An empirical investigation into the gravitation and convergence of industry return rates in OECD countries

Tests are offered for the hypotheses that sectoral average profit rates and incremental return rates are gravitating around or converging towards a common value. We study data for various OECD countries relying on an econometric method able to account for residual autocorrelation and cross‐sector correlation. Our null hypotheses receive only a mixed empirical support. This is interpreted as the result of various kinds of limitations to capital mobility. Policy implications are discussed.     

Origins of regional divergence: economic growth in socialist Yugoslavia†

Relative to western Europe, we know very little about the determinants of economic growth at the regional level within socialist Europe. This is somewhat unusual, given that socialist policy-makers have put great emphasis on equitable regional development. This article analyses the regional patterns of growth and divergence in socialist Yugoslavia. New estimates of output and inputs are constructed, and an analysis of output growth, factor accumulation, structural modernization, and productivity is provided. Two novel empirical findings are uncovered. The first is that the sources of growth across the regions were fundamentally different. Total factor productivity was a much more important source of growth in the richer regions than it was in the poorer ones. The second finding is that the source of the regional income divergence lies in the failure of the less developed regions to converge towards the employment rates and total factor productivities of the more developed regions. These failures are interpreted, at least partially, as symptoms of the governing objective and the soft budget constraint of the labour-managed firms that operated in Yugoslavia. It is argued that Yugoslavia's development model was less suited to the pre-conditions that prevailed in the less developed parts of the country.     

Union Strategies,National Institutions and the Use of Temporary Labour in Italian and US Plants

This article analyses variation in the use of temporary labour based on a comparison of two plants of the same US automotive multinational corporation, one in Italy and the other in the United States. We argue that differences in the use of temporary labour are explained by union capacities to make trade‐offs between alternative forms of flexibility as well as trade‐offs in the protection of internal and external groups of workers. Union capacity is dependent on the availability of power resources within different national institutional environments. These resources are shown to influence not only the ways in which temporary workers are used but also bargaining outcomes — including employment conditions — benefiting them.     

The technological determinants of long‐run inequality

I explore the effect of skill‐biased technological change and unbiased technological progress on long‐run inequality using a theoretical model in which the supply of skilled and unskilled workers is endogenous. The main assumption of the model is that young agents can finance their education and become skilled workers by borrowing against their future income on an imperfect credit market. I show that whenever the rate of unbiased technological progress is sufficiently high there is no steady‐state inequality, independent of the degree of skill bias. If instead the rate of unbiased technological progress is low, then the long‐run skill premium increases with the technological skill bias. Therefore, similarly to the short run, in the long run higher technological skill bias may cause higher inequality. However, contrary to the short run, in the long run unbiased technological progress is more important than technological skill bias in determining inequality. I also discuss how the efficiency of the educational technology and the degree of financial development affect long‐run inequality.     

Insider employee stock option trading and stock prices

The question of which factors determine corporate bonds pricing is investigated by analysing the spreads of eurobonds issued by major G-10 companies during the 1991–2001 period. Three main results emerge from the analysis. First, bond ratings appear as the most important determinant of yield spreads, with investors’ reliance on rating agencies judgments increasing over time. Second, the primary market efficiency and the expected secondary market liquidity are not relevant explanatory factors of spreads cross-sectional variability. Finally, rating agencies adopt a different, ‘through the cycle’, evaluation criteria of default risk with respect to the forward looking one adopted by bond investors.     

Climate Change and Asset Prices: Are Corporate Carbon Disclosure and Performance Priced Appropriately?

This paper empirically assesses the relevance of information on corporate climate change disclosure and performance to asset prices, and discusses whether this information is priced appropriately. Findings indicate that corporate disclosures of quantitative greenhouse gas (GHG) emissions and, to a lesser extent, carbon performance are value relevant. We use hand‐collected information on quantitative GHG emissions for 433 European companies and build portfolios based on GHG disclosure and performance. We regress portfolios on a standard four factor model extended for industry effects over the years 2005 to 2009. Results show that investors achieved abnormal risk‐adjusted returns of up to 13.05% annually by exploiting inefficiently priced positive effects of (complete) GHG emissions disclosure and good corporate climate change performance in terms of GHG efficiency. Results imply that, firstly, information costs involved in carbon disclosure and management do not present a burden on corporate financial resources. Secondly, investors should not neglect carbon disclosure and performance when making investment decisions. Thirdly, during the period analysed, financial markets were inefficient in pricing publicly available information on carbon disclosure and performance. Mandatory and standardised information on carbon performance would consequently not only increase market efficiency but result in better allocation of capital within the real economy.     

The Italian financial cycle: 1861–2011

In this paper, we investigate the main features of the Italian financial cycle, extracted by means of a structural trend-cycle decomposition of the credit-to-GDP ratio, using annual observations from 1861 to 2011. In order to draw conclusions based on solid historical data, we provide a thorough reconstruction of the key balance sheet time series of Italian banks, considering all the main assets and liabilities over the last 150 years. We come to three main conclusions. First, while there was close correlation between loans and deposits (relative to GDP) until the mid-1970s, over the last 30 years, this link became more tenuous and the volume of loans has increased in relation to deposits. The banks covered this “funding gap” mainly by issuing new debt securities. Second, the Italian financial cycle has a much longer duration than traditional business cycles. Third, taking into account the deviation of the credit-to-GDP ratio from its trend, an acceleration of credit preceded or accompanied a banking crisis in 8 out of the 12 episodes listed by Reinhart and Rogoff (This time is different: eight centuries of financial folly. Princeton University Press, Princeton, 2009). A Logit regression confirms a positive association between the probability of a banking crisis and a previous acceleration of the credit-to-GDP gap. However, there were also periods—such as the early 1970s—in which the growth of the credit-to-GDP ratio was not followed by a banking crisis.     

Entrepreneurial risk,investment, and innovation

I estimate the effect of uncertainty on risky innovation using a panel of 11,417 manufacturing firms. I find that an increase in uncertainty has a large negative effect on the risky innovation of entrepreneurial firms, while it does not have any significant impact on other firms. This negative effect is stronger for the less diversified entrepreneurial firms in the sample. The estimation results are consistent with the innovation dynamics generated in a model in which entrepreneurs are risk averse and cannot diversify the risk of their business.