Limited Arbitrage in Equity Markets

We examine 82 situations where the market value of a company is less than its subsidiary. These situations imply arbitrage opportunities, providing an ideal setting to study the risks and market frictions that prevent arbitrageurs from immediately forcing prices to fundamental values. For 30 percent of the sample, the link between the parent and its subsidiary is severed before the relative value discrepancy is corrected. Furthermore, returns to a specialized arbitrageur would be 50 percent larger if the path to convergence was smooth rather than as observed. Uncertainty about the distribution of returns and characteristics of the risks limits arbitrage.     

Bridging the barriers: knowledge connections,productivity and capital accumulation

The paper contributes to the explanation of the large differences in cross-country productivity performance by modelling and testing the effects of social barriers to communication on productivity and capital accumulation. In an optimal growth model, social barriers to communication, which impede the formation of knowledge connections, are shown to reduce both transitory and steady-state levels of total factor productivity (TFP), per capita consumption and reproducible capital. Empirical testing yields a robust and theoretically consistent result: linguistic barriers to communication reduce productivity and capital accumulation. The findings provide an explanation for cross-country differences in TFP, and fresh insights into how productivity ‘catch up’ may be initiated.

How Do Audit Offices Respond to Audit Fee Pressure? Evidence of Increased Focus on Nonaudit Services and their Impact on Audit Quality

We investigate whether audit offices respond to audit fee pressure by increasing their focus on nonaudit services (NAS), as well as the combined effect of audit fee pressure and an increased focus on NAS on audit quality. We find a positive association between audit fee pressure and changes in NAS at the audit office level. We also find increased rates of client misstatement among audit offices that increase focus on NAS in the presence of audit fee pressure compared to audit offices that do not, suggesting a joint effect on audit quality. We find that the reduction in audit quality occurs in large audit offices. Overall, we provide evidence that audit offices’ provision of additional NAS in the presence of fee pressure is an important dimension to consider when examining the effects of declining audit fees on audit quality.     

Lending to Small and Medium-Sized Firms: Is There an East-West Gap in Germany?

The financing of small and medium-sized firms is important for the catching-up of the East German to the West German economy since reunification. We explore whether it is restricted by unfavorable bank loan terms, using bank-survey data on lending decisions to small and medium-sized firms. A comparison of the terms of lending between the former East German and West German states yields a lending gap given by higher loan prices and collateral requirements in East Germany. This gap can be explained by differences in credit risks and lending strategies of banks.     

Individual Attitudes Toward Others,Misanthropy Analysis in a Cross‐Country Perspective

While misanthropy has been analyzed taking into account one country and just comparing results, we employ the 2004 International Social Survey Program data set and assess its determinants from a cross‐country analysis by considering personal characteristics and country effects. Findings indicate that misanthropy is explained by sociodemographic and economic characteristics (being a woman, education, and marriage reduce misanthropy while being young or poor, and self‐employment have the opposite effect). Country effects result significant consequently, some environmental factors play a relevant role. Finally, we add new elements to the discussion by showing a strong relationship among our misanthropy ranking and two corruption perception rankings.     

Environmental Innovations in Small and Medium Sized Enterprises

Supporting and accelerating the adoption and diffusion of environmental innovations amongst small and medium sized enterprises (SMEs) is a major challenge to environmental policy makers. Research suggests that whilst SMEs possess high flexibility, their innovative capacity may be limited to incremental changes within their existing technology system and network. Twenty case studies examining the innovation adoption process in SMEs in four sectors and in five countries within the ENVIS project (commissioned by the EU) revealed great variety in factors driving this process. Findings indicate that this variation can be attributed to the character of the environmental innovation, the specific business opportunity, the regulatory setting and pressure experienced by the sector. Based on these findings an analytical framework is suggested, whereby the environmental innovative capability of SMEs is conceived as the result of an interplay between the competencies, the network relations and the strategic orientation of the company (the 'dynamic triangle'). This indicates that policy to support SME's adoption of environmental innovations has to take an integrated form, i.e. addressing and developing competence, networks and strategic orientation of SMEs simultaneously whilst remaining systemic and context sensitive.     

Risk perception in Korea: a comparison with Japan and the United States

Using a psychometric paradigm, this study examines cross-cultural similarities and differences in the risk perceptions of three samples (Korea, Japan and the United States), through a comparison of 70 environmental risks. The results show that the three samples have a similar two-factor structure and two higher order factors ­ 'dread risk' and 'unknown risk' ­ structure risk perceptions of the 70 risks. The results also indicate that differences in the perceptions of specific risks are significant. Speculations for these differences are discussed.     

Genetic testing: affected parties and decision making

The network of issues around information obtained from genetic testing is wide and complex. While risk assessment, awareness and discussion are often public driven, and in many instances, including that of nuclear power, are allied with democratic principles, the case of gene technology and genetic testing appears to be different. The opportunity for risk assessment by gene testing is rejected by many, and this rejection is supported by the claim of the right not to know. This article discusses the background to this development, and argues that decisions that consider issues related to genetic testing should be taken with the participation of affected parties.