Firm exit,technological progress and trade

The dynamics of export market exit and firm closure have found limited attention in the new heterogeneous-firms trade literature. In fact, several of the predictions on firm survival and exit stemming from this new class of models are at odds with the stylized facts. Empirically, higher productivity firms survive longer, most firm closures are young firms, higher productivity exporters are more likely to continue to export compared to less productive exporters and market exits as well as firm closures are typically preceded by periods of contracting market shares. The present paper shows that the simple inclusion of exogenous economy wide technological progress into the standard Melitz (2003) model generates a tractable dynamic framework that generates endogenous exit decisions of firms in line with the stylized facts. Furthermore, we derive the effects of faster technological progress and trade liberalization on export market exit and firm closure.     

Nontraded asset valuation with portfolio constraints: a binomial approach

We provide a simple binomial framework to value American-stylederivatives subject to trading restrictions. The optimal investmentof liquid wealth is solved simultaneously with the early exercisedecision of the nontraded derivative. No-short-sales constraintson the underlying asset manifest themselves in the form of animplicit dividend yield in the risk-neutralized process forthe underlying asset. One consequence is that American calloptions may be optimally exercised prior to maturity even whenthe underlying asset pays no dividends. Applications to executivestock options (ESO) are presented: it is shown that the valueof an ESO could be substantially lower than that computed usingthe Black-Scholes model. We also analyze nontraded payoffs basedon a price that is imperfectly correlated with the price ofa traded asset.     

Unpacking ostensive and performative aspects of organisational routines in the context of monitoring systems: A critical realist approach

Drawing on the theory of organisational routines as generative systems, we deploy a critical realist approach based on Searle's philosophy of language to analyse the generative mechanisms that specify the pre-conditions for recognisable, repetitive patterns of interdependent activities. Using the example of the organisational routines implemented in Germany to monitor the allocation and disbursement of the European Social Fund, we contend that constitutive rules of the type “X counts as Y in context C” are at the very centre of organisational routines. Such rules consist of generative mechanisms that account for the emergence of the ostensive aspects of organisational routines out of artefacts and/or procedures in a social structure of power relations. We further claim that, far from being proxies for the ostensive aspects of routines, artefacts whether tangible or intangible are instantiations of such ostensive aspects on a par with any other performative aspects of routines. On this basis, a re-conceptualisation and a re-labelling of the ostensive and performative aspects of routines are proposed. The former are the result of the activation of systems of constitutive rules, i.e. actual routines in critical realist terminology, the latter are patterns of interdependent activities instantiating the ostensive aspects of routines, i.e. empirical routines in critical realist terminology. Implications for theory and practice are discussed by developing a model of organisational routines that interweaves extant research streams.     

Ex Ante Incentives for Earnings Management and the Informativeness of Earnings

This study examines the relation between ex ante incentives of insurance managers to engage in earnings management to meet regulatory standards and the informativeness of earnings. This study extends prior research by simultaneously examining the effects of earnings management and uncertainty about earnings as suggested by Collins and DeAngelo (1990) and Imhoff and Lobo (1992). Results from a sample of 375 quarterly earnings announcements of 41 property and liability insurers during the period 1989 to 1992 support the hypothesis that when managers' incentives for earnings management are high, earnings announcements are less informative to investors (even after controlling for uncertainty associated with exposure to large-scale catastrophes). Robustness tests suggest that our results are not attributable to firm size, time period effects, firm effects, accounting estimation error, or financial distress risk. These results are consistent with investors using publicly available information to predict P-L insurance managers' ex ante incentives to manage earnings to meet regulatory standards, and that they use this information in forming their beliefs about earnings quality.     

Allocate Capital and Measure Performances in a Financial Institution

This paper provides a model for allocating capital and measuring performances for financial institutions. The methodology relates the economic valuation of the balance sheet to the market value of the firm. In so doing, each business unit is evaluated on an economic basis, and the capital allocated to these units is related to the risk premiums that the market demands. The paper's results have broad applications for corporate managers, risk managers, and other market participants in managing financial institutions to increase shareholders' value.     

Call Options, Points, and Dominance Restrictions on Debt Contracts

We analyze the impact of a contract's length, callability, amortization, and original discount by arbitrage methods. Among instruments that are callable without penalty, longer instruments command a higher interest rate because the borrower possesses the option of repaying relatively more slowly. However, the rate on longer self-amortizing loans cannot be substantially larger than for shorter ones because the payments decrease with contract length. Bounds on the trade-off between points and rate for callable debt are characterized using the trade-off for noncallable debt and the property that the value of the prepayment option increases with the loan's interest rate.     

Assessing the technology contribution to value added

Technology and knowledge are two key components for economic growth; however, the two concepts are not consensually defined. This paper proposes a model to assess and quantify the technology contribution to the value-adding process. The methodological approach implied building an operational concept for technology that is independent of the concepts of knowledge and capital. As such, technology could be interpreted and quantified as an input parameter in a new production model. This model interprets and assesses, separately, the value contributions of the uses of technology, of knowledge and of capital in a production process, defining the Technology Index for that process. The model is applied to manufacturing sectors of seven European countries, quantifying their respective dependences on technology. A comparison of the Technology Index proposed here is made with the OECD's Technology Intensity factor, arguing that the former reflects the technology dependence better that the latter. Accordingly, a criterion for classifying the economic sectors' dependence on technology is proposed. A main contribution from this study is an objective classification criterion for technology dependence of firms and economic sectors. It also provides an easy benchmark procedure for knowledge and capital dependence between firms and sectors.     

The Creation of Value Through Corporate Reputation

The relationship between social and financial performance (CSP – FP) has been a main objective in the literature on business management, as it would provide an economic justification for the social investment insofar as it contributes to the creation of value. This relationship has been empirically tested by several authors though without using a theoretical model that sustains this relationship. The aim of this article is to propose a theoretical model of the process of the creation of value from the reputation generated by companies, integrating the factors that have been shown to be more relevant in this process from previous research, in such a way that hypotheses are put forward regarding the existence of this relationship and the factors that determine it. Finally, an empirical test is performed using the 100 most prestigious companies operating in Spain during 2004.     

Ordering univariate distributions by entropy and variance

This paper examines the role of variance and entropy in ordering distributions and random prospects. There is no universal relation between entropy and variance orderings of distributions. But we place their relationship in the context of a stronger ordering relation known as dispersion ordering. Further, some conditions are identified under which variance and entropy order similarly when continuous variables are transformed. We also analyze parametric changes which do not disturb the agreement between these rankings. The results are conveniently tabulated in terms of distribution parameters.