Implied recovery

In the absence of forward-looking models for recovery rates, market participants tend to use exogenously assumed constant recovery rates in pricing models. We develop a flexible jump-to-default model that uses observables: the stock price and stock volatility in conjunction with credit spreads to identify implied, endogenous, dynamic functions of the recovery rate and default probability. The model in this paper is parsimonious and requires the calibration of only three parameters, enabling the identification of the risk-neutral term structures of forward default probabilities and recovery rates. Empirical application of the model shows that it is consistent with stylized features of recovery rates in the literature. The model is flexible, i.e. it may be used with different state variables, alternate recovery functional forms, and calibrated to multiple debt tranches of the same issuer. The model is robust, i.e. evidences parameter stability over time, is stable to changes in inputs, and provides similar recovery term structures for different functional specifications. Given that the model is easy to understand and calibrate, it may be used to further the development of credit derivatives indexed to recovery rates, such as recovery swaps and digital default swaps, as well as provide recovery rate inputs for the implementation of Basel II.     

Diversification strategy,capital structure,and the Asian financial crisis (1997–1998): evidence from Singapore firms

We use agency theory to predict the influence of related and unrelated product diversification on a firm's level of debt financing. Further, we argue that the link between diversification and capital structure is moderated by the environment in which firms operate. Using SAS PROC MIXED, we fit a mixed‐effects model to our unique six‐year longitudinal dataset (1995–2000) of 245 publicly listed Singapore firms. Our data spans the period of the Asian Financial Crisis (1997–1998). We find that firms pursuing unrelated product diversification take on less debt financing in stable environments, but more debt financing in dynamic environments. Using longitudinal structural equation modeling, we find a reciprocal relationship between a firm's product diversification strategy and its debt financing level. Copyright © 2009 John Wiley & Sons, Ltd.     

Trade,Technology and Human Capital: Stylised Facts and Quantitative Evidence

Stylised evidence on trade, total factor productivity (TFP) and skill intensity of the labour force is presented. Features emerging as salient are: growing trade in technology‐intensive products from the industrialised nations to the relatively laggard nations leads to embodied technology diffusion; the technology‐intensive sectors have larger shares of skilled workers; countries experiencing TFP growth usually have higher levels of educational attainment; also, the skilled labour payment share for a sector is positively associated with that sector’s regional trade share. These facts together help explain why endowment of more skilled labour facilitates absorption of technology ferried via trade.     

Hedging credit: Equity liquidity matters

We theorize and confirm a new channel by means of which liquidity costs are embedded in CDS spreads. We show that credit default swap (CDS) spreads are directly related to equity market liquidity in the Merton [Merton, R.C., 1974. On the pricing of corporate debt: The risk structure of interest rates. J. Finance 29, 449–470] model via hedging. We confirm this relationship empirically using a sample of 1452 quarterly CDS spreads over 2001–2005. In the model, this relationship is monotone increasing when credit quality worsens. These results are robust to alternative measures of equity liquidity and other possible determinants of CDS spreads.     

Growth,integration and trends in equity markets in Asia

The objective of this paper is to examine the growth and development in the Asian financial markets and then focus on equity-market developments in the Asian economies. Asian equity markets have grown exponentially over the last two decades. The trauma of the Asian crisis crystallized transformations in Asia's financial architecture. Equity markets were, in turn, no exceptions. Despite these problems, these markets slowly began expanding again. Attracted by rapid and sustained regional growth in Asia, international institutional investors and fund managers began investing in Asian equities. This inexorably led to an increase in market capitalization. However, growth in the equity markets was far from steady and uniform. This paper has dwelt on the performance of important equity markets in Asia and highlighted the diversity in them.     

