Gross Credit Flows

The paper estimates gross credit flows for the U.S. banking system between 1979 and 1999 and shows that sizable gross flows coexist at any phase of the cycle, even within narrowly defined loan categories, bank size categories, and regional units. To investigate the macroeconomic dimensions of gross credit flows, the paper studies the cyclical behaviour of aggregate credit flows and documents three key cyclical facts. First, excess credit reallocation is countercyclical: for any given rate of change of net credit, gross flows are larger in a recession than in a boom. Second, gross credit flows are highly volatile, with a cyclical volatility which appears more than an order of magnitude larger than GDP volatility. Third, credit contraction is more volatile than credit expansion. Furthermore, the behaviour of gross flows over the 1991 recession suggests that persistent and historically high credit contraction is a key feature of the relatively mild cyclical downturn. The results lend some support to aggregate models that emphasize the asymmetric behaviour of credit expansion and credit contractions.     

Optimal debt contracts and moral hazard along the business cycle

Summary. We analyze the Pareto optimal contracts between lenders and borrowers in a model with asymmetric information. The model generalizes the Rothschild-Stiglitz pure adverse selection problem by including moral hazard. Entrepreneurs with unequal abilities borrow to finance alternative investment projects which differ in degree of risk and productivity. We determine the endogenous distribution of projects as functions of the amount of loanable funds, when lenders have no information about borrowers ability and technological choices. Then, we embed these results in a dynamic competitive economy and show that the average quality of the selected projects in equilibrium may be high in recessions and low in booms. This phenomenon may generate (a) multiple steady states, (b) a smaller impact of exogenous shocks on output relative to the full information case, (c) endogenous fluctuations.Received: 11 June 2001, Revised: 17 June 2003, JEL Classification Numbers: A10, G14, G20, E32.Correspondence to: Pietro ReichlinPietro Reichlin acknowledges financial support from MURST and Paolo Siconolfi acknowledges financial support from the GSB of Columbia University.     

Asset restructuring strategies in bank acquisitions: Does distance between dealing partners matter?

One of the most lively-debated effects of banking acquisitions is the change in lending and asset allocation of the target bank in favour of transaction-based products, at the expense of small and informationally opaque borrowers. These changes may be the result of two distinct restructuring strategies pursued by the acquirer with respect to the asset portfolio of the acquired bank: a cleaning strategy (CS), in which the acquirer makes a clean sweep of all the negative net present value activities in the portfolio of the acquired bank, and a portfolio strategy (PS), in which the acquiring bank permanently changes the portfolio allocation of the acquired bank. In this paper we focus on Italian bank acquisitions and test which asset restructuring strategy was predominantly pursued over the period 1997–2003. Moreover, we distinguish acquisitions according to their geographic diversifying character and to the physical and cultural distances that separate acquiring from acquired banks. When we look at the mean value, we do not find clear evidence of a primacy either of CSs or PSs. When we separate in-market from out-of-market bank acquisitions, however, results show that the CSs prevail only in the former type of deals, while in the latter the portfolio of acquired banks is subject to PSs. Finally, we find that differences in asset restructuring strategies can be explained by differences in corporate culture and the workplace environment of the dealing partners.     

On generalized transforms of distribution functions

In this note we discuss the following problem. LetX andY to be two real valued independent r.v.'s with d.f.'sF and ?. Consider the d.f.F*? of the r.v.X oY, being o a binary operation among real numbers. We deal with the following equation: $$\mathcal{G}^1 (F * \phi ,s) = \mathcal{G}^2 (F,s)\square \mathcal{G}^3 (\phi ,s)\forall s \in S$$ where \(\mathcal{G}^1 ,\mathcal{G}^2 ,\mathcal{G}^3 \) are real or complex functionals, т another binary operation ands a parameter. We give a solution, that under stronger assumptions (Aczél 1966), is the only one, of the problem. Such a solution is obtained in two steps. First of all we give a solution in the very special case in whichX andY are degenerate r.v.'s. Secondly we extend the result to the general case under the following additional assumption: $$\begin{gathered} \mathcal{G}^1 (\alpha F + (1 - \alpha )\phi ,s) = H[\mathcal{G}^i (F,s),\mathcal{G}^i (\phi ,s);\alpha ] \hfill \\ \forall \alpha \in [0,1]i = 1,2,3 \hfill \\ \end{gathered} $$ .     

