Testing the relationship between competition and efficiency in banking: A panel data analysis

The relationship between competition and efficiency in the banking sectors of five EU countries is investigated using Granger-type causality test estimations. We find positive causation between market power and efficiency, whereas the causality running from efficiency to competition is weak.     

Firm selection and industry evolution: the post-entry performance of new firms

A dynamic framework based on the process of firm selection and industry evolution is used to analyse the post-entry performance of new firms. In particular, it is hypothesized that, based on the stylized fact that virtually all new firms start at a very small scale of output, firm growth and survival are shaped by the need to attain an efficient level of output. The post-entry performance of more than 11,000 U.S. manufacturing firms established in 1976 is tracked throughout the subsequent tenyear period. Firm growth is found to be negatively influenced by firm size but positively related to the extent of scale economies, capital intensity, innovative activity, and market growth. By contrast, the likelihood of survival is identified as being positively influenced by firm size, market growth, and capital intensity, but negatively affected by the degree of scale economies in the industry. When viewed through the dynamic framework of firm selection and industry evolution, the empirical results shed considerable light on several paradoxes in the industrial organization literature, such as the continued persistence over time of an asymmetrical firm-size distribution consisting predominantely of suboptimal scale firms, and the failure of capital intensity and scale economies to substantially deter the entry and start-up of new firms.     

The sale of small firms: a multidimensional analysis

Summary. This paper endogeneizes the security voting structure in an auction mechanism used to sell a small firm. The design of security voting structure allows the seller to choose between two objectives which are not mutually consistent. If the seller wants to maximize his revenue, he should retain some shares to benefit from the future dividends generated by the acquirer. At the opposite, if he wants to sell his firm to the most efficient candidate, he should sell all the shares. Received: July 4, 2001; revised version: October 31, 2002 RID="*" ID="*" The paper has benefited from a number of comments from the anonymous referees. Correspondence to: C. At     

Quantile regression for duration data: A reappraisal of the Pennsylvania Reemployment Bonus Experiments

We argue that quantile regression methods can play a constructive role in the analysis of duration (survival) data offering a more flexible, more complete analysis than is typically available with more conventional methods. We illustrate the approach with a reanalysis of the data from the Pennsylvania Reemployment Bonus Experiments. These experiments, conducted in 1988–89, were designed to test the efficacy of cash bonuses paid for early reemployment in shortening the length of insured unemployment spells     

Estimation of an endogenous switching regression model with discrete dependent variables: Monte-Carlo analysis and empirical application of three estimators

The performances of alternative two-stage estimators for the endogenous switching regression model with discrete dependent variables are compared, with regard to their usefulness as starting values for maximum likelihood estimation. This is especially important in the presence of large correlation coefficients, in which case maximum likelihood procedures have difficulties to converge. Monte-Carlo simulations indicate that an estimator that corrects for conditional heteroskedasticity of the residuals is superior in almost all instances, and especially when maximum likelihood is problematic. This result is also obtained in an empirical example in which off-farm work participation equations of farm women are conditional on farm work participation status. First version received: July 1995/final version received: March 1998     

The sources of contagion risk in a banking sector with foreign ownership

Foreign-dominated banking sectors, such as those prevalent in Central and Eastern Europe, are susceptible to two major sources of systemic risk: (i) linkages between local banks and (ii) linkages between a foreign parent bank and its local subsidiary. During and after the global financial crisis, the second source of risk has been stressed by local regulators. Using a nonparametric method based on extreme value theory, we analyze interdependencies in downward risk in the banking sectors of the Czech Republic, Poland, Slovakia, and Turkey during 1994–2013. We find that the risk of contagion from a foreign parent bank to its local subsidiary is substantially smaller than the risk between two local banks.     

A modified logit model for time series with an application to the pricing behaviour of manufacturing firms in Australia

The modified logit model (Amemiya and Nold, 1975) is generalised to the case where the error term is autocorrelated. The asymptotic distribution (as n →∞ and T →∞) of a feasible GLS estimator of β is derived. Tests of linear restrictions on β and the significance of ρ are presented. The results of the applied work suggest that the factors which explain the pricing behaviour of manufacturing firms, as reported in the tendency survey conducted by the Australian Chamber of Commerce and Industry and the Westpac Banking Corporation, include historical inflation rates of up to 7 quarters and capacity utilisation. First version received: March 2001/Final version received: July 2002 RID="*" ID="*"  The first draft of this paper was written while the author was on study leave at the Department of Econometrics, University of Sydney, Australia.     

