Economic Growth and Inequality: Why It Matters and What's Coming Next

This article makes the case that the recent rise in income inequality in OECD countries reflects profound changes in the economic model that previously resulted in growth, prosperity, and social progress during the second half of the last century. The author begins by citing French economist Thomas Piketty's identification of the key driver of rising income inequality as the recent sharp increase in the share of national income going to capital (defined as interest, dividends and other investment returns) and the accompanying decline in the share going to labor (in the form of wages, salaries, pension, and other work‐related benefits). For most of the last 100 years, a successful balance was struck in a majority of OECD countries between the returns to capital and labor. Within the framework of nationally defined economies, labor could effectively advocate for its share of the productivity gains by capital, and governments had the ability to constrain the free movement of capital, set labor compensation standards, and redistribute income through progressive taxation. The author explores how two developments—globalization and the rise of machine intelligence—are disrupting this social contract and reshaping our economy and society. The combination of these two developments, by accelerating the flow of income to capital and away from labor, is eroding the historical relationship between capital, labor, and governments that has long prevailed in most OECD countries. As this happens, we are seeing rising income inequality and the erosion of the middle class, which had been the driver of economic growth for most of the past century. Indeed, the thesis of Piketty's book, Capital in the Twenty‐First Century, is that such an effect may well be taking us back to the pre‐20th century norm of high income inequality and low economic growth. In his closing arguments, the author suggests that avoiding this scenario will be more complicated than simply raising taxes on capital, as proposed by Piketty. It may well require a fundamental rethinking of the role of employment as the primary mechanism for income distribution in society and how we prepare our workforce for an economy and society in which the concept of work will be radically redefined.     

Durable Goods,Investment Shocks,and the Comovement Problem

Sticky‐price models suggest that capital investment shocks are an important driver of business cycle fluctuations. Despite quantitative importance in explaining business cycles, a comovement problem emerges because the shocks generate intertemporal substitution effects away from consumption toward investment. This paper resolves the problem by extending the standard sticky‐price model to a two‐sector model with consumer durable services. When durable goods are used as investment in capital and consumer durables, positive capital investment shocks also generate intratemporal substitution effects away from consumer durable services toward nondurable consumption that dominates intertemporal effects. Consequently, consumption increases, and the comovement problem is resolved.     

Stock Splits and Stock Dividends: Why,Who, and When

This study investigates empirically why firms split their stock or distribute stock dividends and why the market reacts favorably to these distributions. The findings suggest that stock splits are mainly aimed at restoring stock prices to a “normal range.” Some support can also be found for the oft-mentioned signalling motive of stock splits. Stock dividends are altogether different from stock splits, and they appear to be a decreasing phenomenon. The clue to stock dividend distributions may lie in their perceived substitution for relatively low cash dividends.     

Structuring the Initial Offering: Who to Sell To and How to Do It

We develop a unified model of the issuer’s decisions that takes into account both mechanism design and adverse selection risk. The model enables us to determine the optimal amount of information gathering prior to setting the offer price, and to understand what does and does not cause underpricing. The flexibility to allocate securities between a pool of investors who provide pricingrelevant information and investors who do not provide information is key to controlling underpricing. Policies that guarantee a minimum allocation to investors in the pool result in underpricing; policies that cap the allocations to such investors do not. The optimal number of investors in the pool, and thus the amount of information acquired, generally increases with the riskiness of the issue. However, this relation breaks down if pool members are guaranteed minimum allocations.We are grateful to the referees and the editor, Marco Pagano, for their insightful suggestions. We thank Sugato Bhattacharyya, Jos von Bommel, Zhoahui Chen, Robert Hauswald, Dilip Madan, Kristian Rydqvist, Alex Stomper, Meg Van De Weghe, Ivo Welch and participants at Carnegie Mellon, Indiana University, the University of Maryland, Tulane University and Yale University finance seminars for their helpful comments. This paper has evolved from an earlier paper titled Private versus Public Offerings: Optimal Selling Mechanisms with Adverse Selection, that was presented at the 1999 Western Finance Association meetings.     

Option Awards for Australian CEOs: The Who, What and Why

The compensation structure for Australian CEOs, and especially the extent to which they receive executive stock options, is explored. Evidence suggests that the award of executive stock options is common in Australia, but not in as systematic a manner as has been documented for US CEOs. Where ESOs are awarded, they form a significant component of total compensation, even allowing for limitations in the way we approximate their value. Modelling the use of ESOs shows relatively few empirical regularities, other than a positive association between firm size and ESO use. This is consistent with a view that ESOs are a form of "rent extraction" by CEOs, but it may also reflect a bias towards their use created by accounting rules.     

Why Consistency of Accounting Standards Matters: A Contribution to the Rules-Versus-Principles Debate in Financial Reporting

A cross-firm consistent application of accounting standards is sought in all major accounting regimes. Since many transactions and events are only vaguely or not explicitly addressed in the standards managers must often use judgment when applying accounting standards to particular transactions or events. This analysis concludes that a consistent application of accounting standards can only be ensured if the accounting standards themselves are internally consistent. By contrast, inconsistent standards—in the absence of clear guidance—permit managers to (more or less arbitrarily) choose between different accounting methods. Moreover, it is found that a consistent application presupposes the existence of specific guidance ('rules') in order to frame management's judgment. It is argued that the reliance on principles only—as requested by many in the accounting literature—fails to ensure a consistent application because it allows management to exert judgment differently in identical cases. The assessment includes arguments and propositions from the international discussion in the accounting literature and also refers to other related fields of research, such as legal theory.     

