EXISTENCE AND UNIQUENESS OF EQUILIBRIUM FOR A SPATIAL MODEL OF SOCIAL INTERACTIONS*

We extend Beckmann's spatial model of social interactions to the case of a two‐dimensional spatial economy with a large class of utility functions, accessing costs, and space‐dependent amenities. We show that spatial equilibria derive from a potential functional. By proving the existence of a minimizer of the functional, we obtain that of spatial equilibrium. Under mild conditions on the primitives of the economy, the functional is shown to satisfy displacement convexity. Moreover, the strict displacement convexity of the functional ensures the uniqueness of equilibrium. Also, the spatial symmetry of equilibrium is derived from that of the primitives of the economy.     

Private Intermediary Innovation and Market Liquidity: Evidence from the Pink Sheets® Market

In 2007, Pink Sheets LLC assigned each Pink Sheets^® company to a disclosure tier and on its website affixed a colorful graphic to its stock symbol signifying the company's public disclosure level. This unique innovation allows us to investigate the impact of increased salience of disclosure practices on liquidity. Using a difference‐in‐difference design, we find evidence that firms classified into the Current Information category experienced an increase in liquidity while firms classified into the No Information category experienced a decrease in liquidity, both relative to other unclassified over‐the‐counter firms. This suggests that increases in the salience of disclosure practices via assignment to disclosure tiers affect investors’ attention, leading to changes in trading behavior that ultimately translate into liquidity changes. We also provide evidence that some investors anticipated the resulting liquidity changes because stock returns around a key event date leading up to the release of the disclosure tiers are positively associated with subsequent liquidity changes.     

The Optimum Currency Area Puzzle

The theory of optimum currency areas, suggesting the redrawing of currency areas across countries or splitting of national money into several currencies, is at odds with the one-money-one-country pattern that has dominated monetary history for 26 centuries. This paper puts forward an equilibrium approach which, by stressing the influence of the border effect on intranational adjustment, solves the puzzle and analyzes the closely related issue of the viability of monetary unions and regional specialization.     

The non‐linear dynamics of output and unemployment in the U.S.

This paper studies the joint dynamics of U.S. output and unemployment rate in a non‐linear VAR model. The non‐linearity is introduced through a feedback variable that endogenously augments the output lags of the VAR in recessionary phases. Sufficient conditions for the ergodicity of the model, potentially applying to a larger class of threshold models, are provided. The linear specification is rejected in favour of our threshold VAR. However, in the estimation the feedback is found to be statistically significant only on unemployment, while it transmits to output through its cross‐correlation. This feedback effect from recessions generates important asymmetries in the propagation of shocks, a possible key to interpret the divergence in the measures of persistence in the literature. The regime‐dependent persistence also explains the finding that the feedback from recession exerts a positive effect on the long‐run growth rate of the economy, an empirical validation of the Schumpeterian macroeconomic theories. Copyright © 2001 John Wiley & Sons, Ltd.     

Multinational status and firm exit in the Italian manufacturing and service sectors

The aim of this paper is to investigate the determinants of survival for Italian firms according to their ownership status. To this end, we analyze firm survival distinguishing the Italian firms in foreign multinationals (FMNEs), domestic multinationals (DMNEs) and domestic non-multinational firms (NMNEs). The empirical analysis, carried out over the period 2004–2008, is based on the Cox Proportional Hazard Model, in which we look for the impact of ownership dummies on firm survival controlling for several firm and industry specific covariates. Our main findings reveal that FMNEs are more likely to exit the market than national firms in manufacturing and services. In contrast, DMNEs have a higher chance of survival compared with the other firm categories in services. However, when we conduct a finer level of industry classification, we observe the presence of some heterogeneity in the patterns of firm survival. Moreover, we find that the presence of foreign firms has a positive impact on firms’ survival mainly in the service sectors.     

Outward Foreign Direct Investment and Domestic Performance: the Italian Manufacturing and Services Sectors

How does outward foreign direct investment (FDI) affect employment and productivity growth in the home country? Does the impact of outward investment differ among manufacturing and service sectors? In this paper we analyze the effects of investing abroad using firm-level data for Italy for the period 2003–2006. We adopt matching techniques in combination with a difference-in-difference estimator in order to investigate the causal effect of becoming multinational on domestic employment and productivity. Preliminary results suggest that Italian outward FDI has limited effects on domestic employment and performance of internationalizing firms on average. However, results significantly differ depending on the sector (manufacturing versus services) where the MNEs are operating. In particular, we find that while in the manufacturing sector, outward FDI tends to strengthen both productivity and, to less extent, employment. In the service sector, we find a negative effect on employment (two years after the investment).     

Credit lines as monitored liquidity insurance: Theory and evidence

We propose a theory of credit lines provided by banks to firms as a form of monitored liquidity insurance. Bank monitoring and resulting revocations help control illiquidity-seeking behavior of firms insured by credit lines. The cost of credit lines is thus greater for firms with high liquidity risk, which in turn are likely to use cash instead of credit lines. We test this implication for corporate liquidity management by identifying exogenous shocks to liquidity risk of firms in corporate bond and equity markets. Firms experiencing increases in liquidity risk move out of credit lines and into cash holdings.     

The impact on the cost of equity capital in the effects of integrated reporting quality

Integrated reporting is a new reporting tool that includes financial and nonfinancial information, which represents a natural evolution of the corporate reporting movement. Although this practice has gained increasing attention in recent years, both from an academic and professional perspective, the quality of the reports still represents a critical aspect due to inadequate investigation. Only a few studies have focused on integrated reporting quality, and contributions on the effects of quality have been even rarer. This study aims to investigate on the impact of integrated reporting quality on the firm's cost of equity capital, owing to the paramount importance of this parameter for firms and investors. Our results highlight that integrated reporting quality has a significantly negative association with the cost of equity capital, suggesting that integrated reporting quality represents an innovative way to reduce the cost of equity. To our knowledge, this is the first study that examines the relationship between integrated reporting quality and a firm's cost of equity.     

Private Equity and Portfolio Companies: Lessons from the Global Financial Crisis

Critics of private equity have warned that the high leverage often used in PE‐backed companies could contribute to the fragility of the financial system during economic crises. The proliferation of poorly structured transactions during booms could increase the vulnerability of the economy to downturns. The alternative hypothesis is that PE, with its operating capabilities, expertise in financial restructuring, and massive capital raised but not invested (“dry powder”), could increase the resilience of PE‐backed companies. In their study of PE‐backed buyouts in the U.K.—which requires and thereby makes accessible more information about private companies than, say, in the U.S.—the authors report finding that, during the 2008 global financial crisis, PE‐backed companies decreased their overall investments significantly less than comparable, non‐PE firms. Moreover, such PE‐backed firms also experienced greater equity and debt inflows, higher asset growth, and increased market share. These effects were especially notable among smaller, riskier PE‐backed firms with less access to capital, and also for those firms backed by PE firms with more dry powder at the crisis onset. In a survey of the partners and staff of some 750 PE firms, the authors also present compelling evidence that PEs firms play active financial and operating roles in preserving or restoring the profitability and value of their portfolio companies.