Specification and Testing the Profit-Concentration Relationship in Australian Manufacturing

Research in the mainstream of industrial organization has tested the relationship between profit rates (an index of performance) and concentration (an index of structure) including other variables (e.g., capital intensity, advertising intensity, growth, measures for barriers to entry, import and export intensity). Specification of this relationship is often largely ad hoc and its testing is subject to a number of statistical criticisms. Major criticisms that require attention are: i) omission of the relevant explanatory variables, ii) simultaneous causality among variables, and iii) measurement error in the variables. This paper derives a profit-concentration relationship from a well known oligopoly model. Empirical analysis is carried out against a sample of Australian manufacturing industries for 1984–85. The resulting estimates suggest the importance of dealing with each of the specification and testing issues in explaining the profit-concentration relationship.     

The Contributions of Stewart Myers to the Theory and Practice of Corporate Finance*

In a 40‐plus year career notable for path‐breaking work on capital structure and innovations in capital budgeting and valuation, MIT finance professor Stewart Myers has had a remarkable influence on both the theory and practice of corporate finance. In this article, two of his former students, a colleague, and a co‐author offer a brief survey of Professor Myers's accomplishments, along with an assessment of their relevance for the current financial environment. These contributions are seen as falling into three main categories:

• ? Work on “debt overhang” and the financial “pecking order” that not only provided plausible explanations for much corporate financing behavior, but can also be used to shed light on recent developments, including the reluctance of highly leveraged U.S. financial institutions to raise equity and the recent “mandatory” infusions of capital by the U.S. Treasury.
• ? Contributions to capital budgeting that complement and reinforce his research on capital structure. By providing a simple and intuitive way to capture the tax benefits of debt when capital structure changes over time, his adjusted present value (or APV) approach has not only become the standard in LBO and venture capital firms, but accomplishes in practice what theorists like M&M had urged finance practitioners to do some 30 years earlier: separate the real operating profitability of a company or project from the “second‐order” effects of financing. And his real options valuation method, by recognizing the “option‐like” character of many corporate assets, has provided not only a new way of valuing “growth” assets, but a method and, indeed, a language for bringing together the disciplines of corporate strategy and finance.
• ? Starting with work on estimating fair rates of return for public utilities, he has gone on to develop a cost‐of‐capital and capital allocation framework for insurance companies, as well as a persuasive explanation for why the rate‐setting process for railroads in the U.S. and U.K. has created problems for those industries.

     

Financial Liberalization and Allocation of Capital: Dark Side of the Moon

Although it is well established that financial liberalization leads to a positive ‘quantity effect’ with higher levels of investment, it remains uncertain whether it also improves the efficacy with which such investment funds are allocated. This paper contributes to this sparely researched aspect of liberalization (‘quality effect’) by carefully examining if the financial reforms in India have led to an improvement in the allocation of resources. Since one of the premises of better allocation is that funds are channelled to firms with higher marginal returns to capital (measured by Tobin’s Q), we propose three unique measures to track the efficiency of resource allocation: (a) dispersion-based measures; (b) the allocative efficiency index; and (c) the relative value of allocation. Contrary to the prevalent assumption that financial liberalization leads to higher capital allocation efficiency, this study’s findings could not establish a direct correlation between the opening up of markets and higher allocation efficiency, except for the latter part of the reform period. Further, this paper draws attention to the greater misallocation of funds in the post-reform period, as the increase in funds availability leads to excess capacity creation in some industries without consideration of the need for concurrent return or demand. The authors of this paper recommend that any financial liberalization needs to be accompanied by the setting up of institutions for corporate control, particularly in an emerging market like India.

     

Inference on inequality from household survey data

I develop a theory of asymptotic inference for the Lorenz curve and the Gini coefficient for testing economic inequality when the data come from stratified and clustered household surveys with large number of clusters per stratum. Using the asymptotic framework of Bhattacharya [Asymptotic Inference from multi-stage surveys. Journal of Econometrics 126(1), 145–171], I derive a weak convergence result for the continuously-indexed Lorenz process even when the underlying density is not uniformly bounded away from zero. I provide analytical formulae for the asymptotic covariance functions that are corrected for both stratification and clustering and develop consistent tests for Lorenz dominance. Inference on the Gini coefficient follows as a corollary. The methods are applied to per capita household expenditure data from the complexly designed Indian national sample survey to test for changes in inequality before and after the reforms of the early 1990s. Ignoring the survey design is seen to produce qualitatively different results, especially in the urban sector where the population sorts more completely into rich and poor neighborhoods.     

