Signalling under intertemporal resolution of uncertainty: Distinguishing debt-with-warrants from similar offerings

This article extends existing static analyses of debt-with-warrants' ability to signal by considering the intertemporal resolution of uncertainty. Provided that managers seek to minimize residual risk while correctly signalling prospects, callable bonds-with-warrants can prove strictly superior to analogous offerings of pure debt or of debt-with-equity. Because our intertemporal structure allows bonds to be called while warrants remain outstanding, these complicated offerings can also be successfully discriminated from convertible bonds. Managers can further accentuate dissipation of residual risk by simultaneously issuing debt-with-warrants and buying down existing equity (through share repurchase or cash dividends).The authors express our appreciation to Charlie Jacklin for discussions concerning this material. Our thanks also go to an anonymous referee atRQFA who helped us to refine our final product.Much of the work for this paper was conducted while Professor Robbins was a Visiting Research Scholar at Stanford GSB.     

Long-run relations between private and public sector wages in Sweden

Using a maximum likelihood cointegration approach we find two long-run relationships between central government, local government, and private sector wages in Sweden. This means that there is one common trend for the three sectoral wages. Private sector wages are weakly exogenous for the estimation of the long-run relationships. This suggests that the private sector is the wage leader. Testing linear restrictions on the estimated cointegrating space, we reject stationarity for the three relative wages using likelihood ratio-tests. The hypotheses of homogeneity for the two cointegrating vectors, i.e., that wages do not diverge in the long run, is also rejected.     

Unobservable heterogeneity and rational learning: Pool-specific versus generic mortgage-backed security prices

Previous mortgage prepayment and valuation models assume that two mortgage pools with the same observable characteristics should behave indistinguishably. However, even pools with apparently identical characteristics often exhibit markedly different prepayment behavior. The sources of this heterogeneity may be unobservable, but we can infer information about a pool from its prepayment behavior over time. This article develops a methodology for using this information to calculate pool-specific mortgage-backed security prices. Knowledge of these prices is important both for portfolio valuation and for determining the cheapest pool to deliver when selling mortgagebacked securities. We find that unobservable heterogeneity between mortgage pools is statistically significant, and that pool-specific prices, calculated for a sample of outwardly identical mortgage pools between 1983 and 1989, may differ greatly from any single representative price.     

FURTHER INSIGHT INTO THE STANDARDIZED UNEXPECTED EARNINGS ANOMALY: SIZE AND SERIAL CORRELATION EFFECTS

Studying size and serial correlation effects, the authors examine why portfolios selected on the basis of standardized unexpected earnings (SUEs) exhibit excess returns. Results of the study indicate that the SUE effect and the size effect are independent anomalies; however, a more plausible explanation of the SUE effect may involve serial correlation of SUEs. The authors demonstrate that more than half of the post-announcement responses to current quarter earnings may actually be pre-announcement adjustments to next quarter's earnings.     

Price-Taking Monopolies in Small Open Economies

The export sector of a small open economy is assumed to be a price-taking monopoly with increasing long-run average cost and positive profit. Under such conditions, demands for productive factors are shown to slope downward in the general equilibrium of an otherwise competitive economy. Comparative static effects of changing prices and factor endowments are weaker than with a competitive export sector. The comparative static effects involving monopoly profit and outputs are examined.     

Effects of fear appeal format and consumer personality on ad processing and persuasion: A preliminary analysis

This paper investigates how communication format and consumer personality impact processing and persuasion within a fear appeal context. By altering the sequence of threats and recommendations contained within a fear appeal, two format conditions were created: a balanced format (a repeating sequence of a single threat followed by a single recommendation) and a traditional format (multiple threats followed by multiple recommendations). Using the repression-sensitization scale, subjects were classified as either sensitizers (those who cope by extensive thought) or repressors (those who cope by avoidance or denial). Under a balanced format condition, sensitizers produced more support arguments and fewer counterarguments and reported greater behavioral intentions to comply with message recommendations.     

A BENEFIT-COST ANALYSIS OF NUTRITIONAL PROGRAMS FOR ANEMIA REDUCTION

Using benefit-cost analysis, this article evaluates potentialprograms for reducing iron deficiency anemia, one of the mostprevalent nutritional disorders. It discusses the origins andprevalence of anemia and reviews the literature on consequencesof anemia for work capacity, output, learning, and other variables.Costs and benefits are estimated for two types of programs—medicinalsupplementation and fortification of food with iron—andfor three cases—Indonesia, Kenya, and Mexico. Estimatesof benefits are calculated to include the value of additionalwork output in labor-surplus societies. Under a wide range of assumptions, the benefit-cost ratios arefound to be substantially greater than 1: for dietary fortificationratios ranged between 7 and 70 for the three illustrative countries;for dietary supplementation, the range was from 4 to 38 on themost reasonable set of assumptions. The study concludes thatfield trials should be carried out to see if the findings ofthis study are supported in particular cases.      

Bribery in international business: Whose problem is it?

Bribery is a frequently discussed problem in international business. This article looks at the problem from the North American and from the developing country perspective. It describes and analyses specific cases and highlights recurring patterns of behavior.The article is based on the experiences of the authors who have been promoting business in the developing world. In addition to ethical considerations involved with bribery there are some very practical reasons for not engaging in the practice. There are also real barriers to establishing the relationships necessary to avoid the practice yet continue doing business. Henry W. Lane is Associate Professor of Organizational Behavior at the School of Business Administration, The University of Western Ontario, London, Ontario. He is at present Director of the Centre for International Business Studies. His most important publication is: Managing Large Research and Development Programs (with Rodney Beddows and Paul R. Lawrence), (State University of New York Press, Albany, 1981).Donald G. Simpson is Associate Professor at the University of Western Ontario. He is at present Associate of the Centre for International Business Studies. He was formerly Associate Director of Social Sciences Division at the International Development Research Centre, Ottawa, Canada and Executive Director of the Office of International Programs, University of Western Ontario.