Divestitures and Divisional Investment Policies

We study a sample of diversified firms that alter their organizational structure by divesting a business segment. These firms experience a reduction in the diversification discount after the divestiture. We show that the efficiency of segment investment increases substantially following the divestiture and that this improvement is associated with a decrease in the diversification discount. Our results support the corporate focus and financing hypotheses for corporate divestitures. We demonstrate that inefficient investment is partly responsible for the diversification discount and show that asset sales lead to an improvement in the efficiency of investment for remaining divisions.     

The timing of financing decisions: An examination of the correlation in financing waves

Why do corporate financing events occur in waves? We challenge recent evidence of the importance of valuation cycles in driving financing waves by documenting that the aggregate pattern of stock repurchases mirrors that of equity issuance and mergers, despite repurchases involving an opposite transaction. We then show that trends in financing decisions result from differing responses to the same economic stimulus: growth in GDP. Specifically, economic expansion reduces the cost of equity relative to the cost of debt, inducing firms to issue equity, and increases cash flow and also causes varying degrees of uncertainty, increasing stock repurchases. We document similar trends and provide similar motivation for merger waves.     

Outsourcing under Imperfect Protection of Intellectual Property

The paper examines possible reasons behind expanded outsourcing by modeling outsourcing decisions when intellectual property rights are imperfectly protected. Firms in the North develop higher quality levels of existing products and then decide whether to shift some stages of production to the South. Production in the South lowers costs but entails risk of imitation by Southern firms. In this setting, a lower risk of imitation or larger labor supplies can cause increased outsourcing, a higher rate of innovation, and a lower Northern relative wage. Damage due to lower incomes can be offset by gains in terms of better quality products.     

ADJUSTED ESTIMATES OF UNITED STATES–CHINA BILATERAL TRADE BALANCES: AN UPDATE

Abstract.  Large differences exist between the official United States and Chinese data on trade balances between the two countries. In this paper, four adjustments are made to the export and import data of the two governments: (i) freight along side (f.a.s.)-free on board (f.o.b.) and cost, insurance and freight (c.i.f.)-f.o.b. conversions; (ii) re-exports through Hong Kong (and elsewhere); (iii) re-export markups; and (iv) trade in services. After adjustments, our best estimate for the 2005 bilateral trade balance is $US170.7 billion, in China's favour, which is much larger than the official Chinese balance of $US114.2 billion but also much smaller than the official US balance of $US201.6 billion.     

Price discrimination and quality improvement

This paper models quality improvements when multiple quality levels can sell, owing to differences in consumers' valuations of quality improvements. Firms can collude to price discriminate, so that consumers with high valuations pay a price premium, while others receive a quality level below the highest available. Imposing minimum quality standards or price ceilings can ensure that only the highest quality level of each product is sold. Such intervention reduces the quality‐adjusted price paid by consumers but also reduces the incentives for firms to innovate. When enough consumers have high valuations, such intervention must be welfare reducing, owing to reduced innovation. JEL Classification: O31, L16 Discrimination par les prix et amélioration de la qualité. Ce mémoire présente un modèle d'amélioration de la qualité quand on peut vendre des produits à divers niveaux de qualitéà cause des différences dans les évaluations d'amélioration de qualité par les consommateurs. Les entreprises peuvent entrer en collusion pour faire de la discrimination par les prix de manière à ce que les consommateurs qui apprécient davantage la qualité paient une prime pendant que les autres consommateurs reçoivent une qualité au‐dessous de ce qui est la meilleure qualité disponible. Si on impose des normes de qualité minimale ou des plafonds aux prix, on peut s'assurer que seuls les produits de la plus haute qualité seront vendus. De telles interventions réduisent le niveau de prix ajusté pour la qualité payé par les consommateurs, mais réduisent aussi les incitations des entreprises à innover. Quand un nombre suffisant de consommateurs apprécient beaucoup la qualité, de telles interventions peuvent réduire le niveau de bien‐être à cause des innovations moins importantes.     

An Empirical Investigation into the Failure of First RepublicBank: Is There a Contagion Effect?

This study examines the presence of contagion effects associated with the failure of First RepublicBank. Banks are segregated on the basis of whether their stock price reactions are likely due to industry-based information effects or contagion effects. Also considered are announcements during the same period of time associated with Third World loans. Results fail to substantiate the presence of contagion effects.     

The Pacific basin in world trade an analysis of changing trade patterns, 1955–1975

In two previous papers by the same authors the data basis for the trade flows and the export prices in the Pacific Basin has presented and documented. In this third report the changing pattern of Pacific Basin trade over the period 1955–1975 is analyzed, using as tools export growth decomposition indexes, trend analysis, and regression analysis of the price elasticity of import market shares.