本土保卫战的六大秘笈

根据《经济学人智库》预测，到2010年，新兴市场将占到全球GDP的45％，以及GDP增长的60％。中国、印度、东盟等市场都变得愈发重要，但这并不意味着这些市场将自然地归属本土企业，他们必须面对跨国公司来势汹汹的挑战。跨国公司无论在实力还是经验上，通常都更胜本土企业一筹，但也并不总是大获成功。Yahoo!和eBay在中国市场上就因百度与淘宝的抵抗而止步。许多西方汽车制造商在印度试图建立业务，也步履艰难。NEC和松下退出中国的手机市场。日本零售商八佰伴放弃了其在中国的运营。     

Random iterates of monotone maps

In this paper we prove the existence, uniqueness and stability of the invariant distribution of a random dynamical system in which the admissible family of laws of motion consists of monotone maps from a closed subset of a finite dimensional Euclidean space into itself.     

Mortgage‐Backed Securities (MBS): Is It a Curse or a Blessing for the Australian Home Loan Market? A Natural Experiment

The Australian home loan market has seen a significant and persistent boom over more than two decades. The extant literature exploring the underlying factors explaining this boom has predominantly looked at the demand side rather than the supply side. In this paper, we look at a major supply‐side issue, the introduction of mortgage‐backed securities and its likely impact on the home loan market. In doing so, we have developed a mathematical model that theorises this likely relationship. Our mathematical model predicts possible existence of an unstable equilibrium in the home loan market in the presence of mortgage‐backed securities. We have subsequently backed up our theoretical exercise with sound empirical evidence acquired and analysed as a natural experiment in the Australian scenario using quarterly market data on home loans and mortgage‐backed securities data for a 36‐year period from 1976 to 2012. Using unknown structural break tests, we have identified significant breaks around late 1992 to mid‐1995, clearly indicating that there were significant changes in the housing market due to the introduction of mortgage‐backed securities in early 1993. We have also performed a stability test confirming that under certain conditions this market can become unstable.     

Determinants of Innovation

The study examines how firm size, market structure, profitability and growth influence innovative activity in small to medium sized Australian manufacturing businesses, using the recently released Confidentialised Unit Record File drawn from the Business Longitudinal Survey of the Australian Bureau of Statistics. Regression analysis is conducted to determine the factors that effect subsequent innovative activity for the full sample of businesses, as well as for sub-samples of firms from high and low-technological opportunity industries. Most variables, including size, R&D intensity, market structure and trade shares are found to be conducive to further innovative activity for the full sample and for high-tech firms. For low-tech industries, fewer variables are significant.     

Determinants of violent and property crimes in England and Wales: a panel data analysis

We examine various determinants of property and violent crimes by using police force area level (PFA) data on England and Wales over the period of 1992–2008. Our list of potential determinants includes two law enforcement variables namely crime-specific detection rate and prison population, and various socio-economic variables such as unemployment rate, real earnings, proportion of young people and the Gini Coefficient. By adopting a fixed effect dynamic GMM estimation methodology we attempt to address the potential bias that arises from the presence of time-invariant unobserved characteristics of a PFA and the endogeneity of several regressors. There is a significant positive effect of own-lagged crime rate. The own-lagged effect is stronger for property crime, on an average, than violent crime. We find that, on an average, higher detection rate and prison population leads to lower property and violent crimes. This is robust to various specifications. However, socio-economic variables with the exception of real earnings play a limited role in explaining different crime types.     

Rural-urban migration in economic development

Abstract. This paper provides a review of the theoretical literature on rural–urban migration in contemporary LDCs. The paper begins with a brief discussion of the Lewis model before going on to discuss the Todaro and the Harris–Todaro models and the large literature which these models have spawned. The question of job search in the context of migration and the role of family members in migration decisions are considered next. The paper then takes a closer look at the Informal sector and also sets out alternative migration functions to the ones usually employed in the literature. The paper concludes with a brief note on some of the important implications arising from our study.