Equilibrium in Insurance Markets: An Empiricist’s View

Empirical models of insurance markets would greatly enhance our ability to understand policy-relevant questions. Yet they are still quite rare. This paper sketches such a model and surveys its basic elements. While much progress has been made in recent years in our understanding of insurance demand in particular, the most crying need is for market-wide data.     

Executive turnover in China’’s state-owned enterprises:Government-oriented or market-oriented?

Executive turnover is important in the governance of state-owned enterprises (SOEs). Herein, we focus on the executive turnover of China’s SOEs, and the implementation of related evaluation mechanisms under different levels of government intervention. We collect executive turnover data of listed Chinese SOEs from 1999 to 2012, and find that about half of the SOE executives leave office within two terms, which is in line with government recommendations. Moreover, we find that more than a third of executives leave after less than one term, and nearly 20% after more than two terms, highlighting the uncertainty and unpredictability of executive appointments in SOEs. We also find that the executive evaluation mechanism for SOEs is implemented differently under different levels of government intervention. SOEs under weak intervention, such as those controlled indirectly by governments, controlled with low shareholdings, from non-regulated industries or in the Eastern regions, prefer the market-oriented evaluation method, which places more weight on executives’ economic performance. In contrast, those under strong intervention prefer the government-oriented evaluation method, which is characterized by policy burden.     

Making do: state constraints and local responses in California’s education finance system

California’s unique education finance system combines general state support for school districts, numerous state categorical aid programs, a restricted local property tax, and two unusual small local revenue sources: a parcel tax and contributions from educational foundations. This paper explores the incentives this system creates for local voters and school officials and estimates the impact of these incentives on education costs, school district efficiency, and the demand for student performance. The paper finds that voters in California respond to the price incentives in this system even though they work through the hard-to-pass parcel tax instead of the property tax; that educational outcomes are strongly influenced by student characteristics and other factors that influence educational costs; that school district efficiency is undermined by the state’s current emphasis on categorical instead of unrestricted aid; and that, overall, the education finance system is not well designed to meet the state’s educational objectives.     

What’s in the news? The ambiguity of the information content of index reconstitutions in Germany

We analyze stock price behavior around reconstitutions of the German DAX index family from 1990 to 2013. The strong price run-up of added stocks in the 2 months preceding the announcement date remains robust until 2 months after the effective date (ED), and is fully reversed 5 months later. Conversely, stock prices of deleted firms are under pressure until 10 months after the ED. Unlike most previous studies, we find that outright entries and exits have temporary price effects, as do additions to and deletions from better-known indices; however, promotions and demotions related to lesser-known indices command permanent stock price responses. Rather surprisingly, deleted stocks consistently earn higher abnormal returns than added stocks in the 5-year post-event period. Specifically, the return differential levels out at 77.3%. We establish that this differential in permanent stock prices is attributable to differences in operating performance and media coverage. In practice, index reconstitutions do not appear to give unambiguous signals about the long-run investment appeal of affected firms. However, index fund managers not constrained by tracking error minimization would be better off holding deleted stocks for 5 years after the ED.     

Discussion of: The option market’s anticipation of information content in earnings announcements

Billings and Jennings (2011) develop a new measure of stock price sensitivity to earnings called anticipated information content (AIC). The main difference between an AIC and an earnings response coefficient (ERC) is that AICs measure expected rather than actual sensitivity. I evaluate the AIC’s potential usefulness in future research, and conclude that AICs have several disadvantages relative to ERCs but might be useful in rare circumstances. Estimates of AICs contain considerable measurement error and fail a primary test of construct validity when left uncorrected. I outline a method for correcting two of the three sources of measurement error, which can be used by researchers interested in pursuing work on AICs. The method may have uses beyond computing AICs because it yields a prediction of the unsigned change in stock price during a scheduled event window.     

Investments in human capital: The evidence from China’s new rural pension scheme

Human capital accumulation is a radical cure for income inequality and poverty issues in the process of economic development. In addition to exploring the impact of education-related policies on human capital investment, many scholars have begun to pay attention to the spillover effect of non-education policies on human capital investment behaviors. In this paper, we investigate whether the New Rural Pension Scheme (NRPS) initiative has had an impact on human capital investment behavior in rural China. We use a China Family Panel Studies sample and apply propensity score matching and difference-in-differences methodologies to test for the causal effects of this reform initiative. The results show that NRPS has had a positive effect on households’ human capital investments. In particular, education expenditures on children aged zero to 16 years increased substantially as a result of NRPS, with a more substantial causal effect for girls and in wealthier provinces. The results should be of great interest to academicians and policymakers interested in public policy and development.     

Formal Participation in the EFRAG’s Consultation Processes: The Role of European National Standard-Setters

While the European Financial Reporting Advisory Group (EFRAG) considers European national standard-setters (NSSs) as close partners that play a vital role in its legitimacy, empirical evidence on EFRAG’s consultation processes and the involvement of NSSs therein remains scarce. We use a multi-issue/multi-period approach to investigate the formal participation in EFRAG’s consultation processes. By examining 2,102 comment letters submitted to EFRAG in the 2002–2015 period, we find that NSSs typically outweigh other stakeholder groups in terms of level of participation across stages of the consultation process and project topics. Although NSSs’ level of participation is rather stable over time, it significantly varies across European countries. We also provide a recent classification of European NSSs and show that NSSs’ level of participation varies by their institutional status and is the highest for private NSSs. Our findings have implications for aspects of the legitimacy of both EFRAG and NSSs and shed light on the role of intermediaries in international accounting standard-setting.     

