The market for corporate control: do countries and technological regimes matter?

Using DATASTREAM and LexisNexis databases, we examine the experience from 1995 to 2005 for eight European countries and 21 sectors, and compute the frequency of merger transactions at sectoral level, controlling for the roles of country variables and focusing on distinct technological patterns of innovation. We found that, even in market‐based countries, where transfer of control is a frequent phenomenon, mergers are less frequent in those sectors where innovation follows cumulative processes and where takeovers represent a ‘breach of knowledge.’ This study provides empirical support to the fruitful line of research of varieties of capitalism (Hall and Soskice 2001 Hall, P. A. and Soskice, D., eds. 2001. Varieties of Capitalism, Oxford: Oxford University Press. [Crossref] [Google Scholar]) and shows that sectoral differences in M&A (mergers and acquisitions) may be seen in their complementarities with differences by country and their institutional frameworks. Results confirm that acquisitions may occur even in those economies where block‐holders are present, but where the good quality of institutions leaves no space for defence against takeovers. It also highlights the significant role played by takeover regulation, and suggests that the recent reforms in European harmonization should be implemented, so that the obstacles impeding takeovers can be removed. However, policy‐makers should also try to identify for which economies and sectoral fields of specialization, merger activities produce more beneficial effects and which turn out to be detrimental.     

When is the Greek Nation? The Role of Enemies and Minorities

This paper questions the importance and usefulness of identifying, through theoretical analysis and empirical study, an historical moment when a nation comes into being. In the first part of our study, we discuss briefly the theoretical background of the question 'when is the nation?'. The second part addresses this question with reference to the Greek case. We first look at the process of consolidation of Greek national identity during the first two decades of the twentieth century. The role of Turks, Bulgarians and other neighbouring countries in the development and crystallisation of Greek nationhood is highlighted. We show that although the Greek nation-state was established in 1829, the Greek nation has been in the process of becoming through the nineteenth century until the 1920s, when its ethnic and territorial components were brought together and irredentism was abandoned. However, as we show in the section that follows, the Greek nation has been further reshaped through its interaction with the Muslim minority of western Thrace, its fundamental 'Other within' during the twentieth century. In the concluding section, we look at more recent developments, such as the Greece-FYROM controversy, that have further influenced the definition of the Greek nation. By analysing the dynamic and constantly evolving nature of nation formation as a socio-political process, we show that fixing an historical moment when a nation comes into being is an analytic exercise for which there is little empirical grounding. Rather, we argue, scholarly research should concentrate on 'how' is the nation.     

When do Heuristics Matter in Global Capital Markets? The Case of the BRIC Acronym

ABSTRACT

Several recent publications have argued that the use of heuristics by financial investors can distort global capital flows, but scholars have paid little attention to the scope conditions that determine when heuristics become influential (and when they don’t). Building on work in economic sociology and behavioural finance we suggest that the degree to which investment heuristics can bias aggregate capital flows depends on the levels of uncertainty and self-referentiality that structure the environments under which investment decisions are being made. Applying these insights to the two principal global markets for corporate investment, we argue that the institutional structure of markets for short-term portfolio equity investments (PEI) is far more conducive to trigger the mimetic adoption of a specific heuristic than in markets for long-term foreign direct investments (FDI). To test this hypothesis, we leverage the high level of arbitrariness of the selection of Brazil, Russia, India and China into the BRIC acronym and empirically examine the impact of its remarkable rise to prominence among communities of financial investors in the mid-2000s on global capital flows to emerging economies. In line with the theoretical argument, we find robust evidence of a strong BRIC-bias in markets for PEI but not FDI.     

Why does the peso-dollar exchange rate show a depreciation trend? The role of productivity differentials

Over the last three decades, Mexico's macroeconomic policy has been driven by a sound orthodox strategy: an open economy via many trade agreements signed since the mid-1980s, a nominal exchange rate under a flexible regime since 1994, central bank autonomy, and responsible fiscal policy, among other benchmarks. Nevertheless, the exchange rate has continued on a path of depreciation against the US dollar. In this paper, we show that although an equilibrium relationship exists between the exchange rate and prices in Mexico and the US (its main commercial partner), there are other forces affecting the former. The main factor in this relentless long-term depreciation is the loss of productivity in Mexico relative to the US. In addition, we show that the extraordinary liquidity supplied by the US during the 2008 crisis caused the Mexican peso to appreciate against the dollar.     

