The underpricing of initial public offerings: A theoretical and empirical reconsideration of the adverse selection hypothesis

In this paper we generalize Rock's theory regarding the underpricing of IPOs. In Rock's model, informed investors have a firm-specific informational advantage pertaining to a firm's cash flow. We derive the new results that the level of beta and the size of the market risk premium positively affect underpricing. These implications extend the adverse selection theory and further distinguish this theory from the current state of signalling theories of underpricing. The results put the “hot and cold” issue markets phenomenon in a theoretical context. Empirical results are consistent with the theoretical propositions and provide support for Rock's theory of underpricing.     

Strategic provision of local public inputs for oligopolistic firms in the presence of endogenous location choice

We develop a model in which two regional governments compete for a mobile oligopolistic firm by providing local public inputs. The central mechanism of our model is the interaction of an agglomeration advantage (partial nonrivalness of the local public inputs) and an agglomeration disadvantage (costs associated with the change of location of firms). We show that a central government of both regions induces an interregionally optimal allocation of firms by providing the optimal levels of local public inputs. The decentralized provision of local public inputs by regional governments, however, leads in most cases to a (interregionally) suboptimal allocation.     

The peer effect in adverse selection: Evidence from the micro health insurance market in Pakistan

The peer effect may amplify adverse selection in social networks, hampering the sustainable operation of microinsurance. This paper uses data from a micro health insurance program in Pakistan to test for the peer effect in renewal decisions and the role it plays in amplifying adverse selection within social networks. The paper finds evidence supporting that insurance renewal decisions are similar among peers in the same network, and the peer effect is stronger among households of the same risk type than households of different risk types, indicating that the heterogeneous peer effect acts as an amplifier for adverse selection. The paper provides policy implications for effective ways to mitigate the peer effect and adverse selection, based on the results of heterogeneity analyses. The policy recommendation is to enforce a minimum group enrollment rate requirement of at least 60% for large groups to mitigate the peer effect.     

保险市场逆向选择与顺向选择共存研究

保险市场存在着逆向选择。经典逆向选择模型认为,风险高的人会购买更多的保险,但大多数实证研究表明保险市场还存在顺向选择。本文认为,逆向选择和顺向选择虽然对立,但共存于保险市场,在此基础上构建保险市场均衡模型,并进行了仿真研究。     

Securitization without adverse selection: The case of CLOs

In this paper, we investigate whether securitization was associated with risky lending in the corporate loan market by examining the performance of individual loans held by collateralized loan obligations. We employ two different data sets that identify loan holdings for a large set of CLOs and find that adverse selection problems in corporate loan securitizations are less severe than commonly believed. Using a battery of performance tests, we find that loans securitized before 2005 performed no worse than comparable unsecuritized loans originated by the same bank. Even loans originated by the bank that acts as the CLO underwriter do not show under-performance relative to the rest of the CLO portfolio. While some evidence exists of under-performance for securitized loans originated between 2005 and 2007, it is not consistent across samples, performance measures, and horizons. Overall, we argue that the securitization of corporate loans is fundamentally different from securitization of other assets classes because securitized loans are fractions of syndicated loans. Therefore, mechanisms used to align incentives in a lending syndicate are likely to reduce adverse selection in the choice of CLO collateral.     

Challenges for civil society involvement in civic entrepreneurship: a case study of local enterprise partnerships

Civic entrepreneurship involves engagement between the state, business and civil society to produce economic growth for the public good. In the UK context a key initiative to encourage such engagement has been the creation of local enterprise partnerships (LEPs); these structures are intended to be a key delivery driver of regional economic growth. This paper draws on insights from semi-structured interviews with actors involved in the development of a LEP in the north of England. Findings draw attention to concerns from civil society over losing its distinctiveness through these partnerships, and in the process losing its ethos as a guardian of the public good.     

