The contextual nature of the predictive power of statistically-based quarterly earnings models

We present new empirical evidence on the contextual nature of the predictive power of five statistically-based quarterly earnings expectation models evaluated on a holdout period spanning the twelve quarters from 2000–2002. In marked contrast to extant time-series work, the random walk with drift (RWD) model provides significantly more accurate pooled, one-step-ahead quarterly earnings predictions for a sample of high-technology firms (n = 202). In similar predictive comparisons, the Griffin-Watts (GW) ARIMA model provides significantly more accurate quarterly earnings predictions for a sample of regulated firms (n = 218). Finally, the RWD and GW ARIMA models jointly dominate the other expectation models (i.e., seasonal random walk with drift, the Brown-Rozeff (BR) and Foster (F) ARIMA models) for a default sample of firms (n = 796). We provide supplementary analyses that document the: (1) increased frequency of the number of loss quarters experienced by our sample firms in the holdout period (2000–2002) vis-à-vis the identification period (1990–1999); (2) reduced levels of earnings persistence for our sample firms relative to earnings persistence factors computed by Baginski et al. (2003) during earlier time periods (1970s–1980s); (3) relative impact on the predictive ability of the five expectation models conditioned upon the extent of analyst coverage of sample firms (i.e., no coverage, moderate coverage, and extensive coverage); and (4) sensitivity of predictive performance across subsets of regulated firms with the BR ARIMA model providing the most accurate predictions for utilities (n = 87) while the RWD model is superior for financial institutions (n = 131).

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Foreign Direct Investment in the Enlarged EU: Do Taxes Matter and to What Extent?

Foreign direct investment is of increasing importance in the European Union. This paper estimates the effect of taxes on foreign direct investment (FDI) flows and on three sub-components of these flows for the countries of the enlarged European Union. The model in the spirit of gravity equations robustly explains FDI flows between the 25 member states. Sample selection needs to be addressed in the estimation. We show that the different subcomponents of FDI should and indeed do react differently to taxes. After controlling for unobserved country characteristics and common time effects, the top statutory corporate tax rate of both, source and host country, turn insignificant for total FDI and investment into equity. However, high source country taxes clearly increase the probability of firms to re-invest profits abroad and lower the percentage of debt financed FDI. This might reflect profit re-allocation to avoid taxes. Market size factors have the expected signs.

Wal-Mart’s Impact on Local Revenue and Expenditure Instruments in Ohio, 1988–2003

This research estimates fiscal impacts of Wal-Mart in Ohio from 1985 through 2003. Using a panel of counties, and accounting for spatial autocorrelation in an instrumental variable model I estimate impact of Wal-Mart and Super-Centers on selected revenues and transfer payments. Among the findings is that the presence of a Wal-Mart increases local commercial property tax assessments resulting in collection increases of between $350,000 and $1.3 million. There is also an 18–43% reduction in per capita EITC claims in a county. However, Medicaid expenditures experience growth which amount to roughly 16 additional cases attributable to a single Wal-Mart. The magnitude and statistical certainty of these findings, suggests that local fiscal intervention, either through incentives or a “Wal-Mart Tax” is unwarranted.

Connecting National Safety Nets: The Dialectics of the Basel II Contracting Process

Basel II consists of supervisory guidelines negotiated by representatives of central banks and national regulatory commissions that were members of the Basel committee on Banking Supervision (BCBS). The BCBS is itself a regulatory response to globalization, which is connecting national safety nets in market-driven ways. A country’s financial safety net is a social contract established by short-lived agents for principals in long-lived economic sectors. Restraints placed on the authority of the BCBS members to contract for their principals by domestic politics explains: why Basel II authorizes individual countries to implement the agreement in markedly different ways; why US implementation of Basel II ran into so much doubt, controversy, and delay; and how the implementation debate set small and large banks and the Federal Reserve and other federal regulators against one another.

Consumer specialization and the Romantic transformation of the British Grand Tour of Europe

This paper posits that significant changes in 19th century British recreational travel patterns resulted from a change in the manner in which tourists used entertaining stimuli in order to attain pleasure. Consumers no longer merely viewed arousing stimuli, but attempted to use them to produce emotional states of being which they could partially modify to intensify pleasurable feelings (Damasio, Looking for Spinoza: Joy, sorrow, and the feeling brain, William Heinemann, 2003). The impetus for this modification stemmed from an increasing awareness that emotional responses could be to some degree self-cultivated, as embodied in the Romantic ethos that become popular at the time via the emergence of the paperback novel and magazine industry (Campbell, The romantic ethic and the spirit of modern consumerism, Blackwell, 1987). By learning how to manipulate and modify mental images in a way that may not necessarily correspond with objective reality, Romantic tourists learned to elicit pleasure through engaging of their imagination. Such a change in the mode of pleasure seeking had important long run economic consequences for tourist regions throughout the European continent.     

Under what conditions may social contracts arise? Evidence from the Hanseatic League

Social contractarians commonly take social contracts to be solely hypothetical and refrain from elaborating on the factors that influence the feasibility of the formation of social contracts. In contrast, this paper aims at providing a discussion of the conditions affecting the feasibility of social contracts. I argue that the more aligned the preferences of group members for public goods are, the more the individuals share similar social norms, and the smaller the group is the more feasible a genuine social contract becomes. I provide evidence in support of my contention from the medieval Hanseatic League. At the Hanseatic Kontor in Novgorod, one of the four major trading posts of the Hanseatic League in cities outside of Germany, German merchants agreed to live under the rule of a constitution that gave rise to a political authority for the Kontor society.     

Small and Medium Enterprise Financing in Transition Economies

This paper studies the financing status of small and medium enterprises (SMEs) in transition economies. Factors causing financing obstacles are indentified and further analyzed to determine their influence over financing patterns. Bank regulatory practices relevant to SMEs’ access to bank loans and their influence over loan structures are identified. This study contributes to the existing body of knowledge by exploring the impact of specific bank regulatory practices on credit lending to SMEs in transition economies.     

Financial Globalization and Banking Crises in Emerging Markets

Bank crises in emerging economies have been a feature of the recent global crisis, and their incidence has increased in the post-Bretton Woods era. This paper investigates the impact of financial globalization on the incidence of systemic bank crises in 20 emerging markets over the years 1976–2002 using measures of de facto and de jure financial openness. An increase in foreign debt liabilities contributes to an increase in the incidence of crises, but foreign direct investment and portfolio equity liabilities have the opposite effect. A more liberal de jure capital regime lowers the incidence of banking crises, while a regime of fixed exchange rates increases their frequency. The results of the econometric analysis is consistent with the experience of East European and central Asian emerging markets, which attracted a relatively large proportion of capital flows in the form of debt in recent years and have been particularly hard hit by the global financial crisis.