Financial literacy and retirement planning: evidence from China

We study the relationship between financial literacy and retirement planning in China. We find that higher scores on the financial literacy questions are associated not only with a higher probability of retirement planning, but also a higher propensity to actively use financial markets for retirement preparation. These relationships are robust to taking into account the endogeneity of financial literacy.     

Non-commitment and savings in dynamic risk-sharing contracts

Summary. We characterize the solution to a dynamic model of risk sharing under non-commitment when saving is possible. Savings can play two important roles. First savings can be used to smooth aggregate consumption across different periods. Second, when savings are observable, they can act as a collateral that can be seized in the case of default. This relaxes the non-commitment constraint. When the aggregate income is fixed or when one of the agent is risk neutral, the allocation tends to first-best consumption. When one of the agent is risk neutral, this convergence occurs in an expected finite number of periods.Received: 17 March 2004, Revised: 8 March 2005, JEL Classification Numbers: C7, D9.Michel Poitevin: Correspondence toWe gratefully acknowledge financial support from F.C.A.R., C.R.S.H. and C.I.R.A.N.O.     

Spot market wages,implicit contracts and technological change: skill-level evidence from Finland

This article investigates the relevance of the theories of implicit contracts and spot market model to the skill-level wages in Finland. We use linked worker-firm panel data over the period from 1991 to 2004, which included major institutional and technological changes. We find similar patterns in the wage flexibility of primary and highly educated workers: their wages increased with the decreasing spot market unemployment rate after the EU membership still exhibiting some weak backward linkages. The wages of the secondary-educated did not follow the decreasing spot market unemployment, but instead some signs of the full commitment risk sharing were found.     

Endogenous market structures and contract theory: Delegation, principal-agent contracts, screening, franchising and tying

I study the role of unilateral strategic contracts for firms active in markets with price competition and endogenous entry. Traditional results change substantially when the market structure is endogenous rather than exogenous. They concern (1) contracts of managerial delegation to non-profit maximizers, (2) incentive principal-agent contracts in the presence of moral hazard on cost-reducing activities, (3) screening contracts in case of asymmetric information on the productivity of the managers, (4) vertical contracts of franchising in case of hold-up problems and (5) tying contracts by monopolists competing also in secondary markets. Firms use always these contracts to strengthen price competition and manage to obtain positive profits in spite of free entry.     

Individual account investment options and portfolio choice: Behavioral lessons from 401(k) plans

This paper examines how the menu of investment options made available to workers in defined contribution plans influences portfolio choice. Using unique panel data of 401(k) plans in the U.S., we present three principle findings. First, we show that the share of investment options in a particular asset class (i.e., company stock, equities, fixed income, and balanced funds) has a significant effect on aggregate participant portfolio allocations across these asset classes. Second, we document that the vast majority of the new funds added to 401(k) plans are high-cost actively-managed equity funds, as opposed to lower-cost equity index funds. Third, because the average share of assets invested in low-cost equity index funds declines with an increase in the number of options, average portfolio expenses increase and average portfolio performance is thus depressed. All of these findings are obtained from a panel data set, enabling us to control for heterogeneity in the investment preferences of workers across firms and across time.     

Fiscal policy,business cycles and discretion: evidence from the Western Balkans

While previous research has examined the macroeconomic performance of the New Member States during the boom–bust cycle of the 2000s, very little has been written on the experience of the Western Balkans. In this article we investigate the responsiveness of fiscal policy to business cycles in the Western Balkans, examining whether expenditure moved counter-cyclically and whether a larger proportion of expenditure was ‘discretionary’; that is, related to the political cycle rather than economic conditions. Our results suggest that fiscal policy did not move counter-cyclically in the Western Balkans. Instead, countries overspent in the boom years and then reduced spending as a result of financing constraints during the crisis. Furthermore, the discretionary component of fiscal policy, defined here as spending unexplained by inertia and economic conditions, appears to be somewhat larger in the Western Balkans than in the European Union. This has important policy implications that affect the effectiveness of fiscal policy in dampening economic fluctuations.     

Fiscal decentralization and corporate investment: empirical evidence from China

This paper examines the effect of fiscal decentralization on levels and efficiency of corporate investment. The results indicate that as the extent of local government fiscal decentralization increases, the level of new investment by firms under their jurisdiction rises. Furthermore, fiscal decentralization has an impact on corporate investment by aggravating over-investment rather than alleviating under-investment, leading to a situation whereby fiscal decentralization is negatively associated with investment efficiency at the level of the firm. Finally, the impact of fiscal decentralization on over-investment, under-investment and investment efficiency is not different between state-owned enterprises and non-state-owned enterprises, suggesting that economic leverages are the dominant government intervention measures. The findings imply that fiscal decentralization is another determinant of firm-level investment and corporate investment efficiency, which broadens the existing literature on the economic consequence of fiscal decentralization, resulting in important implications for policy-making.     

