The virtuous circle of human resource investments: A precrisis and postcrisis analysis

We propose a dynamic model of positive feedback between human resource (HR) investments and companies' economic performance. The model assumes that HR investment increases profitability through labor productivity and, in turn, profitability improves HR investment through organizational slack. Based on data from a sample of 2,497 industrial companies over a 7‐year period (2005–2011), longitudinal analysis corroborates the existence of a two‐way relationship between HR investment and profitability over time. However, the emergence of an economic crisis weakens this feedback, identifying the effect of organizational slack on HR investment as the weakest causal chain link. In a postcrisis period, HR investment is not such a high priority for managers.     

Assessing the needs of international markets against an emerging market company's capabilities: A tool for internationalization

Senior managers in emerging markets often strive to ensure that their companies develop sufficient capabilities to confront the needs they encounter in international markets. However, extant research and practice remain unclear as to how senior managers in emerging market companies can approach assessing the needs of their international markets against their own company's capabilities, to aim for a balance between both. This article offers an innovative approach for assessing the needs of international markets against an emerging market company's capabilities. Based on the assessments of 100 senior managers leading emerging market companies, we explain how this approach can provide two key insights. First, evidence of a balance between the needs of international markets and an emerging market company's capabilities, that indicates the company's competitive position is focused; or evidence of an imbalance between the needs of international markets and an emerging market company's capabilities, that indicates the company's competitive position is either vulnerable or overqualified. Second, an understanding of where the gaps between the needs of international markets and an emerging market company's capabilities are, that enables improving the company's competitive position by closing these gaps. Drawing on this approach, we offer an open access tool that allows senior managers in emerging markets to identify and improve their own company's competitive position for internationalization. Using this tool, senior managers can lead their emerging market companies toward a focused competitive position in international markets, providing better chances of successfully capturing potential benefits.     

Bias in Federal Reserve inflation forecasts: Is the Federal Reserve irrational or just cautious?

Inflation forecasts of the Federal Reserve seem to have systematically under-predicted inflation from the fourth quarter of 1968 until Volcker's appointment as Chairman, and to systematically over-predict it afterwards until the second quarter of 1998. Furthermore, under quadratic loss, commercial forecasts seem to have information not contained in those forecasts. To investigate the cause of this apparent irrationality, this paper recovers the loss function implied by Federal Reserve's inflation forecasts. The results suggest that the cost of having inflation above an implicit time-varying target was larger than the cost of having inflation below it for the period since Volcker, and that the opposite was true for the pre-Volcker era. Once these asymmetries are taken into account, the Federal Reserve's inflation forecasts are found to be rational.     

Internationalization and the evolution of corporate valuation

By documenting the evolution of Tobin's q before, during, and after firms internationalize, this paper provides evidence on the bonding, segmentation, and market-timing theories of internationalization. We find that Tobin's q does not rise after internationalization, even relative to domestic firms. Instead, q rises significantly before and during the internationalization year, but then falls sharply in the following year, quickly relinquishing the increases of the previous years. In decomposing these dynamics, we find that market capitalization rises before internationalization and remains high, while corporate assets increase during internationalization. The evidence supports the theory that financial internationalization facilitates corporate expansion, but challenges the theory that internationalization produces an enduring effect on q by bonding firms to a better corporate governance system.     

Administración del riesgo crediticio al menudeo en México: una mejora econométrica en la selección de variables y cambios en sus características

The early prediction of bad debtors in revolving loans in Mexico is a relevant current issue. The proposed econometric model of behavioral scoring considers the changes in the characteristics of consolidated clients and produces better results than those obtained with methodology used by the CNBV on provisions. The obtained results show the possibility of replacing the current model, minimizing the expected loss and increasing the ROA of Mexican financial institutions in 2.20% complying the methodology and statistical testing criteria according to the Unique Banking Dispositions and the guidelines of Basel II on credit risk.     

Does the market model provide a good counterfactual for event studies in finance?

Financial Markets and Portfolio Management - We provide a common framework that relates traditional event study estimation methods in finance to a modern approach for causal event studies. The...     

Countercyclical Bank Capital Requirement and Optimized Monetary Policy Rules

Using BoC-GEM-Fin, a large-scale dynamic stochastic general equilibrium (DSGE) model with real, nominal, and financial frictions featuring a banking sector, we explore the macroeconomic implications of various types of countercyclical bank capital regulations. Results suggest that countercyclical capital requirements have a significant stabilizing effect on key macroeconomic variables, but mostly after financial shocks. Moreover, the bank capital regulatory policy and monetary policy interact, and this interaction is contingent on the type of shocks that drive the economic cycle. Finally, we analyze loss functions based on macroeconomic and financial variables to arrive at an optimal countercyclical regulatory policy in a class of simple implementable Taylor-type rules. Compared to bank capital regulatory policy, monetary policy is able to stabilize the economy more efficiently after real shocks. On the other hand, financial shocks require the regulator to be more aggressive in loosening/tightening capital requirements for banks, even as monetary policy works to counter the deviations of inflation from the target.     

The Recognition of Goodwill and Other Intangible Assets in Business Combinations – The Portuguese Case

In this study, we investigate the magnitude of goodwill recognised in business combinations during the years 2005 to 2009 by the Portuguese companies listed on Euronext Lisbon, and characterise the amount of the other intangible assets recognised separately from goodwill. We also analyse the level of compliance of those companies with the main disclosure requirements of International Financial Reporting Standard (IFRS) 3 – Business Combinations. Our study, which involves the analysis of 197 business combinations, reveals that the amounts of goodwill continue to be highly material, while conversely, the value of identifiable intangible assets in those acquisitions is very low. The results suggest that Portuguese companies do not undertake sufficient efforts to individually identify and disclose intangibles acquired in business combinations. This fact is reinforced by the reduced level of compliance with the disclosures required by IFRS 3, particularly the factors that contribute to the recognition of goodwill. Our findings provide feedback to standard setters in an effort to improve practice in the application of IFRS 3. Moreover, they reinforce their recent concerns regarding the post‐implementation review of business combinations, as well as the ongoing project of the IASB, whose objective is to improve disclosures in existing standards.     

The Canadian productivity stagnation, 2002–2014

Total factor productivity (TFP) growth in Canada between 2002 and 2014 has been only 0.16% per year. This figure is substantially smaller than that of the United States, or that of Canada in the past. We perform multiple counterfactual exercises to show that this small TFP growth cannot be accounted for by several compositional effects or mismeasurements of factors of production. We identify two key sectors (mostly Mining and to a lesser extent Manufacturing) that drive all of the TFP growth difference with the United States. Despite the lack of TFP growth, Canada has experienced sustained income growth due to a prolonged period of appreciation of the terms of trade (while US terms of trade have deteriorated), making real income in the two countries grow at similar rates.     

Inflation Stabilisation and the Consumption of Durable Goods

Exchange rate-based stabilisations in chronic-inflation countries have often been characterised by an initial consumption boom (which is most evident in the behaviour of durable goods) followed by a later contraction. This paper provides an explanation for such a boom-recession cycle based on the timing of purchases of durable goods. The initial fall in inflation results in a wealth effect which induces many consumers to bring forward their purchases of durable goods, thus generating an aggregate consumption boom. Since most consumers replenish their stock of durable goods at the beginning of the programme, a later slowdown follows.