Scale effects in endogenous growth theory: an error of aggregation not specification

Modern Schumpeterian growth theory focuses on the product line as the main locus of innovation and exploits endogenous product proliferation to sterilize the scale effect. The empirical core of this theory consists of two claims: (i) growth depends on average employment (i.e., employment per product line); (ii) average employment is scale invariant. We show that data on employment, R&D personnel, and the number of establishments in the US for the period 1964–2001 provide strong support for these claims. While employment and the total number of R&D workers increase with no apparent matching change in the long-run trend of productivity growth, employment and R&D employment per establishment exhibit no long-run trend. We also document that the number of establishments, employment and population exhibit a positive trend, while the ratio employment/establishment does not. Finally, we provide results of time series tests consistent with the predictions of these models.     

Tax Deferral and Mutual Fund Inflows: Evidence from a Quasi‐Natural Experiment

We propose a new method to identify the impact of a change in the tax burden on mutual fund inflows. We use quasi‐experimental data from Italy where, starting from July 2011, the tax regime for domestic mutual funds was changed from an accruals basis to a realisation basis, while the taxation of foreign funds remained on a realisation basis. We find that the reform has had a positive effect on net inflows of Italian funds (the treated group) with respect to foreign funds (the control group). The effect is both economically and statistically significant. Moreover, there is no evidence that the increase in the demand for Italian funds came at the expense of foreign funds.     

Fiscal Policy and Long-run Growth in R&D-based Models with Endogenous Market Structure

This paper shows that in a model of endogenous growth that does not exhibit the scale effect, taxes on consumption and labor income and the level and composition of public expenditure have no effect on steady-state growth. The only fiscal instruments that affect steady-state growth are taxes on asset and corporate income. In line with standard intuition, tax rates and public expenditure have level effects on income per capita. These results emphasize that although growth is endogenous, in the sense that it is determined by the model and it is subject to policy action, instruments that work by changing market size do not affect it. Effective growth-enhancing policies operate through the interest rate.     

Do larger severance payments increase individual job duration?

This paper analyzes the effect of severance payments on the probability of separation at given tenure, wages and other individual and firm characteristics. It studies a mandatory deferred wage scheme of the Italian labour market (Trattamento di Fine Rapporto, TFR). Deferred wages increase job duration if two conditions hold: wages are rigidly set outside the employer-employee relationship, and past provisions are accumulated at interest rates that are below market rates. Under such circumstances, workers who withdraw from their accumulated stock of unpaid wages should experience, at given tenure, a subsequent increase in the probability of separation. This prediction appears empirically robust and quantitatively sizeable. A withdrawal of 60% of the TFR stock (the median observed withdrawal) increases the instantaneous hazard rate by almost 20%. In other words, an individual with at least ten years of tenure that experiences an early withdrawal increases his/her hazard rate from 10% to about 12%. The empirical result takes into account the existence of unobserved heterogeneity and a variety of further robustness tests.     

Proactive and reactive views in the transition towards circular business models. A grounded study in the plastic packaging industry

This article contributes to the studies on the transition towards circular business models in incumbent entrepreneurial firms. The focus of our research is the plastic packaging industry, a paradigmatic case of firms with a high environmental impact who are currently under pressure to change their business models. Following a grounded theory approach, we conducted an exploratory research on five case studies, longitudinally analyzed over two years. The results of our research suggest that the circularity challenge raises dilemmas about how to interpret the transition to sustainability. On one hand, the transition may be interpreted in a reactive way, based on compliance to the law and the highest possible levels of continuity. On the other hand, the transition may be interpreted in a proactive way, based on radical experimentation and openness to change. Our results highlight that the reactive-proactive dilemma unfolds at three interconnected levels: the firm’s network (including the customers), the entrepreneur, and the organization. Our study also suggests that the entrepreneur is in a position to play a pivotal role in the multi-level adoption of a proactive (or reactive) view. More specifically, our longitudinal analysis suggests that if the effectiveness and impact of transition to circularity is to be maximized, then a multi-level proactive view of the circularity transition is key to transforming the three interconnected levels (network, entrepreneur, organization) into a proper, sustainability-oriented innovation ecosystem.