The Theory of Bank Risk Taking and Competition Revisited

There is a large body of literature that concludes that—when confronted with increased competition—banks rationally choose more risky portfolios. We argue that this literature has had a significant influence on regulators and central bankers. We review the empirical literature and conclude that the evidence is best described as “mixed.” We then show that existing theoretical analyses of this topic are fragile, since there exist fundamental risk‐incentive mechanisms that operate in exactly the opposite direction, causing banks to become more risky as their markets become more concentrated. These mechanisms should be essential ingredients of models of bank competition.     

Redenomination Risk

Euro redenomination risk is the risk that a euro asset is redenominated into a devalued legacy currency. We propose a time‐varying, country‐specific intra‐euro area redenomination risk measure, defined as the quanto credit default swaps (CDS) of a member country relative to the quanto CDS of a benchmark member country. Focusing on Italy, Spain, and France and using Germany as benchmark, we show that the redenomination risk shocks significantly affect sovereign yield spreads, with Italy and Spain being most adversely affected. Finally, foreign redenomination risk shocks spill over and above local redenomination risk shocks, suggesting that this risk is systemic.     

Measuring the Degree of International Harmony in Selected Accounting Measurement Practices

This research assesses empirically the extent to which selected accounting measurement practices of companies from France, Germany, Japan, the UK and the US are harmonised in the context of major international efforts to enhance the comparability of company financial statements. The findings suggest that significant differences continue in accounting measurement practices between companies originating in each of these countries. The results of the study have important implications for international standard-setters, investors, creditors and those interested in international accounting.     

IS CORRUPTION REALLY PERSISTENT?

Theoretical and empirical research on corruption generally concludes that corruption is persistent. However, using International Country Risk Guide data for the period 1984–2008 for 101 countries, we find strong evidence that corruption changes over time. In the present study, corruption levels of many countries decline, whereas those of other countries rise over the same period. We find that this convergence process is not continuous: there is an improvement in world corruption in the first part of our sample period, but a worsening in the second half.     

ESTIMATING THE INNOVATION FUNCTION FROM PATENT NUMBERS: GMM ON COUNT PANEL DATA

The purpose of this paper is to estimate the patent equation, an empirical counterpart to the ‘knowledge-production function’. Innovation output is measured through the number of European patent applications and the input by research capital, in a panel of French manufacturing firms. Estimating the innovation function raises specific issues related to count data. Using the framework of models with multiplicative errors, we explore and test for various specifications: correlated fixed effects, serial correlations, and weak exogeneity. We also present a first extension to lagged dependent variables. © 1997 John Wiley & Sons, Ltd.     

Annuities, Bequests, and Portfolio Diversification

In this article, the diversification motives of the demand for annuities is analyzed. Using a model allowing for the uncertainty of both the human life length and the interest rate, the Decision Maker is supposed to choose an optimal portfolio to maximize a bequest. Conditions under which an increase in the risk of bond returns increase the demand for annuities are proposed and discussed. Moreover, it is shown that, contrary to previous claims, more risk adversion is associated with a lower demand for annuities.