Expectations and Niehans’ exchange rate dynamics

Review of World Economics -     

The Information Content of Method of Payment in Mergers: Evidence from Real Estate Investment Trusts (REITs)

We provide evidence on the information content of the method of payment in mergers by examining shareholder returns in a sample of REIT mergers over the period 1994–1998. When the target firm is publicly held, we find that transactions are always stock-financed, and that acquiring firm shareholders sustain small negative returns around the announcement date. When the target is privately held, cash financing, mixed (stock and cash) financing, and placement of blocks of acquirer stock with target owners are more prevalent. Acquirer returns are positive in stock-financed mergers when the target is private, which is consistent with both the information signaling and monitoring by blockholders hypotheses. Further analysis supports the information signaling hypothesis as the dominant explanation. The effects of other explanatory variables are similar whether the target is public or private. Most significantly, acquiring shareholder returns are negatively related to the acquirer's size, but positively related to the acquirer's use of the UPREIT organizational structure. The positive wealth effects of the UPREIT structure are not fully explained as the capitalization of tax benefits.     

Making business sense of the Internet

For managers in large, well-established businesses, the Internet is a tough nut to crack. It is very simple to set up a Web presence and very difficult to create a Web-based business model. Established businesses that over decades have carefully built brands and physical distribution relationships risk damaging all they have created when they pursue commerce through the Net. Still, managers can't avoid the impact of electronic commerce on their businesses. They need to understand the opportunities available to them and recognize how their companies may be vulnerable if rivals seize those opportunities first. Broadly speaking, the Internet presents four distinct types of opportunities. First, it links companies directly to customers, suppliers, and other interested parties. Second, it lets companies bypass other players in an industry's value chain. Third, it is a tool for developing and delivering new products and services to new customers. Fourth, it will enable certain companies to dominate the electronic channel of an entire industry or segment, control access to customers, and set business rules. As he elaborates on these four points, the author gives established companies a systematic way to sort through the risks and rewards of doing business in cyberspace.     

Structural Analysis of a Developing Economy Using the Conventional and Augmented Input-Output Matrix Methods — A Comparison for Sri Lanka

This paper explains why and how the conventional Input-Output Method should be modified to develop the Augmented Input-Output Matrix Method in order to study the structure of a developing economy using Multiplier and Linkage Analysis. This alternative methodology with an endogenous Household Sector is expected to provide a better picture of the structure of the economy by treating demand as partially endogenous and allowing for induced linkage effects transmitted across various sectors of the economy. In contrast, such induced linkage effects are absent in the conventional methodology which is based on the technical relationships of production alone.

Applying the two methods on the economy of Sri Lanka using the Input-Output Tables for 1986 and 1994, we find that the Augmented Input-Output Matrix Method changes the relative importance of the various sectors in terms of their output multipliers and backward linkage strengths, for each of the two years. Overtime, however, the Augmented Input-Output Matrix Method shows less variations in the multipliers, linkages and the resulting key sectors of the economy while rendering the economy more traditional and service-oriented in character. Manufacturing and allied sectors are more often absent than present among the strong or key sectors of the economy.

Economic Liberalization was initiated in the 1970’s in Sri Lanka. But the economy has not yet experienced any fundamental change in its structure. The results of the Augmented Matrix Method suggest that the economy should be more diversified and modernized in order to fully reap the benefits of liberalization in terms of economic growth.