The implementation of a strategic state in a small country setting—the case of the ‘Scottish Approach’

ABSTRACT

This paper is a case study of the establishment of the Scottish Approach to Public Services. This strategic approach to public services was developed through three key activities: reorganization of the Scottish Government; creation of Scotland Performs and the National Performance Framework; and significant investment in leadership development. The research comprised of 11 élite interviews with both current and former civil servants within the Scottish Government. Interviews sought to develop an understanding of the nature and rationale for the Scottish Approach, to explore implementation of the Scottish Approach, and to posit what lasting impact may result from this form of ‘strategic state’ in Scotland. There is a major gap in the academic literature in terms of empirical studies of the strategic state and this paper addresses this gap by presenting the context and background to implementation of a strategic state in a small country setting.     

Implementation and challenges of introducing NPM and accrual accounting in Indonesian local government

This article provides insights into the implementation of New Public Management (NPM) practices in Indonesia, including the introduction of an accrual accounting system for local government. The adoption of NPM practices was part of political, economic and public sector reforms introduced after 1998. The article discusses the background and obstacles to the reforms and the nature of the accrual accounting system adopted by Indonesian local government.

Finally, the authors make recommendations for policy-makers in Indonesia and other developing nations.     

社会保险市场上的逆向选择与公共政策干预:国际研究动态述评

随着社会经济的进步与发展,提供社会保险日益成为现代政府的重要任务,而信息不对称带来的逆向选择这一市场失灵问题是政府提供社会保险的主要经济依据之一。由此,近年来国际学术界涌现出一大批关于社会保险市场上逆向选择与公共政策干预问题的研究文献,在将理论与数据相结合以分析公共政策的福利影响方面出现了很多研究进展。本文就尝试对这一领域的研究进行总结与分析,为国内学术研究的开展与公共经济政策的设计提供有益借鉴。     

The usefulness of performance reporting in local government: comparing Italy and Spain

This article presents a comparative analysis of the perceived usefulness of performance information by managers in local authorities in Italy and Spain. Italy and Spain have similar cultural and administrative characteristics and in both countries there are external requirements (from central government) to adopt performance indicators. The adoption of performance indicators was found to be almost symbolic in both states.     

Choosing between fixed-and adjustable-rate mortgages: The case of commercial mortgages

This article reports on the determinants of the ARM choice for commercial real estate projects. The theoretical literature suggests that commercial real estate projects are more likely to be financed with an adjustable-rate mortgage (ARM) if the project's income stream or value is expected to rise with inflation over time. The empirical model estimated is a structural probit probability model of the ARM choice. Our results demonstrate that commercial borrowers typically place great emphasis on relative interest-rate differentials when deciding which mortgage is best. We also find that commercial mortgage borrowers will ordinarily be reluctant to issue an ARM when the fixed interest rate is low.     

The Usefulness of Financial Reporting in Spanish Local Governments

Since 1992, accounting for Spanish local governments has been undergoing substantial change. The application of a new regulation has introduced the double entry system, an approximation to the accounting terminology used in the private sector and the presentation of financial statements beyond the purely budgetary reporting. In this context, the paper attempts to examine the extent to which the new regulation has achieved the objectives of financial reporting, who the users of the information could be, what the usefulness of the financial statements is and what they are used for in local governments. The results prove that the financial reporting of local governments can be useful for potential users like audit institutions, financial institutions or creditors. However, there is a long way to go before we can say that the information is used to the maximum. This implies that further progress is necessary in the use of financial information in local governments, and fundamentally it is necessary to introduce techniques of financial analysis traditionally used in business entities.     

Shunning careers in public accounting firms: The case of Indonesia

A rapidly growing emerging economy such as Indonesia has an increasing need for qualified accountants to service the many needs of business. However, the current dearth of qualified accountants is becoming critical, and this situation will only get worse as Big 4 firms, mid-tier firms and local firms struggle to recruit enough trainees to qualify as professional accountants. This study examines the plight of the Indonesian accounting profession by investigating why accounting students are shunning the profession, possibly leading to the demise of the Indonesian profession as we know it today.The study shows that although career intention constantly changes as new experiences are encountered, background factors matter. Ethnicity, living in an urban or rural environment, and where one is educated all matter to career intention. Further, one's own self-efficacy, such as English language ability, and other people's views are all influential in where we want to work.To address this looming crisis in the profession the Indonesian government needs to implement policies that ensure that the education curriculum addresses English language literacy, especially in rural areas; and the profession needs to engage more with remoter universities in rural locations to recruit high achieving students to provide greater diversity in the profession.     

