How do mutual recognition agreements influence trade?

This paper empirically tests how the magnitude of trade promotion effects of mutual recognition agreements (MRA s) varies with various mediums. The main rationale for the research is that because an MRA eliminates technical barriers to trade (TBT ), the trade promotion effects of MRA s are inversely much stronger if TBT originally restricted trade before their entry into force. Using data on MRA s and international trade in 34 countries and 22 manufacturing sectors covering 1995 to 2009, the paper empirically shows that the trade promotion effects of MRA s can be much stronger, depending on the type of contract, time period after the entry into force, components of exports, and country and industry characteristics such as technology level and global competitiveness. The results will provide insight for policy makers and stakeholders who cooperate with foreign countries in various regulations, especially in developing countries that have low levels of technology, competitiveness, and regulatory governance capacity.     

Why do similar firms export differently?

Eaton et al. (2011) underline that firms with similar production costs, entry costs and demand export to different countries. In this theoretical article, I provide a rationale for this feature of the data. I demonstrate that similar firms exporting differently can be explained by a baseline trade-off between attractiveness and competition that is present in any model with monopolistic competition. I then show that this trade-off also generates valuable theoretical features including distance-related mark-ups, third country effect and equivalence with random utility models.     

Why do firms use fixed-term contracts?

Portuguese Economic Journal - In this article we look at how one specific form of temporary employment - employment with fixed-term contracts - fits into employers’ hiring policies. We find...     

When do simple policies win?

We present a simple model of a debate between two interested parties which takes into account the complexity of their policy positions. The two debaters engage in all-pay-auctions to win slots of time/attention to present their positions to a decision-maker. Complexity of a policy is modelled through the number of slots of attention needed to get the policy across. We show that when the number of attention slots is scarce, but still large enough to allow for both sides to fully present their policies, simple policies have an advantage over more complex ones. We show that this advantage of simple policies is diminished only when the number of attention slots is fairly large and when the decision-maker is strongly persuaded by more complex policies.     

When do the USDA forecasters make mistakes?

This study analysed forecasts for all US corn, soya bean and wheat categories published within the World Agricultural Supply and Demand Estimates (WASDE ) reports over the 1987/88 through 2009/10 marketing years in an attempt to identify patterns and better understand when the USDA forecasters make mistakes. Two general sources of errors were investigated: behavioural and macroeconomic factors. The first objective was to examine how these factors affect the size of the forecast error and the second concentrated on the direction of the error due to these effects. Our findings suggest that the largest increase in the size of USDA forecast errors was associated with structural changes in commodity markets that took place in the mid-2000s. Corn, soya bean and wheat forecast errors also grew during the periods of economic growth and with changes in exchange rates, while inflation and changes in oil price had a much smaller impact. With respect to behavioural sources, we identified patterns consistent with leniency and pessimism across different categories. Predictability of forecast errors based on the information available at the time the forecasts are made provides evidence of inefficiency and suggests that these forecasts may be improved using the findings of this study.     

Why do firms choose zero-leverage policy? Evidence from China

In recent years, firms choosing zero-leverage policy have largely increased around the world. However, few studies have focused on why Chinese firms choose zero-leverage policy. In this article, we investigate the motivations for firms choosing zero-leverage policy from the perspective of financing needs. Using a sample of public firms listed in Shanghai and Shenzhen Stock market in China from 2007 to 2014, we find that firms without external financing needs are more likely to become zero-leverage firms, and that financial constraints and financial flexibility also may be the motivations for firms choosing zero-leverage policy.     

How does the design of international environmental agreements affect investment in environmentally-friendly technology?

In this paper, we investigate how the design of international environmental agreements (IEAs) affects the incentives for the private sector to invest in environmentally-friendly technology. The givens are a transboundary pollution problem involving two asymmetric countries in terms of benefits arising from global abatement. There is a single polluting firm in each country. We account for two types of IEAs: an agreement based on a uniform standard with transfers and an agreement based on differentiated standards without transfers. To carry out this study, we use a two-stage game where the private sector anticipates its irreversible investment given the expected level of abatement standards resulting from future negotiations. Our findings indicate that the implementation of the agreement based on a uniform standard with transfers may be preferable for the two countries, as it creates greater incentives for firms to invest in costly abatement technology. This result arises when this technology’s level of the sunk cost of investment is low. If this level is sufficiently high, the implementation of the same agreement is not beneficial to countries, because it takes away the incentive of each firm to invest in new abatement technology. Moreover, this agreement is not able to generate any positive gains for either country through cooperation, thus no country is motivated to cooperate.     

