Does Religion Matter to Equity Pricing?

For a sample comprising 36,105 U.S. firm-year observations from 1985 to 2008, we find that firms located in more religious counties enjoy cheaper equity financing costs. This result is robust to a battery of sensitivity tests, including alternative assumptions and model specifications, additional controls for noise in analyst forecasts, and various approaches to addressing endogeneity. In another set of tests, we find that the equity pricing role that religion plays comes predominantly from Mainline Protestants. We also document that the effect of religiosity on firms?? cost of equity capital is larger for firms (periods) lacking alternative monitoring (regulation) mechanisms as measured by lower institutional ownership (the pre-SOX era), implying that religion plays a corporate governance role. Finally, we find that the importance of religion to equity pricing is concentrated in firms that suffer lower visibility, which tend to be more sensitive to local social and economic factors. By examining the links between religiosity and valuation at the firm level, we provide strong, robust evidence supporting the perspective that religion facilitates economic development.     

Are Good Performers Bad Acquirers?

We examine how the market reacts to announcements of mergers and acquisitions (M&As) by well‐performing acquirers and evaluate the results in light of three hypotheses: 1) managerial ability, 2) empire building, and 3) chief executive officer (CEO) overconfidence. Our results indicate that an empire‐building motive drives the relationship between past superior operating performance and M&A announcements. Long‐term operating performance drops significantly for acquiring firms with past superior operating performance. Our evidence also indicates that the presence of insider directors helps to alleviate the negative perception of acquisitions made by firms with better operating performance or empire‐building CEOs.     

Does Regime Choice Affect Exchange Rate Volatility-Economic Growth Link? An Application of Panel-VAR Approach

In recent years, numerous studies demonstrated that the effect of exchange rate regimes on economic growth is influenced by several factors. However, the literature rarely takes into account the possible costs associated with improving institutional quality on the choice of exchange systems and the analysis of the effects of shocks in the case of each type of regime. Throughout this research, we analyze the extent of bidirectional shocks according to each regime and compare the shock effects accordingly. The results show that the real exchange rate is less volatile and the shock effect is lower in countries that adopt a fixed exchange rate regime while the exchange rate is more volatile and the shock is higher in countries that adopt a flexible exchange rate regime. To show the effect and persistence of shocks, we carried out a Panel-VAR regression completed by impulse response functions, VAR decomposition and Granger causality tests for 20 countries adopting the first type of exchange regime compared with 20 countries practicing an alternative exchange rate regime in the period from 1996 to 2012.     

Performance evaluation of the LDR and the PSH with forecast errors

Despite its ability to produce optimal solutions, the Linear Decision Rule (LDR) has not had a significant impact in the business environment. The Production Switching Heuristic (PSH), which has shown promising results when compared with the LDR, has experienced some business application because of its practicability and flexibility. During aggregate production planning, forecast errors are almost unavoidable, but the sensitivity of these models to such errors has not been thoroughly tested. Insufficient attention has been paid to truly understand the cost effects of forecast errors and other important interactions. The study investigates these issues by analyzing the results of 740 simulated problems.Using the famous “paint factory” cost data, the sensitivity of the LDR and the PSH are examined under various experimental conditions. The factors controlled at different levels are: forecast error mean, forecast error standard deviation, demand pattern, demand variability, and cost coefficients. The results show that 1) the PSH is generally less sensitive than the LDR to forecast errors, 2) both forecast error mean and standard deviation effectively measure the severity of forecast errors, and 3) underforecasts cause less cost penalty than overforecasts.The outcome of the study has helpful managerial implications for aggregate planning related decisionmaking. It suggests that the use of the PSH could result in potential cost savings even if significant forecast errors are envisioned as long as the period-to-period demand variability is not substantially high. Also, BIAS warrants more attention than MSE in evaluating the extent of forecast errors and their eventual cost impact on aggregate production planning.     

Do asset impairments and the associated disclosures resolve uncertainty about future returns and reduce information asymmetry?

The objective of this study is to provide insights into how Australian listed firms are implementing AASB 136 Impairments of Assets. Our first concern is whether uncertainty about future returns and information asymmetry motivates the recognition of asset impairments. We find no evidence that the recognition of asset impairments is associated with higher uncertainty about future returns. Furthermore, we find no evidence that the recognition of asset impairments is associated with higher information asymmetry. Our second concern is whether asset impairments and the associated disclosures provide information that reduces uncertainty about future returns and information asymmetry. While we find some evidence that asset impairments are associated with decreases in information asymmetry before the financial crisis, during the financial crisis, asset impairments are associated with increases in both measurement uncertainty and information asymmetry.     

