Study of the effect of a Financial Transaction Tax on the corporate cost of capital

We study the impact of a Financial Transaction Tax (FTT or Tobin Tax) on the corporate cost of capital. We consider the results on the impact of transaction costs on implied volatility and then use the utility maximization of a market-maker and its asymptotic solution. The FTT impact on volatility, in highly liquid equity option markets, is within two decimals (‘the tick value’) and is insignificant. The volatility impact is considerable for illiquid option markets especially long-dated equity options, used for the hedging of credit default swaps (CDS). The credit spread increase is computed using a structural model, and amounts between 30 and 60 basis points (b.p). per annum, for 5–20 year maturities, and a volatility level of 30%. The impact decreases with the corporation leverage ratio. We calibrate from the CDS market the implied volatility for six European corporations and find an increase in spreads by up to 60%. For a corporation with a 343 b.p. 5-year CDS spread, the increase amounts to 174 b.p. On the basis of this sample, the impact we find is between 5 and 20 times higher than the one computed in the study of Lendvai et al. which has been used by European Union authorities to assess the impact on the cost of capital.     

Half a Century of Development Economics: A Review Based on the Handbook of Development Economics

The Handbook of Development Economics provides an unmatchedperspective on the past half century of research in the field.This article reviews some of the significant findings of theHandbook and identifies areas of development economics not coveredthere. It describes the evolution of the field, beginning withthe postwar Indian Congress consensus, which emphasized stateplanning. That paradigm was complemented in the 1970s by thedual economy paradigm and the work of the Latin American structuralists.As the costs of protectionism came to be recognized, many economiesadopted an outward orientation with respect to both trade andforeign investment. This outward orientation later formed partof a new consensus on macroeconomic management, sometimes referredto as the Washington consensus. This consensus— more accuratelydubbed the One World consensus— is now widely acceptedthroughout the world, as developing and industrial countriesalike have embraced its emphasis on fiscal discipline, tax reform,outward orientation, privatization of state enterprises, deregulation,and the safeguarding of property rights. Despite SO years ofresearch, large gaps in the understanding of development remain.Adopting Sen's framework of beings and doings and focusing oncollective action and the roles played by individuals may helpto fill some of these gaps.     

Stock price informativeness and analyst coverage

We examine whether more analyst coverage translates into more informative stock prices and apply this to both developed and emerging markets. We measure price informativeness using the association between current stock returns and future earnings. We argue that more informative stock prices contain more information about future earnings. Results indicate that analysts' activities do not contribute to the impounding of future earnings information into current stock prices, in accordance with the view that analysts are outsiders who do not have full access to firm‐level information. We also find that analysts specialize according to industry and that “industry expertise” is limited to developed countries. Overall, our evidence is consistent with the explanation that analysts focus on gathering and mapping industry‐ and market‐level information (macroeconomic information) into stock prices. Copyright © 2013 ASAC. Published by John Wiley & Sons, Ltd.     

Judicial Views on Accounting in Britain Before 1889

This paper examines the accounting content of British legal cases decided in the fifty year period before the 1889 Court of Appeal decision in Lee v. Neuchatel Asphalte Company. Before the birth of what might be described as an ‘accounting literature’, these early cases dealt with such important topics as periodicity, uniformity, matching and realisation. Although consistent concepts of asset valuation and income determination are not evident, the discussions by the courts are among the earliest expositions on a variety of accounting topics, especially those relating to the development of accrual accounting.     

Fairness reactions to personnel selection techniques in Singapore and the United States

This study investigates reactions to personnel selection techniques from the perspectives of working adults in the United States and Singapore, and provides a comparison of the two samples. Differences in the cultural values of the two countries are used to generate hypotheses. Working adults in Singapore (N = 158) and the United States (N = 108) rated the process favourability of eleven selection procedures and then indicated the bases for their reactions on seven procedural dimensions. Implications for selection in Singapore, the United States and in international contexts are discussed.     

THE PROFIT–INVESTMENT–UNEMPLOYMENT NEXUS AND CAPACITY UTILIZATION IN A STOCK‐FLOW CONSISTENT MODEL

This paper studies under which conditions the share of profit in value‐added, financial constraints on investment and capital shortage may foster unemployment and may limit the growth of capital and/or the growth of aggregate demand, in a stock‐flow consistent model. The efficiency of demand‐side versus supply‐side economic policies (decrease of the real interest rate and/or of the real wage, increase of the leverage ceiling constraint) depends on capital shortage and credit rationing, which are not necessarily simultaneous due to the effects of investment on aggregate demand and supply.     

Productive activities and the wealth of nations: some reasons for Quesnay's failure and Smith's success

The opposition between productive activity (agriculture) and unproductive ones (the others) underlies the Tableau économique. Smith borrows Quesnay's theory of production but deeply transforms it into a distinction between productive and unproductive labour. In any case, it seems quite natural to relate the increase of the wealth of a nation to the relative importance of productive activities vis-à-vis unproductive ones. Quesnay and Smith both share this view. However, if Smith is perfectly right in doing so, Quesnay has failed to prove a definite relation between the fraction of the revenue spent with respect to the productive sector, on the one hand, and the level or growth of the revenue, on the other. Differences in political philosophy may account for this unequal analytical performance.     

The Effectiveness of Portfolio Risk Diversification: An Additive Approach by Project Replication

This article proposes a probabilistic approach to project operational risk and project portfolio risk diversification. The analysis rests on a fundamental distinction between a fractional and an additive approach for constructing portfolios. Since the additive approach excludes variance as a measure of risk, the project's operational risk is defined by its probability of loss. Paradoxically, the effectiveness of any firm's portfolio risk diversification process will be negatively related to the operational risk of its representative project. We also present the conditions under which risk management and efficiency management can contribute to the firm's strategic imperative of lowering its operational risk.