Revisiting electricity liberalization and quality of service: empirical evidence from New Zealand

What effect does the firm structure have on the quality of service delivered by networks and infrastructure industries? We answer this question by empirically assessing the impacts of complete vertical separation, such as ownership unbundling, on the quality of service delivered by a liberalized network industry. Electricity distribution utilities in New Zealand are considered for this purpose and are analysed using panel-data econometrics. The results show robust evidence that ownership unbundling contributed to a fall in the duration and frequency of supply interruptions in electricity distribution. However, the results also show that unbundling has no effect on reducing distribution network losses. These results, overall, highlight the nonsimple impacts of ownership unbundling on the quality of electricity distribution. We suggest that the quality of service may largely improve when considered in the economic regulation of electricity networks than completely relying on specific reform measures such as ownership unbundling.     

Capital structure choice and ownership: evidence from electronics enterprises in China

Empirical studies on capital structure mostly focus on listed companies and also on countries other than China. In this paper, we employ a panel dataset for 4,716 large and medium-sized enterprises in the Chinese electronics industry during the period 2005–2007 in order to investigate the determinants of their capital structure choice. Using the debt ratio as the dependent variable, we find that firm size and potential growth have a positive effect on the debt ratio whereas profitability has a negative effect. We show that decisions on the debt ratio are based on mixed factors that the various theories suggest. The unlisted Chinese companies which are unable to access to the securities market are prone to acquire bank loans as sources for funds which provides room for the modification of pecking order theory based on listed companies. As to ownership structure, we find that those Chinese electronics enterprises with higher portions of foreign equity tend to have lower debt ratios.     

State ownership,political connections and entry barriers: evidence from China

Private enterprises may encounter high industrial barriers in China because of government administrative restrictions. We analyse the effect of partial state ownership on a privately controlled company’s participation in industries with state-imposed barriers. The results indicate that state ownership in privately controlled enterprises has a significantly positive effect on participation in high barrier industries. After controlling for partial state ownership, we find that personal political identity of entrepreneurs, a previously investigated dimension of political connections, becomes less important in explaining private enterprises’ participation in barrier industries. We also find the effect of state ownership on access to barrier industries will become weaker when local economy is more developed.     

Treatment effects of selection behavior in managed care plans: evidence from Medicaid

This paper tests whether capitated payments to Medicaid managed care plans induce to plans strategic undercutting of treatment for specific diagnostic groups. I focus on treatment (measured by length of stay and cost) in acute care hospitals in Massachusetts. I use a differences-in-differences-in-differences approach, where the third differences compare treatment patterns between managed care plans that receive capitated payments with those that do not. I find that the first reduce treatment significantly more to mental health patients than to patients in other disease groups, whereas the latter reduce hospital resource use more uniformly across disease groups. These results highlight the importance of using payment mechanisms in public programs that reflect the variability in costs of beneficiaries.Received: September 2002, Accepted: May 2003, JEL Classification: I11I thank Randall Ellis, Kevin Lang and Thomas McGuire and anonymous referees for valuable comments and suggestions. I also thank seminar participants at The Brookings Institution and Harvard/MIT/BU Health Economics Seminar. The Portuguese National Science Foundation (B.D. 5910/95) and NIMH (NIMH R01 MH59254) provided financial support. I am indebted to the Massachusetts Division of Health Care Finance and Policy for kindly providing the data to me for this project. I am responsible for any errors that may remain.     

Volatility spillovers and macroeconomic announcements: evidence from crude oil markets

The paper applies an event study methodologyaims to investigate the macroeconomic announcements effects on Standard&Poor’s500 and oil prices. Our results provide evidence for a significant impact of the US macroeconomic news on oil prices. This impact is split into two components, namely the direct effect (common response) and indirect effect (volatility transmission). Altogether our results show that the volatility transmission is bidirectional. Not only a significant volatility transmission from the oil market to the US stock market is revealed, but also a high volatility transmission is recorded from the oil market to the stock market especially after the release of consumption indicators.     

Election cycles in mining licensing: theory and evidence from Albania

Most of the literature on political business and budgetary cycles (PBBC) has focused on fiscal and monetary policy variables in advanced-country contexts. We extend this literature by investigating political cycle effects in a non-monetary, non-fiscal policy regime (the allocation of mining licences) in a transition country context. We propose a model of mining licensing that allows for corruption and for both supply and demand effects to determine the outcome. We then estimate this model using time-series data from post-communist Albania. Relying on a dynamic Poisson model, we find evidence of both opportunistic and partisan effects. Based on our theory, we suggest a corruption interpretation of political cycles in non-fiscal/non-monetary variables. This interpretation, we suggest, may be more applicable to the context of developing and transition countries. Our study raises important questions about the unintended (and often pernicious) effects of transition politics on economic regulation and economic performance in post-socialist economies.     

Taxation and corruption: theory and firm-level evidence from Uganda

This article develops a simple framework to analyse the negotiation over bribe and tax payments during the tax collection process. We show that the larger the bribe a firm offers to a tax collector, the larger the tax rebate it gets. More particularly, we show that the negotiation over bribe and tax payments hinges on four other factors: firms’ official liabilities, detection, firms’ negotiation power and red tape costs imposed on firms. Some of the predictions from the theoretical model are tested using firm-level data from Uganda. We find that bribe and tax payments are inversely related, thereby supporting the hypothesis of a negotiation taking place between firms and tax collectors. In particular, a 1% point increase in average bribe payments per employee is associated with a 7% point reduction in average amount of tax payments per employee. Results are robust to various instruments dealing with the endogenous relationship between bribes and taxes.     

