Robustly optimal monetary policy in a microfounded New Keynesian model

We consider optimal monetary stabilization policy in a New Keynesian model with explicit microfoundations, when the central bank recognizes that private-sector expectations need not be precisely model-consistent, and wishes to choose a policy that will be as good as possible in the case of any beliefs close enough to model-consistency. We show how to characterize robustly optimal policy without restricting consideration a priori to a particular parametric family of candidate policy rules. We show that robustly optimal policy can be implemented through commitment to a target criterion involving only the paths of inflation and a suitably defined output gap, but that a concern for robustness requires greater resistance to surprise increases in inflation than would be considered optimal if one could count on the private sector to have “rational expectations.”     

Banking Competition and Capital Ratios

Empirical studies provide evidence that bank capital ratios exceed regulatory requirements. But why do banks maintain capital levels above regulatory requirements? We use data for more than 2,600 banks from 10 European countries to test recent theories suggesting that competition incentivises banks to maintain higher capital ratios. These theories also predict that banks that engage in arm's length lending have lower capital ratios, and that shareholder rights and deposit insurance characteristics affect capital ratios. Consistent with these theories, our evidence robustly indicates that competition increases capital holdings. Banks that lend at arm's length exhibit lower capital ratios, whereas banks in countries with strong shareholder rights operate with higher capital ratios. We also show some evidence that generous deposit protection schemes that exclude non‐deposit creditors are associated with higher capital ratios. Our results have important policy implications. First, while the traditional view suggests imposing restrictions on bank activities in order to restrain competition, our analysis indicates the opposite, even after adjusting the regressions for risk‐taking. Second, weak shareholder rights undermine market forces that would otherwise encourage banks to hold higher capital ratios.     

ON INDUSTRY MOMENTUM STRATEGIES

In this article, we investigate industry momentum strategies. We find that industry portfolios that outperformed in the previous month generate on average significantly higher returns in the holding period than those that underperformed. Plain and risk-managed strategies using this short-run industry momentum are not subject to optionality effects. Also, the tail risks of these strategies are uncorrelated with traditional industry momentum strategies. The spread associated with the risk-managed strategy both meets necessary conditions as a risk factor and is significantly priced in the cross-section of U.S. industry portfolios.     

Open-book accounting: Reason for failure of inter-firm cooperation?

Inter-firm accounting techniques such as open-book accounting (OBA) have been described as an important means for effectively managing costs in buyer–supplier relationships and for improving relationship quality. However, disclosing cost data also implies for the supplier the risk that the buyer uses the data during price negotiations to pressure the supplier's profit margin. To date, there is sparse empirical evidence addressing the extent to which cost-data disclosure does affect the supplier's perception of the exchange relationship. This study addresses this gap by investigating the impact of OBA on supplier relationship satisfaction. The findings indicate that OBA may negatively affect supplier relationship satisfaction and thus represents a potential risk to cooperation. The results further suggest that effective safeguards against opportunistic behavior, such as relational social norms, significantly attenuate the negative effect of OBA on supplier relationship satisfaction.     

Asset market games of survival: a synthesis of evolutionary and dynamic games

The paper examines a game-theoretic model of a financial market in which asset prices are determined endogenously in terms of a short-run equilibrium. Investors use general, adaptive strategies (portfolio rules) depending on the exogenous states of the world and the observed history of the game. The main goal is to identify portfolio rules, allowing an investor to “survive,” i.e., to possess a positive, bounded away from zero, share of market wealth over an infinite time horizon. The model under consideration combines a strategic framework characteristic for stochastic dynamic games with an evolutionary solution concept (survival strategies), thereby linking two fundamental paradigms of game theory.     

Groups of Companies in Insolvency: A German Perspective

Based on an analysis concerning the disadvantages of the previous understanding of handling groups of companies by means of consolidation of jurisdiction, the following article illustrates the basic idea of group‐specialized proceedings (konzernspezifisches Sachwalterverfahren), avoiding ‘domino effects’ and thereby unnecessary insolvencies of profitable subsidiaries and preserving the assets of these parts of the group to a greater extent than an insolvency situation can. Copyright © 2013 INSOL International and John Wiley & Sons, Ltd     

Estimating cost of capital in firm valuations with arithmetic or geometric mean – or better use the Cooper estimator?

We test the extent and determinants of bias effects of the arithmetic as well as the geometric mean estimator and the estimator of Cooper [1996. Arithmetic versus geometric mean estimators: Setting discount rates for capital budgeting. European Financial Management 2 (July): 157–67] regarding discount rate estimation for firm valuation by way of a bootstrap approach for 13 different countries. The Cooper estimator is superior to both the geometric and the (conventional) arithmetic mean estimator. However, a ‘truncated’ version of the arithmetic mean estimator leads generally to better estimation outcomes than the Cooper estimator. This means that, in order to reduce problems of upward-biased firm value estimates, expected cash flows beyond a certain time horizon are completely neglected in terminal value estimation. Such an approach seems particularly reasonable for the valuation of young growth companies as well as for companies from quickly developing countries such as Brazil, China, or Thailand, because the bias in terminal value estimation is increasing in the growth rate of future expected cash flows.     

Risk-managed industry momentum and momentum crashes

This paper investigates Barroso and Santa-Clara’s [J. Financ. Econ., 2008, 116, 111–120] risk-managed momentum strategy in an industry momentum setting. We investigate several traditional momentum strategies including that recently proposed by Novy-Marx [J. Financ. Econ., 2012, 103, 429–453]. We moreover examine the impact of different variance forecast horizons on average pay-offs and also Daniel and Moskowitz’s [J. Financ. Econ., 2016, 122, 221–247] optionality effects. Our results show in general that neither plain industry momentum strategies nor the risk-managed industry momentum strategies are subject to optionality effects, implying that these strategies have no time-varying beta. Moreover, the benefits of risk management are robust across volatility estimators, momentum strategies and subsamples. Finally, the ‘echo effect’ in industries is not robust in subsamples as the strategy works only during the most recent subsample.     

Business partnering—a driving force for innovation

Win-Win situations are used and also created by companies which cooperate with each other, complement each other on a synergy basis and work together fairly and competently. Today, business partnering has therefore become a key qualification for companies. This should not depend alone on the commitment of individual persons.This article describes how Siemens has organized its company, services and products using partnering solutions and how it has installed this concept as an intrinsically dynamic process. Thanks to institutionalized partnering, B2B interfaces have been established to form a rational alliance, offering benefits to all involved, and can be used regardless of the size of the company. These offerings generate Win-Win situations themselves—and provide individual employees in large companies with a structural framework for a personal partnering initiative.     

Market value effects of acquisitions involving internet firms: a resource‐based analysis

While most prior research suggests that the average change in market value of acquiring firms varies closely around zero, recent research grounded in the resource‐based view and organizational learning theory identify positive returns to acquirers. We contribute to this literature by focusing on acquisitions of Internet firms and the potential for the transfer of scarce resources. We hypothesize that acquisitions made by offline firms of Internet firms and by Internet firms of other Internet firms lead to positive market valuation for the acquirer. Results of an event study of 798 acquisitions of Internet firms provided support for these predictions. We also find that prior alliances with online firms do not reduce the gains from such acquisitions to offline firms. Copyright © 2006 John Wiley & Sons, Ltd.