The long-run performance of diversifying firms

The corporate diversification literature presents a puzzle. Short-horizon event studies report positive abnormal returns around the announcement of a diversifying event, while studies that examine diversified firms find evidence that diversified firms are worth less than specialized firms (a diversification discount). If diversification is value destroying, perhaps the destruction occurs over longer periods than have been previously tested. This paper tests the hypothesis that diversifying firms have negative long-run abnormal performance following diversification by examining a sample of specialized firms that have a diversifying event from 1978 through 1998. The firms are tracked for up to five years past their diversification year. There is evidence that value is destroyed for small firms that diversify but enhanced for larger firms that diversify.

Transition towards and of sustainability—Understanding sustainability as performative

Our purpose is to explore the concept of “sustainability” when understood from a performative perspective, i.e. as a concept that is filled with meaning across time. Drawing on a 10 year-long study of the digital footprint of Stockholm Royal Seaport, claimed to be northern Europe's largest sustainable urban development district, we show that “sustainability” emerged as the project became associated with particular places, projects, histories, and technologies. This means that “sustainability” was local in that it was situated in the particular spatial context of the project; temporal in that it was situated in a particular time; and political in that it expressed particular values and perspectives. The study contributes to explaining why “sustainability” remains—and always will remain—a contested concept, which is why sustainability transitions are complex. Consequently, we suggest that the transition towards sustainability always involves the transition of sustainability, something that needs to be acknowledged in order for a transition to actually become sustainable.     

R&D Cuts and Subsequent Reversals: Meeting or Beating Quarterly Analyst Forecasts

Abstract

Among firms that meet or beat earnings expectations, we find that cuts to R&D spending are more prevalent in Q4 relative to other interim quarters. This is consistent with the relative costs of real-activities management (accruals-based earnings management) decreasing (increasing) in Q4 due to the annual audit. More importantly, we find that the subsequent reversal of such R&D cuts is more prevalent and economically more significant following Q4 cuts relative to the reversals that follow cuts in other interim quarters. Our findings suggest that examination at the quarterly level (rather than annual level) lends new insights into the current debate regarding the prevalence of potentially value-destroying R&D cuts that managers make. Indeed, our findings suggest that some cuts may merely be temporary deferrals of R&D outlays.     

A new necessary condition for Nash implementation

In this paper we formulate a family of conditions called `B_k-monotonicity' that are necessary for Nash implementation, where k is a natural number that indexes a particular condition, and where the condition only becomes more restrictive as k increases. B_k-monotonicity is in general a stricter condition than Maskin monotonicity, and can be used to show that certain social choice correspondences that satisfy Maskin monotonicity cannot be Nash implemented.     

Henry George and the Institution of Private Property in Land: A Property Rights Approach

Abstract . Conflicting statements concerning whether the implementation of Henry George's single tax proposal would destroy the institution of private property in land have appeared in the literatures of economics and other disciplines. A number of writers have implied that the taxation of Ricardian rent is equivalent to land nationalization. In the main, followers of George have denied that the single tax would abolish private property in land. Their claim is based on the fact that land titles would remain in private hands under the single tax. Since the whole question of private property is beset with ideological difficulties, a property rights approach is applied to this issue in an attempt to resolve the controversy. The conclusions are that the actual implementation of George's system would not destroy private property in land and that it is incorrect to equate the single tax with land nationalization.     

The proportion of blocking coalitions in atomless economies

In this paper we investigate the number of coalitions that block a given non-competitive allocation. In an atomless economy with a finite number of types we identify coalition with its profile. Considering profiles π that represent coalitions with the same proportions of types as in the whole society, we prove that there is a ball B_π with π as its center so that ‘almost half’ of the profiles in B_π are blocking. This result is an analogous result to that of Mas-Colell (1978) who dealt with large finite markets.     

Structural vs. atheoretic approaches to econometrics

In this paper I attempt to lay out the sources of conflict between the so-called “structural” and “experimentalist” camps in econometrics. Critics of the structural approach often assert that it produces results that rely on too many assumptions to be credible, and that the experimentalist approach provides an alternative that relies on fewer assumptions. Here, I argue that this is a false dichotomy. All econometric work relies heavily on a priori assumptions. The main difference between structural and experimental (or “atheoretic”) approaches is not in the number of assumptions but the extent to which they are made explicit.     

WHAT HAPPENS AFTER SUCCESS: THE PERILS OF EXCELLENCE*

This article examines how past performance influences the way an organization evolves, makes decisions, and adapts to its environment. It argues that compared to other periods of history, those that follow a lengthy interval of success will reveal companies that are especially apt to: (1) exhibit inertia in many aspects of structure and strategy-making process; (2) pursue immoderation, that is, adopt extreme process orientations; (3) manifest inattention, that is, reduce intelligence gathering and information processing activity; and (4) demonstrate insularity by failing to adapt to changes in the environment. an empirical analysis of the long-term histories of 36 companies provides tentative support for these notions.     

