The Impact of Corporate Social Performance on Financial Risk and Utility: A Longitudinal Analysis

This study focuses on the wealth‐protective effects of socially responsible firm behavior by examining the association between corporate social performance (CSP) and financial risk for an extensive panel data sample of S&P 500 companies between the years 1992 and 2009. In addition, the link between CSP and investor utility is investigated. The main findings are that corporate social responsibility is negatively but weakly related to systematic firm risk and that corporate social irresponsibility is positively and strongly related to financial risk. The fact that both conventional and downside risk measures lead to the same conclusions adds convergent validity to the analysis. However, the risk‐return trade‐off appears to be such that no clear utility gain or loss can be realized by investing in firms characterized by different levels of social and environmental performance. Overall volatility conditions of the financial markets are shown to play a moderating role in the nature and strength of the CSP‐risk relationship.     

Decomposing the effect of supplier development on relationship benefits: The role of relational capital

Buyers invest considerably in developing their suppliers, yet the performance effects of such investments are not universal. Drawing on social capital theory, this research investigates whether the relationship between supplier development and relationship benefits may be facilitated by the generation of relational capital. The authors examine mediating and moderating roles of relational capital in the relationship between two aspects of supplier development (capability development, supplier governance) and two dimensions of relationship benefits (supplier benefits, buyer benefits), using survey data collected from 185 suppliers of a large manufacturing firm. Investment in supplier development does not automatically result in benefits for the supplier or reciprocated benefits for the buyer. Rather, relational capital “bridges” supplier development and relationship benefits. Without relational capital, benefits from capability development do not accrue, and the impact of a supplier governance regime can be even detrimental. In conditions of high relational capital, capability development results in lower perceived buyer benefits. The results can help managers ensure that the benefits from their supplier development efforts fully materialize.     

Generalized parameter functions for option pricing

We extend the benchmark nonlinear deterministic volatility regression functions of Dumas et al. (1998) to provide a semi-parametric method where an enhancement of the implied parameter values is used in the parametric option pricing models. Besides volatility, skewness and kurtosis of the asset return distribution can also be enhanced. Empirical results, using closing prices of the S&P 500 index call options (in one day ahead out-of-sample pricing tests), strongly support our method that compares favorably with a model that admits stochastic volatility and random jumps. Moreover, it is found to be superior in various robustness tests. Our semi-parametric approach is an effective remedy to the curse of dimensionality presented in nonparametric estimation and its main advantage is that it delivers theoretically consistent option prices and hedging parameters. The economic significance of the approach is tested in terms of hedging, where the evaluation and estimation loss functions are aligned.     

Trading frequency and asset pricing on the London Stock Exchange: Evidence from a new price impact ratio

This study proposes a new price impact ratio as an alternative to the widely used Amihud’s (2002) Return-to-Volume ratio. We demonstrate that the new price impact ratio, which is deemed Return-to-Turnover ratio, has a number of appealing features. Using daily data from all stocks listed on the London Stock Exchange over the period 1991–2008, we provide overwhelming evidence that this ratio, while being unequivocal to construct and interpret, is also free of a size bias. More importantly, it encapsulates the stocks’ cross-sectional variability in trading frequency, a relatively neglected but possibly important determinant of stock returns given the recently observed trends in financial markets. Overall, our findings argue against the conventional wisdom that there is a simple direct link between trading costs and stock returns by strongly suggesting that it is the compound effect of trading frequency and transaction costs that matters for asset pricing, not each aspect in isolation.     

Survey of recent developments

By June 2006, the government had largely completed the difficult tasks of stabilising macroeconomic conditions following the October 2005 fuel price increases, and of drawing up a blueprint to improve infrastructure and the investment climate. On the macroeconomic front, the main issues related to how, and how quickly, the economy could return to the growth rates of late 2004 and early 2005, given still low levels of private and public investment. Sound macroeconomic policies had delivered a stronger rupiah and reduced inflationary pressures, albeit with continued decelerating rates of growth. Private consumption and investment having slowed, government spending had become the key driver of growth, but major delays in public spending continued in the first four months of the year.

