New international evidence on output-inflation tradeoffs: A note

This note presents some new international evidence for the variance hypothesis by Lucas according to which the output-inflation tradeoff varies inversely with the variance of nominal aggregate demand. The annual cross-country data on 18 countries are used. Over the period 1952–1967 the variance hypothesis gets support, and allowing for serial and contemporaneous correlation of error terms leaves the results practically unaffected. Over the period 1952–1977, however, the variance hypothesis gets stronger support, which is even reinforced by allowing for serial and contemporaneous correlation of error terms between the OLS residuals.     

Financial Distress Prediction in an International Context: A Review and Empirical Analysis of Altman's Z‐Score Model

This paper assesses the classification performance of the Z‐Score model in predicting bankruptcy and other types of firm distress, with the goal of examining the model's usefulness for all parties, especially banks that operate internationally and need to assess the failure risk of firms. We analyze the performance of the Z‐Score model for firms from 31 European and three non‐European countries using different modifications of the original model. This study is the first to offer such a comprehensive international analysis. Except for the United States and China, the firms in the sample are primarily private, and include non‐financial companies across all industrial sectors. We use the original Z′′‐Score model developed by Altman, Corporate Financial Distress: A Complete Guide to Predicting, Avoiding, and Dealing with Bankruptcy (1983) for private and public manufacturing and non‐manufacturing firms. While there is some evidence that Z‐Score models of bankruptcy prediction have been outperformed by competing market‐based or hazard models, in other studies, Z‐Score models perform very well. Without a comprehensive international comparison, however, the results of competing models are difficult to generalize. This study offers evidence that the general Z‐Score model works reasonably well for most countries (the prediction accuracy is approximately 0.75) and classification accuracy can be improved further (above 0.90) by using country‐specific estimation that incorporates additional variables.     

The relationship between product market competition and unemployment with profit sharing

We investigate the implications of product market imperfections on negotiated wages and equilibrium unemployment under profit sharing. We show that intensified product market competition reduces equilibrium unemployment in a strictly monotonic way when the trade union's bargaining power exceeds the profit share. If the profit share exceeds the trade union's bargaining power, the effect of product market competition is ambiguous: there is a threshold for the benefit–replacement ratio above (below) which intensified product market competition increases (decreases) equilibrium unemployment. The profit share and the union's bargaining power affect the wage mark-up, and thereby equilibrium unemployment, in different directions.     

Developing an abduction-based method for futures research

Futures research is an established field of knowledge with a wealth of methods and techniques. However, foresight, future outlooks and scenarios are, as a rule, based on inductivist or deductivist methods, making looking into the future a form of conservative projecting of past and present probabilities onto the road of development lying ahead of us. Closed past or present outlooks give birth to open futures, but these futures usually are little more than exercises in organizational learning. In this paper we present and develop a method for futures research that is based on abductive logic. Abduction-based futures research approach proceeds from closed, imaginary future states to alternative, open theoretical frameworks or explanations. Unlike inductivists and deductivists believe, this procedure from the unknown to the known is rational, and therefore something that can be systematized and learned. There is a logic of discovery, and what could be a better place to apply and develop it than futures research.     

Agency Cost of Debt and Credit Market Imperfections: A Bargaining Approach

This paper studies the effect of credit market imperfections, measured by the relative bargaining power of banks, on the agency costs of debt finance. The threshold of obtaining loan finance is shown to be independent of the relative bargaining power of the financier. However, lower relative bargaining power of banks leads to lower lending rates and investment return distributions with lower, but less risky returns. Thus, our analysis does not support the view, presented in a large existing literature, that there would be a trade‐off between reduced credit market imperfections and higher agency costs of debt finance.     

Estimation of Internal Rate of Return Under Nonsteady Conditions

This study presents a method to estimate the IRR (internal rate of return) from published financial statement data under nonsteady conditions. The IRR is allowed to systematically change over time. The method provides an estimate for the current profitability of periodic total expenditure, its rate of change, and the firm-level profitability. Four competing steady and nonsteady statistical models are evaluated by simulation showing that a restricted nonsteady model may give the most reliable estimates. The model is applied to Finnish firms to illustrate how to use the model in practice. Three samples of publicly traded and nontraded firms are considered.