An analysis of efficiency in the delivery of financial services: The case of life insurance agencies

Scale and scope economies are examined for life insurance agencies that distribute multiple financial products. The results of this study suggest that there are significant administrative returns to scale for firms that sell a mix of financial products. The findings for scope estimates are inconsistent, suggesting that there are positive and negative cost complementaries for pairs of products. Subadditivity can be rejected, suggesting that joint distribution of financial products is not necessarily more efficient than specialization and that different-sized agencies are not necessarily at a cost disadvantage.     

Two-person dynamic equilibrium in the capital market

When several investors with different risk aversions trade competitivelyin a capital market, the allocation of wealth fluctuates randomlyamong them and acts as a state variable against which each marketparticipant will want to hedge. This hedging motive complicatesthe investors' portfolio choice and the equilibrium in the capitalmarket. This article features two investors, with the same degreeof impatience, one of them being logarithmic and the other havingan isoelastic utility function. They face one risky constant-return-to-scalestationary production opportunity and they can borrow and lendto and from each other. The behaviors of the allocation of wealthand of the aggregate capital stock are characterized, alongwith the behavior of the rate of interest, the security marketline, and the portfolio holdings.     

Corporate Insurance and Debt: The Case of China*

Finance theorists have long argued that corporate purchases of property insurance can reduce the probability and hence the expected costs of financial distress. And by so doing, the corporate use of insurance can reduce borrowing costs and/ or increase debt capacity, reduce the overall cost of capital, and increase firm value. This article attempts to apply this argument to the case of publicly traded companies in China, which provides a particularly interesting environment given the significant presence of both foreign direct investment and state shareholdings in its corporate sector. From their study of several hundred Chinese companies during the period 1997‐2003, the authors report the following conclusions: Companies with higher borrower costs tend to purchase more property insurance, which in turn has the effect of increasing their debt capacity. Smaller companies are more likely than larger firms both to insure their assets and to purchase more property insurance (as a percentage of assets), reflecting their greater vulnerability to financial shocks and larger potential benefit from insurers' real advisory services (such as loss prevention advice). Companies with more and larger growth opportunities are more likely to purchase insurance, reflecting their higher expected costs of financial distress (from possible underinvestment) than firms with limited growth opportunities. Companies with higher levels of state ownership tend to insure their assets to a greater extent, suggesting that the managers of such companies insure to protect their job security, particularly as the availability of state subsidies to the Chinese corporate sector has declined since market reforms were initiated in 1978.     

Settling the Smoke: Public Policy and Shareholder Wealth in the Cigarette Industry

This article uses daily data on stock returns of five U.S. publicly traded cigarette producers to document the wealth effects of antismoking policies initiated in the period 1964 to 1971. The authors find significant abnormal returns across 23 dates corresponding to important regulatory events. The second-stage estimation shows that wealth effects are also influenced by firm characteristics, such as market share, advertising intensity, percentage of sales of filter-tip cigarettes, percentage of advertising expenditures devoted to TV and radio, and tobacco leaf inventories. Overall, the article estimates that industry losses from antismoking policies amounted to approximately $1.5 billion. (JEL L66 , G14 , I18 )     

HOUSEHOLD FOOD CONSUMPTION: THE INFLUENCE OF HOUSEHOLD CHARACTERISTICS

This paper reports an attempt to identify the effects of various household characteristives on household food consumption. The analysis was based on National Food Survey (NFS) data for Great Britain for the calendar year 1982. Consumption (per person per week) of various food items was related to each of the main household characteristics on which information is collected in the course of the Survey-location (both country/region and type of area), income (generally of the head of the household), household composition, age of housewife, housing tenure and freezer ownership. The results indicated that all these variables are important in the explanation of households' food consumption patterns.     

Euro and FIBOR interest rates: A continuous time modelling analysis

The introduction of the Euro in January 1999 and the new reference interest rate EURIBOR® which is widely used as the underlying interest rate for Euro denominated derivative contracts have opened up a new area of research in international financial markets. In this paper we estimate single factor models using daily EURIBOR® and FIBOR interest rate data. We also estimate a model allowing a level-GARCH specification and a two factor model. We find evidence of level-volatility effects in both rates.