Geographic diversification and risk in banking

Tests of the hypothesis that geographic diversification affects bank risk are conducted on large samples of banking organizations (1976–1985) and focus on intrastate geographic diversification experience. Three composite measures of risk are included iin the tests along with the individual components of these measures. Results show that while composite measures of risk are reduced by geographic diverisification, some inidividual components of these measures increase. Importantly, the results show lower financial risk (the variation in earnings), which is predicted by portfolio theory. However, we also observe lower levels of earnings and capital with greater diversification implying, ceteris paribus, higher risk. This effect is not predicted by portfolio theory, but is predicted by our notion of operating risk. There is apparently more than pure financial risk involved with diversification by firms.     

Human resource manager insights on creating and sustaining successful reduced‐load work arrangements

Although human resource managers have critical insights into the successful implementation of reduced‐load work arrangements, relatively few studies focus on their perspective. These arrangements are a growing work form for employees who choose to work less than full‐time with a commensurate decrease in salary. Qualitative data analysis was used to identify key success factors noted in interviews with 52 HR managers in 39 companies. Individual employee characteristics (e.g., self‐regulatory work habits) were viewed as most critical. Also important were the design of the arrangement (e.g., clarifying the arrangement in advance) and workgroup relationships (e.g., positive supervisor‐employee relationships). We conclude with eight new takeaways for HR managers on how to create and sustain successful reduced‐load work arrangements and directions for future research and practice. © 2008 Wiley Periodicals, Inc.     

Voting power in municipal annexation elections

In many American states, municipal annexation and consolidation require concurrent majority votes of all affected jurisdictions. The effectiveness and fairness of this voting procedure have been criticized on the grounds that a small minority of voters can frustrate the preferences of the overall majority. This paper investigates the extent to which the relative ability of voters in large and small jurisdictions to influence voting outcomes in procedures requiring concurrent majorities is influenced by jurisdictional size. The Banzhaf index, which counts the number of case4s in which a given voter could reverse the overall group decision by changing positions on an issue, is applied to this problem of concurrent voting majorities. Mathematical analysis indicates that the ratio of power between voters in small and large jurisdictions approximately equals the inverse of the square root of the ratio of their population size.     

Market share inequality,the HHI,and other measures of the firm-composition of a market

Data for individual markets suggest that the Herfindahl- Hirschman Index does not fully account for the inequality of market shares and the number of firms in a market. An empirical investigation is conducted to determine whether share inequality, number of firms, and major firm presence affect market profit rates independent of the HHI. The analysis controls for efficiency, among other things. Test results based on 1,684 banking markets during 1990–1992 indicate that the HHI, market share inequality, and the importance of major firms are positively related and the number of firms is negatively related to profit rates. Results on several other variables also suggest that market imperfections exist in local banking markets.     

Tests of the money-output relation using disaggregated data

Either anticipated or unanticipated money affects output in fourteen of twenty U.S. manufacturing industries. In most of these instances, however, Akaike's final prediction error criterion indicates that money enters an industry's output equation with lags of three months or less. For just two industries, tobacco manufacturing and textile mill products, are there clear indications that money is not neutral at extended lags. Each of these industries is concentrated in one or two states suggesting that monetary policy may affect output through a regional credit channel.     

Exploring Ambiguity and Familiarity Effects in The “Earnings Game” Between Managers and Investors

Prior evidence suggests that managers and investors play an earnings game in which managers bias their earnings forecasts downward as the earnings announcement date approaches. Knowing managers’ incentives to provide biased guidance, investors still revise their expectations downward helping to create “positive earnings surprises.” Using a 2 (ambiguity) × 2 (familiarity) between subject randomized experimental design where MBA students playing the roles of manager and investor answer a series of questions related to earnings guidance, we investigate whether earnings environment ambiguity and manager-investor familiarity influence behavior during the “earnings game.” In general, results from this study suggest that ambiguity contributes to managers’ propensity to mislead and investors’ propensity to follow, and a false sense of familiarity may amplify investors’ reliance on managers’ guidance.     

The impact of bank holding companies on local market rivalry and performance

The bank holding company movement in banking is, in many respects, the counterpart of the conglomerate movement in the industrial sector. Both are characterized by a substantial amount of merger activity and thus raise questions as to the affect of the acquiring firms on competition. This study uses Tobit analysis and OLS to examine the influence of bank holding companies on rivalry and performance in 154 banking markets (1970–1979). Test results indicate that in markets where bank holding companies are a significant factor rivalry is higher, but so are prices even though profits are not higher, than in markets where bank holding companies are less important. These seemingly conflicting findings may be explained by the finding that significant holding company presence in a market is associated with relatively high noninterest expenses.     

Entry and competition in banking

Economic theory suggests that, ceteris paribus, new entry of firms will increase rivalry in a market. This study analyzes 184 banking markets to determine whether net market entry over the period 1968–1974 (entry less exist) influenced rivalry (mobility and turnover among top five firms). Results of a multivariate regression analysis indicate no relationship between entry and rivalry. Two possible explanations for this somewhat surprising finding are: (1) new entry into banking markets is typically on a relative small scale, and (2) if potential competition had been an effective factor prior to entry in some of the markets where net entry took place, the potential effect of new entry on rivalry may have been very small. This would tend to obscure a systematic relationship between net entry and rivalry.     

Welfare loss,redistribution effect,and restriction of output due to monopoly in banking

Although several studies have estimated the welfare loss due to monopoly for manufacturing, no such estimate has been made for banking. This study seeks to fill that gap by estimating the deadweight welfare loss, the redistribution effect (total monopoly profits), and restriction of output due to monopoly in banking for 1978. The analysis is based on 6,500 banks and over 2,000 markets. Results indicate that the deadweight welfare loss in banking is very small. However, the redistribution effect (total monopoly profits) and restriction of output in banking is quite large.