Is there anybody out there? The place and role of citizens in tomorrow’s smart cities

Imagining tomorrow’s life implies, to a large degree, imagining the kind of cities we will inhabit in the future. In this framework, the smart city is actually a popular vision in discourses on urban development. This paper explores alternative ways in which citizens are positioned within different imaginaries of the smart city. The premise is that most mainstream discourses implicitly assume that smart city projects will empower and improve the lives of citizens. However, their role is often ambiguous. While some visions of the smart city are characterised by the absence of citizen’s voices, others are populated by active citizens operating as urban sensors. Furthermore there are fearful visions of a future in which citizens will be subjugated by technologies that will hamper their freedom. This paper analyses the role of citizens in four alternative smart city imaginaries. The thesis proposed is that all four imaginaries are characterised by citizens playing a subaltern role, and hence the smart city is a relatively poor concept if intended as a model of the urban life of the future.     

The effect of TARP on lending: Evidence from the lead bank’s share in syndicated loans

Review of Quantitative Finance and Accounting - We investigate the effect of the Troubled Asset Relief Program (TARP) on the shares of lead banks in syndicated loans by using quarterly data for the...     

Transparency as a remedy for agency problems in securitization? The case of ECB’s loan-level reporting initiative

Poor transparency of asset-backed securities (ABS) exacerbated the latest subprime lending crisis. In response, the European Central Bank introduced the ABS loan-level reporting initiative, obliging originators to disclose quarterly loan-by-loan information. However, does this increase in transparency alleviate the agency problems inherent in securitization? To answer this question, we examine a novel dataset of 107 ABS pools that are backed by more than 2.8 million loans for small and medium-sized enterprises from the first securitization repository in Europe. The results show that the increase in transparency indeed has valuable effects for investors, inducing originators to improve pool performance and diversification for existing as well as newly issued ABS. These effects persist for a large set of control variables and a broad variety of robustness tests.     

Make or buy new technology: The role of CEO compensation contract in a firm’s route to innovation

A firm’s board of directors, based on its risk tolerance or “appetite,” sets the corporate objectives. It is then the management’s job to meet the objectives by adopting appropriate strategies. However, the board can design compensation policies to encourage desired management strategy choices. This paper explores the extent to which management compensation policies are aligned with strategy choices for obtaining new technology. Firms obtain new technology either through internal R&D or through acquisitions, often labeled “make” and “buy” strategies, respectively. The “make” strategy is inherently more risky, with much of the high risk idiosyncratic. Furthermore, U.S. GAAP requires that R&D expenditures be expensed but allows capitalization of acquisition costs, thus a firm using the “make” as opposed to the “buy” strategy will experience a greater negative effect on accounting earnings. I hypothesize that these differences will lead risk-averse and utility-maximizing managers to implement the “buy” strategy if their compensation is heavily weighted on accounting-based performance measures. Conversely, managers with more stock-based compensation, especially stock options, are more likely to choose to develop new technology internally. Using data from U.S. high-tech industries and a simultaneous equations regression framework, I find evidence consistent with the above hypotheses.

Who’s behind the wheel? The role of social and media news in driving the stock–bond correlation

Review of Quantitative Finance and Accounting - This study investigates the impact of both social and news sentiments indices on the dynamic stock–bond correlation across wavelet-based...     

The determinants of MFIs’ social and financial performances in sub-Saharan Africa: has mission drift occurred?

This paper studies the determinants of microfinance institutions’ (MFIs) financial performance (FP: self-sustainability and profitability) and social performance (SP: depth of outreach), and examine the FP/SP tradeoffs they face. Based on a sample of 120 MFIs over the period 2000–2009, we use the random effects method to isolate the effect of fixed-time factors such as loan lending technique, legal status and location (sub-region) on MFIs’ behavior. We find that financial expenses, wages and portfolio quality, mainly influence MFIs’ financial performance whereas social performance is mostly influenced by lending methodology and institutional form, and to a lesser extent by location. The analysis of FP–SP shows that mission drift is a concern primarily for banks, mutual/cooperatives and individual lenders. The results question the trend toward microfinance commercialization since it weakens outreach without improving significantly self-sustainability and profitability.     

Thorny roses:The motivations and economic consequences of holding equity stakes in financial institutions for China’s listed nonfinancial firms

The reforms of China’s financial system have significantly changed the country’s financial sector. One noteworthy phenomenon is that many nonfinancial firms hav...     

Transparency trade-offs in the operation of national Public Private Partnership units: The case of Ireland’s National Development Finance Agency

Since 2002, the Irish National Development Finance Agency [NDFA] has played a leading role in the procurement of Public Private Partnership [PPP] projects in Ireland (UNECE, 2008). It has procured 9 PPP projects bundles, which are currently listed on its website, between 2002 and 2022 ¹ in addition to Primary Care, Justice, OPW and Education bundles not currently listed on its website. Ireland follows a global pattern where national or provincial PPP units, frequently organised as arm’s-length bodies, play a central role in managing the partnership-based procurement of infrastructure projects (Burger, 2009). This paper examines how the NDFA, acting as Ireland’s PPP unit, has affected the transparency and accountability of Irish PPP procurement. Our analysis indicates that the expanding role played by the NDFA has been depoliticisation and agencification. Our analysis deviates from some previous critical studies of PPP agency governance (Sześciło, 2020) in that we argue that agencification can adversely affect some aspects of PPP transparency while strengthening others, such as selection process transparency. Nonetheless, we suggest the approach to PPP procurement could harm the long-term sustainability of Irish PPP. Using the example of Ireland, our paper contributes to an understanding of the impact of such institutional arrangements on transparency and accountability of PPP procurement.