The shadow of death model revisited with an application to French firms

This article provides an empirical model of the shadow of death in which the exit probability of a firm depends on the firm’s productive performance and the firm’s level of sunk costs, which are viewed as barriers to exit. The shadow of death effect is treated by assuming a relationship between the propensity to exit and both the contemporaneous and lagged values of efficiency and sunk costs. To estimate the unobserved productive efficiency, we use the Ackerberg et al. (2006) estimator extended by the addition of a correction for selection bias. We use an unbalanced sample of approximately 100 000 French firms over the period 1997 to 2002. Our results indicate that the probability of exit is negatively affected by unobserved individual efficiency and the level of sunk costs. The shadow of death effect applies mainly in manufacturing, where both productive efficiency and sunk costs decrease during several years before exit. In service sectors, the exit process seems to occur more suddenly.     

The persistence of profits in banking: an international comparison

This article examines the dynamics of bank profitability in the USA, Germany, Great Britain, France, Italy and Switzerland over the period 1993–2014. We find long-run bank profit persistence in all six countries in the period before the financial crisis in 2008. Banks with large capital ratios are persistently more profitable, and there is little evidence of a link between bank size and the persistence of bank profits. Commercial (saving) banks are persistently more (less) profitable in four of the six countries. The effects of the financial crisis in 2008 differed dramatically across countries as well as across ownership types. While US banks experienced dramatic declines in the immediate aftermath of the crisis, they recovered much faster than their European counterparts and essentially retain their long run profit potential by the year 2014.     

The sensitivity of the RESET tests to disturbance autocorrelation in regression analysis

This paper investigates the sensitivity of the RESET tests, proposed by Ramsey (1969) and modified by Thursby and Schmidt (1977), to disturbance autocorrelation in regression analysis. Porter and Kashyap (1984) show that RESET is not robust to autocorrelated disturbance when there is a highly autocorrelated regressor in the model. We show that RESET is sensitive to disturbance autocorrelation even when the regressors are not autocorrelated. We explain the findings of Thursby (1979) and Porter and Kashyap (1984) as well as our result by showing that a spurious correlation between the regressor and the disturbance is responsible for the serious size distortion of the RESET tests. First version received: June 1999/Final version received: November 2000     

The restructuring of insider-dominated firms: A comparative analysis

We study the effects of different modalities of privatization to insiders on the restructuring process in two former Soviet republics - Georgia and Moldova -using enterprise survey data for 1995-97. Enterprise restructuring was similar in companies where incumbent managers received significant ownership stakes for free and in state-owned companies. In contrast, the restructuring process was faster in companies bought by their managers. We interpret these results to suggest that managers' incentives to restructure decrease when they perceive their newly acquired ownership as a windfall gain.     

“笼中虎”：一个金融制度变迁故事的解读

中国既有的经济改革过程曾经出现过许多耐人寻味的制度变迁现象,＂笼中虎＂便属其中比较典型的一个。这种现象产生于经济体制转换伊始的特殊时期并贯穿于迄今为止的整个改革过程;它一直对中国金融制度变迁路径的选择产生着重要影响,却长期被人们视作偶或发作的短期金融＂症状＂而等闲视之。通过对这一现象的初步描述与解读,本文发现,＂笼中虎＂的产生机制深藏于由＂放权让利＂改革所触发的财政与银行体系汲取能力的相向变化过程。由于国家无力在短期内修复与重建残缺的内源融资制度,最终形成的政府主导型经济增长模式只有倚重以国有银行体系为核心的外源融资机制。作为这一过程合乎逻辑的制度后果,居民储蓄存款被迫承担起了支持长期经济增长的责任,而为了确保在银行体系账面上迅速积累的居民储蓄存款的稳定,国家又不得不慷慨兜揽了与此相关的几乎全部金融风险。尽管在既有的改革过程中＂笼中虎＂罕有发作甚至长期表现平稳,但对其潜在风险的担忧与防范却牢牢钳制着金融改革路径的选择。当随后的金融制度演进需要市场因素的成长时,才发觉金融市场化的空间已被既有的改革逻辑＂挤出＂,中国金融改革进程从此便注定长期遭受＂市场化悖论＂的困扰。     

Industry dynamics: Foundations for models with an infinite number of firms

This paper explores the connection between three important threads of economic research offering different approaches to studying the dynamics of an industry with heterogeneous firms. Finite models of the form pioneered by Ericson and Pakes (1995) capture the dynamics of a finite number of heterogeneous firms as they compete in an industry, and are typically analyzed using the concept of Markov perfect equilibrium (MPE). Infinite models of the form pioneered by Hopenhayn (1992), on the other hand, consider an infinite number of infinitesimal firms, and are typically analyzed using the concept of stationary equilibrium (SE). A third approach uses oblivious equilibrium (OE), which maintains the simplifying benefits of an infinite model but within the more realistic setting of a finite model. The paper relates these three approaches. The main result of the paper provides conditions under which SE of infinite models approximate MPE of finite models arbitrarily well in asymptotically large markets. Our conditions require that the distribution of firm states in SE obeys a certain “light-tail” condition. In a second set of results, we show that the set of OE of a finite model approaches the set of SE of the infinite model in large markets under a similar light-tail condition.     

