Prices for cash and cash for prices? Theory and evidence on convenient pricing

A transaction between a seller and a buyer incurs a payment cost. The payment cost is borne by the seller, depending on the payment instrument the buyer chooses, cash or card. Card payment is more costly than cash payment, so the seller prefers that the buyer pays cash. In this article, we study the strategy of the seller setting a convenient price, which simplifies transactions and pushes the buyer to pay cash. The theoretical analysis, which models both the seller and the buyer in a game setting, derives two propositions: (1) the seller is more likely to set a more convenient price and (2) the buyer is more likely to pay cash a more convenient price. The empirical analysis supports both propositions. Thus, sellers adopt a convenience pricing strategy – prices for cash – and this strategy pushes buyers to pay cash – cash for prices.     

Will that be cash or credit? Payment preferences and rising VAT in Argentina

This article studies how Argentina’s value-added tax (VAT) revenue has risen to historic highs since its 2001 sovereign default and continues to grow despite unchanged VAT rates, slow economic growth, stagnant household consumption, and low commodity prices after 2010. In 2015, VAT revenue accounted for one-quarter of all tax revenue in Argentina. We show that Argentina’s banked population went from less than 41.6% in 2003 to 89.6% in 2016. Consequently, there was significant growth in electronic payments via credit cards and debit cards. Using time series regression, the authors show that the rising banked population and card growth is correlated with VAT-to-GDP increases from 2002 to 2015. The authors posit that one reason for these correlations is that some consumption is shifting from informal (harder to tax) markets to formal (easier to tax markets) as cash use declined and card use grew. Also, rising electronic payments likely explains improved VAT compliance as well—the Argentine VAT noncompliance rate averaged 36.4% between 2000 and 2005 but improved to 20.5% between 2006 and 2010 (Trigueros, Longinotti, & Vecorena, 2013).     

Do corporate governance mechanisms affect cash dividends? An empirical investigation of UK firms

The study examines whether corporate governance mechanisms and the compliance with good governance practice are related to cash dividends. In particular, the study assesses the effect of institutional ownership and board structure on the decision to pay cash dividends. A study on UK firms is interesting because firms are expected to voluntarily structure governance mechanisms based on their own needs. We find that institutional owners positively affect cash dividend payments, suggesting that UK institutions are effective in forcing firms to disgorge cash. There is limited evidence that independent directors affect the cash dividends. The results also show that firm specifics affect the cash dividends, namely, business risk, firm size, and leverage ratio. The results are consistent across several robustness checks.     

Deviations from optimal corporate cash holdings and the valuation from a shareholder’s perspective

The trade-off theory of corporate cash holdings predicts that there is an optimal level of cash. We test the trade-off theory by investigating the relation between deviations from optimal cash holdings and the valuation of cash from a shareholder’s perspective. We decompose corporate cash holdings into the optimal level of cash and the deviations from the optimum. We find that the marginal value of cash for shareholders is higher when a change in cash moves corporate cash holdings towards the optimal level and that this relationship holds for both the above-optimal deviations and the below-optimal deviations. We conclude that the results are consistent with the prediction of the trade-off theory of corporate cash holdings.     

Must conditional cash transfer programs be conditioned to be effective? The impact of conditioning transfers on school enrollment in Mexico

A growing body of evidence suggests that conditional cash transfer (CCT) programs can have strong, positive effects on a range of welfare indicators for poor households in developing countries. However, there is little evidence about how important each component of these programs is towards achieving these outcomes. This paper tests the importance of conditionality on one specific outcome related to human capital formation, school enrollment, using data collected during the evaluation of Mexico's PROGRESA program. We exploit the fact that some beneficiaries who received transfers did not receive the forms needed to monitor the attendance of their children at school. We use a variety of techniques, including nearest neighbor matching and household fixed effects regressions, to show that the absence of these forms reduced the likelihood that children attended school with this effect most pronounced when children are transitioning to lower secondary school. We provide substantial evidence that these findings are not driven by unobservable characteristics of households or localities.