Conform or challenge? Adjustment strategies of sanction-torn companies

The literature on sanctions often neglects the role of domestic firms in sender states, although sanctions only have a real economic effect when senders’ firms reduce their activities on the target's market. In contrast, sanctions avoidance and increasing investments in the target country (the observed behaviour of many companies facing the EU sanctions against Russia imposed in 2014) mitigate the impact of these restrictive measures. While sanctions increase the political risk for companies, they also offer economic opportunities—and previous studies could not settle the debate on which factor prevails. By evaluating responses from British, French, German, Italian and Polish enterprises to an online survey distributed in 2017, we analyse at the firm level how sanction-torn companies adjust to new political orders and what drives their strategic decisions. We find evidence that resource dependency induces strategies that challenge sanction policies: in particular, non-fungible assets in the target country incentivise companies to further increase their engagement. These defiance strategies diminish the real economic effect of sanctions and generate a new economic equilibrium, which has negative long-term implications on the choice set of policymakers to further pursue the imposition of sanctions and which even outlasts the lifting of these restrictive measures.     

Aus Hartz IV wird Bürgergeld — nur alter Wein in neuen Schläuchen?

In this article, we discuss reform elements of “Hartz IV”. This includes, on the one hand, merging unemployment benefits with housing benefits and the additional child benefits (Kinderzuschlag) and, on the other hand, reducing disincentives which prevent the recipients from earning higher incomes. Employment incentives can be improved if the effective marginal transfer withdrawal rate is reduced and, at the same time, the preferential treatment of “mini jobs” is reduced. In addition, the eligibility criteria should be simplified. This could reduce the rate of non-takeup and thus hidden poverty. One criticism of such a reform of Hartz IV is that it would increase the number of transfer recipients. However, this is not an economically sensible outcome in a reform effort. What is important is the disposable income of transfer recipients affected and that the design of the transfer withdrawal does not create lock-in effects.

     

Banking efficiency and stock market performance: an analysis of listed Indonesian banks

The main purpose of this paper is to examine the monthly profit-based technical efficiency and productivity of listed Indonesian banks and their market performance. We examined the banks through the prism of two modelling techniques, efficiency and super-efficiency, over the period January 2003 to end-July 2007. Within this research strategy we employed Tone??s (2001) non-parametric, Slacks-Based Model (SBM) and Tone??s (2002) super-efficiency SBM to estimate the bank efficiencies. They were then combined with recent bootstrapping techniques, namely the non-parametric truncated regression analysis suggested by Simar and Wilson (2007), to identify the determinants of the efficiency scores. With respect to the latter, in the case of the SBM efficiency scores, the Simar and Wilson methodology was adapted to two truncations, whereas in the super-efficiency framework the original technique was utilised. The first part of the analysis reveals that listed banks?? average efficiencies varied widely over the sample period, from a low of 34% to a high of 97%, with only one bank having a score in excess of unity under the super-efficiency framework. The two most efficient banks were domestically owned. With respect to the truncated regression analysis, we found that the banks?? efficiency scores were positively correlated with share prices and return on equity in all models, and with the log of total assets in the super-efficiency analysis. Moreover, it was found that the JCI index of the Indonesian Stock Exchange is positively related to bank efficiency in all models. Another interesting finding is that the coefficient for the share of foreign ownership is negative and statistically significant in the super-efficiency modelling. This suggests that Indonesian banks with foreign ownership tend to be less efficient than their domestic counterparts. Finally, Malmquist productivity results suggest that, over the study??s horizon, the sample banks displayed volatile productivity patterns in their profit-generating operations.     

Risk capital allocation for RORAC optimization

This paper considers the financial optimization problem of a firm with several sub-businesses striving for its optimal RORAC. An insightful example shows that the implementation of classical gradient capital allocation can be suboptimal if division managers are allowed to venture into all business whose marginal RORAC exceeds the firm’s RORAC. The marginal RORAC requirements are refined by adding a risk correction term that takes into account the interdependencies of the risks of different lines of business. It is shown that under certain stationarity conditions this approach can guarantee that the optimal RORAC will eventually be achieved.     

Tests of investor learning models using earnings innovations and implied volatilities

This paper investigates alternative models of learning to explain changes in uncertainty surrounding earnings innovations. As a proxy for investor uncertainty, we use model-free implied volatilities; as a proxy for earnings innovations, representing signals of firm performance likely to drive investor perceptions of uncertainty, we use quarterly unexpected earnings benchmarked to the consensus forecast. We document that uncertainty declines on average after the release of quarterly earnings announcements and this decline is attenuated by the magnitude of the earnings innovation. This latter result is consistent with models that incorporate signal magnitude as a factor driving changes in uncertainty. Most important, we document that signals deviating sufficiently from expectations lead to net increases in uncertainty. Critically, this result suggests that models allowing for posterior variance to be greater than prior variance even after signal revelation [e.g., regime shifts in Pastor and Veronesi (Annu Rev Financ Econ 1:361–381, 2009)] better describe how investors incorporate new information.     

Deposit Insurance Reform in Japan: Better Late Than Never?

Introduced in 1971 as a response to the intensification in competition in the deposit-taking sector induced by the adoption of a program of liberalization and globalization, the deposit insurance system in Japan has since undergone a number of significant changes to accommodate developments in the local financial sector. The pace of such reform accelerated markedly in recent years to help stabilize the Japanese financial system in the face of systemic risk, be it due to the failure of the housing loan companies (the jusen) or other major institutions, such as Yamaichi Securities and the city bank Hokkaido Takushoku Bank. The evolution of local deposit insurance arrangements to cope with such events is explained here and an assessment of the policy responses is provided. The part played by deposit insurance in alleviating the pressures currently experienced by the Japanese banking sector also is addressed. Finally, the extent to which the Japanese authorities have learned from the U.S. experience with deposit insurance is examined.     

Chinese R&D: naissance,renaissance, or mirage?

China's re-emergence has been treated mostly from economic and political standpoints. This article integrates these perspectives with a review of China's modern history of research and development (R&D). It starts with a brief retrospective of China's efforts in science and technology before the reforms of 1978. It then discusses China's principle R&D issues in the early 1980s and the most significant results of 20 years of rapid industrialization. Based on this historic review and a wide literature analysis, some observations are made about China's R&D capabilities in the first years of the new millennium as well as what challenges may still lie ahead for China before becoming a leading source of scientific and technological innovation.