Preemptive bribery and incomplete information: Does prior knowledge matter?

This paper studies bribery between a firm and a supervisor who monitors the firm for regulatory compliance. Bribery occurs preemptively, that is before the supervisor exerts costly effort to discover the firm's level of noncompliance and collect evidence for successful prosecution. In contrast to previous papers, preemptive bribery is modeled as a Bayesian signaling game because the supervisor is uninformed about the firm's level of noncompliance. We show that under normal informational assumptions, some (possibly all) firms always engage in preemptive bribery. However, if knowledge of the firm's level of noncompliance has implications for the supervisor's ability to collect evidence and prosecute (prior knowledge), preemptive bribery can be completely eliminated. Results which apply to preemptive bribery under complete information do not apply here.     

Corporate tax avoidance and cost of equity capital: international evidence

ABSTRACT

This study examines the association between firm’s tax avoidance activities and cost of equity capital across 17 countries. Consistent with the prior study based on the U.S. evidence, within strong investor protection countries, the extent of firm’s tax avoidance is negatively associated with its cost of equity capital. This result indicates that strong investor protection induces investors to perceive firm’s tax avoidance activities as the results of efficient tax planning to reduce tax liabilities. To the contrary, we find that the extent of firm’s tax avoidance is positively associated with its cost of equity capital within weak investor protection countries. This result suggests that investors impose equity risk premium on firm’s tax avoidance activities in weak investor protection countries, where agency conflicts prevail more on firm’s tax avoidance activities. As the first international study on the association between firm’s tax avoidance activities and its cost of equity capital, this study contributes to the literature by suggesting that such an association may vary across countries depending on the strength of investor protection within each country of domicile.     

Agency rulemaking, political influences, regulation, and industry compliance

This article empirically examines the impact of congressionaloversight and agency rulemaking on firm compliance behaviorin FDA-regulated industries. Congressional oversight hearingsprovide signals to firms about future changes in regulatoryenforcement strategies. Agency rulemaking influences firms'incentives to comply with regulation because firms must investsignificant resources to keep up with changing agency policy.This analysis uses three-stage least squares to simultaneouslyestimate both the numbers of FDA inspections and industry violatorsbetween 1972 and 1994. Results show that congressional oversightdeters industry noncompliance. The effect of agency rulemakingon noncompliance differs between industries. For instance, anincreasing stock of human drug rules has raised compliance amongdrug firms because newer more, cost-effective rules have replacedolder, more costly rules. In contrast, the increasing stockof medical device rules has reduced industry compliance amongdevice firms because these rules have increased the complexityand the scope of regulation.     

The regulatory choice of noncompliance in emissions trading programs

This paper addresses the following question: To achieve a fixed aggregate emissions target cost-effectively, should emissions trading programs be designed and implemented to achieve full compliance, or does allowing a certain amount of noncompliance reduce the costs of reaching the emissions target? The total costs of achieving the target consist of aggregate abatement costs, monitoring costs, and the expected costs of collecting penalties from noncompliant firms. Under common assumptions, I show that allowing noncompliance is cost-effective only if violations are enforced with an increasing marginal penalty. However, one can design a policy that induces full compliance with a constant marginal penalty that meets the aggregate emissions target with lower expected costs. This last result does not depend on setting an arbitrarily high constant marginal penalty. In fact, the marginal penalty need not be higher than the equilibrium marginal penalty under the policy with the increasing marginal penalty, and can actually be lower. Finally, tying the marginal penalty directly to the permit price allows the policy objective to be achieved without any knowledge of firms’ abatement costs.     

Approximations in power transmission planning: implications for the cost and performance of renewable portfolio standards

Renewable portfolio standards (RPSs) are popular market-based mechanisms for promoting development of renewable power generation. However, they are usually implemented without considering the capabilities and cost of transmission infrastructure. We use single- and multi-stage planning approaches to find cost-effective transmission and generation investments to meet single and multi-year RPS goals, respectively. Using a six-node network and assuming a linearized DC power flow, we examine how the lumpy nature of network reinforcements and Kirchhoff’s Voltage Law can affect the performance of RPSs. First, we show how simplified planning approaches that ignore transmission constraints, transmission lumpiness, or Kirchhoff’s voltage law yield distorted estimates of the type and location of infrastructure, as well as inaccurate compliance costs to meet the renewable goals. Second, we illustrate how lumpy transmission investments and Kirchhoff’s voltage law result in compliance costs that are nonconvex with respect to the RPS targets, in the sense that the marginal costs of meeting the RPS may decrease rather than increase as the target is raised. Thus, the value of renewable energy certificates (RECs) also depends on the network topology, as does the amount of noncompliance with the RPS, if noncompliance is penalized but not prohibited. Finally, we use a multi-stage planning model to determine the optimal generation and transmission infrastructure for RPS designs that set multiyear goals. We find that the optimal infrastructure to meet RPS policies that are enforced year-by-year differ from the optimal infrastructure if banking and borrowing is allowed in the REC market.     

