What determines early exercise of employee stock options in Australia?

Employee stock options (ESOs) are a popular way of remunerating employees. We analyse factors at the firm and option level affecting the employee's decision to exercise ESOs before they mature. Exercises over the period 1998–2004 are analysed and the key factor influencing early exercise is found to be dividends. Exercises frequently occur well before maturity, but in most cases little time value is sacrificed. Our findings have implications for the ‘fair’ valuation of ESOs in companies’ financial statements, as required by the relevant Australian accounting standard, AASB 2.     

Between a cap and a higher price: Modelling the price of dairy quotas under price ceiling legislation

This paper considers various policy alternatives to price ceiling legislation in the market for production quotas in the dairy farming sector in Quebec. I develop a model of farmers’ demand for quotas and estimate a structural parameter that is required for the counterfactual experiments. Using my econometric results and the modelled equilibrium price, I estimate the price of dairy quotas over the period 1993–2011. The counterfactual experiments indicate that the price of quotas could be reduced to the ceiling price through a 4.16% expansion of the aggregate supply of quotas, or through moderate trade liberalization of Canadian dairy products.     

The Born-Global Phenomenon: A Comparative Case Study Research

This qualitative, case-based research investigates the most relevant traits shown by several new, export-involved born-global firms and their entrepreneurs-managers versus other more traditional and also recently-established exporting SMEs in a specific geographic region inside Spain. More concretely, we aim to shed light on the type of factors and specific conditions underlying the emergence and further expansion of born-global exporters, as compared to other counterparts, which do not share their rapid internationalising character from inception. From our cross-comparison of four firm cases investigated in this setting against a number of factors generally associated with the born-global or gradual internationalisation paths, our results indicate that both constitute two consistent and distinctive patterns of international development. Another relevant finding in this research is that born globals seem indeed to be more entrepreneurial regarding their export entry behaviour into foreign markets than gradual exporters. Relevant academic, managerial, and policy-making implications are also outlined from these results.     

Liquidity and the marginal value of information

We revisit Kyle’s (Econometrica 53:1315–1335, 1985) model of price formation in the presence of private information. We begin by using Back’s (Rev Financ Stud 5(3):387–409, 1992) approach, demonstrating that if standard assumptions are imposed, the model has a unique equilibrium solution and that the insider’s trading strategy has a martingale property. That in turn implies that the insider’s strategies are linear in total order flow. We also show that for arbitrary prior distributions, the insider’s trading strategy is uniquely determined by a Doob $h$ -transform that expresses the insider’s informational advantage. This allows us to reformulate the model so that Kyle’s liquidity parameter $\lambda $ is characterized by a Lagrange multiplier that is the marginal value or shadow price of information. Based on these findings, we can then interpret liquidity as the marginal value of information.     

Firm growth and innovation

In recent years, there has been an increase in empirical and theoretical work that addresses the role of innovation as one of the main sources of firm growth. The purpose of this special issue is to strengthen the role played by innovation as a determinant of firm growth. Despite the emergence of a vast empirical literature on whether innovative firms grow more quickly in terms of sales and employees, a number of crucial questions and answers remain. While a large number of applied papers observe a positive link between innovation and firm growth, the complexity of R&D activities, together with the diversity of innovation strategies and the multiplicity of growth modes, requires a multidimensional approach to examine the contribution of innovations on firm growth. To shed light on the link between firm’ growth and innovation sources, we organized a meeting of leading scholars of firm’ growth and innovation. The papers of this special issue were presented at the workshop on ‘Firm growth and innovation’ held on 28 and 29 June, 2012, in Tarragona, Spain. The papers that compose this special issue deal in depth with innovation activity, firm growth and the interaction between firm growth and innovation.     

The impact of auctions on residential property prices

This study assesses whether the sale method in residential real estate markets – auction versus private treaty – is a determinant of sale price. Utilising a larger and richer dataset than previous research, we test for a price effect in auction sales in Sydney and Christchurch. When self‐selection biases are corrected for, using two‐stage hedonic regression analysis and a matched sampling procedure, we find no significant difference between prices of properties sold at auction to those sold by private treaty. This conflicts with the conclusions of previous research in the Australian and New Zealand housing markets, which have documented a price premium associated with auction sales.     

An Intertemporal Currency Board

The paper shows that the traditional wisdom of raising interest rates to defend a currency enriches rather than punishes the speculators. Furthermore, using high interest rates as a currency defense tool often produces the opposite effect in times of crisis. A new approach is proposed of using Hong Kong dollar "put" options as an explicit commitment by the government. The put option itself acts like an intertemporal currency board in keeping the linked exchange rate over time. This costly signaling produces a separating equilibrium that distinguishes the strength of the Hong Kong dollar from the other Asian currencies that were under pressure in 1997.     

Volatility forecasting of exchange rate by quantile regression

Exchange rates are known to have irregular return patterns; not only their return volatilities but the distribution functions themselves vary with time. Quantile regression allows one to predict the volatility of time series without assuming an explicit form for the underlying distribution. This study presents an approach to exchange rate volatility forecasting by quantile regression utilizing a uniformly spaced series of estimated quantiles. Based on empirical evidence of nine exchange rate series, using 19 years of daily data, the adopted approach generally produces more reliable volatility forecasts than other key methods.     

Rethinking an old empirical puzzle: econometric evidence on the forward discount anomaly

Using both semiparametric and parametric estimation methods, this paper corroborates earlier findings of fractionally integrated behaviour in the forward premium. Two new explanations are also proposed to help reconcile earlier conflicting empirical evidence on the time series properties of the forward premium. Traditional regression approaches used to test the forward rate unbiasedness hypothesis are then evaluated, including regression in levels, in returns (Fama's, 1984 , regression), and in error‐correction format. Interesting statistical and/or interpretive implications are found in all three cases. For example, the predictions of the appropriate nonstandard limit theory are consistent with many of the standard empirical results reported from Fama's regression, including the commonly occurring, yet puzzling negative correlations between spot returns and the forward premium. It is suggested that the principal failure of unbiasedness, may be due instead to the difference in persistence between these two series. Copyright © 2001 John Wiley & Sons, Ltd.     

Congestion, Land Use, and Job Dispersion: A General Equilibrium Model

In dispersed cities, congestion tolls would drive up central wages and rents and would induce centrally located producers to want to disperse closer to their workers and their customers, paying lower rents and realizing productivity gains from land to labor substitution. But the tolls would also induce residents to want to locate more centrally in order to economize on commuting and shopping travel. In a computable general equilibrium model, we find that the centralizing effect of tolls on residences dominates on the decentralizing effect of tolls on firms, causing the dispersed city to have more centralized job and population densities. Under stylized parameters, we find that efficiency gains from levying congestion tolls on work and shopping travel are 3.0% of average income. About 80% of such gains come from road planning and 20% from tolls.