Terminal Value,Accounting Numbers,and Inflation

In a 2008 article published in this journal, Michael Bradley and Gregg Jarrell argue that the well‐known Gordon‐Shapiro (henceforth “GS”) model for calculating terminal values does not properly account for the effects of inflation. Bradley and Jarrell suggest modifying the growth factor in the standard GS model by adding an additional term to the nominal growth rate that reflects the positive effect of inflation on the value of existing assets. In this article, the authors support the original Gordon‐Shapiro method for calculating terminal values by showing what they believe to be an oversight of the Bradley‐Jarrell critique. According to the authors, the disagreement stems from the use of fundamentally different assumptions about the effect of inflation on the capital investment required to sustain a business. Although Bradley‐Jarrell agree with the authors that intrinsic value is the discounted value of future free cash flows, their assumptions about capital investment effectively lead them to conclusions similar to those practitioners who attempt to value companies on the basis of discounted future accounting earnings. Despite much common practice, the GS model was meant to be applied to free cash flows, not accounting earnings. And for companies with substantial capital investment, the differences between accounting earnings that involve accruals and free cash flows can be very large.     

Socioeconomic differences in public acceptability and car use adaptation towards urban road pricing

Urban road pricing is regarded as an effective instrument to reduce traffic congestion and environmental-related problems in metropolitan areas. Whereas the overall impact of urban road pricing on car use adaptation and public acceptability is known, there are only inconsistent results concerning the socioeconomic differences in the response towards road pricing. However, this knowledge is necessary for the development of urban road pricing packages. This paper uses a segmentation approach to identify groups of car users with a similar background in relevant socioeconomic variables and compares their responses towards road pricing. Three groups are identified: young families, suburban families, and singles and couples. These groups indeed differ in their car use adaptation towards urban road pricing as well as in their preferred revenues use. While all three groups significantly reduced their private car use, the young families reduced their car use most, followed by the group of singles and couples. Complementary measures are discussed that are believed to facilitate car use adaptation of each group in response towards urban road pricing.     

Downstream offshoring and firm-level employment

When engaging in offshoring, firms import not only intermediates they used to produce in-house but also intermediates they previously sourced from non-affiliated domestic suppliers. This leads to a negative demand shock for the latter. We label this demand shock “downstream offshoring” and develop a novel measure capturing its extent for a firm in a given upstream industry. According to our instrumental variables estimations for a rich sample of Belgian manufacturing firms for the period of 1997 to 2007, downstream offshoring has a robust negative effect on employment.     

The Impact of the Single Market Programme on EU Banking

The rise of the service economy has been the predominant pattern of structural change in the twentieth century. This article investigates the driving forces behind the recent stages of this development. Focusing on international input—output data from the early 1970s to the 1990s, a decomposition analysis separates the quantitative impacts of demand, technology and trade-driven determinants of output growth. Our findings confirm the rise of knowledge-based services as the most dynamic component, thus strengthening the case for ‘quaternarisation’ as a process which is distinctly characterised by the substantial contribution of technological and organisational change to structural development.     

The German manufacturing industry faces globalization: Old achievements,new challenges

While the German manufacturing industry is internationally renowned and often seen as the backbone of German economic development, it has encountered some obstacles in the past few years. These obstacles are related with the emergence of new competitors, the shifts of economic activity in Europe due to economic integration and the challenge of German unification. This paper analyzes the historical development of the German manufacturing industry. By discussing the problems of German manufacturing industry in a globalized world, conclusions for necessary reforms can be drawn.     

The Technical Efficiency Impact of Farm Credit Programmes: A Case Study of Northern Germany

We analyse the technical efficiency of dairy farms in Schleswig‐Holstein that took part in the European Farm Credit Programme over the period 1987 to 1994. One goal of this programme is to increase the productivity of farms. We test whether participants show higher technical efficiency. We utilise a stochastic frontier model that allows for heteroscedasticity and estimation of determinants of technical inefficiency. Statistical tests indicate dominance of this model over alternative specifications. On average, we observe a high level of technical efficiency between 1987–94, but participation in the programme has rather led to a slight decrease. Thus, the programme seems to have failed to increase the competitiveness of farms.     

Globalisation and the competitiveness of regional blocs

Both globalisation and regionalisation have gained momentum in the last two decades in every part of the world, involving economies at all levels of development. The following article examines the major determinants affecting the competitive position of selected regional blocs and suggests some policy stances which promise to support both further regional integration and improved competitiveness at a global level.