Globally evolutionarily stable portfolio rules

The paper examines a dynamic model of a financial market with endogenous asset prices determined by short-run equilibrium of supply and demand. Assets pay dividends that are partially consumed and partially reinvested. The traders use fixed-mix investment strategies (portfolio rules), distributing their wealth between assets in fixed proportions. Our main goal is to identify globally evolutionarily stable strategies, allowing an investor to “survive,” i.e., to accumulate in the long run a positive share of market wealth, regardless of the initial state of the market. It is shown that there is a unique portfolio rule with this property—an analogue of the famous Kelly rule of “betting your beliefs.” A game theoretic interpretation of this result is given.     

The chain from customer satisfaction via word-of-mouth referrals to new customer acquisition

It has often been argued that word-of-mouth (WOM) can contribute significantly to a firm’s success in a variety of ways. Here, we analyze the functional linkage between customer satisfaction, WOM, and new customer acquisition. Using data from two empirical studies we conceptualize and test the direct, non-linear, and moderated relationship between satisfaction and WOM. We further explore the circumstances under which WOM leads to new customer acquisition using a logistic regression model. We do so for two groups (new customers and long-term customers) from the customer base of a large energy provider (n = 688), and for a random sample of B2B customers (n = 416) in the same market. Results indicate that the satisfaction-WOM link is non-linear and is moderated by several customer involvement dimensions. Based on our results, we demonstrate how the satisfaction-WOM-new customer acquisition link can enrich return on quality and satisfaction models. Further, we draw conclusions about how companies can make use of both the satisfaction-WOM and the WOM-new customer acquisition link for better allocating their marketing resources.

Implications of the ‘IAS Regulation’ for Research into the International Differences in Accounting Systems

Meek and Thomas (2004) call for research on the continued relevance of ‘rediscovered’ dichotomous accounting classifications. We provide such evidence by examining how developments surrounding the ‘IAS Regulation’ (1606/2002) influenced international differences in accounting systems in the European Union. Since a sufficient time series of actual post-2005 International Financial Reporting Standards (IFRS) reporting practice is not yet observable, we propose an initial re-classification of accounting systems based on evidence available to date, that is, the degree of implementation of the IAS Regulation in the Member States. Consistent with Nobes (1998), we find that the degree of public accountability to outside investors (the ‘public/private’ criterion) is becoming the primary differentiator for accounting systems in Europe, surpassing country-level variables such as legal system and culture. The distinction between consolidated and individual financial statements is the second emerging differentiator. While consolidated accounting is becoming more uniform across countries, cross-country cultural differences are most likely to persist in individual accounting. Based on our analysis we highlight two important areas of future research beyond the consolidated financial statements of listed firms (e.g. Nobes, 2005; Schipper, 2005). First, at the country level, the interaction of IFRS and individual financial statements will need to be reassessed. In addition, research could help introduce a degree of differentiation into financial reporting regulation for unlisted firms, because these firms are not a homogeneous group. Also, the convergence of national GAAP systems with IFRS will benefit from fresh research insights. Second, at the firm level, future research could analyze the extent to which the determinants and consequences of IFRS adoption, an area well researched for publicly traded firms (e.g. Cuijpers and Buijink, 2005), generalize to unlisted firms. Such research will help detect emerging patterns of accounting systems within an international context. It will generate insights into the disconnect of consolidated accounts from national influences, the degree of uniformity of consolidated accounts among international firms, the continued relevance of traditional classifications of international accounting systems for individual accounts and accounts of unlisted companies, and the convergence of national standards with IFRS.     

Monetary policy and dividend growth in Germany: long-run structural modelling versus bounds testing approach

This study examines the long-run relationship between monetary policy and dividend growth in Germany. For this purpose, cointegration is tested for between both variables in the period 1974 to 2003. However, problems related to spurious regression arise from the mixed order of integration of the series used, from mutual causation between the variables and from the lack of a long-run relationship among the variables of the model. These problems are addressed by applying the bounds testing approach to cointegration in addition to a more standard long-run structural modelling approach. In principle, both procedures are capable of dealing with the controversial issue of the exogeneity of monetary policy vis-à-vis dividend growth. However, the structural modelling approach still leaves a certain degree of uncertainty about the integration properties of the interest rate and the dividend growth. Hence, one feels legitimized to refer to the bounds testing procedure and to conclude that in the longer term short-term rates drive stock returns but not vice versa.     

How the ECB and the US Fed set interest rates

Monetary policies of the European Central Bank (ECB) and US Fed can be characterized by ‘Taylor rules’, that is both central banks seem to be setting rates by taking into account the ‘output gap’ and inflation. We also set up and tested Taylor rules which incorporate money growth and the euro–dollar exchange rate, thereby improving the ‘fit’ between actual and Taylor rule based rates. In general, Taylor rules appear to be a much better way of describing Fed policy than ECB policy. Simulations suggest that the ECB's short-term interest rates have been at a much lower level in the last 2 years compared with what a Taylor rule would suggest.     

Foreign-owned plants and job security

We investigate the hypothesis that workers in foreign-owned plants face greater job insecurity than those in domestic-owned plants. Using linked employer-employee data from Germany, we examine whether foreign-owned plants are more likely to close down, and whether workers in foreign-owned plants face higher separation rates. Our results show that, in Germany, foreign-owned plants per se are not associated with greater job insecurity, either through plant exit or worker separation. However, small, non-exporting and privately owned foreign-owned plants do face a higher risk of closure than equivalent domestic plants.     

Ich fühle,also bin ich — Markenemotionen machen den Unterschied

Marken l?sen Gefühle bei den Konsumenten aus. Eine Studie zeigt: Starke Marken profitieren von den mit ihnen verknüpften positiven Emotionen, schwache Marken hingegen k?nnen sogar negative Gefühle erzeugen. Es gilt also, Marken „positiv aufzuladen“. Denn st?rkere Markenbindung und gesteigerte Markenbegehrlichkeit wirken sich letztendlich auch positiv auf die Kaufentscheidung der Verbraucher aus.     

On the Dynamics of Basic Growth Models: Ratio Stability vs. Convergence and Divergence in State Space

Abstract. We show for a class of basic growth models that convergence in ratios does not imply the pathwise convergence to the corresponding balanced growth path in the state space. We derive conditions on parameters and on the elasticity of the savings function for convergence or divergence and apply our results to the Solow model, an augmented Solow model as well as to an optimal growth model. An implication for the convergence debate is that two economies that differ only in the initial capital stock and converge in per capita terms might diverge to infinity in absolute terms.     

Cognitive Dissonance as an Explanation of Goodwill Write-Offs

While agency theory has been an important part of accounting academic research, many researchers have suggested that other theories should also be considered. One such theory is the theory of cognitive dissonance. In this study, the authors develop competing hypotheses based on agency theory and the theory of cognitive dissonance regarding the decision to record an impairment of goodwill. Using an archival research methodology, they test the hypotheses on a sample of 2,274 firm-year observations. The results are consistent with the theory of cognitive dissonance even after controlling for variables that have been found to be significant under agency theory. The authors conclude that there is strong evidence to suggest that agency theory does not uniquely explain the results of management decisions as seen through financial reporting data.