The reform agenda includes an impressive raft of new laws, or revisions to old ones, in investment, taxation, customs and labour, all of which were covered under a special Presidential Instruction. However, actual reform was slowed by substantial political obstacles. There was growing concern about divisions within the cabinet on the reform package, and about the capacity of the ministerial team to guide reforms quickly through the bureaucracy and the parliament. This included doubts about the resoluteness of President Susilo Bambang Yudhoyono (SBY) on reform initiatives in the face of vocal opposition (as in the case of labour reform), and about Vice President Jusuf Kalla's commitment when political or business interests close to him were opposed to change (as in the case of divestment of shares in Indonesia by the giant cement multinational, Cemex).

Given likely delays in the reform package's impact on output and employment, uncertainty persists about the level of support the ‘duumvirate’ is prepared to offer reformist ministers, and about the political clout of the reformers themselves, as the government moves into the middle period of the electoral cycle. Examples of weak policy making include watered-down investment reforms, the seemingly ‘quick-fix’ approach underlying a proposal to set up special economic zones, and unsatisfactory handling of continuing disputes in the mining sector. A backdown on labour market reforms, at least for the present, has probably been the biggest setback to date in the SBY–Kalla team's attempt to promote investment: a poorly managed reform effort in terms of both substance and political strategy.

Two other events shook Indonesia during the Survey period. A massive earthquake hit the Yogyakarta region on 27 May, killing nearly 6,000 people and leaving thousands homeless. And on the political front, the attorney general controversially dropped corruption charges against the ailing former president, Soeharto.     

Exploring the Structure of the Illegal Market for Cannabis

Summary This paper explores the middle and retail levels of the illegal market for cannabis in New Zealand using national household drug survey data. Those who reported purchasing half or full ounces of cannabis were defined as middle level market participants, while those who purchased smaller weights or merely used cannabis were defined as retail level participants. Those who had purchased cannabis were then further categorised as either cannabis ‘buyers’ (i.e. those who only purchased sufficient cannabis for their own consumption needs) or cannabis ‘dealers’ based on whether the surplus of cannabis they had, after their own personal consumption was deducted, exceeded the legal definition of cannabis dealing (i.e. possession of 28 g of cannabis or more). Nine per cent of those who had purchased cannabis in the previous year were categorised as middle level participants with 69% of these defined as middle level dealers and 31% as middle level buyers. Middle level cannabis dealers were projected to earn, on average, $2927 (NZD) net annual profit from selling surplus (rate of return of 34%). There was a wide variation in the projected net earnings of the middle level cannabis dealers with the majority earning only modest incomes (bottom 50% – $260 per year, top 10% – $25000 per year). Participants at all levels of the market commonly reported receiving cannabis for ‘free’ and this is likely to reflect the social sharing of cannabis during group consumption and non-cash payments for cannabis. This barter and gift giving tradition may provide cannabis users with a degree of insulation from any price increases for cannabis brought about by law enforcement activity. Cannabis selling creates a convenient source of income for heavy cannabis users to finance their own personal cannabis consumption, which may also dampen the impact of any rise in price brought about by law enforcement success.The 2003 HBS-Drug Use was funded by the New Zealand Ministry of Health and carried out as part of the Public Health Intelligence (PHI) Health Behaviours Survey Monitor. The statistical design for the 2003 survey was completed by Dr. Megan Pledger at SHORE, and by James L. Reilly from Statistical-Insights. The questionnaire was adapted and extended from the National Drug Survey questionnaire for the Health Behaviours programme by Dr. Chris Wilkins. Data collection was managed by Dr. Chris Wilkins, Rachael Lane, Joe Morley and Mary Blade. The statistical analysis of 2003 HBS-Drug Use was completed by Paul Sweetsur. The analysis in this paper was partly funded by the New Zealand Police.     

Ethical Decision Making: The Effects of Escalating Commitment

Despite the recent emergence of many new ethical decision making models, there has been minimal emphasis placed on the impact of escalating commitment on the ethical decision making process. In this paper a new variable is introduced into the ethical decision making literature. This variable, exposure to escalation situations, is posited to increase the likelihood that individuals will choose unethical decision alternatives. Further, it is proposed that escalation situations should be included as a variable in Jones's (1991) comprehensive model of ethical decision making. Finally, research propositions are provided based on the relationship between escalating commitment and the ethical decision making process.