The Effect of Family Involvement on Innovation Outcomes: The Moderating Role of Board Social Capital

Innovation is an essential and yet puzzling part of family firms’ strategic focus. While family firms are generally characterized as conservative regarding their research and development (R&D) activities, researchers have recently argued that family firms can still achieve innovation-based competitive advantages. Seeking to understand the link between family influence and the outcomes of innovation, we suggest that it is necessary not only to observe the depth of family involvement, but also to differentiate between technological inventions and market innovations. We further posit that the board members’ social capital constitutes an important contingency for this link. We, therefore, investigate the relationship between family involvement and two different outcomes: the number of the firm’s inventions and the market relevance of innovations. Our analysis of S&P 500 firms comprises 1.85 million patents and manual evaluations of 1774 product announcements. The results of our estimations suggest that family involvement is negatively related to the number of inventions and positively related to the market relevance of innovations. They further show that internal and external board social capital moderate the relationship between family involvement and the number of inventions. This study adds to the discussion about family firm innovation by using socioemotional wealth to explain heterogeneity in innovation patterns and revealing that relational resources derived from board social capital are crucial boundary conditions for families’ influence on technological inventions. Taken together, it works toward a more holistic view of innovation in family-influenced firms.     

Why inflation targeting central banks seem to follow a standard Taylor rule

Central banks only caring about inflation stability seem to follow a standard Taylor rule. The alleged reaction to the output gap could be a reaction of the nominal interest rate to variations in the natural real rate of interest.     

Inequality,Redistribution, and the Financial Crisis: Evidence from Distributional National Accounts for Austria

In this paper, we provide novel findings regarding the distributional effects of the global financial and economic crisis and how redistribution operated during this time, using detailed data for Austria. We construct distributional national accounts for the period 2004–2016 by combining survey data, tabulated tax data, and detailed national accounts data. The comprehensive data set allows us to analyze the distribution of macroeconomic income growth across the income distribution and to explore the evolution of income inequality over time. Our results suggest that as the distribution of growth changed over time, this had considerable repercussions for inequality, which started to decline at the very beginning of the economic and financial crisis, but increased again after 2012. We find that capital income largely determined both the level and the dynamics of income inequality. Government spending was found to play a key role for redistributive effects across the income distribution. In particular, in-kind transfers redistributed pre-tax income to a large extent. Our results show further that individuals with lower educational levels and younger individuals faced negative growth in pre-tax income over the years and also benefited considerably from redistribution.     

Small‐time,large‐time,and asymptotics for the Rough Heston model

We characterize the behavior of the Rough Heston model introduced by Jaisson and Rosenbaum (2016, Ann. Appl. Probab., 26, 2860–2882) in the small‐time, large‐time, and (i.e., ) limits. We show that the short‐maturity smile scales in qualitatively the same way as a general rough stochastic volatility model , and the rate function is equal to the Fenchel–Legendre transform of a simple transformation of the solution to the same Volterra integral equation (VIE) that appears in El Euch and Rosenbaum (2019, Math. Financ., 29, 3–38), but with the drift and mean reversion terms removed. The solution to this VIE satisfies a space–time scaling property which means we only need to solve this equation for the moment values of and so the rate function can be efficiently computed using an Adams scheme or a power series, and we compute a power series in the log‐moneyness variable for the asymptotic implied volatility which yields tractable expressions for the implied vol skew and convexity which is useful for calibration purposes. We later derive a formal saddle point approximation for call options in the Forde and Zhang (2017) large deviations regime which goes to higher order than previous works for rough models. Our higher‐order expansion captures the effect of both drift terms, and at leading order is of qualitatively the same form as the higher‐order expansion for a general model which appears in Friz et al. (2018, Math. Financ., 28, 962–988). The limiting asymptotic smile in the large‐maturity regime is obtained via a stability analysis of the fixed points of the VIE, and is the same as for the standard Heston model in Forde and Jacquier (2011, Finance Stoch., 15, 755–780). Finally, using Lévy's convergence theorem, we show that the log stock price tends weakly to a nonsymmetric random variable as (i.e., ) whose moment generating function (MGF) is also the solution to the Rough Heston VIE with , and we show that tends weakly to a nonsymmetric random variable as , which leads to a nonflat nonsymmetric asymptotic smile in the Edgeworth regime, where the log‐moneyness as , and we compute this asymptotic smile numerically. We also show that the third moment of the log stock price tends to a finite constant as (in contrast to the Rough Bergomi model discussed in Forde et al. (2020, Preprint) where the skew flattens or blows up) and the process converges on pathspace to a random tempered distribution which has the same law as the hyper‐rough Heston model, discussed in Jusselin and Rosenbaum (2020, Math. Finance, 30, 1309–1336) and Abi Jaber (2019, Ann. Appl. Probab., 29, 3155–3200).     

