Facts & figures

Financial Management in the NHS: a Manager's Handbook By H. Mellett, N. Marriott, S. Harris (Chapman and Hall, London, 1993), pp. xvii + 265. £29.50. ISBN 0 412 47320 8.

Competing for Quality—a Manager's Guide to Market Testing By Lynton Barker (Longman, Harlow, 1993). £38.50. ISBN 0 582 23688 6.

The Role of Chief Executives in Local Government By Janice Morphet (Longman, Harlow, 1993), pp. vi + 245. £29.95.     

The effects of airline deregulation on shareholder wealth: Some additional evidence

This paper extends the prior research on the effects of deregulation on shareholders' wealth by measuring the market reaction to the events (i.e., information announcements) that led to the Airline Deregulation Act of 1978. The research design employs a model similar to that used by Beneish [1991]. This model conditions the return-generating function on the event (i.e., information) announcement and the market index. The empirical results reported in this paper indicate that the market favored airline deregulation. The favorable stock price reaction to airline deregulation could be explained in three ways. First, the market anticipated an increase in managerial efficiency and a reduction in managerial consumption of corporate resources in a competitive market structure. Second, the market did not impound the adverse consequences of deregulation as predicted by management because the market either did not perceive the manager's claim as a credible signal or the market was influenced more by the economic forecasts that predicted increased profitability under deregulation. Finally, there was evidence of increased industry profitability, increased productivity growth, and an expansion of the passenger base during the transition period (1976–78) when the Civil Aeronautics Board voluntarily began to relax regulatory controls. In this case, the paper concludes that the signing of the act merely made legitimate and extended the board's reform that began in 1975. That is, the signing of the deregulation act made these gains certain and permanent and this was received as a positive signal by the market.     

Determinants of Household Income Mobility in Rural China

This article uses multivariate regression and decomposition analyses to assess household income mobility determinants and their contributions to income mobility in rural China from 1989 to 2006. The findings indicate that households with lower initial income level, higher share of wage income, higher educational level of household members, larger number of non-agricultural employed household members and younger heads are more mobile. Moreover, besides initial income, change in the share of wage income, change in the share of non-agricultural employed household members, and change in average year of education of household members are the most important factors that account for income mobility. These findings necessitate more emphasis on policies that promote non-agricultural employment and education to enhance household income mobility in rural China.     

Correction to: Local House Price Paths: Accelerations,Declines, and Recoveries

The Journal of Real Estate Finance and Economics - The article Local House Price Paths: Accelerations, Declines, and Recoveries written by Alexander N. Bogin, William M. Doerner and William D....     

Neglected Risk in Financial Innovation: Evidence from Structured Product Counterparty Exposure

We investigate the compensation of counterparty exposure in the prices of structured products. Our analysis reveals that product issuers did not compensate retail investors for counterparty exposure before the Lehman default. Post-Lehman, retail prices have no longer neglected this risk. We also measure retail investor attention towards issuer credit risk. For a given level of issuer credit risk, counterparty exposure is compensated more when attention is higher. Furthermore, issuers tend to construct products with larger counterparty exposure. Overall, our results shed light on the conditions under which financial engineering generates neglected risk.     

Financial constraints and foreign direct investment: firm-level evidence

Low productivity is an important barrier to the cross-border expansion of firms. But firms may also need external finance to shoulder the costs of entering foreign markets. We develop a model of multinational firms facing real and financial barriers to foreign direct investment (FDI), and we analyze their impact on the FDI decision. Theoretically, we show that financial constraints can affect highly productive firms more than firms with low productivity because the former are more likely to expand abroad. We provide empirical evidence based on a detailed dataset of German domestic and multinational firms which contains information on parent-level financial constraints as well as on the location the foreign affiliates. We find that financial factors constrain firms’ foreign investment decisions, an effect felt in particular by firms most likely to consider investing abroad. The locational information in our dataset allows exploiting cross-country differences in contract enforcement. Consistent with theory, we find that poor contract enforcement in the host country has a negative impact on FDI decisions.     

Cooperative Monetary and Fiscal Policies in the Euro Area

This article discusses the interaction of fiscal and monetary policy in the euro area. Though many observers suggest a fiscal union as the next step of euro-area constitutional reform, a federal fiscal union does not appear politically feasible in the short run. We suggest moving forward with cooperative monetary and fiscal institutions and policies that allow for decentralized fiscal decisions, while taking federal stabilization policies into account. This approach will increase the probability of survival of the euro area compared with the current fiscal arrangements. Using a dynamic macro model, counterfactual simulation paths of our cooperative solution are contrasted with time-series data for the euro area.     

Family Matters: Rankings Within Fund Families and Fund Inflows

Abstract:  This paper examines the influence of the position of a fund within its family on its subsequent net-inflows. Our empirical study of the US equity mutual fund market shows that reaching a top position within the family leads to large inflows. These inflows accrue beyond those expected, given the performance of the fund in its respective market segment. The effect is much stronger in large families than in small families. We also find that inflows significantly increase if a fund moves into the top positions within its family from one year to another. These results lead to competition within the fund family and to important risk taking incentives for fund managers.