Default Risk in Equity Returns

This is the first study that uses Merton's (1974) option pricing model to compute default measures for individual firms and assess the effect of default risk on equity returns. The size effect is a default effect, and this is also largely true for the book‐to‐market (BM) effect. Both exist only in segments of the market with high default risk. Default risk is systematic risk. The Fama–French (FF) factors SMB and HML contain some default‐related information, but this is not the main reason that the FF model can explain the cross section of equity returns.     

How past becomes prologue: a sensemaking interpretation of the hindsight-foresight relationship given the circumstances of crisis

Foresight is rooted in deep understanding [A.N. Whitehead. Lecture notes from address to the Harvard Business School, 1931]. Such understanding requires that we shall have first looked back to the past before venturing forward into the future. This paper uses Weick’s and colleagues’ sense making perspective in order to explore this critical relationship between the past and the future [[2], [3], [4], [5], [6] and [7]]. In particular, key sense making properties will be applied to a crisis, an occurrence of school-place violence that occurred in the United States in 1999. We shall then ask how this organization and its diverse external stakeholders used their understanding of this event to learn how to prevent such crises from occurring in the future. In other words, how capably was hindsight constructed and then how was it used to strengthen foresight into the future? This paper will conduct a theory-based empirical examination of a crisis event and its aftermath to understand how hindsight can be sharpened and then used to improve organizational foresight.     

An integrated algorithm for three-way compositional data

Quality & Quantity - Compositional data with a tridimensional structure are not uncommon in social sciences. The CANDECOMP/PARAFAC model is one of the most adequate techniques for modeling...     

The many shades of ‘openness’: an application of item response theory to open innovation research

This study addresses one of the most basic research questions investigated in the Open Innovation (OI) literature: how open are firms? This question has remained partially unanswered given the challenges encountered by empirical research in assessing the relevance of specific OI practices within the OI model, as well as the types of activities perceived by managers as OI benefits or concerns. To provide an answer to this question, we suggest a framework using Item Response Theory to improve over current measures of firms' openness and test it on a sample of 383 technology‐based SMEs. Our theoretical model conceives openness as an instance of how firms make decisions regarding the adoption of different OI practices based on their evaluation of OI benefits and concerns. Focusing on the relationship between firm‐level differences in terms of openness and the types of OI practices adopted by these firms, we show that significantly different levels of ‘OI maturity’ are required to broaden the scope of external partnerships and to shift from non‐pecuniary OI modes (relation‐based approaches) toward pecuniary (transaction‐based) practices. Our results have relevant implications for the OI literature and provide new managerial insight into OI adoption.     

The “Six Ws” of sustainable development risks

Risk management in an organization represents a decisive function in seizing opportunities and managing the risks that can affect a business's reputation, prosperity, growth, value creation, stakeholder engagement, long-term survival, and a firm's contribution to sustainable development. For this paper, we conduct a systematic literature review of 148 indexed studies and uses the “Six Ws” (what, who, why, where, when, and how) approach to understand the linkages between sustainability and risk management. This study's findings reveal that the management of environmental, social, and governance (ESG) concerns plays a mitigation's function on business risks.     

New development: Can ‘public’ market-based solutions restore the banking system? The case of non-performing loans (NPLs)

The authors discuss how policy-makers could use new market-based solutions to dismantle NPLs. They examine viable solutions for NPLs and then study the Italian State Guarantee Scheme for NPL Securitization (GACS) to highlight how public actors could efficiently use public resources to solve the NPL problem.     

HOW DO FISCAL CONSOLIDATION AND FISCAL STIMULI IMPACT ON THE SYNCHRONIZATION OF BUSINESS CYCLES?

Using quarterly data for a panel of advanced economies, we show that synchronized fiscal consolidation (stimulus) programmes in different countries make their business cycles more closely linked. We also find: (i) some evidence of decoupling when an inflation targeting regime is unilaterally adopted; (ii) an increase in business cycle synchronization when countries fix their exchange rates and become members of a monetary union; (iii) a positive effect of bilateral trade on the synchronization of business cycles. Global factors, such as a rise in global risk aversion and uncertainty and a reversal of nonstandard expansionary monetary policy, can also reduce the degree of co‐movement of business cycles across countries. From a policy perspective, our work shows that an inflation targeting regime coupled with simultaneous fiscal consolidations can lead to more business cycle synchronization.