Uncertainty Associated with Future Environmental Costs and the Market's Differential Response to Earnings Information

This study examines whether the uncertainty arising from a firm's exposure to future environmental costs (environmental uncertainty) affects the market's price sensitivity to reported earnings. Specifically, when environmental uncertainty is significantly high, are investors more responsive to reported earnings released by 'high-polluting' firms than reported earnings announced by 'low-polluting' firms within the same industry? The initial impact of Title IV (the acid rain provisions) of the 1990 Clean Air Act Amendments (1990 CAAA) on the US electric utility industry provides the research setting required to isolate the effects of environmental uncertainty while addressing this question. Consistent with theoretical predictions, we find that the earnings response coefficients (ERCs) of high-polluting electric utilities are significantly greater than those of their low-polluting counterparts during a predicted period of elevated environmental uncertainty. In adjoining sample years associated with lower environmental uncertainty, we observe no statistical difference in the magnitude of the ERCs between these two groups. In addition, the study's findings suggest that the magnitude of the ERC is increasing in the firm's exposure to future environmental costs, after controlling for other factors that potentially affect ERCs.     

Trade, foreign firms and economic policy in Indonesian and Thai manufacturing

This paper first examines the rapid growth and changing composition of manufactured exports in Indonesia and Thailand, highlighting the rapid growth of office and computer machinery and electric machinery, somewhat slower growth of non-electric and transportation machinery, as well as the low growth of previously large exports of textiles apparel. Second, the important contributions of foreign multinational enterprises (MNEs) to export growth in the machinery industries, particularly in electric, office, and computing machinery, are documented. Third, the paper describes trade policies in all these industries in some detail, emphasizing how low protection was a key facilitator of rapid export growth in the MNEs that dominated the electric, office, and computing machinery industry, while high protection reduced incentives to export among MNEs in the transportation machinery industry.     

A theoretical model of the relationship between value added elements and end product

This paper focuses on the development of a theoretical scheme describing the transformation of primary incomes into end consumption and savings in the Russian economy. This scheme is basically a system of interrelated tables reflecting the distribution of primary incomes across the institutional sectors and their further reallocation and use. The scheme makes allowances for the specific features of the Russian economy and existing statistics. In terms of methodology, it is coordinated with the interindustry balance in current buyer prices and, from the theoretical standpoint, describes the connection between Quadrant II and Quadrant III of the balance. Therefore, the proposed system of tables is treated in the paper as Quadrant IV of the interindustry balance. The theoretical scheme is used by the authors as a necessary basis for constructing an empirical model of the relationship between value added and end product, which will be published in the next issue of this journal.     

The economic performance of the Russian economy in 2006 and a forecast for 2008–2010

This article examines the economic outcome of 2006 and builds a forecast for 2007–2010. The medium-term development risks of the Russian economy are analyzed.     

INTRA-INDUSTRY EFFECTS OF BOND RATING ADJUSTMENTS

Several studies find that bond rating downgrades cause negative valuation effects. Other studies find that signals conveyed by earnings releases, earnings forecasts, bankruptcies, and stock offerings of individual firms can be transmitted to their corresponding industries. By combining the two sets of studies, we hypothesize that bond rating changes may contain relevant information not only about the firm, but also about the corresponding industry. We find significantly negative valuation effects for rating downgrades, which are transmitted throughout the industry. Furthermore, we find that intra-industry effects depend on particular characteristics of the bond downgrade, the downgraded firm, and industry rivals. Specifically, the negative intra-industry effects are more pronounced when (1) the downgraded firm experiences a more severe share price response to the bond rating downgrade, (2) the downgraded firm is dominant in the industry, (3) the downgraded firm is more closely related to its rivals in the industry, and (4) the downgrade is due to a deterioration in the firm's financial prospects.     

R&D–Marketing Integration Mechanisms, Communication Flows, and Innovation Success

Rudy Moenaert, William Souder, Arnoud De Meyer, and Dirk Deschoolmeester report the results of their study of forty technologically innovative Belgian companies to examine the interaction between marketing and R&D. They studied one commercially successful and one commercially unsuccessful technological product innovation project in each participating company and collected data from one marketing and one R&D respondent per project. Communication flows between marketing and R&D are increased under conditions involving formalization of projects, decentralization, positive interfunctional climate, and role flexibility.     

Price Commitment versus Flexibility: the Role of Exchange Rate Uncertainty and its Implications for Exchange Rate Passthrough

The paper investigates the incentives to commit price or retain price flexibility in a model in which exporting firms face different degrees of exchange rate uncertainty. The result shows that introducing exchange rate uncertainty can lead to the endogenous emergence of a unique leader–follower equilibrium; which firm emerges as price leader depends on the substitutability of products, the magnitude of exchange rate uncertainty, and the cost structure. This study may provide one explanation as to why some exporters set price before the realization of the nominal exchange rates (“sticky price”). The results imply exchange rate variability affects exchange rate passthrough.     

The Market's Assessment of the Financial Services Modernization Act of 1999

We examine the impact of the events leading up to and including the passage of the Financial Services Modernization Act (FSMA) of 1999 on the stock returns of banks, brokerage firms, and insurance companies. We find that the impact is positive for all institutions. Bank gains are positively related to size and capitalization. Brokerage firms gain regardless of size, but the gains are inversely related to capitalization and insurance companies gain regardless of size or capital position. The strong positive reaction suggests that the market expects the institutions to benefit from the new opportunities created by the FSMA's passage.