scales, this study used the empirical mode decomposition (EMD) method to obtain the long-cycle and short-cycle sequences of oil prices and the exchange rates of various countries, then analyzed the impact of oil price changes on exchange rates under different time scales. The results showed that oil price fluctuations have an impact on the exchange rate changes of countries along the “Belt and Road” under different time scales. However, this effect is asymmetric between oil-producing countries and non-oil-producing countries, and the transmission path of oil prices to exchange rates varies from cycle to cycle.     

“Your health and safety is of utmost importance to us”: A review of research on the occupational health and safety of international employees

Organizations cannot function without healthy and safe employees, a stark reality evidenced by the COVID-19 pandemic in 2019-20: when lives are threatened, everything else becomes secondary. Few would question that there is a critical need to build HR-relevant knowledge of how to manage the health and safety of employees. Despite the duty of care carried by organizations and the fact that those who work across national borders are a particularly vulnerable group, there is surprisingly little discussion about their health and safety. We examined the literature relevant to the health and safety of international employees across four research disciplines. Our review of 180 papers found a growing yet fragmented field offering important insights with implications for HRM. Our paper is intended as both a review and a call for future advancement. We bring together disparate but related research streams in order to understand what is known about occupational health and safety related to working across national borders and to outline a roadmap for future research and practice.     

A note on “further sufficient conditions for an inverse relationship between productivity and employment”

The preceding paper in this Review discusses certain sufficiency conditions shown by Firoozi (1994) and presents an extension. This note shows that the preceding paper is a reflection of the generality carried by Firoozi’s setting and results.     

The joint impact of labour policies and the “Great Recession” on unemployment in Europe

The paper consists of an empirical analysis of the separate as well as joint impacts on total and youth unemployment of indicators of labour market policies on the one hand, and the financial crisis associated with the “Great Recession” on the other. In particular, we investigate labour market data in the past two decades for the Enlarged Europe and adopt a variable accounting for the idiosyncratic severity shock of the crisis. This time-varying and country-specific crisis variable enables us to test empirically and in a novel way the joint impact of labour market policies and the economic crisis on labour market dynamics even when accounting for common macro shocks.