Bank Equity Investments: Reducing Agency Costs or Buying Undervalued Firms? The Information Effects

Abstract:   This paper analyses the relevance of two different reasons for banks to acquire firms' stock: the increase of agency costs in the lending relationship (the agency costs hypothesis), and participation in the expected profits of undervalued firms (the information asymmetry hypothesis). Results indicate not only that banks make equity investments for both reasons but also that the market exploits their lending decisions to learn which of the two motivations was in play. Bank equity investments concurrent with reductions in bank debt are consistent with the agency costs hypothesis, whereas bank equity investments concurrent with increases in bank debt are consistent with the information asymmetry hypothesis.     

Controlling the Urban Fabric: The Complex Game of Distance and Proximity in European Upper‐Middle‐Class Residential Strategies

This article presents an open discussion of the processes of urban secession and gentrification in contemporary European cities, arguing that intergroup social dynamics in urban spaces are generally more complex than either extreme mutual avoidance or the colonization of neighbourhoods by the wealthiest groups. We analyse the residential strategies of urban upper‐middle class managers in various European metropolitan areas through in‐depth semi‐structured interviews to argue that these groups develop complex strategies of proximity and distance in relation to other social groups. The development of these ‘partial exit’ strategies takes place through specific combinations of practices that allow groups to select the dimensions they are willing to share with other social groups, and those in which they prefer a more segregated social environment for themselves and their families. The responses of our interviewees were consistently more nuanced and complex than suggested by a simplistic theory about their drive to withdraw from society, forcing us to develop more sophisticated conceptual frameworks to account for the growing prevalence of multi‐layered identities and spheres of reference and solidarity, specific combinations of elective segregation and local involvement, and more active patterns of mobility combined with local embeddedness.     

Defining efficient policies in a general equilibrium model: a multi-objective approach

Macroeconomic policy makers are typically concerned with several indicators of economic performance. We thus propose to tackle the design of macroeconomic policy using Multicriteria Decision Making (MCDM) techniques. More specifically, we employ Multi-objective Programming (MP) to seek so-called efficient policies. The MP approach is combined with a computable general equilibrium (CGE) model. We chose use of a CGE model since it has the dual advantage of being consistent with standard economic theory while allowing one to measure the effect(s) of a specific policy with real data. Applying the proposed methodology to Spain (via the 1995 Social Accounting Matrix) we first quantified the trade-offs between two specific policy objectives: growth and inflation, when designing fiscal policy. We then constructed a frontier of efficient policies involving real growth and inflation. In doing so, we found that policy in 1995 Spain displayed some degree of inefficiency with respect to these two policy objectives. We then offer two sets of policy recommendations that, ostensibly, could have helped Spain at the time. The first deals with efficiency independent of the importance given to both growth and inflation by policy makers (we label this set: general policy recommendations). A second set depends on which policy objective is seen as more important by policy makers: increasing growth or controlling inflation (we label this one: objective-specific recommendations).     

Managing Competing Institutional Logics in Public–Private Joint Ventures

Abstract

Cross-sector inter-organizational partnerships, alliances and networks have become extremely popular. Yet, we may expect competing societal-level institutional logics to play an important role in cross-sector alliances, hence making their management central to alliance success. This article responds to the general research question: How do participants of public–private joint ventures manage competing institutional logics? Based on in-depth interviews we empirically characterize two competing logics in a cross-sector collaborative and identify two practices used to cope with them.     

Elicitation of Expert Opinion in Benefit Transfer of Environmental Goods

Benefit transfer is a method for estimating the value of environmental goods that involves the use of past information on identical or similar goods. This paper considers the extent to which benefit transfer can be based on prior distributions elicited from expert opinion. We propose two alternative methods to elicit the parameters of a prior distribution from experts on environmental valuation. An experiment is carried out on the value of National Parks in Spain. The results from the elicited distributions are compared with the information provided by onsite samples of visitors. The results indicate that individual experts made different predictions about the potential value of the policy areas that were diverse and unable to accurately predict the value for each policy site. However, the average across the elicited distributions approaches the estimated distribution with empirical data and accurately predicts the relative values for the two policy sites considered.     

ASSESSING THE EFFECT OF PUBLIC SUBSIDIES ON FIRM R&D INVESTMENT: A SURVEY

This survey examines the empirical literature on the relationship between public R&D subsidies and private R&D investment over the past five decades. The survey reveals a considerable heterogeneity of empirical results that cannot be explained fully by methodological issues. We aim to provide further explanations of the possible causes of that heterogeneity. In particular, we emphasise a set of issues that, in our view, are critical to understanding the potential effect of public R&D subsidies on private R&D spending. Special attention is paid to the dynamic aspects and composition of firm R&D, the constraints faced by the firm (such as financial constraints), and the amount and source of public subsidies. None of these issues have been investigated in depth. We formulate a set of research assumptions to guide future empirical research in this field.     

THE IMPACT OF LABOR MARKET REGULATION ON EMPLOYMENT IN LOW‐INCOME COUNTRIES: A META‐ANALYSIS

Controversy over labor market policy often centers on achieving a balance between preventing worker exploitation, and avoiding loss of productivity or employment through excessive regulation. Although the literature documenting the impact of labor market regulation on employment is extensive, there is a dearth of evidence on the impact of such policies in low‐income countries (LICs). Since it is easier for workers, especially women, to slip into the informal sector in LICs, regulations are likely to have stronger impacts on formal employment in these countries (but lower impacts on unemployment). We systematically reviewed available research from countries that are, or were until recently, LICs. Most studies document that more stringent labor regulations are associated with lower formal sector employment and higher informal sector employment. We also conducted a metaregression analysis of the impact of minimum wages on formal and informal employment. After controlling for publication bias, higher minimum wages are associated with lower formal employment and a higher share of informal workers.     

Inflation (mis)perceptions in the euro area

There has been a growing interest on inflation perceptions in the euro area, in particular, following the euro cash changeover. It has been pointed out that a gap emerged between observed and perceived inflation since the introduction of the euro notes and coins. Such a statement relies on the fact that inflation perceptions, measured by the well-known balance statistic from the European Commission’s consumer survey, hiked after January 2002 and remained high thereafter, as opposed to the observed inflation, which has remained fairly stable. In this paper, we discuss the measurement of inflation perceptions, by comparing the balance statistic with a refined alternative measure, which is computed using the probability method. We argue that the balance statistic should be used carefully, as it can lead to misleading conclusions. In fact, we find no evidence, both for euro area and individual countries, of the breakdown in the relationship between observed and perceived inflation, as measured by the proposed alternative measure, at the time of the euro cash changeover.     

Optimal savings with taxable and tax-deferred accounts

We solve and estimate a life-cycle model with earnings risk and liquidity constraints in the presence of tax-deferred retirement accounts (TDAs). We explicitly consider two very different types of households (with TDAs): direct and indirect stockholders. The latter hold stocks only through TDAs and, consistent with the data, save considerably less than the former, who hold stocks both inside and outside these accounts. We find that TDAs promote higher wealth accumulation but only marginally higher net savings. Consumption increases mostly during retirement, as desired, but the effect is largest for those households with higher savings rates already.