Sustainable Asset Growth and the Accounting Rate of Return in Not–For–Profit Organizations: Theory and Evidence

Parties needing to monitor the financial performance of not–for–profit (NFP) organizations have traditionally relied upon financial ratios of accounting data. This practice can lead to misleading inferences about profitability in relation to organizational needs, since accounting rates of return are potentially poor proxies for economic rates of return. In this paper we show how to compensate for the imprecision of the accounting rate of return through the use of a simple interpretive rule based on the finding that accounting and economic rates of return are on the same side of the growth rate. According to our rule, the accounting rate of return must exceed the asset growth rate in order to sustain growth with internally–generated cash flow. Logistic regressions are used to test the rule's ability to predict sustainable asset growth in a sample of NFP hospitals. The findings not only validate the rule, but also show that the rule exploits all usable information contained in the accounting rate of return     

Multiple Equilibria and Minimum Wages in Labor Markets with Informational Frictions and Heterogeneous Production Technologies*

It is often argued that a mandatory minimum wage is binding only if the wage density displays a spike at it. In this article, we analyze a model with search frictions and heterogeneous production technologies, in which imposition of a minimum wage affects wages even though, after imposition, the lowest wage in the market exceeds the minimum wage. The model has multiple equilibria as a result of the fact that the reservation wage of the unemployed and the lowest production technology in use affect each other. Imposition of a minimum wage may improve social welfare.     

The powers that are: central bank independence in the Greenspan era

This paper investigates political pressure from incumbent Presidents and Congress on US monetary policy during the period that Greenspan was the chairman of the Federal Reserve. We propose an expectations-augmented Taylor rule in which we replace realized values with expectations, and use the unemployment gap instead of the output gap. We apply a state-space framework that allows the use of mixed frequency data. Our findings suggest that the Federal Reserve under Greenspan did not create election driven cycles, but also did not strictly follow the Taylor rule. The deviations from the Taylor rule are not driven by partisan politics, but are rooted in the expected economic conditions.     

Investor relations,reputational bonding,and corporate governance: The case of Royal Ahold

Royal Ahold (Koninklijke Ahold NV) was one of the major success stories in the 1990s and is one of the major failures, suffering a complete meltdown, in 2003. We investigate the strategy, investor relations, accounting transparency and corporate governance of Ahold; these elements jointly drive the firm’s performance over the past decade. Investor relations and its implications are an important but under researched aspect of the market’s belief formation process. For Ahold, investor relations is an important component of reputational bonding [Siegel, J., 2005. Can foreign firms bond themselves effectively by renting US securities laws? Journal of Financial Economics 75, 319–359]. Our clinical study documents investor relations’ influence on investor expectations. We then provide an in-depth analysis of the strategy, accounting transparency and corporate governance that lead to Ahold’s downfall. We provide insights and implications into these relationships that present theory and empirical studies have not fully addressed.     

Structural effects and spillovers in HSIF, HSI and S&P500 volatility

We adopt a BEKK-GARCH framework and employ a systematic approach to jointly examine structural breaks in the Hong Kong cash index and index futures volatility and volatility spillovers from the S&P 500 cash and futures. Multiple switching dummy variables are included in the variance equations to test for any structural changes in the autoregressive volatility structure due to the events that have taken place in the Hong Kong market. Abolishment of the up-tick rule, increase of initial margins and electronic trading of the Hang Seng Index Futures (HSIF) are found to have significant impact when US market spillovers are excluded from a restricted model. Volatility spillovers from the US market are found to have a significant impact and account for some mis-specification in the restricted model.