International financial integration through the law of one price: The role of liquidity and capital controls

This paper takes advantage of the fact that some stocks trade both in domestic and international markets to characterize the degree of international financial integration. The paper argues that the cross-market premium (the ratio between the domestic and the international market price of cross-listed stocks) provides a valuable measure of international financial integration and the effectiveness of capital controls. Using autoregressive (AR) models to estimate convergence speeds and non-linear threshold autoregressive (TAR) models to identify non-arbitrage bands, the paper shows that price deviations across markets are rapidly arbitraged away and bands are narrow, particularly so for liquid stocks. The paper also shows that regulations on cross-border capital flows effectively segment domestic markets. As expected, the effects of both types of capital controls are asymmetric but in the opposite direction: controls on outflows induce positive premia, while controls on inflows generate negative premia. Both vary with the intensity of capital controls.     

Mortgage timing

We study how the term structure of interest rates relates to mortgage choice at both household and aggregate levels. A simple utility framework of mortgage choice points to the long-term bond risk premium as distinct from the yield spread and the long yield as a theoretical determinant of mortgage choice: when the bond risk premium is high, fixed-rate mortgage payments are high, making adjustable-rate mortgages more attractive. We confirm empirically that the bulk of the time variation in both aggregate and loan-level mortgage choice can be explained by time variation in the bond risk premium, whether bond risk premia are measured using forecasters’ data, a vector autoregressive (VAR) term structure model, or a simple household decision rule based on adaptive expectations. The household decision rule moves in lock-step with mortgage choice, lending credibility to a theory of strategic mortgage timing by households.     

National differences in incentive compensation practices: The differing roles of financial performance measurement in the United States and the Netherlands

This paper describes the findings of a study aimed at providing an international replication of a US-based study by Gibbs et al. [Gibbs, M., Merchant, K., Van der Stede, W., & Vargus, M. (2004). Determinants and effects of subjectivity in incentives. The Accounting Review, 79(2), 409–436; Gibbs, M., Merchant, K., Van der Stede, W., & Vargus, M. (2006). The structure of incentive contracts: Evidence from auto dealerships. Working Paper, University of Chicago, University of Southern California, London School of Economics and University of Texas-Dallas] focused on the incentive compensation practices of firms in the automobile retailing industry. The purpose was to determine the extent to which these practices and their effects were similar across countries. Theory provides conflicting predictions as to whether international practices should reflect a situational “best fit” or “global best practices.” We collected a dataset comparable to that of Gibbs et al. from Dutch automobile retailers. The findings reveal dramatic differences in practices across the two countries. As compared to the US firms, the Dutch firms are much less likely to provide their managers with incentive compensation in any form. Where Dutch firms do offer incentive compensation, the payouts are smaller and their bonus awards are less likely to be based on profit measures of performance. But where the Dutch firms use incentive compensation, their performance/reward functions are more complex. Moreover, unlike in the US firms, in the Dutch firms the effects of the use of incentive compensation on net profit and pay satisfaction are negative.     

One Man Two Hats: What's All the Commotion!

We examine performance in publicly listed U.K. companies over a period that encompasses the issuance of the Cadbury Committee's Code of Best Practice, which calls for the abolition of the combined CEO/COB position. We find that companies splitting the combined CEO/COB position to conform to the Code's requirement did not exhibit any absolute or relative improvement in performance when compared to various peer‐group benchmarks. We do not necessarily scoff at mandated board structures, but the evidence suggests that this particular legislature coerced the abandonment of the combined CEO/COB position and appears to be wide of the mark.     

Scholarly achievement and accounting journal editorial board membership

The importance of editorial boards to the peer review process makes it imperative that board members be selected on the basis of proven records of scholarly achievement as demonstrated by publications in peer-reviewed journals and subsequent citations to those publications. Although research in accounting has looked at the composition of editorial boards, the scholarly achievement of editorial board members has not been examined. The purpose of our study is to empirically investigate the scholarly achievement of editorial board members of selected accounting journals. We find that the top accounting journals may not be using the same criteria in selecting editorial board members. Further, the level of achievement of the editorial board members and their articles’ impact factors were often inconsistent with the perceived ranking of the journals in which they served. A discussion and implications of our results are also provided.     

The scheduling and organization of periodic associative computation: Efficient networks

This paper characterizes the efficient decentralized networks for calculating the associative aggregate of cohorts of data of a fixed size that arrive periodically. Radner (1993) proposed this problem of periodic parallel associative computation as a model of the ongoing information processing and communication by the administrative staff of a large organization. For a simpler model in which the organization processes a single cohort of data – which is equivalent to the periodic model when the agents are paid only when busy – he found that the efficient networks are hierarchical but quite irregular, even though the computation problem and technology are each symmetric. In the periodic model in which managers are paid even when idle, it becomes important to minimize idle time when scheduling managers to processing tasks. Such scheduling appears more difficult when each problem is processed by an irregular hierarchy, which suggest that hierarchies might be more regular in the periodic model. However, we show that in a class of efficient networks for periodic computation that spans the efficiency frontier, the processing of each cohort is similar to the efficient processing of a single cohort, and the overall organizational structure is not even hierarchical. Received: 15 October 1994 / Accepted: 6 March 1997     

STABILIZATION WITH WAGE INDEXATION AND EXCHANGE RATE FLEXIBILITY

Abstract. This survey examines the role of wage indexation and exchange rate policy in dampening fluctuations in output around its target level. It is demonstrated that the appropriate choice for wage indexation and exchange rate flexibility is highly sensitive to the nature and the relative importance of the shocks impinging upon the economy, as well as to the relevant parameters in the economy. Moreover, the question of the desired flexibility of the exchange rate should be studied in the context of wage indexation, and vice versa. This interdependence raises the possibility of both policies being complements or substitutes to each other depending on the number of shocks that perturb the economy.     

Differences in Psychological Strategies of Failed and Operational Business Owners in the Fiji Islands*

This study investigates the differences between failed and operational businesses from a psychological perspective. The sample included 71 operational and 20 failed business owners from Suva, the capital of Fiji. It was hypothesized that operational business owners more often employ a detailed and long‐term planning strategy, whereas failed business owners more often pursue a reactive strategy, that operational business owners set more specific and more difficult goals, and that they have a higher degree of human capital than failed entrepreneurs. The data were analyzed using discriminant analysis. Results confirmed the hypotheses regarding planning and goal specificity.     

On optimal growth models when the discount factor is near 1 or equal to 1

The aim of this paper is to fill the gap between intertemporal growth models when the discount factor is close to one and when it equals one. We show that the value function and the policy function are continuous with respect both to the discount factor, β, and the initial stock of capital,   x ₀  . We prove that the optimal policy   g ^β( x ₀)  is differentiable and that   Dg ^β( x ₀)  is continuous with respect to  (β, x ₀)  . As a by-product, a global turnpike result is proved.