Earnouts: The real value of disagreement in mergers and acquisitions

Earnout agreements link part of the payment for an acquired company to its future performance. Despite their option-like features, they cannot be valued using vanilla option-pricing methods. Two peculiar sources of risk affect these contracts: Bidder default before the earnout expiration (default risk) and potential litigation associated with earnouts (litigation risk). We developed an option-pricing model that encompasses these sources of risk, showing that counterparty and litigation risk can have a remarkable impact on earnout values. Our model's relevance is further enhanced by recent accounting standards that require contingent payments to be valued at fair value.     

Mortgage lending,monetary policy,and prudential measures in small euro‐area economies: Evidence from Ireland and the Netherlands

This paper examines whether the increased use of macroprudential policies since the global financial crisis has affected the impact of (euro‐area and foreign) monetary policy on mortgage lending in Ireland and the Netherlands, which are both small open economies in the euro area. Using quarterly bank‐level data on domestic lending in both countries for 2003–2018, we find that restrictive euro‐area monetary policy shocks reduce the growth of mortgage lending. We find evidence that stricter domestic prudential regulation mitigates this effect in Ireland, but not so in the Netherlands. There is some weak evidence for an international bank lending channel that can be mitigated by stricter lender‐based domestic prudential regulation.     

SHIFTING BOUNDARIES IN ECONOMICS: THE INSTITUTIONAL COGNITIVE STRAND AND THE FUTURE OF INSTITUTIONAL ECONOMICS

This paper aims at contributing to the debate on the future of institutional economics and of the field as a whole by starting from the literature that discusses the relationship between Old‐Original Institutional Economics and New Institutional Economics. It suggests that the process of reunifying OIE and NIE (and evolutionary economics) prompted by part of the literature could be improved by the contribution of the Cognitive Institutional Economics. The paper follows a two‐stage pathway: first, it frames the debate on the relationships between NIE and the OIE and it concentrates on a subset of the literature that shows that NIE's recent developments complicate the distinction between NIE and OIE, and it explores the possibility that NIE and OIE may merge so that an amalgam of NIE, OIE and Evolutionary Economics becomes the next economic paradigm. Secondly, the paper argues that a step forward in the direction outlined by the literature has been made by CIE, which is a research stream that developed from cross‐fertilization among NIE, OIE and the Hayekian contributions to the analysis of institutions. In the concluding remarks, the possible emergence of a single institutional paradigm is discussed in the light of the literature about change in economics.     

Independent director compensation,corruption, and monitoring

We find that independent directors in more corrupt countries receive greater pay. This relation could reflect outside directors in corrupt countries expropriating firm value, or it could reflect higher compensation for the additional effort required to lessen the negative effects of corruption. Acquirer acquisition announcement returns are lower in more corrupt countries, and this relation is mitigated by higher director pay. Higher director pay is also associated with greater sensitivity of CEO turnover to firm performance and moderates the negative effects of country‐level corruption on firm value. This evidence is consistent with higher director pay in corrupt countries incentivizing effort.     

CONTROLLING INFLATION WITH TIMID MONETARY–FISCAL REGIME CHANGES

Can monetary policy control inflation when both monetary and fiscal policies change over time? When monetary policy is active, a long-run fiscal principle entails flexibility in fiscal policy that preserves determinacy even when deviating from passive fiscal, substantially for brief periods or timidly for prolonged periods. In order to guarantee a unique equilibrium, monetary and fiscal policies must coordinate not only within but also across regimes, and not simply on being active or passive, but also on their extent. The amplitude of deviations from the active monetary/passive fiscal benchmark determines whether a regime is Ricardian: Timid deviations do not imply wealth effects.     

Board diversity reforms: Do they matter for EU bank performance?

We examine the impact of governance reforms related to board diversity on the performance of European Union banks. Using a difference‐in‐difference approach, we document that reforms increase bank stock returns and their volatility within the first 3 years after their enactment. The type of reform matters, with quotas increasing return volatility. The effectiveness of reforms depends on a country's institutional environment. The impact of reforms on return volatility is found to be beneficial in countries more open to diversity, with common law system and with greater economic freedom. Finally, reforms play a bigger role in banks that have ex ante less heterogeneous boards.     

FORMAL SEARCH AND REFERRALS FROM A FIRM'S PERSPECTIVE

We explore the relationship between firms' characteristics and recruitment strategies. We present a theoretical search model with two search channels: a costly formal channel and a costless informal channel (referrals). We empirically test the model predictions and find that: larger firms search more formally; firms search more formally for high-skilled workers; the positive relationship between firm's size and formal search intensity also holds for firms not using referrals; firms using referrals invest less into formal search compared to firms not using referrals; larger firms hire less often by referrals than smaller firms; and larger search effort leads to more applicants.     

Here and there? Mobile money and the politics of transnational living patterns in West Africa

ABSTRACT

The authors examine the use of mobile money in the context of cross-border remittances in West Africa. Relying on mixed methods and a multi-sited empirical strategy they look at both the sending and receiving conditions of mobile money transfers. By looking at money as socially embedded and the role of migrants in the production of a transnational space, their results highlight that uptake and usage of mobile money for remittances are shaped by a transnational living pattern. At the same time, mobile money also contributes to strengthening and reshaping this pattern. By showing that conversion of virtual money to cash may be performed by brokers that live far away from the end recipient, the paper highlights an important gap between spatial distribution of mobile money infrastructure and the social mediation that supports e-money flows. Cash-based transactions, in turn, are shown to play a key role in the social mediation dynamic.     

State Capitalism Revisited: A Review of Emergent Forms and Developments

Even when the neoliberal ideology of the free market was more dominant than it now is, the state was involved in economic activities that could be undertaken by private firms. State capitalism takes increasingly diverse forms, including beyond direct, partial or even indirect ownership. This paper briefly reviews some of these forms without claiming to be exhaustive as the shape state capitalism takes differs widely across the institutionalized contexts of countries. We assess state capitalism using Polanyi’s double movement framework and argue that this framework needs adaptation to novel forms of state capitalism that include, e.g., state-owned multinationals and sovereign wealth funds.