Audit Office Reputation Shocks from Gains and Losses of Major Industry Clients

Our study reports evidence on the dynamic effects of client switches on auditor reputations and fee premia. Offices of large accounting firms that lose (gain) major industry clients experience a reputation shock leading to more same‐industry client losses (gains) over the next two years. There is also a shift in audit fees charged to other same‐industry clients when a major client loss (gain) results in an audit office losing (gaining) city‐level industry leadership. A major client loss or gain also creates a short‐term capacity shock to an audit office's ability to supply high‐quality audits. However, there is no evidence of reputation spillovers to other‐industry clients in the audit office, or to clients in other offices of the accounting firm.     

Elasticities of derived demand under different objectives of the firm

Conclusions We have reconciled and generalized earlier comparisons of input demand elasticities under different objective functions of the firm. In general little can be said of the relative magnitudes of the elasticities under different objectives, since different goals usually imply different levels of production and input demand. With some simplifying assumptions about the technology we can conclude that a profit-constrained, utility-maximizing firm tends to have higher input demand elasticities than a profit-maximizing firm facing the same cost and demand functions. This tendency is reinforced by a high profit requirement, decreasing returns to scale and slowly falling demand elasticity for the output. The results may help to explain differences in the stability of employment between industries,. Scherer [1980, pp. 365–67] reports that some studies have found an inverse relation between market concentration and stability of employment, which is contrary to the expected result. One may argue that in concentrated industries the firms are likely to have organizational slack or to face an inelastic product demand curve. Hence demand for factors of production should be less elastic than in more competitive industries. We have shown, however, that deviations from profit maximization may lead to higher input demand elasticities. Since non-profit-maximizing goals are likely to be more common in concentrated industries, the observed instability of employment may be partly due to the high elasticity of derived demand. Although the type of alternative goals studied in this paper may not be realistic in practice, the analysis shows nevertheless that goals of the firm may be one factor in explaining differences in the stability of employment.     

Inward FDI and demand for skills in manufacturing firms in Sweden

We observe a substantial increase in foreign ownership in Sweden in the 1990s. Did that have any effect on relative demand for skilled labor? Has technology transfers—often associated with inward FDI—led to an increased demand for skills due to skilled-biased technical change? Are there any grounds for the concerns in the public Swedish debate that more skilled activities have been moved to other countries where the headquarters are located? Estimating relative labor demand at the firm level and using propensity score matching with difference-in-difference estimation, we obtain support for that relative demand for skilled labor tend to rise in non-multinationals (non-MNEs)—but not in multinationals (MNEs)—that become foreign-owned. Other interesting findings are that larger presence of foreign MNEs in an industry appears to have a positive impact on the relative demand for skills in Swedish MNEs within the same industry and that the elasticity of substitution between skilled and less-skilled labor seems to be lower in MNEs than in non-MNEs.     

Variety,Globalization, and Social Efficiency

The standard formal presentation of the Dixit‐Stiglitz‐Krugman (DSK) model of monopolistic competition with a constant‐elasticity‐of‐substitution (CES) utility function supposes a sufficient number of firms so that the elasticity of demand facing each variety is approximated by a constant elasticity of substitution. Such a formulation forces economies of scale to be frozen so that firm size never changes. We use a Bertrand‐Nash interpretation of the equilibrium that allows the elasticity of demand facing each variety to depend on the number of varieties, thus allowing the gains from globalization to reflect both the increase in variety and the exploitation of economies of scale. We also develop a precise expression for per capita real income with any number of sectors and examine the age‐old question of the socially optimal number of varieties.     

Earnings Attribution and Information Transfers

Managers frequently attribute the news in their earnings forecasts to various economic events. Using textual analysis, we identify the economic factors underlying earnings news from press releases. We document a wide range of industry‐wide shocks and firm‐specific actions to which the earnings news in management forecasts is attributed. As expected, earnings attributions significantly affect peer firms’ price reactions to the earnings news. Specifically, earnings news attributed to industry‐wide trends or firm structural changes leads to positive information transfers but earnings news attributed to firm competitive moves triggers negative information transfers. Information transfers are much stronger when each economic factor is mentioned the first time in a given industry‐year. Further analysis reveals that the strength of information transfers varies with firm‐level rivalry within the industry (i.e., similar business strategies, market position, and level of competition).     

