Special issue on economic policy in Portugal: innovation,competitiveness, and internationalisation. Editors’ introduction

Portuguese Economic Journal -     

Do multinational banks create or destroy shareholder value? A cross‐country analysis

We question whether the international diversification of multinational banks creates or destroys shareholder value. Based on a sample of 384 listed banks from 56 countries we provide new and robust evidence that bank cross‐border activities create shareholder value, as shown by an economically and statistically significant premium for international diversification. Our results are confirmed controlling for bank fixed effects, time‐varying bank characteristics, reverse causality, functional diversification, and instrumenting for the choice to expand abroad. The increase in shareholder value is slightly larger for banks in the middle range of international diversification and in the case of expansion towards less developed countries.     

A nonparametric approach to assess undergraduate performance

Nonparametric methodologies are proposed to assess college students' performance. Emphasis is given to gender and sector of high school. The application concerns the University of Campinas, a research university in Southeast Brazil. In Brazil college studies are based on a somewhat rigid set of subjects for each major. For this reason a simple GPA comparison may hide true performance. Therefore, we define individual vectors of course grades. These vectors are used in pairwise comparisons of common subject grades for individuals who entered college in the same year. The relative college performances of any two students are compared with their relative performances on the entrance exam score. A procedure based on generalized U-statistics is developed to test if there is selection bias in the entrance exam by some predefined groups, which is equipped with asymptotically normal distribution under both null and alternative hypotheses. Maximum power is attained by employing the union intersection principle, and resampling techniques such as nonparametric bootstrap are employed to generate the empirical distribution of the test statistics and get p-values.     

Employing the business model concept to support the adoption of product–service systems (PSS)

Although the existing literature indicates that the business model concept can be useful to implement product–service systems (PSS), there is still a paucity of guidelines to assist companies in this respect. Therefore, this paper proposes a framework to support the adoption of PSS employing the business model concept. This framework was developed based on literature review and intends to guide the company on the analysis of their business context, on the choice of the appropriate type of PSS and on the definition of their PSS characteristics. A single case study was then performed to illustrate an application of the framework in a machine tool manufacturer and provide research insights. Overall, results indicate that the framework can provide companies with a useful reference to PSS implementation, helping on the investigation of different PSS scenarios as well as the main barriers and challenges to be overcome.     

Incentive to manipulate earnings and its connection to analysts’ forecasts, trading, and corporate governance

We develop a model where insiders?? decision to manipulate earnings is linked both to their stake and to corporate governance. We show how earnings manipulation affects analysts?? forecasts and institutional trading. More precisely, whenever there is ??excessive?? earnings manipulation, we observe less optimistic analysts. Furthermore, institutions exhibit positive feedback trading behavior and appear to ??front-run?? analysts?? errors. Finally, companies with strong corporate governance are less prone to these phenomena, being able to avoid the detrimental effects of insiders?? incentives. We then provide strong empirical evidence to support our model.     

DIVERSE ORGANIZATIONS AND THE COMPETITION FOR TALENT

We propose a theory of firm production that requires diverse inputs. We show that in a competitive labor market, firms differ in their skill composition. Organizations with higher total factor productivity (TFP) are larger and hire from a broader range of skills. Technological progress leads to an increase of all wages and results in downsizing. Quantifying productivity using our model shows that a constant elasticity of substitution (CES) production function generates unbiased estimates of TFP but biased estimates of marginal product and elasticity of substitution across skills. Our model also generates estimates of the TFP distribution based on CEO compensation alone.     

Bootstrap Methodology in Claim Reserving

In this article, we use the bootstrap technique to obtain prediction errors for different claim‐reserving methods, namely, the chain ladder technique and methods based on generalized linear models. We discuss several forms of performing the bootstrap and illustrate the different solutions using the data set from Taylor and Ashe (1983) , which has already been used by several authors.     

Short-selling restrictions,takeovers and the wealth of long-run shareholders

In this paper we consider a situation in which a firm may be able to influence the investors’ ability to short-sell its stock. We analyze the effect short-selling restrictions have on the market price and the subsequent effect generated on the market for corporate control. More precisely, we argue that short-selling restrictions may lead to exclusion of pessimistic beliefs and may therefore inflate prices. Thus, if a company is poorly managed and has a stock with strong short-selling restrictions, a profitable takeover will not emerge because of the high stock price. The raider may not have the incentives to acquire the company as its price will be above its fundamental value, conditional on takeover, even accounting for the potential benefits of takeover. We then argue that such effects are detrimental to long-run shareholders and that a value-maximizing strategy is to have a stock with no short-selling restrictions.     

On the uncertainty and risks of macroeconomic forecasts: combining judgements with sample and model information

Institutions which publish macroeconomic forecasts usually do not rely on a single econometric model to generate their forecasts. The combination of judgements with information from different models complicates the problem of characterizing the predictive density. This article proposes a parametric approach to construct the joint and marginal densities of macroeconomic forecasting errors, combining judgements with sample and model information. We assume that the relevant variables are linear combinations of latent independent two-piece normal variables. The baseline point forecasts are interpreted as the mode of the joint distribution, which has the convenient feature of being invariant to judgments on the balance of risks.     

Venture capital and underpricing: capacity constraints and early sales

I present a model of the venture capital (VC) and public markets in which VCs suffer from capacity constraints, due to the shortage of skilled VC managers. Consequently, VC firms can only handle a limited number of new projects at once, having to divest from ongoing projects in order to take advantage of new opportunities. This framework is able to match key features presented by the VC and initial public offer (IPO) empirical literatures: (1) VC-backed firms are younger, smaller, and less profitable at the IPO than their non-VC backed counterparts; (2) VC-backed IPOs are more underpriced than non-VC backed ones, (3) there is a positive relationship between underpricing and VC fundraising; (4) small and young VC firms usually take portfolio firms public earlier than their large and mature counterparts; (5) in hot IPO markets, VCs are more likely to take public both very young and small firms as well as mature and large firms, compared to cold markets. Differently, non-VC backed firms are usually smaller and younger in hot markets than in cold ones.