What Explains Cross‐country Industry Growth Patterns? Trade,Development and the Equity Financing Channel

We test theories that examine how economic and financial development affect cross‐country industry growth patterns. Finance theory suggests that financial development affects growth by lowering the cost of external finance. This has the implication that industries in more finance‐hungry sectors will grow faster in countries where financial markets are more developed. In addition, if financing constraints are lessened when stock market performance is high, firms in sectors more dependent on external finance should grow more rapidly following periods of good stock market performance. Trade and development theories, on the other hand, imply that a country's product‐mix and the pattern of industrial growth reflect which stage of development it is in and its factor endowments. Thus, one implication of trade/development theories is that countries that are close to each other in terms of GDP per capita should have similar patterns of industrial growth. Our tests find support for each of these theories.     

Understanding the Intergenerational Transmission of Human Capital: Evidence from a Quasi‐natural Experiment in China

This paper exploits the closure of senior secondary schools in urban China from 1966 to 1971 in order to identify the causal intergenerational transmission effects of education. The paper uses the instrumental variable approach to examine the intergenerational causality of educational transmission at the senior secondary schooling level in urban China. The exogenous variation in parental senior secondary educational attainment both over time and across regions allows us account for selection bias and thus identify the causal intergenerational transmission effect in education. We further show that our conclusion is robust to alternative identification strategies and data sets.     

The relationship between operating leverage and financial leverage

We model the relationship between operating and financial leverage. When operating leverage is exogenously specified, financial leverage is a monotonically decreasing function of operating leverage. When financial leverage is exogenously specified, operating leverage is initially increasing and subsequently decreasing in financial leverage. Finally, when both operating and financial leverage are chosen by the firm, they can be positively related, negatively related or unrelated, depending on which underlying parameter is driving the changes. Thus, operating leverage and financial leverage do not always behave as substitutes, as argued in the traditional literature. The relationship is complex, possibly non-monotonic and dependent on the circumstances; empirical tests need to take this reality into account.     

Auctions with cross-shareholdings

Summary. We study the effect of cross-shareholding among two competing firms on their bidding behavior and the expected sales revenue for the seller in an auction environment. The bidders private signals are independent, and the model encompasses the private values model and a particular common value model as special cases. When cross-shareholding is symmetric, the bids decrease towards the collusive level as the degree of cross-shareholding increases. The Revenue Equivalence result no longer holds: the first-price auction generates higher expected revenue for the seller than the second-price auction.With asymmetric cross-shareholding, revenue comparisons are only possible in the common value setting. Expected revenue for the seller is again higher in the first-price than in the second price auction. Bidding behavior in the second-price auction is more sensitive to changes in cross-shareholding and the value environment than in the first-price auction.Received: 18 September 2000, Revised: 27 May 2003, JEL Classification Numbers: C72, D44.Correspondence to: Sudipto DasguptaWe thank Sugato Bhattacharyya, Paul Klemperer, Kunal Sengupta and Guofu Tan for helpful discussions, and an anonymous referee for suggestions that improved the paper. The usual disclaimer, of course, applies.