A Primer for New Teachers of Economics

In many economics programs, both graduate students and new assistant professors are thrown into the classroom without guidance, with the potential for negative ramifications that can last throughout their careers as teachers. This article is a primer in which we offer unique insights into useful methods and practices for new teachers in the economics profession. We discuss organizational and logistical issues that new teachers must consider and then offer our advice on specific pedagogical tools and techniques. Following the growing literature on the benefits of student‐centered and interactive instruction, we focus on ways instructors can move away from the traditional “chalk and talk” approach. We organize and present these alternative pedagogies in terms of their level of complexity and time required. We conclude with suggestions and resources for the continued growth and development of new teachers in economics.     

THE CAPITAL STRUCTURE CHOICE: NEW EVIDENCE FOR A DYNAMIC TRADEOFF MODEL

Most academic insights about corporate capital structure decisions come from models that focus on the trade-off between the tax benefits and financial distress costs of debt financing. But empirical tests of corporate capital structure indicate that actual debt ratios are considerably different from those predicted by the models, casting doubt on whether most companies have leverage targets at all. In particular, there is considerable evidence that corporate leverage ratios reflect in large part the tendency of profitable companies to use their excess cash flow to pay down debt, while unprofitable companies build up higher leverage ratios. Such behavior is consistent with a competing theory of capital structure known as the "pecking order" model, in which management's main objectives are to preserve financing flexibility and avoid issuing equity.
The results of the authors' recent study suggest that although past profits are an important predictor of observed debt ratios at any given time, companies nevertheless often make financing and stock repurchase decisions designed to offset the effects of past profitability and move their debt ratios toward their target capital structures. This evidence provides support for a compromise theory called the dynamic tradeoff model, which says that although companies often deviate from their leverage targets, over the longer run they take measures to close the gap between their actual and targeted leverage ratios.     

The limits of utilitarianism as a professional ethic in public sector leisure policy and provision

In a previous issue of this journal we developed a moral philosophical account of the relations between the paradigmatic leisure profession, leisure management, and it's clientele. Professional status was characterized as a set of relations necessarily involving moral authority and not merely technical expertise as is commonly supposed. In that account, professional paternalism was interpreted and justified differently in relation to the specific roles and relations incorporated in leisure management ranging from national policy planning to operational delivery. That position is developed and contextualized here by setting out an account of the nature of utilitarianism which is commonly thought to underwrite state paternalism in policy issues. The account charts the development within utilitarian thinking from its classical hedonistic beginnings in the thinking of Jeremy Bentham and John Stuart Mill into more sophisticated versions of welfarism in Amartya Sen. The essay sets out some critical difficulties in the application of a moral theory to leisure practice. It explores the limits to which utilitarian theories may specifically underwrite the leisure professional working in the public sector in a manner which, though paternalistic, is not disrespectful of the autonomy of its clients: citizens and consumers.     

Have economic educators embraced social media as a teaching tool?

In this article, the authors discuss the results of a study of the perceptions of a national sample of economics faculty members from various institutions regarding the use of social media as a teaching tool in and out of the economics classroom. In the past few years, social media has become globally popular, and its use is ubiquitous among students. As such, some instructors have incorporated social media into their courses to engage students. Others are reluctant to embrace social media, citing privacy concerns, social media being more of a distraction than a useful tool, and the challenge of keeping up with social media developments, among others. The authors characterize economics faculty's perceptions of the use of social media platforms for economic instruction.     

The neoliberal project—Local taxation intervention in Scotland

This paper is concerned with one of the central economic aspects of neoliberalism namely taxation. The shifting of the burden of taxation from the rich to the poor has been one of the raft of neoliberal economic reform policies. However, there has been a growing social movement in the UK against such a regressive form of taxation. This was led by a socialist political party in Scotland.¹ This party devised a new taxation system which was specifically designed to reverse some of the economic inequalities brought about by the neoliberal turn. The new form of taxation, the Scottish Service Tax formed a bill (the Council Tax Abolition and Service Tax Introduction (Scotland) Bill) which was put before the Scottish Parliament in February 2006. This paper, taking a political-economy perspective, sets the possibilities presented by the bill within the context of neoliberalism.     

The valuation effects of stock splits and stock dividends

This study presents evidence which indicates that stock prices, on average, react positively to stock dividend and stock split announcements that are uncontaminated by other contemporaneous firm-specific announcements. In addition, it documents significantly positive excess returns on and around the ex-dates of stock dividends and splits. Both announcement and ex-date returns were found to be larger for stock dividends than for stock splits. While the announcement returns cannot be explained by forecasts of imminent increases in cash dividends, the paper offers several signalling based explanations for them. These are consistent with a cross-sectional analysis of the announcement period returns.     

DESIGNING CAPITAL STRUCTURE TO CREATE SHAREHOLDER VALUE

In the past decade, many U.S. companies have launched aggressive share repurchase programs with the expectation that value can be created by returning excess capital to shareholders and moving the firm closer to its optimal capital structure. But how much capital does a company really need to support its business activities? This article presents an economic framework or “model” that can be used to simulate the effect of various capital structure choices on shareholder value. The fundamental insight underlying the model is that judicious use of debt can add value by reducing corporate taxes and strengthening management incentives to increase efficiency, but that too much debt can result in a loss of business and perhaps a costly reorganization. Indeed, one of the key findings of the authors' recent research is that companies with highly leveraged balance sheets suffer disproportionately large losses in market share and value during industry downturns. As illustrated in a case study of a hypothetical general merchandiser, the model makes it possible to identify an optimal debt-equity ratio (and percentage of fixed- versus floating-rate debt)—one that balances the value of the tax shield from debt against the increased risk of financial distress.     

The Going-Public Decision and the Development of Financial Markets

This paper explores the linkages between stock price efficiency, the choice between private and public financing, and the development of capital markets in emerging economies. Generally, the advantage of public financing is high if costly information is diverse and cheap to acquire, and if investors receive valuable information without cost. The value of public firms generally depends on public market size, which implies that there can be a positive externality associated with going public, so that an inferior equilibrium can exist where too few firms go public. The model is consistent with empirical observations on financial market development.     

Accounting for Sovereign Risk When Investing in Emerging Markets

In theory, political risk is project‐specific and should be accounted for in the estimation of the expected investment cash flows. But in practice, the political risk associated with this type of investment is typically accounted for implicitly by adjusting the investment's required rate of return or the discount rate. As the authors discuss in the article, this approach disguises the specific assumptions being made about the risk of expropriation and so makes it difficult to assess this risk properly. While defending some aspects of current practice, the authors argue that corporate executives should consider some changes. For example, although a project analysis that is shared with the host government could incorporate a risk adjustment to the discount rate, the authors suggest that more explicit analysis of the anticipated risk of expropriation should be incorporated into the analysis of expected project cash flows. This analysis could involve making specific assumptions about the “term structure” of expropriation risk over the life of the investment. Finally, the authors note that the political risk of making investments in emerging economies can be managed to some extent. Investments can be structured in ways that reduce political risk by structuring project cash flows in ways that better align the incentives of the project sponsor and the government of the host country.