Bank Equity Investments: Reducing Agency Costs or Buying Undervalued Firms? The Information Effects

Abstract:   This paper analyses the relevance of two different reasons for banks to acquire firms' stock: the increase of agency costs in the lending relationship (the agency costs hypothesis), and participation in the expected profits of undervalued firms (the information asymmetry hypothesis). Results indicate not only that banks make equity investments for both reasons but also that the market exploits their lending decisions to learn which of the two motivations was in play. Bank equity investments concurrent with reductions in bank debt are consistent with the agency costs hypothesis, whereas bank equity investments concurrent with increases in bank debt are consistent with the information asymmetry hypothesis.     

The Surge in Short-Duration Contracts in Spain

Until the outbreak of the recent economic and financial crisis, Spain was leading the ranking of countries with the largest share of temporary employees. During the crisis this share has fallen to its lowest level in decades, but this does not mean that working conditions in Spain have improved. The flow of new temporary contracts is larger than ever before. A particularly striking feature is the steep growth in the volume of fixed-duration contracts lasting less than a week or a month. We document these trends and analyse how this phenomenon has affected the transition from temporary to permanent employment.     

Effects of Collaborative Communication on NPD Collaboration Results: Two Routes of Influence

Although NPD collaboration with external partners has become the next generation in NPD practice, the discussion concerning how to organize collaboration so as to obtain better results is far from over. Since communication is the most important element in successful interfirm exchange, this study focuses on the impact of collaborative communication and its facets—frequency, formality, reciprocal feedback, and rationality—on NPD collaboration results. In order to explain how collaborative communication can best be managed to enhance NPD collaboration results, this research combines the relational and resource‐based views, proposing the existence of two routes of influence: the direct resource‐based route and the indirect relational route mediated by trust. Using a sample of 207 NPD collaboration projects of innovative firms, empirical findings indicate that reciprocal feedback–rationality and frequency play an important role in product quality and adherence to budget and schedule, respectively, even without trust. Moreover, the trust between partners substantially reinforces the positive influence of reciprocal feedback–rationality on NPD collaboration results and makes the effect of formality significant. Therefore, the two alternative routes are confirmed as important paths to new product success, which provides relevant managerial implications.     

Diversity, persistence and chaos in consumption patterns

In this paper we present a model from which discretionary consumption dynamics can be analyzed as global properties emerging from the endogenous transformation of a society inhabited by boundedly rational interactive consumers. By considering local and global interactions among consumers, we show that behavioral diversity plays a central role in the evolution of consumption patterns. The analysis of the model reveals the existence of a regime characterized by the persistence of different social standards, and a time evolution of the social distribution of behavioral patterns towards a heteroclinic cycle. In some cases the evolution seems to be chaotic, generating unpredictable, erratic dynamics of the aggregate social indices (average or social propensity for discretionary consumption).      

Regulation and rent‐seeking: The role of the distribution of political and economic power

It is shown that the joint distribution of economic and political power plays a key role in determining regulatory and tax policies of national and subnational governments. If both economic and political power are evenly distributed across individuals, then regulatory and tax policies are efficient, but if they are unevenly distributed and positively correlated, then regulatory policy is used by subnational governments to redistribute income in favor of individuals with higher economic and political power at the expense of productivity and output. Consequently, the national government has to raise the tax rate to finance public expenditure. Moreover, if there exists a positive correlation between economic and political power, then the higher the fiscal gap, the larger the gap between equilibrium and efficient policies because subnational governments underestimate more the fall of public revenues caused by inefficient policies.     

An empirical note about estimation and forecasting Latin American Forex returns volatility: the role of long memory and random level shifts components

Portuguese Economic Journal - A set of RLS-type models with ARMA and ARFIMA dynamics is estimated and compared in a forecasting exercise with ARFIMA, GARCH and FIGARCH models. It is an extension of...     

Offshoring and employment structure in the EU periphery: the case of Spain

The effects of offshoring of production have received a great deal of interest due to their implications on labour markets. However, the main theoretical predictions related to this issue are not always fulfilled in the empirical analysis; according to the Stolper–Samuelson theorem, there seems to be unanimous support for its effects in advanced countries whose production is relocated but not at all for recipient economies of the same. Additionally, there is a lack of empirical evidence in countries specialized in unskilled-labour tasks which are, at the same time, economies with higher relative wages in a global framework such as the Spanish economy. In this sense, the aim of this article is to analyse the effects of material offshoring in the relative composition of employment in the Spanish manufacturing industry during the period 1990–2007. Furthermore, we investigate the effects of immigrant labour and the temporary employment rate due to its increasing relevance in the Spanish economy during the period analysed. Using a generalized methods of moments (GMM) approach, our results suggest that, as opposed to most developed countries, offshoring in Spain has favoured the demand for blue-collar workers. In addition, we confirm that the increase in immigration and the increasing use of temporary contracts have enlarged the share of low-skilled workers.     

Currency substitution, portfolio diversification, and money demand

Abstract .  We extend the Thomas (1985) dynamic optimizing model of money demand and currency substitution to the case in which the individual has restricted or no access to foreign currency denominated bonds. In this case currency substitution decisions and asset substitution decisions are not separable. The results obtained suggest that the significance of an expected exchange rate depreciation term in the demand for domestic money provides a valid test for the presence of currency substitution. Applying this approach to six Latin-American countries, we find evidence of currency substitution in Colombia, Dominican Republic, and Venezuela, but not in Brazil and Chile.     

Interest rates,expectations and the credibility of the Bank of Spain

The purpose of the paper is to pinpoint the date of the change of monetary policy regime which occurred in Spain during the year 1984, when it moved away from controlling monetary aggregates towards interest rate targeting. The most likely date for the change is estimated and, surprisingly, there is evidence that agents learned about the new intermediate target quite rapidly.A week after the change, the term structure of interest rates showed how market agents attributed much more informational content to interest rate changes than they had previously. Two types of transitions are tried: a one-step and a gradual logistic swithing function.