Why is Convertible Debt Subordinated? An Investment‐Based Agency Theory

This paper offers an agency‐based explanation for the junior priority status of convertible bonds. Using a simple economic model, I show that when convertible and straight debt have equal priority, shareholders can prefer value‐decreasing projects, which results in wealth transfers from bondholders to shareholders; and I prove that this problem is solved when convertible debt is subordinated. Empirical evidence supports the theory. I find that firms with greater potential for investment‐based agency conflicts are more likely to issue subordinated convertible debt, and firms with senior convertible debt are more likely to deviate from the optimal investment policy.     

Cost efficiency modeling in health care foodservice operations

Cost efficiency and cost data in the health care foodservice sector have many interesting features. Traditional productivity approaches and empirical studies are yet to address many of these features, as they are limited to partial ratios and restricted parametric techniques. In this paper, we introduce and demonstrate the Stochastic Frontier Approach to this sector, and analyze the level of cost efficiency and its determinants. The approach is tested in a cross-sectional data set from a sample of 101 health care foodservice operations in Australia and the USA. Results indicate that the average level of cost efficiency is around 76.5% which suggests that health care foodservice operations could reduce their input costs by as much as 23.5% without decreasing their total output. Further, the coefficients of the inefficiency component, estimated simultaneously with the stochastic frontier model, indicate that both the level of manager's experience and the level of manager's education are significant determinants of cost efficiency.     

The St. Petersburg paradox and capital asset pricing

Durand (J Finance 12:348–363, 1957) shows that the classical St. Petersburg paradox can apply to the valuation of a firm whose dividends grow at a constant rate forever. To capture a more realistic pattern of dividends, we model the dividend growth rate as a mean reverting process, and then use the capital asset pricing model to derive the risk-adjusted present value. The model generates an equivalent St. Petersburg game. The long-run growth rate of the payoffs (dividends) is dominant in driving the value of the game (firm), and the condition under which the value is finite is less restrictive than that of the standard game.     

Optimal International Taxation and Growth Rate Convergence: Tax Competition vs. Coordination

Optimal international taxation and its implications for convergence in long run income growth rates are analyzed in the context of an endogenously growing world economy with perfect capital mobility. Under tax competition (i) the residence principle will maximize national welfare; (ii) the optimal long run tax rate on capital incomes from various sources will be zero in all countries; and (iii) long term per capita income growth rates will be equalized across countries. Under tax coordination, (i) becomes irrelevant while (ii) and (iii) will continue to hold. In other words, optimal tax policies are growth-equalizing with and without international policy coordination. This revised version was published online in July 2006 with corrections to the Cover Date.     

Extreme observations and risk assessment in the equity markets of MENA region: Tail measures and Value-at-Risk

The standard “delta-normal” Value-at-Risk methodology requires that the underlying returns generating distribution for the security in question is normally distributed, with moments which can be estimated using historical data and are time-invariant. However, the stylized fact that returns are fat-tailed is likely to lead to under-prediction of both the size of extreme market movements and the frequency with which they occur. In this paper, we use the extreme value theory to analyze four emerging markets belonging to the MENA region (Egypt, Jordan, Morocco, and Turkey). We focus on the tails of the unconditional distribution of returns in each market and provide estimates of their tail index behavior. In the process, we find that the returns have significantly fatter tails than the normal distribution and therefore introduce the extreme value theory. We then estimate the maximum daily loss by computing the Value-at-Risk (VaR) in each market. Consistent with the results from other developing countries [see Gencay, R. and Selcuk, F., (2004). Extreme value theory and Value-at-Risk: relative performance in emerging markets. International Journal of Forecasting, 20, 287–303; Mendes, B., (2000). Computing robust risk measures in emerging equity markets using extreme value theory. Emerging Markets Quarterly, 4, 25–41; Silva, A. and Mendes, B., (2003). Value-at-Risk and extreme returns in Asian stock markets. International Journal of Business, 8, 17–40], generally, we find that the VaR estimates based on the tail index are higher than those based on a normal distribution for all markets, and therefore a proper risk assessment should not neglect the tail behavior in these markets, since that may lead to an improper evaluation of market risk. Our results should be useful to investors, bankers, and fund managers, whose success depends on the ability to forecast stock price movements in these markets and therefore build their portfolios based on these forecasts.     

Becoming a long-distance runner – deriving pleasure and contentment in times of pain and bodily distress

ABSTRACT

This paper indicates the way beginner long-distance runners learn to derive pleasure and contentment (‘runner’s high’) in times of pain and bodily distress. It is based on Becker’s theoretical framework of using marihuana (marijuana) for pleasure. Although pain resulting from long-distance running has been widely explored sociologically, little has been written regarding the process of deriving pleasure from the pain. An ethnographic research design was implemented for three years in two running teams, using a combination of participant observation, semi-structured interviews, and online running websites. Key findings illustrate three coherent stages a novice runner must experience in order to become a long-distance runner and enjoy the pain: (1) learning the proper running technique required to experience positive effects; (2) recognizing the effects of pain and their connection with running; and (3) enjoying the effects of pain caused by running. The paper highlights the way feeling high from long-distance running can be achieved through a process of socialization conveyed by the runner’s peer group. Only if novice runners are persistent and capable of interpreting their bodily sensations as a state of pleasure or relaxation will they be able to continue with distance running.     

Persistence Characteristics of Tourism Arrivals to Australia

This paper examines the degree of persistence in international monthly arrivals to Australia by using data disaggregated by tourism‐source countries. We employ two competing models, which are very general in the sense that they include (seasonal and non‐seasonal) unit roots as particular cases of interest. The first model is based on a long‐memory process in the non‐seasonal part of the series along with a short‐memory autoregressive (AR) seasonal structure. The second model is based on a long‐memory process for the seasonal structure of the series, the short‐term evolution being described through a non‐seasonal AR(1) process. Results based on the residuals and forecasting assessment indicate that the second model is preferable in terms of fitting the data. We provide persistence ranking of all countries included in the study and discuss the managerial implications of the main findings. Copyright © 2011 John Wiley & Sons, Ltd.     

Risk-shifting and investment asymmetry

I show that when shareholders can change not only the variance of the future firm value, but also its asymmetry, they can shift costly risk to bondholders while lowering the firm risk, and more importantly, the equity risk and the probability of bankruptcy. The implication of this result is that risk-shifting behavior can be more beneficial to shareholders than currently perceived in the literature.