What are the determinants of hiring? The importance of product market demand and search frictions

In this article, we study the importance of product market demand and search frictions for hiring. We use a search-matching model with imperfect competition in the product market to derive an equation for total hiring in a local labour market, and estimate it on Swedish panel data. If product markets are imperfectly competitive, product demand shocks should have a direct effect on employment for given levels of prices and wages. Our main finding is that product demand has such a direct effect on hiring. This highlights the importance of taking imperfect competition in the product market into account in studies of employment dynamics and hiring. We also find that, for given levels of prices, wages, and product demand, the number of unemployed workers in a local labour market has a positive effect on hiring, suggesting that search frictions matter. Quantitatively, product demand shocks seem to be more important for understanding the variation in hiring than shocks to the number of unemployed workers.     

Does economic growth benefit the poor? The role of institutions and religions

This paper seeks to explain the difference across countries of the impact of national growth on the growth of the income of the poor. Traditionally, studies attempting to explain such differences investigate only the impact of some additional variables on the income level of the poor. Here, we introduce interaction terms to explain the change in the elasticity of income of the poor to national income. We focus on the role of formal and informal institutions and religions; variables which have rarely been considered in this context. The results show that only formal institutions (i.e., Resistance to corruption) and, to some extent, informal institutions (i.e., Trust all) explain the differences. Religion has no impact. The findings also show that improvements in the Resistance to corruption benefits the extremely poor more than the poor.     

US–Indonesia trade at commodity level and the role of the exchange rate

Previous studies that assessed the impact of currency depreciation on inpayments and outpayments of Indonesia with her major trading partners did not find much significant results, especially in the trade with the United States. We wonder whether insignificant link between the real rupiah-dollar rate and Indonesia’s inpayments and outpayments with the United States is due to aggregation bias. To answer this question, we disaggregate the trade flows between the two countries by commodity and consider the sensitivity of inpayments of 108 US exporting industries and outpayments of 32 US importing industries from Indonesia. We find that most industries respond to exchange rate changes in the short run. In the long run, however, 32 inpayments schedule and 17 outpayments schedule are significantly affected. A 1% real depreciation of the dollar was found to improve US trade balance by 1.8%.     

Oil crisis,energy-saving technological change and the stock market crash of 1973–74

The market value of U.S. corporations was nearly halved during the oil crisis of 1973–74. In this paper, we investigate the hypothesis that the sharp rise in energy costs during this period resulted in the obsolescence of firms' existing capital and reduced their market value. To quantify this obsolescence channel of the energy crisis, we simulate a calibrated dynamic general equilibrium model, where firms adopt energy-saving technologies along with the rise in energy prices, and the value of their installed capital falls due to investment irreversibility. We find that this channel can account for a third of the decline in Tobin's q observed in the data. Separately, we consider the role of investment subsidies extended by the government during this period to expedite the adoption of energy-saving technologies. This extension of the model can account for more than half of the decline in q. We also find empirical support for the capital obsolescence channel in cross-sectional regressions, where we show that the sectoral variation in the decline of energy use following the crisis is significant in explaining the sectoral variation in the drop of market values.     

Is the skills mismatch important under skill-biased technological change and imperfect substitutability between immigrants and natives?

This paper contributes to the debate on the benefits and costs of immigration, by evaluating how the mismatch between educational attainment and occupations induced by immigration affects output per worker, the wage premium, and the economy's technological level in OECD host countries. To that end, we use an R&D growth model in which technological knowledge can be directed to either low- or high-skilled labour and thereby drives the dynamics of the key economic variables. There tends to be a significant economic impact of the skills mismatch due to immigration, which amplifies the effects of the mismatch in the native population. Nevertheless, countries with a higher contribution of immigration to the skills mismatch are not necessarily those with the higher contribution in terms of economic effects. Moreover, the size and sign of the latter may vary depending on the assessed economic indicator and from country to country. Cross-country differences regarding the initial level of the high-to low-skilled ratio and the size of its shift due to immigration play a crucial role.     

How do the combined effects of CEO decision horizon and compensation impact the relationship between earnings pressure and R&D retrenchment?

Although relevant literature has been accumulated, how earnings pressure from stock analysts affects a firm's innovation expenditures remains unclear. In order to make this relationship more clear, this study investigates the impact of earnings pressure on a firm's research and development (R&D) investment by considering the combined effects of CEOs’ decision horizon and incentives. Our hypotheses were tested by firms from the S&P 1500 during the period from 2000 to 2012. The findings reveal that earnings pressure has a detrimental effect on a firm's R&D investment, and also that it goes worse when CEOs have a shorter decision horizon. However, when it comes to compensation incentives, we found that either CEOs equipped with higher stock ownership or fewer stock options can reduce the adverse effect of a shorter decision horizon on the relationship between earnings pressure and R&D retrenchment.     

