Idiosyncratic risk and the cost of capital: the case of electricity networks

We analyze the treatment and impact of idiosyncratic or firm-specific risk in regulation. Regulatory authorities regularly ignore firm-specific characteristics, such as size or asset ages, implying different risk exposure in incentive regulation. In contrast, it is common to apply only a single benchmark, the weighted average cost of capital, uniformly to all firms. This will lead to implicit discrimination. We combine models of firm-specific risk, liquidity management and regulatory rate setting to investigate impacts on capital costs. We focus on the example of the impact of component failures for electricity network operators. In a simulation model for Germany, we find that capital costs increase by \(\sim \) 0.2 to 3.0 % points depending on the size of the firm (in the range of 3–40 % of total cost of capital). Regulation of monopolistic bottlenecks should take these risks into account to avoid implicit discrimination.     

Growth Capital‐Backed IPOs

Growth capital investing is the financing of growing businesses that are investing in tangible assets and the acquisition of other companies. Growth capital is common in retailing, restaurant chains, and health care management, and represents 12% of all venture capital (VC)‐backed initial public offerings (IPOs). Since 1980, investing in growth capital‐backed IPOs has produced mean three‐year style‐adjusted buy‐and‐hold returns of +25.2%, in contrast to style‐adjusted returns of approximately zero for other VC‐backed and buyout‐backed IPOs. One‐third of growth capital‐backed IPOs are rollups and these have produced much higher returns for investors than rollups without a financial sponsor.     

Real options in divestment alternatives

This paper examines the implications of real options theory for both the decision to divest a business unit and the mode of divestment. It is shown that the decision to divest a business unit and the decision to engage in staged modes of divestment are both sensitive to uncertainty, consistent with a real options logic. However, in the face of uncertainty, the results suggest that staged forms of governance create real options that are of lesser value as compared to simply not divesting a business unit and also as compared to completely divesting a business unit. Thus, this study shows that firms have real options of varied value to choose from in the context of divestments. Copyright © 2014 John Wiley & Sons, Ltd.     

Corporate social responsibility: Doing well by doing good

Saving the rain forest from yet another palm oil plantation would certainly garner a company favorable attention from environmentalists, but how would its shareholders react? In this article, we show that by strategically practicing corporate social responsibility (CSR), a company can ‘do well by doing good’; in other words, it can make a profit and make the world a better place at the same time. CSR is regarded as voluntary corporate commitment to exceed the explicit and implicit obligations imposed on a company by society's expectations of conventional corporate behavior. Hence, CSR is a way of promoting social trends in order to enhance society's basic order, which we define as consisting of obligations that cover both the legal framework and social conventions. Due to globalization, companies are now less constrained by society's basic order than they have been in the past. Because different countries have different laws and standards, there are more ways to get away with less than ideal behavior in the quest for greater and greater profits. Nearly everyone agrees that this is not a good thing, but what can be done? Via this article, we offer an understanding of CSR that could be the answer. Herein, we contend that practicing CSR is not altruistic do-gooding, but rather a way for both companies and society to prosper. This is especially true when CSR is conceived of as a long-range plan of action.     

Persuasion knowledge and consumer reactions to pricing tactics

The current research investigates consumer knowledge of the pricing tactics that marketers frequently employ and the effects of that knowledge on responses to various price offers. In the research, a series of studies were conducted to develop and validate a knowledge measure designed to assess pricing tactic persuasion knowledge (PTPK). Consistent with the persuasion knowledge model, individuals with higher levels of PTPK were shown to have more knowledge-related thoughts regarding pricing tactic information than those with low levels of PTPK. Additionally, pricing tactic persuasion knowledge was shown to be more predictive of consumer choices regarding quantity surcharge offers and purchase interest evaluations following exposure to tensile claim offers (e.g., “Save up to 50 percent Off”) than several competing constructs.     