Collusion and Information Exchange

Antitrust authorities view that exchange of individual firms’ sales data is more anti‐competitive than that of aggregate sales data. In this paper, I survey antitrust implications of such inter‐firm information exchange. I argue that both types of information exchange are anti‐competitive under some circumstances. More precisely, I compare profits when each type of information exchange is allowed to that when firms can only observe their own sales (Stigler’s secret price‐cutting model), and the former is bigger than the latter. I also provide a general method to bound the equilibrium profits without such information exchange.     

Corporate social responsibility,vertical product differentiation and international competition

Would a foreign firm’s consumer‐oriented corporate social responsibility (CSR) activities be rewarded by an importing country’s voluntary tariff reduction? The current paper addresses this question in an import‐competing duopoly model with vertical product differentiation. It is shown that the tariff will decrease if the foreign firm switches from a purely profit‐driven firm to a CSR firm. A consumer‐oriented CSR strategy will always hurt the domestic firm’s profit, whereas the relationship between the foreign firm’s profit and CSR sensitivity (the degree to which a firm cares about consumer welfare) is invertedly U‐shaped. When firms’ decisions to switch to CSR are endogeneized, only the foreign firm will become a CSR firm.     

ACQUISITION OF INFORMATION TO DIVERSIFY CONTRACTUAL RISK*

Are hedging transactions that diversify a manager’s compensation risk detrimental to incentives, or can they improve contracting efficiency? If hedging provides efficiency benefits, should the manager or the firm undertake it? In our model, both the firm and the manager can trade financial portfolios to diversify the manager’s compensation risk. Prior to the portfolio selection, the parties need to acquire information on how different financial portfolios fit their diversification purposes. We illustrate that financial portfolios correlated with firm‐specific risk improve contracting efficiency. For equal information costs, it is optimal for the firm to undertake the hedging on the manager’s behalf.     

Productivity,innovation strategies and industrial relations in SMEs. Empirical evidence for a local production system in northern Italy

The paper aims to provide an original contribution to evaluating several kinds of relations between four areas of innovation activities – training, technology, organization, ICT (information and communication technologies) – and industrial relations and firm’s economic performance. Quantitative evidence for a SME‐based local production system is provided by exploiting two datasets: the first is derived from a direct survey carried out in 2005 collecting data on innovations, labour flexibility and industrial relations; the second is represented by a panel of official balance sheets data for the period 1998–2004. The analysis is divided in two consequential parts. We first examine the drivers of different innovation strategies and subsequently we exploit innovation indicators as potential drivers of firm’s productivity. The results show that training activities and organizational changes have strong links with many industrial relations indicators, thus emerging as industrial relations driven innovations. On the contrary, ICT and technological innovation seem to be more influenced by firms’ past performances than by industrial relations. The analysis on labour productivity drivers shows that training activities are the most relevant factors; then, ranked consequently, technological innovation, organisational innovations and, finally, ICT also appear to impact on productivity levels. It is worth noting that the role of ICT emerges more robustly when endogeneity is specifically addressed. Finally, the role of firm size seems here to be overshadowed by other drivers.     

信息发布者特征与企业创新

本文关注公司信息发布者(即董秘)的差异对企业创新的影响。研究发现:(1)当上市公司的信息发布者为金牌董秘时,其创新产出水平更高;(2)当金牌董秘专业相关程度越高、工作越勤勉时,其对企业创新的促进作用越强;(3)进一步的中介效应检验表明,提升公司内部信息披露质量及改善公司外部信息沟通环境是金牌董秘促进企业创新的重要途径。本文的研究不仅丰富了与信息发布者相关的经济后果以及企业创新影响因素的文献,对于全面认识董秘这一高管职业群体如何影响微观企业行为乃至宏观经济也具有重要的启示意义。     

Heterogeneous Firms in Importing: Theory and Evidence from China

In this study, I explore the effects of the financial status of firms on its decisions to import. The import decision is reflected in various aspects, such as whether to import or buy from home market; what types of goods to import, etc. A novelty of this analysis is that I distinguish between ordinary trade and processing trade, which involves importing inputs to be assembled and re-exported. Several novel patterns emerge. Firstly, a firm’s financial status, especially its liquidity, significantly influences its decisions to import. Secondly, regional financial development also has a significantly affect importing decisions. However, a firm’s creditworthiness and regional factors work independently (i.e., regional financial development does not alleviate a firm’s credit constraints). The findings yield implications for developing economies which demand technological spillovers from advanced markets and those which maintain large trade surpluses with the developed economies.     