When should firms choose a risky new technology? An oligopolistic analysis

How to choose technology type in a competitive environment is an important and challenging problem, which has received little attention from scholars. To fill this gap, this paper builds a game-theoretic model to examine whether a firm should choose to adopt a risky new technology or to adopt a safe new technology to reduce its marginal cost. I find that the result that each firm should always choose the risky technology in a duopoly may be invalid when more firms enter the market. In this scenario, some firms should adopt the safe technology for relatively high product substitutability because the advantage of employing the risky technology is threatened by the business stealing externality, finally forming heterogeneous equilibria in which both types of technologies are present. Furthermore, I show that the heterogeneous technology choice equilibria are more likely to arise when increasing number of firms enter the market, and that in these equilibria more firms always choose the risky technology than the safe technology. This study conveys relevant economic insights for competitive firms confronted with a dilemma between taking risks in pursuit of greater technology rewards and taking no risks for conservative technology returns.     

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.

When do sell-side analysts switch industries they follow?

Between 1984 and 2014 over 3400 sell-side analysts changed the primary industry they followed. This article documents that analysts are more likely to change their industries when their absolute and relative forecasting accuracy in that industry is low and when the accuracy in the new industry is high. Analysts are more likely to switch industries at the beginning of their careers, after a recent change of an employing brokerage house, and if they have a history of switching industries before. Analysts are less likely to make a switch when their forecasting activity in the industry is high, when the industry is followed by many analysts and when they are employed by a top brokerage house.     

How do firms adjust their prices in Turkey? Micro-level evidence

This article investigates the pricing behaviour of Turkish firms over the period 1988–2006 on the basis of firm-level micro data. The duration of prices is found to be 3.9 months on average. There is no clear heterogeneity across main groupings in the frequency of price changes, but more dependence on imported goods reduces price stickiness. Price decreases are less frequent than price increases, indicating downward rigidity in prices. There is evidence in favour of both time and state-dependent price setting behaviours. Further, there is a low degree of synchronization of price changes across firms, whereas price increases tend to be more synchronized than price decreases. Ordered probit models show that price adjustments depend on the type of the shock: the pass-through of a change in the cost is faster than changing demand. Besides, estimated probabilities of price adjustments with 5-years rolling windows reveal that inflation targeting has succeeded in bringing down the probability of price increases, whereas downward price rigidity has not weakened yet.     

The appeal of voluntary environmental programs: which firms participate and why?

Why do firms participate in the EPA's voluntary environmental programs? Possible reasons include: (1) to appeal to consumers who demand ‘green’ products; (2) to preempt government regulation; (3) to seek regulatory relief from the agency; and (4) to gain a competitive advantage over competitors. This article examines the determinants of participation in voluntary environmental programs, focusing on testing hypotheses 1 and 3. To test 2, a different approach is used than in previous literature. The focus is on a specified universe of firms (manufacturing firms in the Standard & Poor 500), and their participation in each of three EPA voluntary programs (33/50, Green Lights, and WasteWi$) referring to differently regulated pollutants is analyzed. Our empirical analyses reveal that (1) publicity is an important component of participation; (2) the worse the environmental track record of the firm, the more likely the firm is to participate, but only in programs directly related to highly regulated pollutants; and (3) firms that scrutinize their environmental performance more carefully are wary of newer programs with uncertain reach of the public and uncertain benefits. Firms appear to value the information/technology transfer aspect of joining a program.     

How does environmental performance affect financial performance? Evidence from Japanese manufacturing firms

This paper examines the effects of environmental performance on financial performance using the data of Japanese manufacturing firms from 2004 to 2008. As the environmental performance, our study considers the two different environmental issues of waste and greenhouse gas emissions in capturing the effects of corporate environmental management on financial performance. In addition, to clarify how each financial performance responds to a firm's effort in dealing with different environmental issues, we utilize many financial performance indices reflecting various market evaluations. Our estimation results show the different effects of each environmental performance on financial performance. Waste emissions do not generally have significant effects on financial performance. On the other hand, greenhouse gas reduction leads to an increase in financial performance in the whole sample and clean industries, although it does not have significant effects on financial performance in dirty industries. Furthermore, as the firm growth rate increases, the partial effects of waste emissions on financial performance decrease, whereas the partial effects of greenhouse gas emissions on financial performance increase.     