Automating Linguistics-Based Cues for Detecting Deception in Text-Based Asynchronous Computer-Mediated Communications

The detection of deception is a promising but challenging task. A systematic discussion of automated Linguistics Based Cues (LBC) to deception has rarely been touched before. The experiment studied the effectiveness of automated LBC in the context of text-based asynchronous computer mediated communication (TA-CMC). Twenty-seven cues either extracted from the prior research or created for this study were clustered into nine linguistics constructs: quantity, diversity, complexity, specificity, expressivity, informality, affect, uncertainty, and nonimmediacy. A test of the selected LBC in a simulated TA-CMC experiment showed that: (1) a systematic analysis of linguistic information could be useful in the detection of deception; (2) some existing LBC were effective as expected, while some others turned out in the opposite direction to the prediction of the prior research; and (3) some newly discovered linguistic constructs and their component LBC were helpful in differentiating deception from truth.     

The Effectiveness of Government Promotion of Advanced Manufacturing Technologies (AMT): An Economic Analysis Based on Swiss Micro Data

This paper describes the approach applied and the results of an evaluation of the effects of the Swiss government programme to promote the diffusion of Advanced Manufacturing Technologies (AMT) from 1990 to 1996. The method used is based on specifying and econometrically estimating with firm data simultaneously an adoption equation which, besides the main explanatory variables as proposed by the theory of technology diffusion, includes a policy variable, and a policy equation with a set of firm characteristics and an adoption variable as regressors. The results are consistent with a positive impact of promotion on adoption of AMT, particularly a more intensive adoption of AMT for firms which did not use AMT when the programme started.     

Expanding Insights on the Diversity Climate–Performance Link: The Role of Workgroup Discrimination and Group Size

The present study extends knowledge of the performance consequences of workgroup diversity climate. Building upon Kopelman, Brief, and Guzzo's ( 1990 ) climate model of productivity, we introduce workgroup discrimination as a behavioral mediator that explains the positive effects of diversity climate on workgroup performance. In addition, we investigate group size as a moderator upon which this mediated relationship depends. We test these moderated‐mediated propositions using a split‐sample design and data from 248 military workgroups comprising 8,707 respondents. Findings from structural equation modeling reveal that diversity climate is consistently positively related to workgroup performance and that this relationship is mediated by discrimination. Results yield a pattern of moderated mediation, in that the indirect relationship between workgroup diversity climate (through perceptions of workgroup discrimination) and group performance was more pronounced in larger than in smaller workgroups. These results illustrate that discrimination and group size represent key factors in determining how a diversity climate is associated with group performance and, thus, have significant implications for research and practice. © 2014 Wiley Periodicals, Inc.     

EXPLAINING PREMIUMS AND DISCOUNTS ON CLOSED-END EQUALITY COUNTRY FUNDS

Over the past decade or so, the surge of interest among U.S. investors in international investing has led to the creation of numerous foreign equity country funds. Like U.S. closed-end mutual funds, the prices of such closed-end country funds fluctuate widely in relation to their underlying net asset values (NAVs).
In this paper, the authors summarize the major findings of their recent study of the performance of 28 country funds relative to their NAVs over the period 1978–1995. While 20 of the 28 funds traded at average discounts to their net asset values, the discounts for the country funds were smaller than those of the average U.S. fund, and over a quarter of the funds sold at premiums.
In an attempt to explain such premiums or discounts, the authors examined primarily three factors: (1) the sensitivity of country-fund returns (relative to that of local market indices) to U.S. returns; (2) the possible effects of local government investment restrictions; and (3) the impact of exchange rate changes. Although most of the eight funds that traded at average premiums represented countries with significant restrictions on capital flows and foreign ownership, there were also a number of funds with similar restrictions trading at significant discounts. In exploring the reasons for such discounts, the authors noted that the returns to the country funds were "surprisingly sensitive" to U.S. market conditions, thus reducing the extent of their diversification benefits for U.S. investors. The article also raises the possibility that if such country funds are not "priced at the margin" by globally diversified investors, U.S investors' "country-risk sentiments" could cause such funds to trade at discounts.