Small Firm Investment and Financing Decisions: An Option Value Approach

This paper reviews and discusses recent developments undergone by investment theory, and tries to address both financial and real decisions within an uncertain environment, here, the Italian economy. According to the recent "option value" approach to investment, if differing degrees of reversibility characterize the accumulation process by groups of firms (small and larger firms), we should expect their investment decisions to differ under uncertainty. On the other hand, asset reversibility has an influence on firm financing policy, given the observed relationship between asset and liability composition. Assuming a different degree of investment reversibility for small and larger firms, we explore how they react to interest rate uncertainty using the Italian experience during the 1980s as a benchmark. The main result of this paper is that interest rate uncertainty exerts a negative influence on firms' investment demand. The relationship is stronger for large firms than for small firms. Another result is that firm leverage also shows a negative relationship with interest rate uncertainty.     

Are they telling the truth? Revealing hidden traits of satisfaction with a public bike-sharing service

Public bike-sharing systems (BSSs) are an emerging mode of transportation introduced by municipalities to solve congestion problems in metropolitan areas, especially when integrated with other types of transportation. In the last years, the number of public bike-sharing services has been constantly on the rise all over the world, and generally the overall satisfaction with them is high. However, satisfaction with public services is driven by mechanisms that can differ from those in the private sector. It is important to establish to what extent a high satisfaction is genuine or simply ephemeral. Even “old” public services (like public transportation) become “gold” when accompanied by the introduction of new technologies. In this paper we analyze this phenomenon using data from a satisfaction web-survey conducted among customers of the public BSS “BikeMi” in Milan, Italy, in a period when mobile technologies have been introduced to speed up the service. On analyzing the responses to satisfaction questions using simple summary statistics, the level of satisfaction resulted very high. However, our aim was to look for potential “darker” sides of the service by detecting possible hidden satisfaction components. For this purpose, we used the Nonlinear Principal Components Analysis, which is particularly powerful in this context. A simple textual analysis was also performed as a validating test. Results from our analysis indicated that satisfaction is flawed by a set of factors like the mechanics of the bikes, the picking and dropping system, and the apps used to organize the service. Less concern was detected for more general aspects of the service.     

Structure and Location of Innovative Activity in the Italian Economy, 1981–85

An ‘innovative activity matrix’ is established from a recent ISTAT/CNR survey of innovation. After specifying the particularities of an innovative activity matrix in comparison with other flow matrices, we show that it is asymmetrical and clustered in parts of economic space. The structure of the innovative activity matrix is similar to that of the domestic and import requirement but not the capital flow matrix. Strong correlations indicate the following: that input–output analysis is useful for identifying the location of innovative activities in economic space; that it can be analyzed in an economically meaningful way; that its location is structured; and that, furthermore, it is structured in ways which are statistically related to economic activity. The paper ends with suggestions for the examination of possible causal relationships.     

On the relation between ownership dispersion and the firm's market value

Firms with widely-held ownership are relatively few. Shareholders controlling a firm are willing to forego the benefit of portfolio diversification because they can obtain a ‘rent from control’ at the expense of minority shareholders. This entails relevant conclusions for financial theory: (1) the total market value of a closely-held firm is lower, and its cost of capital higher than that of an identical widely-held firm is lower and its cost of capital higher than that of (3) different prices of control and minority shares and disconuities may impede evolution from closely to widely-held ownership.     

Autocorrelation and masked heterogeneity in panel data models estimated by maximum likelihood

In a panel data model with random effects, when autocorrelation in the error is considered, (Gaussian) maximum likelihood estimation produces a dramatically large number of corner solutions: the variance of the random effect appears (incorrectly) to be zero, and a larger autocorrelation is (incorrectly) assigned to the idiosyncratic component. Thus heterogeneity could (incorrectly) be lost in applications to panel data with customarily available time dimension, even in a correctly specified model. The problem occurs in linear as well as nonlinear models. This article aims at pointing out how serious this problem can be (largely neglected by the panel data literature). A set of Monte Carlo experiments is conducted to highlight its relevance, and we explain this unpleasant effect showing that, along a direction, the expected log-likelihood is nearly flat.