Are we at the eve of a new long-term expansion induced by technological change?

Referring to the long-waves theory, the article shows that western economies now seem to be in the recovery phase of the long stagnation which started in 1974 and that, probably, a new long wave will begin in this decade. The main factor justifying this hypothesis is the technological revolution in computer and information technologies initiated in the 1970s, which reproduces the long-waves mechanism.

Two other elements corroborate the above assessment on the long-term prospects: 1) the recovery in profitability at the beginning of the 1980s, an evolution that usually characterizes the recovery phase of the long stagnation; 2) the unusual length of the prosperity phase of the business cycle in the 1980s. Of course, this aspect plays a subsidiary role with respect to the two others mentioned above. However, taken in conjunction with them, it reinforces the opinion that, underlying recent favourable performances, there is a change in the long-term trend.     

Exchange rate pass-through and product heterogeneity: Does quality matter on the import side?

This paper investigates theoretically and empirically the heterogeneous response of exporters to real exchange rate fluctuations due to the quality of imported inputs and exported output. We develop a model where the production of high-quality products requires high-quality inputs sold in monopolistically competitive foreign markets. The model predicts that exporters using imported inputs have low exchange rate pass-through, but this effect is weaker for firms shipping high-quality goods. This is due to the heterogeneous price adjustments of foreign suppliers selling inputs of different quality. We test the predictions of the model using Italian firm-level trade data for the period 2000–2006. The empirical analysis shows that the imports of intermediates have a significantly weaker effect in reducing the exchange rate pass-through into the export price of high-quality varieties. By showing that the import price of high-quality inputs is less sensitive to exchange rate variations, we provide evidence supporting the theoretical hypothesis that the pricing power of input suppliers weakens the import channel.     

Firm age and the probability of product innovation. Do CEO tenure and product tenure matter?

This paper examines the influence that the age of a firm has on the probability of product innovation by taking into account two factors: the role of the CEO’s tenure and the lifecycle of the last product introduced. In a sample of Italian manufacturing firms (n = 2163), analysis reveals that the new entrants’ high innovative activity is mainly driven by the new CEO’s innovation propensity, which is strictly dependent on his tenure. Likewise, the lower innovation activity observed in mature firms is mostly explained by the dynamics of the product’s lifecycle and the CEO’s tenure. More generally, the existence of a negative relationship between innovation and firm age is questioned, as controlling for time-related variables that overlap during the company’s lifecycle —product age and CEO’s tenure — turns the relationship positive. Finally, the innovative behavior of incumbent companies turns out to be dependent on the renewal abilities of newly appointed external CEOs, whereas CEOs from within the family play a minor role.     

Can neoclassical economics handle complexity? The fallacy of the oil spot dynamic

This paper is essentially a rebuttal of the view that neoclassical economics can handle complexity. I have coined the locution ‘oil spot dynamic’ to denote the neoclassical ability to subsume each and every new perspective. The main part of the paper is devoted to showing why the oil spot dynamic cannot work with the complexity approach, which is seen as a coherent stand-alone research program that stems from the SFI Economics Program and manifests itself with different nuances.The fallacy of the oil spot dynamic is relevant in this period, in which economists are beginning to realize that the Neoclassical Samuelsonian Paradigm no longer represents the common language of their profession. The spread of the complexity approach and the dissolving notion of ‘mainstream’ are here interpreted as indicative of a changing economics. A short foray into the features of the process of change completes my arguments by showing that the shift from one paradigm to another has many interrelated dimensions, and that there may be rigidities internalizing changes.     

The appliance of science? New public management and strategic change

Changes in the nature of science as a social practice were fundamentally organic and endogenous in nature prior to the 1970s. Since then changes in UK public science has been policy-led and the imperatives exogenous. This shift was the result of attempts to achieve strategic managed change in the sector using new public management (NPM) techniques. This paper explores the discourses that promoted the change effort and the NPM techniques and processes deployed to this end. It seeks to identify the aims and objectives of the intended strategic change and evaluates the extent to which they have been achieved. Our conclusion is that rather than a planned, strategic change process directed at improved economy, efficiency and effectiveness, what occurred was a poorly processed ideologically driven attempt to achieve political aims.     

