The Cost Efficiency of Real Estate Investment Trusts: An Analysis with a Bayesian Stochastic Frontier Model

Using a stochastic frontier methodology that incorporates Bayesian statistics, this paper analyzes the cost efficiency of real estate investment trusts (REITs) by observing the deviations of the measured costs of individual REITs from a defined efficient cost frontier. Using 1995–1997 data, we extend the previous research in this area and measure REIT efficiency more precisely by isolating random measurement error from the overall deviations from the efficient cost frontier. We calculate the magnitude of each REIT's managerial inefficiency, the industry inefficiency, and returns to scale. In addition, we assess specific characteristics of REITs for their contribution to inefficiency by calculating the odds ratio that a REIT with a specific characteristic is more efficient than a REIT with an alternative characteristic. The results show that, for the years studied, REITs are relatively cost efficient with most REITs facing increasing returns to scale. Additionally, the REIT's use of debt and the REIT's management style significantly affect the cost performance of REITs during the aforementioned time period. Finally, diversification across property types, as measured, does not seem to influence REIT cost efficiency.     

Ranking Journals Using Social Science Research Network Downloads

I use a new approach to rank journals, namely the number and percent frequency of articles a journal publishes that are heavily downloaded from the Social Science Research Network (SSRN). I rank 18 accounting and finance journals, and I identify five journals not considered by the two most recent major published ranking studies of publications by accounting faculty, namely (in rank order): Journal of Financial Economics, Review of Accounting Studies, Review of Quantitative Finance and Accounting, Journal of Corporate Finance, and Journal of International Financial Management and Accounting. I show that financial accounting faculties are more likely to post their working papers to SSRN, and papers posted by financial faculties generate more downloads. I mitigate this bias in favor of the financial area by providing separate rankings based on authors in the financial versus non-financial areas.     

Demography as a forecasting tool

The European population is rapidly ageing. This implies changing economic and social relations between the generations. In turn this precipitates economic change. In particular the welfare bill in the future needs to be paid for more dependants by a smaller working population. This fundamental shift also changes the conditions for productivity growth, trade and even monetary policy. Using demographic projections to forecast these changes and integrate them into futures scenarios contributes to realism in the futures envisioned. Demographic processes can be influenced by policy, but the feedback is slow. This ensures the usefulness of demographic forecasting but it also implies that policy decisions need to be taken well in advance of the problems that ageing will cause. At horizons beyond 10–20 years there are ample opportunity to adapt the society to avoid unacceptable scenarios. Before that the scope for action is much less and much more constrained. The inertia of the demographic structure is such that it is hard and probably costly to turn unwanted trends caused by unbalanced age structures. For example, a likely consequence of the developing scarcity of labour in Europe is that the demand for education goes down in spite of the desirability for society to expand higher education.     

Redistribution and Insurance: Mandatory Annuitization With Mortality Heterogeneity

This article examines the distributional implications of mandatory longevity insurance when mortality heterogeneity exists in the population. Previous research has demonstrated the significant financial redistribution that occurs under alternative annuity programs in the presence of differential mortality across groups. This article embeds that analysis into a life‐cycle framework that allows for an examination of distributional effects on a utility‐adjusted basis. It finds that the degree of redistribution that occurs from the introduction of a mandatory annuity program is substantially lower on a utility‐adjusted basis than when evaluated on a purely financial basis. In a simple life‐cycle model with no bequests, complete annuitization is welfare enhancing even for those with higher‐than‐average expected mortality rates, so long as administrative costs are sufficiently low. These findings have implications for policy toward annuitization, particularly as part of a reformed Social Security system.     

Informational Networks, Entrepreneurial Action and Performance

This paper develops a model that incorporates personal and business networks, firm action, and performance based on the existing literature. It explores the links between information and entrepreneurial-type action, and action and performance. Survey data was collected from a sample of 100 manufacturing firms in Thailand. Results show that entrepreneurs value the information they receive from their networks. However, there is little statistical support for tangible links between personal or business networks and entrepreneurial action and performance, or between action and performance.     

Dynamic analysis of stock return volatility in an integrated international capital market

This paper examines the dynamic behavior of the stock return volatility for Canada, Japan, Germany, and the United Kingdom. The evidence indicates that international stock return volatility is mainly influenced by the U.S. stock return volatility and the exchange rate volatility, supporting the international capital market integration hypothesis. There seems to be some correlation between stock return volatility and macroeconomic volatility, but the effect is relatively weaker. In addition to the economic fundamentals, the noise component is found to be time varying, confirming the AR(MA)CH specifications in the stock return models.     

Voluntary disclosure and information asymmetry in Denmark

This paper examines if the level of voluntary disclosure affects information asymmetry for industrial companies listed on the Copenhagen Stock Exchange. Economic theory suggests that disclosing more information should lower the information asymmetry component of a firm's cost of capital [Leuz, C., & Verrecchia, R. E. (2000)]. The results indicate that voluntary disclosure is negatively associated with proxies for information asymmetry. The results are robust even after controlling for various firm characteristics introduced in related literature. Despite differences in institutional settings the findings in our paper are similar to the ones based on US data.     

IPOs,acquisitions, and the use of convertible securities in venture capital

This paper provides a new explanation for the use of convertible securities in venture capital. A key property of convertible preferred equity is that it allocates different cash flow rights, depending on whether exit occurs by acquisition or IPO. The paper builds a model with double moral hazard, where both the entrepreneur and the venture capitalist provide value-adding effort. The optimal contract gives the venture capitalist more cash flow rights in acquisitions than IPOs. This explains the use of convertible preferred equity, including automatic conversion at IPO. Contingent control rights are also important for achieving efficient exit decisions.     

Competition and cooperation among exchanges: A theory of cross-listing and endogenous listing standards

We analyze firms’ choice of exchange to list equity and exchanges’ choice of listing standards when insiders have private information about firm value, but outsiders can produce (noisy) information at a cost. Exchanges are populated by two kinds of investors, whose numbers vary across exchanges: sophisticated (low information production cost) investors and ordinary (high–cost) investors. While firms are short-lived, exchanges are long-lived, value-maximizing agents whose listing and disclosure standards evolve over time. The listing standards chosen by exchanges affect their “reputation,” since outsiders can partially infer the rigor of these standards from the post-listing performance of firms. We show that, while exchanges use their listing standards as a tool in competing for listings with other exchanges, this will not necessarily lead to a “race to the bottom” in listing standards. Further, a merger between two exchanges may result in a higher listing standard for the combined exchange relative to that of either of the merging exchanges. We develop several other implications for firms’ listing choices and resulting valuation effects, the impact of competition and co-operation among exchanges on listing standards, and the optimal regulation of exchanges.     

Trading Costs in Early Securities Markets: The Case of the Berlin Stock Exchange 1880-1910

Based on daily prices (amtliche Kurse) we estimate effective spreads of securities traded at the Berlin Stock Exchange in 1880, 1890, 1900 and 1910. Several extensions of the Roll measure are applied. We find surprisingly tight effective spreads for the historical data, comparable with similar measures of the MDAX and DAX at the end of the 20th century.