Arrested development: the experience of European hard disk drive firms in comparison with US and Japanese firms

This paper analyses how US, Japanese, and European HDD firms responded to technological shifts in the hard disk industry from 1973 through 1996. Leading incumbent US HDD firms were frequently forced out of the market. Leading Japanese incumbent firms in the same industry, however, were not displaced by these changes. US startup firms thrived under these technological shifts, displacing US incumbent firms. Japanese startups did poorly. European firms encountered the worst of both worlds: its incumbent firms were frequently displaced by technological changes, as were US firms; while startup firms (with one exception) performed as poorly as those in Japan.     

The influence of CSR on firm value: an application of panel smooth transition regression on Taiwan

Previous studies on the relationship between corporate social responsibility (CSR) and firm value generally belong to one of the two opposing schools of thought: the social impact hypothesis and the shift of focus hypothesis. This study, however, proposes that the relationship between CSR and company value is non-linear and neither wholly positive nor negative. We employed the corporate social responsibility index (CRSI) to test this hypothesis. The panel smooth transition regression (PSTR) model was used to analyse listed Taiwanese firms from 2010 to 2012 and calculate the value transition threshold of CSR, using CSRI as the transition variable. We then applied PSTR to determine whether CSRI shows a two-regime, non-linear relationship, as inferred by our model. Empirical findings show that the threshold value of CSRI is 13.082, thus, we concluded that investment in CSR does not contribute to enhancing company value until it exceeds the value transition threshold.     

Profit maximisation vs. agency: an analysis of charitable giving by UK firms

The charitable giving of a large sample of publicly quoted UKfirms is analysed within a model that explores the profit maximisationand managerial utility enhancement motives for giving. The empiricalmethod draws a distinction between the decision to participatein giving and the determination of the amount of corporate contributions.Firm size and advertising intensity are found to be positivelyassociated with the probability of participation in giving.Stricter corporate governance and the rate of directors' remunerationare negatively related to the probability of participation.Among givers, the rate of giving is related positively to R&Dintensity, the rate of directors' remuneration, and corporateprofitability and negatively to firm indebtedness.     

Estimating a mixture of stochastic frontier regression models via the em algorithm: A multiproduct cost function application

Researchers have become increasingly interested in estimating mixtures of stochastic frontiers. Mester (1993), Caudill (1993), and Polachek and Yoon (1987), for example, estimate stochastic frontier models for different regimes, assuming sample separation information is given. Building on earlier work by Lee and Porter (1984), Douglas, Conway, and Ferrier (1995) estimate a stochastic frontier switching regression model in the presence of noisy sample separation information. The purpose of this paper is to extend earlier work by estimating a mixture of stochastic frontiers assuming no sample separation information. This case is more likely to occur in practice than even noisy sample separation information. In order to estimate a mixture of stochastic frontiers with no sample separation information, an EM algorithm to obtain maximum likelihood estimates is developed. The algorithm is used to estimate a mixture of stochastic (cost) frontiers using data on U.S. savings and loans for the years 1986, 1987, and 1988. Statistical evidence is found supporting the existence of a mixture of stochastic frontiers. First version received: 3/13/01/Final version received: 6/17/02 RID="*" ID="*"  I am grateful to Ram Acharya, Janice Caudill, and especially James R. Barth for several helpful comments on an earlier version of the paper. During the revision process I benefitted greatly from the suggestions of the Associate Editor and three anonymous referees.     

The gravity model analysis: an application on MERCOSUR trade flows

This paper explores the determinants of bilateral trade flows between Mercosur countries. To this aim, a gravity model is applied to annual bilateral exports between 75 countries in 1980–2008. The model is augmented with variables that are relevant in determining the volume and direction of international trade using two alternative estimation methods; pooled ordinary least squares and panel fixed effects. The results reveal that the influence of the agreement on trade has been positive but moderate. As a whole, Mercosur has had positive effects, and this agreement can be reinforced with the deepening of their relationships and the entry of new members.     

Technological competence and the influence of networks: a comparative analysis of new biotechnology firms in france and britain

The objective of this paper is to examine the role of external networks not only as a resource but also as a constraint for the evolution ofthe technological competence of twenty new biotechnology firms (NBFs) in France and Britain. The analysis is bared on extensive interviews conducted with the Chief Executive Officers (CEOs) of twenty NBFs, ten in France and ten in Britain. The paper identifies the network structures ofthe tweng NBFs and the impact of netmorks on the evolution of their technologial competence. The paper also attempts to identify the differences between NBFs in France and Britain in terms of the framework developed. It clearly illustrates that the capacity of NBFs to construct appropriate external linkages with other firms andfinanckrs is crucial to their success.