A Flexible Tool for Model Building: the Relevant Transformation of the Inputs Network Approach (RETINA)*

A new method, called Relevant Transformation of the Inputs Network Approach is proposed as a tool for model building. It is designed around flexibility (with nonlinear transformations of the predictors of interest), selective search within the range of possible models, out‐of‐sample forecasting ability and computational simplicity. In tests on simulated data, it shows both a high rate of successful retrieval of the data generating process, which increases with the sample size and a good performance relative to other alternative procedures. A telephone service demand model is built to show how the procedure applies on real data.     

Differentiating CREF Performance

We examine factors underlying the differences in commingled real estate fund (CREF) performance using a sample of 65 CREFs during 1985–2002. More than half of the individual CREFs underperformed the employed benchmark. However, portfolios of CREFs performed well in both up and down markets, smaller CREFs outperformed larger CREFs, and top performing CREFs continued to outperform. Differential CREF performance appears to be attributable to property selection, rather than allocation across real estate sectors. Liquidity-constrained CREFs exhibited lower risk. CREFs with large benchmark tracking error experienced inferior performance. These findings indicate important cross-sectional differences among CREFs and diversification opportunities for pensions employing multiple CREF investment strategies.     

The determinants of firm–bank relationships in Italy: bank ownership type,diversification and multiple banking relationships

This paper investigates the main features of the relationships between banks and non-financial firms in Italy. Based on detailed firm-level data, we analyse the role of firm-level characteristics, decision-making factors and local credit market indicators in shaping various aspects of corporate banking choices. Empirical results show that young and small firms have a higher probability of relationships with local banks, confirming the advantage of local credit institutions in dealing with informationally opaque firms. Large and internationally active firms tend to establish relationships with national and foreign banks, as they are able to provide more complex banking services that are crucial to access foreign markets. Moreover, firms that are more dependent on external financing are more likely to use multiple and differentiated banking relationships, as a way to diversify external financing sources and alleviate credit constraints.     

Estimating depth of reasoning in a repeated guessing game with no feedback

This paper estimates depth of reasoning in an Iterative Best Response model using data from Weber (2003) ten-period repeated guessing game with no feedback. Different mixture models are estimated and the type (Level-0, Level-1, etc) of each player is determined in every round using the Expectation Maximization algorithm. The matrices showing the number of individuals transitioning among levels is computed in each case. It is found that most players either remain in the same level or advance to the next two levels they were in the previous period. The lowest levels (Level-0 and Level-1) have a higher probability of transitioning to a higher level than Level-2 or Level-3. Thus, we can conclude that subjects, through repetition of the task, quickly become more sophisticated strategic thinkers as defined by higher levels. However, in some specifications the highest levels have a relatively large probability of switching to a lower level in the next period. In general, depth of reasoning increases monotonically in small steps as individuals are subjected to the same task repeatedly.     

A multidimensional spatial lag panel data model with spatial moving average nested random effects errors

This paper focuses on a three-dimensional model that combines two different types of spatial interaction effects, i.e. endogenous interaction effects via a spatial lag on the dependent variable and interaction effects among the disturbances via a spatial moving average (SMA) nested random effects errors. A three-stage procedure is proposed to estimate the parameters. In a first stage, the spatial lag panel data model is estimated using an instrumental variable (IV) estimator. In a second stage, a generalized moments (GM) approach is developed to estimate the SMA parameter and the variance components of the disturbance process using IV residuals from the first stage. In a third stage, to purge the equation of the specific structure of the disturbances a Cochrane–Orcutt-type transformation is applied combined with the IV principle. This leads to the GM spatial IV estimator and the regression parameter estimates. Monte Carlo simulations show that our estimators are not very different in terms of root mean square error from those produced by maximum likelihood. The approach is applied to European Union regional employment data for regions nested within countries.     

Product innovation: testing the relative influence of industry,institutional context and firm factors

This article analyses the influence of industry characteristics (concentration and technological opportunity), the institutional framework (social capital and spillovers from the public sector) and some firm factors (external and internal R&D) on product innovation in a unique integrated framework. Based on a sample of Spanish industrial firms, these variables were found to be positively related to firms’ product innovation. Also, results show that in institutional environments with significant levels of social capital and spillovers, firms change their innovation strategy focusing on external R&D.     

Pricing of Defaultable Bonds with Log-Normal Spread: Development of the Model and an Application to Argentinean and Brazilian Bonds During the Argentine Crisis

In this paper we describe a two-factor model for a defaultable discount bond, assuming log-normal dynamics with bounded volatility for the instantaneous short rate spread. Under some simplified hypothesis, we obtain an explicit barrier-type solution for zero recovery and constant recovery. We also present a numerical application for Argentinean and Brazilian Sovereign Bonds during the default crisis of Argentina.JEL Classification: G 13     

Innovating Beyond the Horizon: CEO Career Horizon,Top Management Composition,and R&D Intensity

Decreasing research and development (R&D) can impair the ability of firms to remain innovative in the long run. CEOs have been accused of curtailing R&D investments as they approach expected retirement, yet received findings on R&D investment behaviors of late‐career CEOs are mixed. We argue that one reason for these inconsistent findings could be that traditional approaches overlook the fact that CEOs are not isolated agents in making R&D decisions. We build on the premise that CEOs interact with their top management team (TMT) when shaping R&D strategy and advance a contextualized view of CEO dispositions in their late career stages as being constrained or enabled by their TMT. We hypothesize that some TMT attributes (e.g., tenure and age) may amplify, whereas others (e.g., functional experience and education) may mitigate inclinations to reduce R&D. Our findings, based on a longitudinal sample of 100 US manufacturing firms from 1998 to 2008, provide nuanced insights into how different TMT characteristics influence CEO‐TMT dynamics, with TMT age and TMT tenure playing particularly pronounced roles. We discuss implications of our CEO‐TMT interface approach for theory and practice. © 2015 Wiley Periodicals, Inc.     

A Subjective Well-being Equivalence Scale for Mexico: Estimation and Poverty and Income-distribution Implications

The estimation of equivalence scales is crucial in cases where a well-being comparison of persons living under different household arrangements is needed: for example, to identify the poor, to calculate poverty rates and to estimate income inequality. In spite of the importance of equivalence scales for economic policy, there is little theoretical guidance on their estimation, and most empirical studies have been carried out in developed countries. Traditional estimation methods have been criticized because of their limitations for making welfare comparisons. This paper uses a subjective well-being approach to estimate equivalence scales. The approach provides an equivalence scale founded on economic satisfaction, which can be used to make welfare comparisons for persons living under different household arrangements—for example, in households of different sizes and with different age composition of household members. The empirical study has been carried out for Mexico using a large database. The implications of the subjective well-being scale for the assessment of poverty and income inequality in Mexico are shown on the basis of a national survey and by comparison with alternative scales.