Regulatory focus as a moderator of retail shopping behaviour

This paper examines the effects of regulatory focus orientation on several aspects of consumer retail shopping behaviour such as shopping values, impulsiveness, shopping duration, repurchase intention and word-of-mouth communication. Theoretical propositions were developed banked on relevant literature. A structured questionnaire is used to collect data across several retail formats (n = 300). Statistical techniques such as MANOVA and t-test were used to analyse the data. Results reveal that promotion-focused shoppers report higher levels of hedonic shopping values, and impulsiveness, whereas prevention-focused shoppers report higher levels of utilitarian shopping values, shopping duration, repurchase intention and word-of-mouth communication. Discussion of the results and their theoretical and managerial implications, limitations of this study and its future research scopes are further discussed.     

Build loyalty in business markets

Companies often apply consumer marketing solutions in business markets without realizing that such strategies only hamper the acquisition and retention of profitable customers. Unlike consumers, business customers inevitably need customized products, quantities, or prices. A company in a business market must therefore manage customers individually, showing how its products or services can help solve each buyer's problems. And it must learn to reap the enormous benefits of loyalty by developing individual relationships with customers. To achieve these ends, the firm's marketers must become aware of the different types of benefits the company offers and convey their value to the appropriate executives in the customer company. It's especially important to inform customers about what the author calls nontangible nonfinancial benefits-above-and-beyond efforts, such as delivering supplies on holidays to keep customers' production lines going. The author has developed a simple set of devices-the benefit stack and the decision-maker stack-to help marketers communicate their firm's myriad benefits. The vendor lists the benefits it offers, then lists the customer's decision makers, specifying their concerns, motivations, and power bases. By linking the two stacks, the vendor can systematically communicate how it will meet each decision-maker's needs. The author has also developed a tool called a loyalty ladder, which helps a company determine how much time and money to spend on relationships with various customers. As customers become increasingly loyal, they display behaviors in a predictable sequence, from growing the relationship and providing word-of-mouth endorsements to investing in the vendor company. The author has found that customers follow the same sequence of loyalty behaviors in all business markets.     

Ranking of sectors based on fuzzy importance measure

The changing nature of policy variables specific to any planned developmental programme often leads to conflicting decisional problems regarding the identification of thrust areas. Hence the inherent requirement is for a composite index which eases out such ambiguous choice issues. The present paper introduces the measure of sectoral importance which is capable of encompassing different variables with their associated weights and ranks sectors in an economy based on such a measure. However, the term importance suggests the qualitativeness and subjectivity involved in defining such a concept and thus establishes the need for the concepts of fuzzy mathematics. The theory of fuzzy subsets is capable of dealing with qualitative variables within a quantitative framework. The sectoral importance measures derived from the sectoral output linkages, employment multipliers and value added multipliers, have been represented as fuzzy subsets, or to be precise, as fuzzy numbers. A comparison of these numbers through the binary approach of determination of the measure of relative strength provides the basis for the ranking of sectors. The novelty of the approach lies in its simplicity and flexibility in treating qualitative factors which characterise most decision support socio economic planning problems. The validity of the exercise has been tested by applying it to the economy of West Bengal, a State of India.     

Who else is bidding? The Pareto optimality of disclosing bidder identities

This paper examines whether the seller of an object should reveal the identities of the participating bidders before bids become due. It is shown that when bidders experience identity dependent externalities and auction participation is exogenous, then for a large class of standard auction mechanisms, a policy of revelation serves to realize a higher surplus because it improves the accuracy of each bidder's estimate of her ex-post willingness-to-pay, and therefore changes the auction allocation in a more ex-post efficient manner. Furthermore, it is shown that the policy of revelation increases both the expected seller revenues as well as ex-ante expected bidder payoffs. Received: 4 February 2000 / Accepted: 15 November 2000 An earlier version of this paper had the title 'Disclosure of Bidder Identities'. I thank an anonymous referee and an Associate Editor for suggestions that improved the paper. I also acknowledge comments made by participants of the Auctions session during the North American Winter Meetings of the Econometric Society 2001 held in New Orleans. I remain solely responsible for any errors.