AN ANALYTICAL MODEL OF THE RELATIONSHIP BETWEEN MATURITY AND BONDS RISK DIFFERENTIALS

This paper extends previous analyses of bond risk differentials by relaxing the key assumption of a constant probability of firm survival. Under the less restrictive assumption that firm income is stationary and independent over time, it is shown that risk differential clearly varies with maturity even with a flat term structure. Because the payoff possibilities of multi-period bonds are interdependent even though income in each period is independent, risk differentials must depend on maturity, even if term structure is flat. This conclusion is more compatible with empirical findings than were conclusions of previous analyses.     

Tax Timing Options on Futures Contracts and the 1981 Economic Recovery Act

This study utilizes foreign currency futures contracts to evaluate the tax timing options created by the 1981 Economic Recovery Act. Our findings suggest that the act had an impact on contracts with less than six months to maturity and that the marginal trader in those contracts is a long-position holder. Similarly, the results suggest that the option of tax year selection for foreign currency futures in valuable.     

The Performance Implications of Financial and Non‐Financial Rewards: An Asian Nordic Comparison

This study empirically investigated culture's consequences on employee perceptions of the performance implications of financial and non‐financial rewards. Using a sample (n = 568) drawn from the banking industry in Finland and Hong Kong, we found that although the effects and predictive capability of culture (i.e. masculinity–femininity, individualism–collectivism, uncertainty avoidance, and power distance) offered some important insights, a range of other contextual factors (i.e. organizational, institutional, economic) wielded influence over and shaped reward–performance values, preferences, and behaviours. The emergence of these new paradigms necessitates that the US centric economic and behavioural theories (e.g. exchange) that underpin reward–performance be revisited and extended if they are to be applicable in the international context. Understanding the influence of a range of contextual forces is therefore critical to multinational organizations attempting to implement effective reward strategies aimed at achieving a diverse set of performance priorities. In addition to these novel theoretical and practical contributions, this study also paves the way for future research in this promising area of management studies.     

Do increases in energy efficiency improve environmental quality and sustainability?

Governments world-wide increasingly see energy efficiency as an important aspect of sustainability. However, there is a debate in the literature as to whether the impact of improved energy efficiency on reducing energy use might be partially, or more than wholly, offset through “rebound” and “backfire” effects. This paper clarifies the theoretical conditions under which such effects would occur and explores their likely significance using a computable general equilibrium (CGE) model of the Scottish economy. We find that for Scotland a general improvement in energy efficiency in the production sectors of the economy initially produces rebound effects that eventually grow into backfire. Energy use ultimately increases in response to an efficiency gain and the ratio of GDP to CO₂ emissions falls. The economic factors underpinning rebound effects are straightforward: energy efficiency improvements result in an effective cut in energy prices, which produces output, substitution, competitiveness and income effects that stimulate energy demands. However, the presence of strong rebound or even backfire does not mean that efficiency-enhancing policies are irrelevant: rather it suggests that such policies operating alone are insufficient to generate environmental improvements. The implication is that a co-ordinated portfolio of energy policies is required.     

WHAT MAKES INTERNATIONAL CAPITAL FLOWS PROMOTE ECONOMIC GROWTH? AN INTERNATIONAL CROSS‐COUNTRY ANALYSIS

This paper re‐examines the relationship between international capital flows and economic growth within the context of various ‘conditional factors’ that possibly have the potential to influence such relationships. It achieves this by employing panel data for 80 countries that cover 1976–2007. International capital inflow is broken down into foreign direct investments (FDI) and foreign portfolio investments (FPI). We find interesting evidence that only FDI has a positive effect on growth and that FPI has an unfavorable, if not negative, effect on growth. The conditional variables of banking liberalization, high‐income level, twin crises, lower corruption, and human capital mitigate the positive impacts of FDI on growth. In contrast, the middle‐income level and good shareholder protection have a positive effect. As concerns FPI, the level of financial liberalization, being in a Latin American region, the wealth of countries, and market governance all influence the way that FPI affects growth, whereas the conditional variables of twin crises and human capital do not influence the effect of FPI on economic growth.     

Financial intermediary's choice of borrowing

This research investigates several dynamic stochastic models of a bank's management problem of the term structures of its assets and liabilities. A bank can either eliminate most of its interest risk with appropriate options, or it can utilize its expertise in its core business and seek extraordinary profits. This research concerns a bank with the latter goal. In this model, the bank seeks to maximize the expected present value of dividend issued subject to the Federal Reserve's regulatory constraint and liquidity constraint. With this model, we find that if the available deposits are not too high and the level of liquid assets is high enough, then it is optimal for a bank to accept all of the available deposits. However, if the level of liquid assets is too low, then a bank should not issue a dividend or to accept any deposits. The properties are still valid even if the bank is not risk neutral.     

Software copyright infringement among college students

In recent years, the issue of infringement in the software industry has gained international attention as the demand for software continues to grow. The growing presence of unauthorized reproduction of copyrighted products inhibits full potential growth and discourages creative activity. This study analyses the extent of software copyright infringement among college students and attitudes of these students with regard to risk of apprehension and conviction. This study finds a significantly higher likelihood of infringement for computer majors and male students, and a decrease in the likelihood of infringement for older students. This study also uncovers differences in attitudes toward risk of apprehension and conviction between majors in scientific fields and those in business and economics. Whereas the first group of majors appears to exhibit risky behaviour, the latter tends to be more risk averse.     

New approach to estimating the cost of common equity capital for public utilities

The regulatory process for setting public utilities’ allowed rate of return on common equity has generally used the Gordon DCF, CAPM and Risk Premium specifications to estimate the cost of common equity. Despite the widely known problems with these models, there has been little movement to adopt more recently developed asset pricing models to provide additional evidence for estimating the cost of capital. This paper presents, validates empirically and applies a general yet simple consumption-based asset pricing specification to model the risk-return relationship for stocks and estimate the cost of common equity for public utilities. The model is not necessarily superior to other models in its practical results, yet these results do indicate that it should be used to provide additional estimates of the cost of common equity. Additionally, the model raises doubts as to whether assets such as utility stocks are a consumption (business cycle) hedge.