Complementarities between firm-sponsored training and information technology use

In this article, we investigate the presence of possible complementarities between investments in information technology (IT) and firm-sponsored training using economy-wide longitudinal representative workplace-level data. Since information on the firm’s capital stock is often missing in such representative data, we match our workplace records to tax data to construct measures of the firm’s capital stock. We find some evidence of positive complementarities between investments in human capital and IT, suggesting that on-the-job training can also have a positive impact on productivity when complemented with investments in CAD or other technologies.     

The firm information environment and capital structure: international evidence

This article investigates the effect of the firm information environment, characterized by the analyst characteristics, on firms’ capital structure choices and whether this effect varies according to country-level institutional environments. Using a comprehensive international data set that covers 19 939 firms across 41 countries between 2000 and 2010, we document two key findings. First, firms with lower analyst coverage, higher forecast dispersion and higher forecast errors have higher leverage. Second, the effect of the firm information environment on corporate leverage is attenuated in countries with stronger governance mechanism and better information transparency. This result suggests that a firm’s information environment is an important factor influencing its capital structure decision and that country-level institutional environments matter to this effect.     

Protecting the privacy of personal information in employee benefit plans

The United States is not the only country dealing with privacy of health information. In the absence of clear legislative direction, this paper focuses on the common privacy principles that underlie Canadian privacy legislation and recommends a plan of action. The objective is to give plan administrators and trustees sufficient transition time to develop and implement the appropriate privacy strategies, thereby minimizing both the potential burden of compliance and the potential risks of noncompliance.     

Creditor passivity: The effects of bank competition and institutions on the strategic use of bankruptcy filings

In transition countries, banks often fail to take action against loan defaulters. Using a model of the bank–firm relationship, we study the trade-off a bank faces when having defaulting firms declared bankrupt. First, the bank receives a payoff if a firm is liquidated. Second, it provides information about a firm’s type to its competitors. Therefore, asymmetric information between banks is reduced, and bank competition intensifies. We find that the better the institutions and the more competitive the banking sector, the greater the bank’s incentive to bankrupt defaulting firms. This makes information between banks less asymmetric and thus leads to lower interest rates and increases the probability that all banks offer loans.     

Productivity Growth and Input Demand: The Effect of Learning by Doing in a Gold Mining Firm in a Developing Economy

This paper analyzes the effect of learning by doing (LBD) on the firm’s productivity growth and its input demand decisions. The results indicate that LBD is an important determinant of the firm’s productivity growth. The contribution of LBD to the firm’s productivity growth is about 5.6%. Another observation is that LBD has a decreasing effect on the firm’s cost of production – a finding which is consistent with the results of many studies. Also, an increase in LBD measured by cumulative production increases the firm’s demand for capital, and decreases the firm’s demand for labor. Lastly, LBD has a significant effect on the firm’s elasticity of scale. A fundamental message derived from the study is the confirmation that the firms should invest in more large capital equipment, embark on new processing techniques, and create an environment that is conducive to on-the-job learning.     

Does the market care about investor protection practices in China?

This study develops a scorecard with which to measure the investor protection practices of major listed firms in China during 2007–2010. We use time-series data to examine the relationship between the change in firm investor protection practices and market performance. Our results show that firms exhibiting improvements in investor protection practices manifest a subsequent increase in buy-and-hold abnormal returns. The results further indicate that the changes in the sub-index have different effects on a firm’s future performance. Shareholder rights to be rewarded seem to have the most significant and positive effect on a firm’s future performance for both local and international investors. Moreover, international investors pay attention to their rights to information. Our results provide evidence in support of the notion that the market does care about firm’s investor protection practices. The findings are robust to other measures of firm performance.     

Endogenous product versus process innovation and a firm’s propensity to export

This article provides an empirical analysis of the effects of new product versus process innovations on export propensity at the firm level. Product innovation is a key factor for successful market entry in models of creative destruction and Schumpeterian growth. Process innovation helps securing a firm’s market position given the characteristics of its product supply. Both modes of innovation are expected to raise a firm’s propensity to export. According to new trade theory, we conjecture that product innovation is relatively more important in that regard. We investigate these hypotheses in a rich survey panel data set with information about new innovations of either type. With a set of indicators regarding innovation motives and impediments and continuous variables at the firm and industry level at hand, we may determine the probability of launching new innovations and their impact on export propensity at the firm level through a double treatment approach.     

The effect of regulating political connections: Evidence from China's board of directors ban

There is a great deal of variation in how countries regulate the relationships between politicians and public-traded firms, but little evidence about how such policies affect firm performance. In 2013, China passed a new regulation that banned politicians from serving on the boards of directors of companies. Using a novel data set that links board members, government officials, and forced resignations, I estimate the effect of the policy on firm performance and stock returns. I find that the loss of a high-level politician significantly reduces a firm’s cumulative stock return and future profits. The effect is driven by officials from government-controlled public sectors and is larger when the firm is in low-marketized areas. The analysis provides important evidence about the efficacy of a commonly used policy tool for reducing political influence in the private sector.