What to do in globalised economies if global governance is missing? The vicarious role of competition in social responsibility

In this article, we present a model that seeks to illustrate mechanisms that have fostered the diffusion of socially responsible corporate practices with specific reference to Fair Trade. We do so with a simple standard Hotelling approach of competition on product differentiation between a profit-maximising producer (PMP) and a “socially responsible” not for profit “fair trader” (FT) over prices and (costly) “socially and environmentally responsible” features of their products. We show that, under reasonable conditions concerning consumers’ costs of ethical distance, the fair trader’s entry into the market triggers the partial adoption of socially responsible practices by the profit-maximising competitor. We finally compare the ethical choices of the two players with the optimal ones of a domestic benevolent planner. Our findings show that competition between the fair trader and the PMP leads to a level of transfers to marginalised producers in the South, which is above the optimal level fixed by a planner maximising the welfare of the consumers in the North. This finding shows that the competition in social responsibility triggered by fair traders partially compensates for the lack of global governance and global institutions properly representing marginalised producers.     

The Effect on Financial Reporting Quality of an Exemption from the SEC Reporting Requirements for Foreign Private Issuers

We test for differences in financial reporting quality between companies that are required to file periodically with the SEC and those that are exempted from filing reports with the SEC under Rule 12g3-2(b). We examine three earnings quality measures: conservatism, abnormal accruals, and the predictability of earnings. Our results, for all three measures, show different financial reporting quality for companies that file with the SEC than for companies exempt from the filing requirements. This paper provides empirical evidence of a link between filing with the SEC and financial reporting quality for foreign firms.     

EXAM SCHEDULING AND STUDENT PERFORMANCE

This paper uses data from a single School of a UK university to estimate the impact of a switch from end‐of‐semester to end‐of‐year final exams on student performance. The identification strategy exploits the fact that while the timing of final exams changed, the timing of mid‐term exams remained the same. Estimates are based on a difference‐in‐differences methodology that compares final and mid‐term exam scores after the switch, with final and mid‐term exam scores before the switch. The empirical findings suggest that the shift of final exams to the end of the academic year had a negative effect on student achievement. Many changes in higher education are often done on the basis of financial, administrative or ideological considerations, underestimating the magnitude of their effect on student learning and student performance.     

Serving SMEs Via the Stock Exchange: Historical Lessons from the Lisbon Stock Exchange

The development of large companies in the western world — many being huge multinational corporations — and the sheer size of their financial needs has given an added importance to tradability, a fact that can clearly be gauged by the recently discovered “high frequency trading” (HFT) operations which are only possible with large issues. Also contributing to the importance of tradability is the recent demutualization of most exchanges during the 1990s, which turned them into for-profit organizations. In fact, large issues of shares or bonds allow economies of scale, and generate experience in listing practices and trading operations, thereby enhancing the profitability of those commercially oriented stock exchanges. Thus, small and medium enterprises (SMEs) are now much less attractive to these organizations, as compared to large enterprises (LEs), due to their inherent lack of liquidity and to the economies of scale. We discuss the barriers before SMEs, which require special accommodations to be able to raise stable funds for their development.     

Long-run versus short-run behaviour of the real exchange rates

This paper discusses the mean stationarity of real exchange rates by using new time series methods and new tests. The question whether the real exchange rates have a unit root or are level reverting is set in the general and flexible framework of fractionally integrated processes. The estimations and tests sustain the claim that real exchange rates may be nonstationary and not revert to any short-run parity. However, estimations also suggest that real exchange rates behave differently on the short and on the long run and that they may revert to parity in a century-long period.     

Executive compensation and firm performance: adjustment dynamics,non‐linearity and asymmetry

The relationship between executive compensation and firm performance is a field of intense theoretical and empirical research. The purpose of this study is to gain additional insights into the nature of this relationship by examining empirically the relatively unexplored areas of its dynamics of adjustment, as well as its non‐linearity. The findings of this study show strong evidence in support of the view that (a) executive compensation is characterized by a dynamic process of adjustment, and (b) the relationship between executive compensation and firm performance is non‐linear and asymmetric. Additionally, the structure of asymmetry is found to be dependent on the measure of performance. Convexity characterizes the asymmetry of the relationship between executive compensation and market returns, while concavity distinguishes the asymmetry of the relationship between executive compensation and accounting returns. Copyright © 2008 John Wiley & Sons, Ltd.     

Monetary policy,ownership structure,and risk-taking at financial intermediaries

This paper examines how ownership structure interacts with monetary policy in shaping financial intermediaries' appetite for risk. By constructing a large panel of banks across Western Europe, we provide evidence that differences in bank ownership influence the transmission of monetary policy via the risk-taking channel. While shareholder banks actively adjust the riskiness of their portfolios to changes in interest rates, stakeholder banks appear to be less responsive to such changes. These findings call for greater attention to the nature of bank ownership when setting monetary policy.     

Editors’ note

Portuguese Economic Journal -     

Reputational recovery under political instability: Public debt in Portugal, 1641–83

This article examines the reputation recovery of Portugal's public debt during the war of liberation against the former Habsburg ruler. Using novel datasets on long- and short-term debt and nominal interest rates, this study provides evidence that the sovereign borrower used debt credibility to build a pact of regime in a revolutionary context with implications for financing the war. The Portuguese kings followed an implicit budget balance rule as a reputational scheme, which made Portugal an exceptional case of military success with a low debt-to-GDP ratio and low interest rates. These conclusions contribute to the literature in various attributes of war finance, debt management, and state-making by showing that default avoidance could be as important to military success as fiscal capacity.