Border effects in the enlarged EU area: evidence from imports to accession countries

By looking at imports of Eastern European countries, we provide novel insights on the importance and magnitude of border effects and on how they are linked with technical barriers to trade. All Central Eastern European Countries (CEECs) traded with themselves more than with other countries. We grouped products into three categories; depending on the importance of applicaple technical barriers. Our results show border effects are the largest for products, where we expect to have the most important technical barriers. We assess if border effects changed over the transition period and we find that for products where technical barriers are less important the magnitude of border effects was declining at the end of the 90s.     

Combining value and momentum: evidence from the Nordic equity market

This is the first article that explores the recently proposed average ranking approach for the value and momentum strategy in the Nordic equity market offering an exceptional experimental environment. Our results indicate that in the Nordic stock markets, the value anomaly offered excess returns in the 1993–2017 sample period only when small stocks were a part of the portfolio, whereas the momentum effect is strong and significant, irrespective of size. Interestingly, our findings also indicate that the negative correlation between value and momentum seems to be driven by growth stocks: Winner stocks that are value stocks generated 1.66% per month on average, whereas winner stocks that are growth stocks exhibit virtually the same average payoff. On the other hand, the spread between value and growth stocks that are loser stocks is on average 0.97% per month.     

Re-assessing international stock return predictability: evidence from directional accuracy and excess profitability tests

In this article, we assess the informational content of monthly lagged US excess stock returns for sign and mean predictability of stock market returns in 10 industrialized countries using the directional accuracy and excess profitability tests of Pesaran and Timmermann (1992) and Anatolyev and Gerko (2005), respectively. We find only a limited evidence supporting the earlier findings of Rapach et al. (2013) based on the test of Clark and West (2007).     

Mean reverting financial leverage: theory and evidence from Pakistan

Grounding concepts of the two competing theories of capital structure (trade-off theory, pecking order theory) are quite opposite to each other. Trade-off theory claims that there is an optimal (target) capital structure and firms try to achieve that optimal (target) point. Whereas pecking order theory argues that there is no optimal (target) capital structure but the firms follow a specific pattern of financing. Using the two competing theoretic frameworks, this study applies Fisher-type panel unit root test to an unbalanced panel data of 13 115 firm-year observations of nonfinancial firms listed on Karachi Stock Exchange Pakistan spread over 38 years (1973–2010). Overall panel test results, for short-term, long-term, as well as total leverage support trade-off financing behaviour while individual firm results do not. Individual firm results show that only 16% of the firms have short-term target, 25% of the firms have long-term target and 12% of the firms have total target leverage ratio. Further, industry results explain that most of the industries do have target leverage ratios and classification of data into profitable and lossmaking firm-year observations explains that profitable firms clearly follow trade-off financing behaviour while the results for lossmaking firms do not support trade-off financing behaviour. Our study indicates that it is important for the government to ensure policies to develop well-balanced financial markets and to improve accountability systems.     

Political connections,ownership structure and private-equity placement decision: evidence from Chinese listed firms

In contrast with many other countries, Chinese listed firms must obtain approval to make private-equity placements (PEPs) from the Chinese Security Regulatory Commission (CSRC), a state bureau that regulates capital market financing. We analyse the role of political connection (PC) and ownership structures when accessing private equity (PE) market, while investigating the mechanisms through which political ties operate within the regulatory process of PEPs. The findings suggest that PCs do not contribute to the firm’s decision to apply for PEPs, but firms with state-ownership demonstrate a higher propensity to apply for PEPs. PC and state-ownership appear to help firms to obtain approval from the CSRC, and these firms are treated more favourably than their rivals without such connections. Politically connected firms spend less time in managing bureaucracy, but PC and state-ownership negatively affect proceeds from the PE market in China. Firms with politically connected directors with professional business backgrounds tend to spend less time managing the CSRC, and these professionals positively affect proceeds from the PE market in China. This study provides important insights for policy-makers, investors, PE issuing firms and security market regulators.     

Dynamic linkages between Asian stock prices and exchange rates: new evidence from causality in quantiles

This article applies the Granger causality test in quantiles to investigate causal relations between stock returns and exchange rate changes for nine Asian markets over the period 1 January 1997 to 16 August 2010. Our empirical results indicate that the quantile causal relations vary across different quantiles and different periods. Although the causal effects of exchange rate changes on stock returns (or stock returns on exchange rate changes) are heterogeneous across quantiles, the overall evidence suggests that most stock and foreign exchange markets are negatively correlated. The result shows that there are more bidirectional causal relations in accordance with this method than the conventional least square (LS) estimation. The symmetry of these quantile causal effects (the ‘averaging effect’) helps to explain why conventional LS method usually obtains an insignificant result of causality.