The power of accounting: a field study of local financial management in a police force

This paper describes the introduction of management accounting change in the form of local financial management in a police force, West Mercia Constabulary, using an ethnographic study. The study applies institutional theory to understand the context, process and consequences of the introduction of devolved budgeting systems to the organization.The field study explains how the devolution of budgets in West Mercia was accompanied by a shift in power that helped to reconcile the interests of those pursuing a legitimating accountability with those who prioritized operational policing.This paper makes two contributions to institutional theory. First, is the development of understanding of relations of power, particularly where interests coincide and shifts in power are a by-product of legitimating processes. Second, is an explanation of how loose coupling can take place through accounting, in which a devolved budget can satisfy both institutional and technical demands.     

The measurement of turnaround management strategies in local authorities

The use of turnaround management strategies (TMS) in the public context is beginning to be researched, however adjusted measurement tools are still needed. This article describes the construction and validation of a new scale for measuring TMS in local authorities.     

The changing structure of local credit markets: Are small businesses special?

In many countries consolidation in the banking industry has reduced the number of small banks and led to significant shifts in market shares; deregulation has fostered entry in local credit markets and the expansion of branch networks, increasing competition in local markets. Small businesses are believed to be more vulnerable to these changes, since they are more dependent on credit from local banks. In this paper we investigate the consequences of consolidation and entry for these borrowers compared with those for large firms. We employ a data set for Italy, which provides information on volumes of loans and bad loans by size of borrower with a detailed geographical partition. We find that mergers are followed by a temporary reduction in outstanding credit to all sizes of borrowers and by an increase in bad loans, most likely due to the reassessment of banks portfolios. Entry has a relatively persistent negative impact on credit supply to small and medium-sized firms. Our results also show that concentration, branch density and the share of branches of small banks affect the volumes of credit and bad loans of small borrowers.     

Local Currency Bond Market Development in Sub-Saharan Africa: A Stock-Taking Exercise and Analysis of Key Drivers

This article studies the current state and drivers of government local currency bond market (LCBM) development in Sub-Saharan Africa. We first show that, increasingly, African governments issue fixed-rate local currency bonds with tenors of ten years and more on a regular basis. However, African LCBMs are also often marked by illiquidity, very few corporate securities, and narrow, bank-dominated investor bases. Second, we present an econometric analysis of the drivers of African government LCBMs based on a new high-quality, OECD-compiled panel dataset. LCBM capitalization is found to be correlated negatively with governments’ fiscal balance and inflation, and positively with common law legal origins, institutional quality and democracy.     

The quiet return of equalization alongside incentive in the English local government finance system

Local authority retention of 50% of business rates revenue was introduced in England in 2013–14, to be increased to 100% in the next few years. This signalled a move away from formula-based grant funding towards a funding system based on economic incentives. However, the 2016–17 settlement includes adjustments that indicate that equalization imperatives remain part of the policy toolkit. Given the complexity of the influences on local authority funding, these could maintain a considerable role when the new system is introduced.     

The choice of a monetary instrument in a small open economy: The case of Korea

Using a small macroeconometric model of Korea, this paper evaluates the correct choice of a monetary instrument (either the money stock or the interest rate), the optimal multiperiod policy, and the value of current information on some monetary varialbles.     

Aiming to connect: the business case for diversity in public organizations in The Netherlands

This paper examines the effectiveness of diversity policy and interventions in the Dutch public sector and shows that business case interventions can affect employees’ commitment to their organization, contributing to staff retention rates and improving overall performance. Leadership style, as well as organizational culture, are shown to play a crucial role in the effectiveness of the interventions that were analysed.