Duration of sudden stop spells: A hazard model approach

Using a hazard‐based duration model, we analyze the determinants of the duration of a period of sudden stop, which is defined as a drop in capital inflow by two standard deviations, for at least two consecutive quarters. The hazard model estimates the conditional probability that the country exits the sudden stop today given that it experienced one until the end of last period. We find that a higher ratio of foreign exchange reserves to short‐term external debt shortens the duration of sudden stops. We also find that a higher global economic growth rate tends to shorten sudden stop spells. Our results are robust to various alternative specifications.     

Price and income elasticities: evidence from commodity trade between the U.S. and Egypt

Elasticity approach to balance of payments postulates that a country can enjoy an improvement in its trade balance in the long run if sum of import and export demand price elasticities exceed unity, a condition known as the Marshall-Lerner condition. Previous research tested this condition either using aggregate trade data between one country and rest of the world or between two countries and provided mixed results. They are all said to suffer from aggregation bias. To remove the bias, in this paper we concentrate on trade flows of two countries, i.e., the U.S. and Egypt and disaggregate their trade flows by commodity. The estimates reveal that the ML condition is met in 28 out of 36 industries that trade between the two countries.     

Reporting of Internal Control Weaknesses and Debt Rating Changes

This article examines the effect of corporate reporting of internal control weaknesses on debt rating changes. Bond rating agencies utilize (among other factors) financial statement information to assess a firm’s liquidity and long term solvency as important inputs in determining corporate debt rating. Reporting of internal control weaknesses increases the reliability and transparency risk of the financial statement information, which may lead rating agencies to revise corporate default risk. Our results indicate that reporting of internal control weaknesses is significantly associated with debt ratings after controlling for other firm specific factors. Specifically, these findings suggest that reporting of internal control weaknesses can result in downgrades of the firm’s outstanding debt.     

FDI inflows,economic growth,and governance quality trilogy in developing countries: A panel VAR analysis

This study provides evidence of the triangular relationship between governance quality, foreign direct investment, and economic growth. Unlike previous studies in the governance—foreign direct investment—growth literature, this study employed the panel vector autoregressive model to examine the impact of governance quality and foreign direct investment on economic growth. Moreover, we used the impulse response function tool, which was developed in the same context, to better understand the reaction of the two main variables of interest, foreign direct investment, and economic growth, after shocks to the governance quality variable. Finally, the analysis was completed by the variance decomposition of all variables. These analyses were conducted for 102 developing countries from 1996 to 2014. Overall, the results show that inward foreign direct investment has a significant impact and can strongly encourage economic growth. These results indicate that the quality of governance in developing countries does not affect foreign direct investment and economic growth.     

A cost-analysis model for anticoagulant treatment in the hospital setting

Background:

Rivaroxaban is the first oral factor Xa inhibitor approved in the US to reduce the risk of stroke and blood clots among people with non-valvular atrial fibrillation, treat deep vein thrombosis (DVT), treat pulmonary embolism (PE), reduce the risk of recurrence of DVT and PE, and prevent DVT and PE after knee or hip replacement surgery. The objective of this study was to evaluate the costs from a hospital perspective of treating patients with rivaroxaban vs other anticoagulant agents across these five populations.

Methods:

An economic model was developed using treatment regimens from the ROCKET-AF, EINSTEIN-DVT and PE, and RECORD1-3 randomized clinical trials. The distribution of hospital admissions used in the model across the different populations was derived from the 2010 Healthcare Cost and Utilization Project database. The model compared total costs of anticoagulant treatment, monitoring, inpatient stay, and administration for patients receiving rivaroxaban vs other anticoagulant agents. The length of inpatient stay (LOS) was determined from the literature.

Results:

Across all populations, rivaroxaban was associated with an overall mean cost savings of $1520 per patient. The largest cost savings associated with rivaroxaban was observed in patients with DVT or PE ($6205 and $2742 per patient, respectively). The main driver of the cost savings resulted from the reduction in LOS associated with rivaroxaban, contributing to ～90% of the total savings. Furthermore, the overall mean anticoagulant treatment cost was lower for rivaroxaban vs the reference groups.

Limitations:

The distribution of patients across indications used in the model may not be generalizable to all hospitals, where practice patterns may vary, and average LOS cost may not reflect the actual reimbursements that hospitals received.

Conclusion:

From a hospital perspective, the use of rivaroxaban may be associated with cost savings when compared to other anticoagulant treatments due to lower drug cost and shorter LOS associated with rivaroxaban.