On the comparison of tariffs and quotas in oligopolistic intermediate goods markets

This paper examines and compares the effects of tariffs and quotas imposed on oligopolistic intermediate input markets. We introduce tariff and quota revenues and the substitutability of all inputs including two intermediate inputs. We focus on Cournot–Nash equilibrium and show that if the price elasticity of demand for the final good is smaller (respectively greater) than the elasticity of substitution between the intermediate inputs, the output of the duopolist in the protected country is smaller (respectively greater) under a quota than under a tariff.     

Technological Progress and Youth Employment in South Korea

ABSTRACT

This paper analyzes the extent to which technology progress and youth employment are related. In doing so, we divide workers into two groups – young workers and old (prime-aged) workers - and then estimate the elasticity of substitution between (physical) capital and workers à la Jaimovich et al. (2013. “The Demand for Youth: Explaining Age Differences in the Volatility of Hours.” American Economic Review 103 (7): 3022–3044) by using the Korean labour market data between 2000 and 2014. Our findings indicate that the elasticity of substitution is greater (or at least not smaller) for young workers than for old workers.     

THE DETERMINANTS OF EMPLOYMENT: A SECTORAL ANALYSIS FOR TURKEY

This paper analyzes the effects of wages, openness, and demand on employment in the private manufacturing industry in Turkey based on panel data for the period of 1973–2001. The wage elasticity of employment increases after trade liberalization. Nevertheless, output elasticity of labor demand is higher than wage elasticity in the total manufacturing sector for the whole estimation period, and in the high- and medium-skilled sectors in the post-1980 period. Trade effects, after controlling for output, seem to have a low economic significance. The positive effects of exports on the labor intensity of production are low or are offset by labor saving effects of foreign trade, particularly in the high- and medium-skilled sectors. On the other hand, there is some evidence of a negative import effect in the low-skilled sectors, whereas in the high- and medium-skilled group a complementary relation between domestic labor and imported inputs dominates the effects.     

The Effects of Norms on Investor Reactions to Derivative Use

Prior research indicates that a firm's use of derivatives to manage business risks is viewed favorably by investors. However, these studies do not consider a potentially key factor in this setting—namely, the typical behavior (or norms) regarding derivatives by other firms in the industry or the firm itself. In this paper, we report the results of multiple experiments that test whether norms are influential in affecting investors’ evaluations of firms’ derivatives choices. Our results show that the generally favorable reactions to derivative use actually reverse and become unfavorable when firms’ derivative decisions are inconsistent with industry or firm norms. Somewhat surprisingly, though, we find that industry and firm norms are not viewed similarly by investors. These results expand our understanding of how investors respond to firm's derivative use decisions and demonstrate the role of norms as factors that influence investors’ judgments in financial reporting settings. Our results have implications for firm managers making decisions about derivative use.     

Deriving the Trace of Optimal Output for a Noncompetitive Firm

A Monopolist or monopolistic competitive firm has no supply curve independent of the demand curve for its product. The intention of this paper is to utilize this dependency and show that under a generally accepted and practiced assumption about changes in the market demand curve facing a noncompetitive firm, it is possible to derive its locus of supply points or its trace of optimal output.     

Discriminatory Procurement Policy with Cash Limits

This paper presents a counterexample to the Miyagiwa ((1991) American Economic Review 81, 1320–1328) claim that discriminatory government procurement policy is ineffective as a protectionist device, when the goods are also consumed by the private sector. The procurement sector is a homogeneous product Cournot–Nash duopoly, with a home and a foreign firm. The procurement policy takes the form of an ad valorem premium over the import price. If both the firms play the output game in strategic complements, procurement policy can lower imports. This possibility arises when the product demand is unit elastic, corresponding to cash limits to public expenditure, and providing the home firm is smaller than the foreign firm. By adding a competitive export sector, the paper also derives sufficient conditions for macroeconomic coordination failures to occur.     