Consumer policy and consumer empowerment: comparing the historic development in Finland and Germany

This article traces the trajectories of consumer policy in Finland and Germany in the light of a comparative history in order to reflect upon the notion of consumer empowerment in public policy. The principle developments of contemporary consumer policy can be traced back to the post‐war political and economic integrations arising from the initial idea of free markets and individual freedom emphasized in classical liberalism. The article explores this development in Finland and Germany to the point of the establishment of a joint European Union (EU) consumer policy to reveal the notion of consumer empowerment. This approach creates an understanding of the peculiarities of consumer policy in EU member states despite the presence of a joint European policy area. Nowadays, both Finnish and German consumers find EU regulations excessive. It is important to acknowledge the influence of this historic development in order to understand what consumer empowerment meant in the past and thus to further develop policy action on a joint level.     

A STATE-SPACE APPROACH TO ESTIMATE AND TEST MULTIFACTOR COX-INGERSOLL-ROSS MODELS OF THE TERM STRUCTURE

The objective of this paper is to estimate and test multifactor versions of the Cox-Ingersoll-Ross (CIR) model of the nominal term structure of interest rates. The proposed state-space approach integrates time series and cross-sectional aspects of the CIR model, is consistent with the underlying economic model, and can use information from all available points of the term structure. We recover estimates of the underlying factors that are consistent with the assumptions about the stochastic processes and compare them with factors obtained from standard factor analysis. We perform thorough diagnostic checking and thereby provide new evidence regarding conclusions about the adequacy of the CIR model. We present empirical results for U.S. Treasury market data. Although the specification of multifactor CIR models is sufficiently flexible for the shape of the term structure, we find strong evidence against the adequacy of the CIR model.     

Asset Valuation and Performance Measurement in a Dynamic Agency Setting

This paper examines the choice of asset valuation rules from a managerial control perspective. A manager creates value for a firm through his effort choices. To support its operating activities, the firm also engages in financing activities such as credit sales to its customers. Since such financing activities merely change the pattern of cash flows across periods, an optimal compensation scheme must shield the manager from the risk associated with the financing activities. We show that residual income combined with fair value accounting for receivables eliminates this risk and provides an optimal performance measure. In contrast, compensation schemes based only on realized cash flows can be optimal only under exceptional circumstances. We also consider a setting in which there is sufficiently disaggregated information about periodic cash flows so as to eliminate not only the risk associated with financing activities but also the risk associated with customer defaults. The principal then wants to depart from fair value accounting.     

Challenges and opportunities for Islamic retail banking in the European context: Lessons to be learnt from a British–German comparison

The purpose of this article is to identify major challenges and opportunities for Islamic retail banking (IRB) in the European context. We present insights gained from the comparison of two European markets for IRB: the mature British and the relatively undeveloped German market. Based on this information, we propose a framework of four major attributes of a nation's socio-economic environment that determine to a large degree the evolution of a domestic market for IRB in Europe: demand conditions, supply conditions, regulatory conditions and societal conditions. We review each of these attributes, demonstrate how they can either be an opportunity or a challenge for IRB, and develop a number of suggestions for European countries and financial institutions seeking to participate in the growing market of IRB.