Mechanisms that efficiently verify the optimality of a proposed action

The best known achievement of the literature on resource-allocating mechanisms and their message spaces is the first rigorous proof of the competitive mechanism's informational efficiency. In an exchange economy withN persons andK+1 commodities (including a numeraire), that mechanism announcesK prices as well as aK-compenent trade vector for each ofN−1 persons, making a total ofNK message variables. Trial messages are successively announced and after each announcement each personprivately determines, usingprivate information, whether she finds the proposed trades acceptable at the announced prices. When a message is reached with which all are content, then the trades specified in that message take place, and they satisfy Pareto optimality and individual rationality. The literature shows that no (suitably regular) mechanism can achieve the same thing with fewer thanNK message variables. In the classic proof, all the candidate mechanisms have the privacy property, and the proof uses that property in a crucial way. ‘Non-private’ mechanisms are, however, well-defined. We present a proof that forN>K,NK remains a lower bound even when we permit ‘non-private’ mechanisms. Our new proof does not use privacy at all. But in a non-private mechanism, minimality of the number of message variables can hardly be defended as the hallmark of informational efficiency, since a non-private mechanism requires some persons to know something about the private information of othersin addition to the information contained in the messages. The new proof of the lower boundNK invites a new interpretation of the competitive mechanism's informational efficiency. We provide a new concept of efficiency which the competitive mechanism exhibits and which does rest on privacy even whenN>K. To do so, we first define a class ofprojection mechanisms, wherein some of the message variables are proposed values of the action to be taken, and the rest are auxiliary variables. The competitive mechanism has the projection property, with a trade vector as its action and prices as the auxiliary variables. A projection mechanism proposes an action; for each proposal, the agents then use the auxiliary variables, together with their private information, to verify that the proposed action meets the mechanism's goal (Pareto optimality and individual rationality for the competitive mechanism) if, indeed, it does meet that goal. For a given goal, we seek projection mechanisms for which theverification effort (suitably measured) is not greater than that of any other projection mechanism that achieves the goal. We show the competitive mechanism to be verification-minimal within the class of private projection mechanisms that achieve Pareto optimality and individual rationality; that proofdoes use the privacy of the candidate mechanisms. We also show, under certain conditions, that a verification-minimal projection mechanism achieving a given goal has smallest ‘total communication effort’ (which is locally equivalent to the classic ‘message-space size’) among all private mechanisms that achieve the goal, whether or not they have the projection property.     

Why Everyone Should Read George's 'Progress and Poverty': On the Classic's Centenary, the Specialists Find This 19th Century Best Seller Still Very Timely

Abstract . When one urges that everyone read a classic, Progress and Poverty, now on the centenary of its publication, it is not only because in a democracy the voting citizen decides basic questions of economic policy, but because it appeals to the moral sense of economics students as well as other social scientists. Is it not important that legislation affecting living standards and culture be just, as well as scientifically sound? And that economists, along with other social scientists, master communication technique as Henry George did, so that they can share the fruits of their investigations? Part of the ability to get something done about what is perceived as a problem must rest on the ability to communicate, As Joseph Schumpeter showed, George's proposal that the economic rent of land be collected in lieu of taxes that burden labor and capital was economically sound and his criticism of a tax system that penalizes industry and thrift and rewards speculation is now “obvious wisdom,”     

What Factors Affect the Persistence of an Innovation Advantage?

Factors that affect a firm's ability to achieve an advantage may differ from those that affect its ability to sustain that advantage. Moreover, if advantage is a relative concept then studies that relate resource stocks to ‘absolute’ outcomes say little about how resources contribute to enduring differences among firms. We explore these issues in the global semiconductor industry by analyzing how a firm's resource stocks contribute to the persistence of an innovation advantage (a relative outcome). The findings demonstrate that a firm's own production experience and the experience held by its partners contribute to temporary innovation advantages. The results also show that a firm's own production experience yields a more durable innovation advantage as compared to the experience held by a firm's partners and that the experience held by a firm's partners provides a more enduring advantage than a firm's patent stock.     

Sources of the great moderation: A time-series analysis of GDP subsectors

Recent work finds evidence that the volatility of the U.S. economy fell dramatically around the first quarter of 1984. We trace the timing of this so-called “Great Moderation” across many subsectors of the economy in order to better understand its root cause. We find that the interest rate sensitive sectors generally experience a much earlier volatility decline than other large sectors of the economy. The changes in Federal Reserve stabilization policies that occurred during the early 1980s support the view that an improved monetary policy played an important role in stabilizing real economic activity. We find only mild evidence that “good luck” was important and little evidence to support the claim that improved inventory management was important.     

On Limits of Uniquely Best Linear Estimators

In a general linear model, it is shown that all admissible linear estimators are limits of linear estimators that are uniquely best at some point in an extended parameter set. The principal result shows that a linear estimator that is uniquely best at a pointW ₂ among multiple linear estimators that are best at a pointW ₁ is the limit of uniquely best estimators at points approachingW ₁ along the line joiningW ₁ andW ₂. Research supported in part by U.S.A.F. Aerospace Research Laboratories under contract F33615-71-C-1463, summer 1973, and in part by Grant DMS-9104811 from the National Science Foundation.     