SECTORAL ELASTICITY OF SUBSTITUTION AND RETURNS TO SCALE IN SOUTH AFRICA

Elasticity of substitution and returns to scale are estimated on a sectoral basis for South Africa using panel-based generalised least square procedure. Apart from sectoral differences in terms of elasticity of substitution, the study found that elasticity of substitution is below unity in all of the sectors. Most of the sectors studied are found to have increasing returns to scale in production. The study further explores the implications of elasticity of factor substitution and returns to scale on growth and employment creation. It is argued that a greater number of jobs can be created from growth of sectors with constant or decreasing returns to scale than from the same level of output growth generated by sectors with increasing returns to scale. This is the case when the employment-creating potential of the same amount of additional output is compared in all the sectors examined. By virtue of scale economies, a sector like finance, insurance, real estate and business services generates more output with less proportional increase in inputs, which means growth in this sector may not have the desired impact on job creation. However, given the sector's large share (20%) of the country's total output and employment, it may generate more jobs, even if sectors like utilities and construction experience the same level of output growth. Given its importance for growth and employment, the study recommends further investigation into the reasons why elasticity of substitution is lower in sectors like utilities, mining and trade, catering and accommodation services.     

Voluntary Disclosure and Informed Trading*

This study analyzes the impact of informed trading on voluntary corporate disclosure in the presence of two factors: the cost of disclosure and the value of a manager's informedness. In the absence of both factors, informed trading has no impact on disclosure even when traders are not certain whether the manager has information. When disclosure is costly, informed trading serves as a free substitute for the disclosure of favorable information, and reduces disclosure. Surprisingly, when the manager's informedness is valuable for the firm, informed trading can also increase disclosure. Traders can discover unfavorable information about the firm, so managers with such information have less incentive to pool with uninformed managers and disclose to show that they are informed. The study also demonstrates that informed trading can have either a positive or a negative effect on firm value by crowding in or crowding out information production in the firm. These results hold for general information structures and are robust if traders can choose how much information can be acquired.     

贸易自由化与中国劳动需求弹性:基于制造业企业数据的实证分析

本文采用中国制造业企业1998-2007年的微观面板数据,研究贸易自由化对企业劳动需求弹性的影响.我们将中国加入世界贸易组织视为一次自然实验,以加工进口企业为“控制组”,以一般进口企业为“处理组”,采用倍差法和固定效应模型进行回归分析.结果显示,贸易自由化通过提高资本品和中间产品的可获得性,显著提高了劳动需求弹性.进口关税下降越多,企业的劳动需求弹性提高也越多.     

Optimal Two‐Part Pricing in a Carbon Offset Market: A Comparison of Organizational Types

This article examines the optimal two‐part pricing by an intermediary in a carbon offset market. In addition to creating a framework for analyzing carbon offset pricing, this article makes two contributions to the theoretical literature. First, we provide an in‐depth examination of the roles played by the upstream inframarginal supply and participation elasticities and the downstream demand elasticity in determining the optimal two‐part pricing strategy. Second, we compare the pricing decisions of three different organizational types: a for‐profit firm, a public agency, and a producer association. The producer association problem, which has received little attention in the literature, yields counterintuitive results because a producer association must simultaneously reduce output and distribute all profits back to its members.     

A putty-clay vintage model for sectors of industry in the Netherlands

Summary A putty-clay vintage model has been estimated for five industrial sectors: food, beverages and tobacco manufacturing; textiles, clothing and footwear manufacturing; chemical industry and oil refineries; metal manufacturing, and total manufacturing. Substitutabilityex ante between labour and capital appeared to be small in the first four sectors, with textiles, clothing and footwear manufacturing as an exception. Substitutabilityex ante in total manufacturing industry is rather high: an elasticity of substitution of –0.74. Embodied technical progress is strong in all industrial sectors. In textiles, clothing and footwear manufacturing and in total manufacturing it is both labour- and capital-augmenting in nature. In the other sectors it is mainly of the labour-augmenting variety.This research has partly been made possible by a grant of the National Programme of Labour Market Research (NPAO). Advice by Professor Th. van de Klundert and Mr. A.H. van Zon is gratefully acknowledged.     