Individual versus group strategy-proofness: When do they coincide?

A social choice function is group strategy-proof on a domain if no group of agents can manipulate its final outcome to their own benefit by declaring false preferences on that domain. There are a number of economically significant domains where interesting rules satisfying individual strategy-proofness can be defined, and for some of them, all these rules turn out to also satisfy the stronger requirement of group strategy-proofness. We provide conditions on domains guaranteeing that for all rules defined on them, individual and group strategy-proofness become equivalent. We also provide a partial answer regarding the necessity of our conditions.     

When sociable workers pay off: Can firms internalize social capital externalities?

We use an endogenous growth model to contrast the socially optimal allocation of human capital with the decentralized solution, in a context where workers make the choices that determine social capital accumulation. As social capital is expected to increase productivity but is not traded in markets, a positive social capital externality is identified. We discuss the possibility that, in response to this externality, firms subsidize social capital accumulation activities, incurring into additional costs that are recouped through productivity gains. This reaction by firms may be seen as a justification for some corporate social responsibility actions targeted at workers, although a full internalization of the externality does not look achievable in practice.     

When do we Start? Pension reform in ageing Japan

Japan is faced with rapid demographic ageing and fiscal challenges. This paper simulates pension reform to reduce the replacement rate by 20% and raise the retirement age by 3 years gradually over a 30‐year period. We consider three scenarios with different points in time to initiate reform in 2020, 2030 and 2040, respectively. A delay would suppress economic activities, lowering output by up to 4% and raising tax burden by more than 8% of total consumption. Delaying reform implies a transfer of costs of demographic ageing to the young and deteriorates the welfare of future generations by up to 3% in terms of consumption equivalence.     

Shareholders’ agreements and voting power: evidence from Italian listed firms

This work provides an empirical investigation of shareholders’ agreements signed in Italy over the past decade. The evidence shows that agreements produce a remarkable reshuffling of voting power (Shapley value) among participants. In particular, the first owner gains much voting power at low levels of ownership concentration, and his gain is decreasing in his ownership stake; the opposite happens for the other participants. In addition, the likelihood that a supermajority rule is included in an agreement contract is increasing in the first owner's share of equity. These findings are consistent with the hypothesis that agreements are used to correct situations where the first owner's power is at one of the two extremes: either too low (leading to insufficient monitoring over managers and gridlocks in decision-making) or too high (enabling him to extract large private benefits of control).     

When is betweenness centrality useful to firms pursuing technological diversity? An internal-resources view

This study examines situations in which betweenness centrality (BC) is useful for firms pursuing technological diversity. Given the role of BC in firms’ access to external technological knowledge, the study explores the extent to which R&D and manufacturing resources, technological strength, and financial slack moderate the relationship between BC and technological diversity. The results show that BC alone does not exert a positive effect on technological diversity. Furthermore, R&D resources, technological strength, and financial slack each positively moderate the relationship between BC and technological diversity, whereas manufacturing resources do not. Identifying the influential moderators of internal resources should enable firms to harness the benefits of BC. Thus, firms should possess such internal resources to further their technological diversity through BC.     

When and why do countries break their national fiscal rules?

This paper identifies determinants of compliance with various types of national numerical fiscal rules. Based on 51 fiscal rules in force in EU member states from 1995 to 2015, the analysis identifies determinants among specific rule characteristics and their fiscal frameworks, as well as their political, (socio-)economic and supranational environments. While the average compliance across all rules and countries is around 50%, compliance with rules constraining stock (rather than flow) variables, set out in coalitional agreements, as well as rules covering larger parts of general government finances is significantly higher. Furthermore, independent monitoring and enforcement bodies (issuing real-time alerts) turn out to be significantly associated with a higher probability of compliance. Several theories of the deficit bias of governments due to government fragmentation, decentralization and political budget cycles are also significant with regards to compliance with fiscal rules. However, neither the economic environment or business cycle, nor forecast errors (except for an unexpectedly higher primary balance) on average seem to play a significant role.