An Empirical Analysis of Stock and Bond Market Liquidity

This article explores cross-market liquidity dynamics by estimatinga vector autoregressive model for liquidity (bid-ask spreadand depth, returns, volatility, and order flow in the stockand Treasury bond markets). Innovations to stock and bond marketliquidity and volatility are significantly correlated, implyingthat common factors drive liquidity and volatility in thesemarkets. Volatility shocks are informative in predicting shiftsin liquidity. During crisis periods, monetary expansions areassociated with increased liquidity. Moreover, money flows togovernment bond funds forecast bond market liquidity. The resultsestablish a link between "macro" liquidity, or money flows,and "micro" or transactions liquidity.     

Market response to dividend change announcements: unregulated versus regulated US firms

This paper attempts to determine whether there is a significant difference in how the stock market responds to dividend change announcements of regulated (both utilities and financials) versus unregulated firms and, if so, which factors cause this difference. An analysis of dividend change announcements of US firms over the period 1962–2016 shows that the market response is larger for unregulated than for regulated firms, but this difference is statistically significant only for dividend increases (not for dividend decreases). Further, cross-sectional analysis indicates that, for dividend increases, the difference between regulated and unregulated firms increases with diffused ownership and informational asymmetry. When both these factors are controlled for, the difference between regulated and unregulated firms becomes statistically insignificant. Thus, the evidence suggests that the significant difference in market response to dividend increases of regulated versus unregulated firms can be explained by differences in diffused ownership and informational asymmetry. There seems to be no intrinsic difference between regulated and unregulated firms in the market response to dividend decreases.     

Sustainable development of forest resources in industrialized countries

There is no general consensus about what sustainable development means. We seek to clarify the meaning and utility of the concept by focusing on forest resources in countries possessing higher levels of per capita incomes. The meaning of sustainable development becomes complex when one asks what social goals are being pursued, what types of stability are permitted, whether amenities and commodities should receive equal consideration, and to what landbase the concept should be applied. A simulation/linear programming model of California's private forest resource is used to demonstrate that strict decade-to-decade ‘even-flow’ stability of production may result in lower aggregate levels of output over a prolonged planning period, with ending levels of the stock resource that are scarcely greater than when output is permitted to vary over the planning period. The model was also used to show that greater levels of output and ending stocks are possible when the land base for sustainability assessment is not a restrictively small geographical area or a single class of ownership. In the case of National Forests and other public lands, the application of the sustainable development concept is significantly more complex because of the importance of amenity values and because of the inherent conflict between development and the preservation of ecosystems in a pristine state.     

The Unique Identity (UID) Project,Biometrics and Re-Imagining Governance in India

At various points in its existence, the Indian state has deployed technologies to govern the nation. Recently, the state has undertaken a number of large-scale projects to make use of digital technology. The most controversial of these is the Unique Identity (UID) project, which is registering biometric, along with demographic, information about residents. This paper seeks to understand what is at stake politically in this technological intervention. It aims to explore the political logics and consequences of such a biometric system. It argues that UID re-imagines the economy and the state–citizen relationship as a series of transactions. Theoretically, the main thrust of this paper is to understand the “general economy of power”, as Michel Foucault calls it, which is unfolding in India around the issues of capitalist growth, inequality, social protection and terrorism—and UID signals the technological potential for the convergence of these concerns.     

The effect of the innovative environment on exit of entrepreneurial firms

To foster ‘creative destruction,’ entrants must survive the turbulent conditions they face in their first crucial years in the industry. We investigate how the external knowledge milieu of an entrant, conceptualized as its innovative environment, causes systematic variation in survival patterns. We test our model from 3,431 firms in 33 industries over 80 years. We depict the innovative environment along two knowledge‐related dimensions, namely technology regime and technology intensity. While the aligned state of the innovative environment, where product innovation exists in tandem with abundant innovation opportunities, promotes entrant survival, we find that this beneficial effect is more pronounced for small entrants due to a possible mitigation of scale disadvantages. Copyright © 2006 John Wiley & Sons, Ltd.     

Empirical evidence on the effects of delisting from the National Market System

This study analyzes empirical evidence related to changes in market value and liquidity characteristics of stocks, which are delisted from the National Market System (NMS) due to an elevation of NMS listing standards. Our results are thus relatively independent of the financial conditions of the firms prior to delisting. We document significant increase in bid-ask spreads and decrease in trading volume after delisting. A significant negative stock price reaction around the delisting announcement period is also observed. Both sets of findings suggest that delisting from NMS increases a firm’s cost of capital by adversely affecting the liquidity of its stock. (JEL: G14)     

Endogenous mortality, human capital and economic growth

We consider growth and welfare effects of lifetime-uncertainty in an economy with human capital-led endogenous growth. We argue that lifetime uncertainty reduces private incentives to invest in both physical and human capital. Using an overlapping generations framework with finite-lived households we analyze the relevance of government expenditure on health and education to counter such growth-reducing forces. We focus on three different models that differ with respect to the mode of financing of education: (i) both private and public spending, (ii) only public spending, and (iii) only private spending. Results show that models (i) and (iii) outperform model (ii) with respect to long-term growth rates of per capita income, welfare levels and other important macroeconomic indicators. Theoretical predictions of model rankings for these macroeconomic indicators are also supported by observed stylized facts.     

The determinants of venture creation time: a cross-country perspective

The purpose of this paper is to examine the impact of macro-institutional and macro-non-institutional factors on the new venture creation time across emerging as well as developed economies in Europe using panel data from 2003 to 2006 in 15 emerging and developed countries. This paper finds significant relationships between the venture start-up time and institutional factors that include lending interest rates, start-up procedures, and taxation and one non-institutional factor, GDP per capita. Additionally, we found differences in the factors between emerging and developed countries. Institutional factors, such as start-up procedures and trade opportunities, are important determinants of new venture creation time in emerging countries, consistent with the findings of recent studies. To encourage business formation, policy makers may need to revise policies concerning these factors which can facilitate or restrict new venture formation. Implications for further research and practice are discussed.     

Distressed exchange,bargaining power,and prior capital structure

Financially troubled companies often make Distressed Exchange (DE) offers to its creditors, to postpone costly bankruptcy reorganization. We derive the optimal terms and timing of a DE offer consisting of debt reduction and an equity stake in the restructured firm. The DE terms and timing are affected by shareholder bargaining power, with greater shareholder bargaining power resulting in earlier DE offer, smaller debt reduction and smaller equity stake. The impact of shareholder bargaining power is greater when bankruptcy cost is larger and tax rate is higher. We also show that renegotiability of debt increases ex-ante firm value and results in a higher optimal leverage ratio. Both firm value and optimal leverage ratio are decreasing functions of shareholder bargaining power.