Trade Union and Global Economic Growth

Abstract

This paper develops a simple framework for examining the role of unions in a global economy. It builds on the model of different institutions by comparing America with a flexible wage and Europe with a rigid wage (the existence of union), where the two areas are integrated via perfect capital mobility. We find the necessary condition that the degree of wage orientation of the union is larger than the firm's bargaining power and determines the positive direction on global economic growth. In addition, the effect of union's bargaining power on global economic growth is ambiguous. If the sum of the elasticity of substitution between capital and labour and the output elasticity of labour is smaller than one, or the firms are characterized by a Leontief production function (Harrod–Domar growth model) or an extremely low substituting elasticity (much empirical literature is supported), the union's bargaining power will lead to an increase in the growth of the global economy. In the general Cobb–Douglas production function (Solow–Swan neoclassical growth model), the union's bargaining power will result in a decline in the growth of the global economy.     

Monopoly supply

Summary and Conclusions In the preceding sections, it is shown that a supply curve in the ordinary sense does exist and can be derived, which corresponds to a specified family of demand curves described by changes in a single parameter of demand. If the demand curve hasn parameters, an equal number of supply curves can be derived, one corresponding to each family of demand curves generated by variation in one of the parameters, holding the remainingn–1 constant. Since the demand curve family facing the perfectly competitive firm has the formP =a, there is only one supply curve in this case. Further, that supply curve does not involve demand parameters since the sole demand parameter,a, is eliminated in its derivation. In general, this is not the case and the marginal cost schedule will be insufficient to describe the supply relation for imperfectly competitive firms.In the teaching of graduate and undergraduate microeconomics, students often become confused by conflicting discussion suggesting that monopoly nopoly supply is meaningless, irrelevant, or a point. If there is only one demand curve, the equilibrium price-quantity supply will be one point regardless of whether monopoly or perfectly competitive firms are being considered. The broader definition of supply advocated here offers the pedagogic advantage of stressing the fundamental uniformity of the supply concept in the theory of the firm. With shifting demand, there is a meaningful supply relation in both the competitive and monopoly case.As indicated in Section III, this generalized definition of supply has strong implications for empirical work, showing that it is tractable to estimate monopoly supply relations as well as marginal cost curves in the monopoly case and thus opening the door to useful new empirical work.     

The increasing returns to scale CES production function and the law of diminishing marginal returns

This article analyzes the constant elasticity of substitution (CES) production function when there are increasing returns to scale and the elasticity of substitution exceeds 1, which I refer to as the explosive case of the CES. For this explosive case of the CES, the article demonstrates a new and surprising result: marginal and average products of labor and capital approach infinity as either labor or capital approach infinity. Obviously, in this explosive case of the CES, the law of diminishing marginal returns is eventually violated in a dramatic way. Some implications of this result for growth theory are discussed. The article concludes by deriving, for this explosive case of the CES, lower and upper bounds for the capital labor ratio which are consistent with the law of diminishing marginal returns.     

Reserve-requirement changes,open-market operations,and banks' asset mix

Conclusion This paper has demonstrated, in terms of a characteristics-space model of banks' demand for earning assets, that banks' desired ratio of securities to loans willfall when deposits are restricted by means of a raised reserve requirement, butremain constant orrise when the restriction is due to open-market sales (assuming that the differential between loan and security rates of interest does not widen). It is then argued that open-market sales can be judged superior to raised reserve requirements as an instrument of monetary restriction according to at least six criteria. A necessary and sufficient condition for this judgement by each criterion is that banks' asset mix respond to deposit contraction in the manner predicted by our model.