Irreführende und vergleichende Versicherungswerbung

Nowadays, insurance companies compete with each other in many sectors. In part, there also is competition with companies belonging to other industries, such as in terms of retirement products to banks and financial services providers. In the area of health insurance, the private health insurance companies compete—to varying degrees—not only among themselves, but also partly across sectors, especially in terms of supplementary insurance. Whenever there is competition, the question arises as to the applicability of the Act against Unfair Competition (UWG) and its actual conduct requirements under Sections 3 to 7 UWG. The following article examines two of the most important practical case groups, namely the misleading and comparative advertising in insurance, in each case under special consideration of the relevant recent jurisprudence.     

Capital Structure,Corporate Taxation and Firm Age*

This paper analyses the relationship between corporate taxation, firm age and debt. We adapt a standard model of capital structure choice under corporate taxation, focusing on the financing and investment decisions typically faced by a firm. Our model suggests that the debt ratio is associated positively with the corporate tax rate and negatively with firm age. Further, we predict that the tax-induced advantage of debt is more important for older firms than for younger ones. To test these hypotheses empirically, we use a cross-section of around 405,000 firms from 35 European countries and 127 NACE three-digit industries. In line with previous research, we find that a firm's debt ratio increases with the corporate tax rate. Further, we observe that older firms exhibit smaller debt ratios than their younger counterparts. Finally, consistent with our theoretical model, we find a positive interaction between corporate taxation and firm age, indicating that the impact of corporate taxation on debt increases over a firm's lifetime.     

The Differential Value Relevance of S&P's Core Earnings Versus GAAP Earnings: The Role of Stock Option Expense

In 2002, Standard & Poor's (S&P) introduced Core Earnings as a proprietary, uniform earnings metric, with the goal of improving financial reporting. The distinguishing feature of Core Earnings is its consistent treatment of seven adjustments to GAAP earnings for which there is no consensus adjustment by managers and analysts. We use stock price and return data to assess whether investors perceive Core Earnings to be more value relevant than GAAP earnings. The implementation of FASB 123R changed the calculation of GAAP and Core Earnings. This change allows us to assess the role of stock option expense in the valuation of earnings numbers by partitioning the sample into pre‐ and post‐FASB 123R periods and creating consistent measures of GAAP and Core Earnings. Our price results indicate that Core Earnings is more value relevant than GAAP earnings in the pre‐period after controlling for stock option expense, and in the post‐FASB 123R periods. The price results provide empirical evidence consistent with S&P's expectation that a uniformly calculated earnings measure is a more consistent and useful indicator of current performance and future earnings.     

A diffusion approximation for the ruin function of a risk process with compounding assets

Abstract

The traditional theory of collective risk is concerned with fluctuations in the capital reserve {Y(t): t ?O} of an insurance company. The classical model represents {Y(t)} as a positive constant x (initial capital) plus a deterministic linear function (cumulative income) minus a compound Poisson process (cumulative claims). The central problem is to determine the ruin probability ψ(x) that capital ever falls to zero. It is known that, under reasonable assumptions, one can approximate {Y(t)} by an appropriate Wiener process and hence ψ(.) by the corresponding exponential function of (Brownian) first passage probabilities. This paper considers the classical model modified by the assumption that interest is earned continuously on current capital at rate β > O. It is argued that Y(t) can in this case be approximated by a diffusion process Y*(t) which is closely related to the classical Ornstein-Uhlenbeck process. The diffusion {Y*(t)}, which we call compounding Brownian motion, reduces to the ordinary Wiener process when β = O. The first passage probabilities for Y*(t) are found to form a truncated normal distribution, which approximates the ruin function ψ(.) for the model with compounding assets. The approximate expression for ψ(.) is compared against the exact expression for a special case in which the latter is known. Assuming parameter values for which one would anticipate a good approximation, the two expressions are found to agree extremely well over a wide range of initial asset levels.     

Is the relationship between investment and conditional cash flow volatility ambiguous,asymmetric or both?

We investigate the effect of cash flow volatility on investment. Our evidence suggests that financially constrained firms decrease investment (i) when experiencing persistently high volatility; (ii) when experiencing both high volatility and negative cash flow growth realisations; and (iii) when holding low cash levels and experiencing both high volatility and a negative cash flow growth realisations. In financially unconstrained firms, the above effects are either not found or are of relatively low economic importance. Overall, our findings lend support to the financial flexibility literature and tend to contradict predictions of the real options literature.     

Pollution and reforms of domestic and trade taxes towards uniformity

This paper builds a small open economy trade model where there is pollution from the production and consumption of goods. In the presence of production and consumption pollution, we examine a piecemeal consumer-price-neutral reform of the tariff and consumption tax and a piecemeal producer-price-neutral reform of the export and production taxes on a specific good. The paper identifies sufficient conditions under which the above tax reforms improve welfare and increase government tax revenues.     

Fiscal implications of climate change

Climate change is an externality problem—so the challenges that arise in limiting it and dealing with the effects that remain are largely fiscal. The structure of the problem, however, and the uncertainty which surrounds it, make the design of proper policy responses particularly complex. This paper provides a primer on the fiscal implications of climate change, the aim being to provide a (reasonably) quick and comprehensive overview of the main analytical issues and lessons learned.     

Debate: Nationalised industries and government controls

Though often accused of seeking to extend its control over local authorities, this Government has in fact put forward a series of measures designed to restore control of council spending to the local electorate. These include the recent reform of rate support grant, the ill‐fated proposal that authorities should seek approval, via a referendum, for additional revenue‐raising, and the creation of a new Audit Commission. But such measures do not in fact tackle the major obstacles to the control of expenditure through an effective system of local accountability.