金融工程:金融创新与系统科学的综合集成

从金融工程的一般定义和系统科学的基本理论出发,探讨金融工程与系统科学、金融创新之间的关系,提出系统工程方法是金融工程的重要研究方法之一,金融创新是金融工程的灵魂,根据系统原理,分析金融工程创新的具体途径。     

Social Capital,Trust, and Corporate Performance: How CSR Helped Companies During the Financial Crisis (and Why It Can Keep Helping Them)

The authors summarize the findings of their study, published recently in the Journal of Finance, that shows that CSR investments can help companies when they perhaps need it most—that is, during sharp downturns when overall trust in companies and markets declines. Companies with high‐CSR rankings experienced stock returns that were five to seven percentage points higher than their low‐CSR counterparts during the 2008–2009 financial crisis, and even larger excess returns during the Enron crisis of 2001–2003. High‐CSR companies during the crisis also reported better operating performance, higher growth, higher employee productivity, and greater access to debt markets—while continuing to generate higher shareholder returns as late as the end of 2013. Many of these operating improvements continued well into the post‐crisis period, though at more modest levels. As the authors view their findings, the ‘social capital’ built up by corporate CSR programs complements effective financial capital management in increasing shareholder wealth mainly by limiting companies' downside risk. CSR is seen as not only reducing systematic as well as firm‐specific risk, but as also providing protection against overall ‘loss of trust.’ The social capital created by CSR programs is said to provide a kind of insurance policy that pays off when investors and the overall economy face a severe crisis of confidence.     

企业集团财务公司:产融结合的有效路径研究

企业集团财务公司作为产融结合的有效路径之一,为企业集团的发展和我国金融体制改革做出了重要贡献,并逐渐成为中国非银行金融机构体系中一支不可忽视的力量.文章通过对各国财务公司进行比较研究,分析我国财务公司的功能,并在此基础上总结我国财务公司的优势,结合中油财务公司的实例进行效用分析,探讨了我国企业集团财务公司为产融结合所做的有益探索.     

Finance and the Business Cycle: International, Inter-Industry Evidence

By considering yearly production growth rates for several manufacturing industries in more than 100 countries during (roughly) the last 40 years, we show that industries that are more dependent on external finance are hit harder during recessions. The observed difference in the behavior of industries is larger when financial frictions are thought to be more prevalent, linking the result directly to the financial mechanism hypothesis. In particular, more dependent industries are more strongly affected in recessions when they are located in countries with poor financial contractibility, and when their assets are softer or less protective of financiers.     

Corporate Finance and Sustainability: the Case of the Electric Utility Industry

The electric utility industry is in transition but needs to move even faster if the country is to meet its emissions goals. The industry has historically moved cautiously, but policies and regulatory approaches must avoid unintentionally reinforcing the status quo. Incentive‐oriented policies and redesigned regulations must balance environmental sustainability with economic sustainability. The authors draw on well‐established corporate finance principles to guide more effective policies. Shareholder‐focused utility executives must make investments conditioned by three elements: (1) the return on equity the utility can expect to make on each project; (2) the investors' required return on equity capital for each project; and (3) the size of the investment. The well‐established economic value added (EVA) model can assist policy analysis: V=(r‐k)I; where V is the shareholder value created, r is the return on equity, k is the return investors require if they are to invest in the stock, and I is the scale of the project. Any new incremental V translates into higher stock prices. All three elements of their model (i.e., risk, return, and scale) require attention by regulators and policymakers to create value for shareholders. The authors show how the right state policies could create powerful incentives for shareholder focused utility executives to support such transitions.     

面向可持续发展的财务学:困境与出路

环境问题已经成为各个学科研究的一个热点问题,但有关环境问题的财务学探讨无论是理论还是实践都较为薄弱,滞后于我国目前提出的可持续发展的战略目标。传统财务学在处理环境问题、促进可持续发展方面正面临困境,可持续发展对财务学提出了新的要求,将环境因素纳入财务学,构建可持续发展导向的财务学路径对于改善生态环境,实现社会、企业和环境的协调发展具有重要意义。     

IMF programs: Who is chosen and what are the effects?

IMF loans react to economic conditions but are also sensitive to political-economy variables. Loans tend to be larger and more frequent when a country has a bigger quota and more professional staff at the IMF and when a country is more connected politically and economically to the United States and major European countries. These results are of considerable interest for their own sake. More importantly for present purposes, the results provide instrumental variables for estimating the effects of IMF loan programs on economic growth and other variables. This instrumental estimation allows us to sort out the economic effects of the loan programs from the responses of IMF lending to economic conditions. The estimates show that a higher IMF loan-participation rate reduces economic growth. IMF lending does not have significant effects on investment, inflation, government consumption, and international openness. However, IMF loan participation has small negative effects on democracy and the rule of law. The reduction in the rule of law implies an additional, indirect channel whereby IMF lending reduces economic growth.     

The Private Finance Initiative: risk, uncertainty and the state

This paper analyses the UK's Private Finance Initiative (PFI) at a conceptual level by focusing on the management of risk, which is central to the justification for the policy and its application across the public services, and uncertainty, which underlies the role of the state. The paper argues that the rhetorical support for PFI rests on a conflation of risk and uncertainty and that PFI leads to contractual arrangements that are inappropriate for the provision of public services over the medium term.     

金融要成为社会稳定和发展的保障系统——五为中国金融立论

金融要成为社会稳定和发展的保障系统,必须确定现代金融服务业,必须关注现代经济生活的变化.而现阶段讨论国内金融业的保障功能,应着重关注以下经济社会特征:适龄劳动力增加,就业压力增大;人们收入增加,中产阶层正在形成;贫富差距仍然较大,两极分化仍需防范;人口老龄化,社会保障需要建立和完善;追求公平正义成为社会和谐稳定的"定海...