Rejoinder to Tomislav V. Kovandzic's Comment on Our Article "The Effectiveness of Gun Control Laws: Multivariate Statistical Analysis"

A bstract . In Professor Tomislav V. Kovandzic's "Comment on the Recent Work of Kwon, Scott, Safranski, and Bae: No, Your Evidence Doesn't Prove What You Think it Does!," he makes several blanket and ill-informed statements about our article appearing in the January 1997 issue of The American Journal of Economics and Sociology (pp. 41–50). We conclude that his comments have failed to generate any new revelations about our research and we stand by the published results.     

Do local analysts know more? A cross-country study of the performance of local analysts and foreign analysts

This paper examines whether analysts resident in a country make more precise earnings forecasts for firms in that country than non-resident analysts. Using a sample of 32 countries, we find an economically and statistically significant local analyst advantage even after controlling for firm and analyst characteristics. The local advantage is high in countries where earnings are smoothed more, less information is disclosed by firms, and firm idiosyncratic information explains a smaller fraction of stock returns. It is negatively related to whether a firm has foreign assets and to market participation by foreign investors and by institutions, and positively related to holdings by insiders. The extent to which U.S. investors underweight a country's stocks is positively related to that country's local analyst advantage.     

Entrepreneurial spawning and knowledge-based perspective: a meta-analysis

Entrepreneurial spawning is the transitory process by which employees of an existing firm leave their employment to initiate a new business venture. There is a lack of consensus regarding the predictors of entrepreneurial spawning. We used meta-analysis to analyze 28 studies (with 128 effect sizes) to examine the predictors of entrepreneurial spawning. Based on knowledge-based perspective, we hypothesize that employee characteristics (age, education, and job position) and parent firm characteristics (firm age, firm performance, and firm diversity) are significantly related to entrepreneurial spawning. We identified two inverted U-shaped relationships (age and tenure with entrepreneurial spawning) based on our meta-analytic hierarchical multiple regression analyses. Based on labor market rigidity perspectives, we also examined how country region (North America versus Europe) moderates the relationships between employee characteristics and entrepreneurial spawning and between parent firm characteristics and entrepreneurial spawning. Our paper provides theoretical and practical implications.     

Auditors' Fee Premiums and Low‐Quality Internal Controls*

We examine the relation between low‐quality internal controls and audit fee premiums. Using a novel data set of audit hours and audit fees we find, consistent with the audit risk model, that auditors increase their effort (hours) owing to low internal control quality. We find that auditors also charge a significant fee premium to clients with internal control weaknesses. This premium is observed for severe internal control weaknesses and companies with low‐quality alternative governance mechanisms. The results are robust to multiple methods to address endogeneity, including company fixed effects, difference‐in‐differences design, and a propensity score‐matched sample. Taken as a whole, low internal control quality leads to fee premiums, which are a deadweight loss to client companies.     

Money demand function estimation by nonlinear cointegration

Conventionally, the money demand function is estimated using a regression of the logarithm of money demand on either the interest rate or the logarithm of the interest rate. This equation is presumed to be a cointegrating regression. In this paper, we aim to combine the logarithmic specification, which models the liquidity trap better than a linear model, with the assumption that the interest rate itself is an integrated process. The proposed technique is robust to serial correlation in the errors. For the USA, our new technique results in larger coefficient estimates than previous research suggested, and produces superior out‐of‐sample prediction. Copyright © 2007 John Wiley & Sons, Ltd.     

The Effectiveness of Gun Control Laws:

Abstract The purpose of this study is to statistically and empirically evaluate the effectiveness of the gun control laws that have been adopted by states and municipalities. States are divided into two groups: states with no restrictions as to gun use and states with restrictions (e.g., waiting periods, license, etc.). Multiple linear regression models are used to evaluate the relationship between the number of gun related deaths in 1990 and sets of determinants which include state laws and regulations governing the use of firearms. The study results indicate that gun control laws have a very mild effect on the number of gun related deaths while socioeconomic variables such as a state's poverty level, unemployment rate and alcohol consumption, have significant impact on firearm related deaths. These findings suggest that any reduction in resources spent on social programs tied to the Crime Bill may be counter-productive.     

Does knowing the volatility states affect the market risk premium?

Mayfield (J Financ Econ 73:465–496, 2004) has devised a method for estimating the market risk premium, based on a variant of Merton’s ICAPM wherein volatility is specified as a two-state Markov process. In this study, we assess Mayfield’s key assumption that investors know the current volatility state with certainty, via empirical testing of the assumption of exogenous Markov-switching in Mayfield’s model. We detect strong evidence of endogenous switching. This indicates that investors infer the current volatility state, as opposed to simply observing it. We also find that the risk premium estimates are affected by the switching type.     

THE ECONOMIC PERFORMANCE AND REGIONAL SYSTEMS OF CHINA'S CITIES*

Employing cluster analysis of selected economic indicators, this paper classifies Chinese cities into various levels according to their total urban economic strength and per capita economic performance. Regional characteristics of China's urban system are identified and policy-related measures for improving the economic efficiency of Chinese cities are suggested. In general, China''s urban economy appears to be undergoing a transition from a centrally planned economy into a market-oriented one, particularly in cities along the coast and the lower reaches of the Yangzi valley.     

The Valuation of Stock Purchase Rights as Call Options

The predictability of rights valuation models is tested, viewing the rights as call options. The results show that rights valuation models, on average, overprice the rights. The bias in the model prices of rights found in this paper is opposite to that predicted by Merton. Among several factors considered, possible volatility changes associated with raising capital through a rights offering account for some of the observed pricing deviation. A further regression analysis shows that while the pricing deviation is positively related to both the degree that the rights are in the money and the allocation ratio, it is negatively related to the time to expiration and the daily trading volume of the rights.     

What's in a “China” Name? A Test of Investor Attention Hypothesis

We study whether a firm's name affects investor attention and firm valuation. Some Chinese firms listed on US stock exchanges have the word “China” included in their company names (“China‐name stocks”), while others do not (“non‐China‐name stocks”). During the 2007 China stock market boom, we find that China‐name stocks significantly outperform non‐China‐name stocks. This is not due to differences in firm characteristics, risk, or liquidity. The “China‐name effect” is largely consistent with the investor attention hypothesis that price pressure caused by increased investor attention on China‐name stocks during the boom period drives up China‐name stocks more than non‐China‐name stocks.