The Banking Relationship's Role in the Choice of the Target's Advisor in Mergers and Acquisitions

We analyse the factors influencing the target company's choice of bank advisor in mergers and acquisitions (M&As). We first examine the choice of hiring an advisor, which is nontrivial, since in one‐third of transactions our sample target companies did not hire one. We also analyse the choice to hire as advisor a bank with a strong prior relationship with the company (i.e., the main bank). Using data on 473 European M&A transactions completed in the period 1994–2003, we find evidence that the decision to hire an advisor depends on three main factors: (i) the intensity of the previous banking relationship, (ii) the reputation of the bidder company's advisor, and (iii) the complexity of the deal. We also investigate the impact of the bank advisor on shareholder wealth. We find that the abnormal returns of target company shareholders increase with the intensity of the previous banking relationship, thus indicating a ‘certification role’ on the part of investment banks.     

A network perspective of the stock market

Complex networks are constructed to study correlations between the closing prices for all US stocks that were traded over two periods of time (from July 2005 to August 2007; and from June 2007 to May 2009). The nodes are the stocks, and the connections are determined by cross correlations of the variations of the stock prices, price returns and trading volumes within a chosen period of time. Specifically, a winner-take-all approach is used to determine if two nodes are connected by an edge. So far, no previous work has attempted to construct a full network of US stock prices that gives full information about their interdependence. We report that all networks based on connecting stocks of highly correlated stock prices, price returns and trading volumes, display a scalefree degree distribution. The results from this work clearly suggest that the variation of stock prices are strongly influenced by a relatively small number of stocks. We propose a new approach for selecting stocks for inclusion in a stock index and compare it with existing indexes. From the composition of the highly connected stocks, it can be concluded that the market is heavily dominated by stocks in the financial sector.     

Regulatory Capital Charges for Too‐Connected‐to‐Fail Institutions: A Practical Proposal

The recent financial crisis has highlighted once more that interconnectedness in the financial system is a major source of systemic risk. I suggest a practical way to levy regulatory capital charges based on the degree of interconnectedness among financial institutions. Namely, the charges are based on the institution's incremental contribution to systemic risk based on a risk budgeting approach. The imposition of such capital charges could go a long way towards internalizing the negative externalities associated with too‐connected‐to‐fail institutions and providing managerial incentives to strengthen an institution's solvency position, and avoid too much homogeneity and excessive reliance on the same counterparties in the financial industry.     

Mutual Fund Incentive Fees: Determinants and Effects

We investigate the how and why of performance fee provisions in a free contracting environment such as the Italian mutual fund market until 2006. We find weak support for the hypothesis that these provisions emerge as an economically efficient solution in a rational asset management industry plagued by asymmetric information. They appear to emerge mainly as the product of strategic pricing by asset managers wishing to ease market competition, leverage on investors' sentiment, and hedge their cost structure. Alternatively, fears that managers may opportunistically alter funds' investment policies to maximize the option value embedded in the incentive provisions appear unjustified.     

The world price of home bias

Theoretical arguments suggest that as the degree of a country's home bias increases, the global risk sharing between domestic and foreign investors will reduce and thereby increase the country's cost of capital. Consistent with this prediction, we find international differences in the cost of capital to be strongly and positively related to varying degrees of home bias for 38 markets. This finding is robust to different cost of capital proxies, different control variables, alternative home-bias measures, international tradability of stocks, and alternative specifications. Therefore, the overall evidence implies that countries may enjoy a significantly lower cost of capital by reducing the extent of their home bias and hence, increasing global risk sharing.     

The place of technology in the Capability Approach

Increasing scholarly attention has focussed on how to integrate technology within the Capability Approach (CA), yet without a consistent solution. Some describe technology as a special kind of capability input, but others consider the concept of technology to be fundamentally different from that of an ordinary input. We aim to contribute to the theoretical development of the CA by offering a consistent justification for the explicit inclusion of technology in this framework. We propose that technical objects have a ‘generative’ and a ‘transformative’ dimension through which they enable capabilities directly and affect other inputs in the attainment of valued capabilities. The objects acquire the transformative dimension from the broader technological context, which we propose as a new class of conversion factors. Using the example of mobile phones and their role in healthcare access, we demonstrate that our proposal helps to frame the analysis of the development impact of technology.     

How Interspersion Affects Class Relations

Scholars have identified a new configuration of spatial inequality in several of the largest cities in the developing world. This configuration, which I label interspersion, is characterized by the general proximity of classed spaces, particularly ‘slums’ and ‘enclaves’. There is disagreement about how interspersion affects class relations. One side argues that it worsens class relations by foreclosing substantive class interaction; the other side maintains that it improves class relations by enabling greater class interaction. I argue that it is not the extent but the form of class interaction that matters. Interspersion worsens class relations by promoting categorically unequal interaction. It provides regular opportunities for the imposition of spatial boundaries on slum residents. Regular experiences of boundary imposition deepen their sense of discrimination. This argument is based on an ethnographic study of the relations between slum and enclave residents in Metro Manila.     

Do Not Trash the Incentive! Monetary Incentives and Waste Sorting

In this paper, we examine whether combining non‐monetary and monetary incentives increases municipal solid waste sorting. We empirically investigate this issue, exploiting the exogenous variation in waste management policies experienced during the years 1999–2008 by the 95 municipalities in the district of Treviso (Italy). Using a panel regression analysis, we estimate that pay‐as‐you‐throw (PAYT) incentive schemes increase the sorted‐to‐total waste ratio by 17 percent, and that their effect reinforces that of a door‐to‐door (DtD) collection system, which is equal to 15.7 percent. Moreover, the panel structure of our dataset allows us to find learning and spatial effects associated with both PAYT and DtD.