Why do rich countries prefer free trade over free migration? The role of the modern welfare state

\"According to traditional trade theory (Heckscher-Ohlin), free trade and free migration are equivalent measures of economic integration leading both to an equalization of factor prices. This prediction is in sharp opposition to the observed preference of rich countries for free trade over free migration. We provide an explanation for this inconsistency: the redistribution policies in the countries. Social welfare in countries with a relatively small number of low-skilled native workers is higher with free trade than with free migration due to redistribution of income towards immigrating workers.\"     

Why peg? The role of capital mobility and financial intermediation

Many economists argue that the growth of international capital mobility has made the maintenance of pegged exchange rates more costly, forcing developing states to choose alternative arrangements. But some states do not simply abandon pegged exchange rates as their exposure to capital mobility rises. Some states abandon pegs long before a crisis can erupt, while others maintain pegs until the speculative pressures became unbearable. Why, in an environment of growing capital mobility, do some states maintain pegs longer than others do? One reason is that the more that bank lending dominates investment in a country, the more likely that state is to hold on to a pegged exchange rate. When banks have accumulated significant amounts of foreign debt they lobby for exchange rate stability. In a bank‐dominated financial system, a concentrated banking sector can organize easily and use its crucial role in the economy to exert influence over economic policy. This article presents new evidence from statistical tests on 61 developing countries that confirm that states with deeper banking systems are more likely to peg their exchange rates, in spite of growing capital mobility.     

Same currency,different strategies? The (asymmetric) role of the exchange rate in shaping European agri-food exports

This article uses a nonlinear autoregressive distributed lag (NADRL) model introduced by Shin, Yu, and Greenwood-Nimmo (2014) to assess the role that the exchange rate plays in shaping European agri-food exports after the introduction of the Euro. Although the 10 countries of this study share the same currency (and thus a single nominal exchange rate with the US), cross-country discrepancies of exports’ reactions to exchange rate changes are evident. Moreover, I find that exchange rate changes influence exports asymmetrically in the long run. Euro appreciations are harmful to a lesser extent than Euro depreciations are beneficial for European agri-food exports. The magnitude of this effect is country-specific and varies considerably between individual exporting countries. Exported quantities are less affected by exchange rate fluctuations than export values, which is in line with local currency price stabilization strategies of the exporters. This finding is interpreted as a sign of an incomplete exchange rate pass-through due to strategic (asymmetric) markup adjustments by firms with heterogeneous productivity. Besides that, the outcomes suggest that nonprice competition might be in play in some cases.     

Can natural disasters have positive consequences? Investigating the role of embodied technical change

It has been suggested that disasters might have positive economic consequences, through the accelerated replacement of capital. This possibility is referred to as the productivity effect. This effect is investigated using a model with embodied technical change. In this framework, disasters can influence the production level but cannot influence the growth rate, in the same way than the saving ratio in a Solow-like model. Depending on reconstruction quality, indeed, accounting for embodied technical change can either decrease or increase disaster costs, but is never able to turn disasters into positive events. Moreover, a better but slower reconstruction amplifies the short-term consequences of disasters, but pays off over the long-term. Regardless, the productivity effect cannot prevent the existence of a bifurcation when disaster damages exceed the reconstruction capacity, potentially leading to poverty traps.     

Who upholds the surging gold price? The role of the central bank worldwide

Who upholds the surging gold price? Conventional wisdom suggests that the depreciation of the exchange rate, inflation and economic turmoil are the suspects. Nonetheless, while these factors cease, why does the gold price still stay around hikes? The gold market belongs to a global arena. Different from other commodities, its participants include the national central banks worldwide. However, surprisingly, the role played by these tremendous market participants’ gold holdings on the gold price has been ignored in past empirical works. This research focuses on central banks’ gold holdings to explore who upholds the surging gold price. Several interesting outcomes are derived. First, our empirical evidence shows an inverse phenomenon relative to news reports from the mass media that the gold holdings of central banks worldwide in fact continuously descend. Second, the mainstream countries of the world have not played a main role in the rising trend of the gold price in the recent decade; instead, newly emerging industrialized countries’ central banks’ gold holdings show their significant power in explaining causality to gold price fluctuations. Third, the reason for the persistent gold buying behaviour of emerging economies may be because the increase in the gold price delivers a kind of short squeeze effect to the central banks of emerging countries.