Individual political contributions and firm performance

We present evidence that individuals make political contributions strategically by targeting politicians with power to affect their economic well-being. Individuals in Congressional districts with greater industry clustering choose to support politicians with jurisdiction over the industry. Importantly, individual political contributions are associated with improvements in operating performance of firms in industry clusters. The relation between contributions and firm performance is strongest for poorly performing firms, firms closer to financial distress, and for contributions in close elections. The results imply that individual political contributions are valuable to firms, especially during bad economic times.     

Corporate ownership and managerial short-termism: Results from a Finnish study of management perceptions

Increased media exposure to layoffs and corporate quarterly financial reporting have created arguable a common perception—especially favored by the media itself—that the companies have been forced to improve their financial performance from quarter to quarter. Academically, the relevant question is whether companies themselves feel that they are exposed to short-term pressure to perform even if it means that they have to compromise company's long-term future. This paper studies this issue using results from a survey conducted among the 500 largest companies in Finland. The results indicate that companies in general feel moderate short-term pressure, with reasonable dispersion across firms. There seems to be a link between the degree of pressure felt, and the firm's ownership structure, i.e. we find some support for the existence of potentially short-term versus long-term owners. We also find significant ownership related differences, in line with expectations, in how such short-term pressure is reflected in actual decision variables such as the investment criteria used.     

Factors affecting corporate environmental strategy in Spanish industrial firms

During the last 30 years, environmental issues have become very important for governments, consumers and companies. Firms, aware of their environmental responsibilities, have started to show an important commitment to society and the natural environment, developing environmentally friendly strategies. However, the factors that determine the choice of environmental strategies are still unclear. They range from ethical motivations to social, legislative and competitive factors. This study analyses the main antecedents that influence firms' ecological behaviour, distinguishing between environmental orientation and environmental strategies. The hypotheses proposed in this study are analysed by means of a structural equation model on a sample of 235 industrial firms. The results reveal that competitive motivations and management commitment are the most important factors explaining why firms incorporate environmental issues into their strategic planning process. Moreover, management commitment is a critical factor for firms because managers' perception about customers' ecological concern directly influences firms' environmental behaviour. Copyright © 2008 John Wiley & Sons, Ltd and ERP Environment.     

A semiparametric estimation of liquidity effects on option pricing

Abstract. This paper proposes a semiparametric option pricing model with liquidity, as proxied by the relative bid-ask spread. A nonparametric volatility function with liquidity costs as an explanatory variable is estimated using the Symmetrized Nearest Neighbors (SNN) estimator rather than the traditional kernel estimator. The SNN estimator is particularly suitable for the characteristics of option data in financial markets. Moreover, we propose a natural extension of the univariate bandwidth parameter optimal estimation to the multivariate case. A statistical design to test competing option pricing models which takes into account the lack of independence between them is also presented. The in-sample performance of the model turns out to be statistically favorable relative to the competing model without liquidity. Also, an additional experiment is performed within sample, but with just a subsample of options not employed in the nonparametric estimation of the implied volatility function being priced. The results are also favorable to our semiparametic theoretical option pricing model with liquidity. However, the out-of-sample performance is quite disappointing regardless of what option pricing model is employed in the estimation. Eva Ferreira and Gonzalo Rubio acknowledge the financial support provided by Dirección Interministerial Científica y Técnica (DGICYT) grants PB98-0149 and PB97-0621 respectively. All three authors aknowledge the financial support provided by Universidad del País Vasco (UPV/EHU) grant UPV 038.321-HA129/99, and the BSI Gamma Foundation. We appreciate the helpful comments of two anonymous referees, ángel León, José M. Campa, Fernando Tusell and Javier Fernández Navas, seminar participants at the Bank of Spain and the European Financial Management Association (Athens), and the computational assistance of Gregorio Serna. We thank Juan Ayuso and MEFF for providing the data used in this article. The contents of this paper are the sole responsability of the authors.     

WELFARE EFFECTS OF DISTORTIONARY FRINGE BENEFITS TAXATION: THE CASE OF EMPLOYER‐PROVIDED CARS*

In Europe, many employees receive company cars as fringe benefits induced by taxation. We analyze the welfare effects of company car taxation for the Netherlands by estimating to what extent car expenditure and private car travel change when employees receive a company car. Tax treatment of company cars generates an annual welfare loss, ranging from €600 to €780 per company car, mainly due to a shift toward more expensive cars (from €420 to €600), but also due to increased private travel (€180). For the whole of Europe, the annual welfare loss is about €12 billion.     

Exports, economic growth and the consolidation of peace in El Salvador

The pillars of inclusive growth in El Salvador have to be nontraditional export growth, investment, and government determination to reduce income inequality and poverty. This article analyzes the key obstacles to the development of a competitive and dynamic export sector: Dutch Disease driven by aid and remittances, a significant decline in real wages, and lack of productivity growth. Policies can and must focus on productivity growth rather than wage repression, in the pursuit of peace consolidation and long-term competitiveness.