Making unilateral trade liberalisation beneficial to the poor

In this paper, we investigate the impacts of unilateral import liberalisation by a representative South Asian developing economy, Nepal, and demonstrate those conditions required to make the impacts ‘pro-poor.’ Applying the Computable General Equilibrium model to Social Accounting Matrix data, we conclude that import liberalisation is growth-enhancing but that, unfortunately, the rich benefit more than do the poor. We envisage a restructured but plausible model economy that requires a transformational period of ten years, and simulate unilateral trade liberalisation but, in the context of a dynamic model. We conclude that improvement in efficiency parameters, reorganisation of investment patterns, along with reallocation of factors of production by both household group and activity type are required to make growth accrued by import liberalisation ‘pro-poor’ in developing economies such as that of Nepal.     

Disproportionate Black and Hispanic Unemployment in U.S. Metropolitan Areas: The Roles of Racial Inequality, Segregation and Discrimination in Male Joblessness

Abstract . Three common hypotheses about disproportionate Black and Hispanic unemployment among metropolitan males are tested, using data from the 1980 Population and the 1977 Economic Censuses. It is found that Black and Hispanic male unemployment is higher relative to that of Whites where jobs are most suburbanized and the minority population least so. This supports the view that segregation which separates minorities from job location elevates minority unemployment. It is also found that relative levels of Black, but not Hispanic, unemployment correlate positively to the minority percentage in metropolitan populations. This is consistent with the view that potential White gains from discrimination are greater where the Black (but not Hispanic) population is larger. Finally, both Blacks and Hispanics experience more disproportionate unemployment where their percentage of high school graduates is low relative to Whites, though this is less true for areas with larger Black populations. This suggests that job skill differentials also play some role in disproportionate minority unemployment.     

The negative impact of R&D capitalization: A value relevance approach

Abstract

Accounting for R&D costs is an open issue. SFAS N°2 mandates that all R&D costs must be immediately expensed. IAS 38 requires capitalization of R&D costs if they meet certain criteria. Recent research papers show the value relevance of capitalized R&D. We test the value relevance of R&D reporting in a sample of 197 French firms between 1993 and 2002. The French context provides an interesting field for R&D value relevance studies because both accounting treatments of R&D costs (expensing and capitalization) are allowed. Unlike previous studies, we find that capitalized R&D is negatively associated with stock prices and returns. This negative coefficient on capitalized R&D implies that investors are concerned with and react negatively to capitalization of R&D. We also find that the firms choosing to capitalize (successful) R&D are smaller, more highly leveraged, less profitable and have less growth opportunities. Taking into account these characteristics, our robustness checks confirm that capitalized R&D is not associated with higher prices and is related to lower returns.     

Consistent likelihood-based estimation of a star-shaped distribution

We consider the classical problem of nonparametrically estimating a star-shaped distribution, i.e., a distribution function F on [0,∞) with the property that F(u)/u is nondecreasing on the set {u : F(u) < 1}. This problem is intriguing because of the fact that a well defined maximum likelihood estimator (MLE) exists, but this MLE is inconsistent. In this paper, we argue that the likelihood that is commonly used in this context is somewhat unnatural and propose another, so called ‘smoothed likelihood’. However, also the resulting MLE turns out to be inconsistent. We show that more serious smoothing of the likelihood yields consistent estimators in this model.     

Eastern European Public Opinion on Economic Issues:

Abstract Survey data on Eastern Europe is investigated with respect to two major questions: How do people view the creation of a market economy and how do they assess the speed of economic transformation and privatization. These questions are analyzed by looking at the development over 1990 to 1992 and by performing regressions with a number of demographic variables as regressors. Some findings are that the opposition to the creation of a market economy is increasing over time, that in Hungary and Poland people are quite satisfied with the speed of transformation as compared to Czechs and Slovaks, that the Polish are divided over the speed of privatization, and that the relationship between the speed of transformation and privatization is not considered to be very tight by the respondents.     

Median unbiased estimates for M.L.R.-families

Summary Lehmann [p. 83] has shown that some families of probability measures with monotone likelihood ratios (m.l.r.) admit median unbiased estimates which are optimum in the sense that among all median unbiased estimates they minimize the expected loss for any loss function which assumes its minimal value zero for the “true” parameter value and is nondecreasing as the parameter moves away from the true value in either direction. This very strong optimum property was proved under the assumption that all probability measures of the m.l.r.-family have continuous distribution functions, that they are mutually absolutely continuous and that each element of the support is the median of somep-measure of the family. This result does therefore not cover important cases such as the binomial families or thePoisson family. The purpose of the present paper is to show the existence ofrandomized median unbiased estimates with the same optimum property for m.l.r.-families which are closed and connected with respect to the strong topology. Such families are always dominated. We do, however, neither assume that thep-measures are mutually absolutely continuous nor that the distribution functions are continuous. We remark that the use of randomized estimates is indispensable here because nonrandomized median unbiased estimates do not always exist in the general case.