How do ARM rates and teasers differ between solvent and insolvent thrifts?

Some economists have argued that poorly capitalized thrifts are the most aggressive issuers of “underwater” ARMs. The results using data from the previously named Federal Home Loan Bank Board’s (now Office of Thrift Supervision) Monthly Survey suggest that, on average, insolvent thrifts do not offer deeper discounts than other thrifts, nor do they charge fewer points or lower margins. In fact over the “full-sample” 1986–1989, insolvent thrifts offered smaller discounts than solvent thrifts while charging higher margins and more points. Large discounts on the sampled ARMs were most closely associated with increases in the 1-year Treasury bill rate, but were also associated with higher origination fees and greater margins. Higher fees and margins tend to offset the income loss associated with large discounts.     

PREDICTING CORPORATE PERFORMANCE FROM ORGANIZATIONAL CULTURE*

This article investigates the relationships of culture strength and two substantive cultural values with corporate performance. Culture strength is measured by the consistency of responses to survey items across people and the two cultural values are measured by items on the survey that relate to either adaptability or stability. The data, from management surveys of 11 US insurance companies in 1981, were correlated with asset and premium growth rates from 1982 to 1987. Results indicate that both a strong culture regardless of content and a substantive value placed on adaptability are associated with better performance for two to three subsequent years on both criterion measures. The results support the findings of Denison (1990) that strength of culture is predictive of short-term performance. The present results, however, suggest a more complex contingency model than that proposed by Denison.     

Markets and the state and the role of local regeneration strategies: A case study of the defence sector in the UK in the 1980s

This article reviews current practice and thinking in the UK with respect to changes occurring in the defence sector. Planned responses and interventionist measures to deal with the consequences of large scale job losses have not been approaches adopted by the UK Government during the 1980s. However, many of the changes have been triggered or directly caused by the Government's own policies to create a free trade and liberalised market economy. An opportunity has arisen for localities, through a growing local economic development function, to play a role in such readjustment. This article examines the extent to which such local responses can exercise any effective control over the future direction and impact of restructuring, and in particular address the role of the military-industrial complex, arms conversion and the peace dividend from this perspective.     

Deposit Insurance, Capital Adequacy Requirements and Interest Rate Dynamics

This paper examines the long run interaction among deposit insurance, bank deposit rates and capital adequacy requirements. Using analysis similar to the price discrimination model of Lott and Roberts (1991) we find that a competitive environment among banks would link the spread between insured and uninsured deposit rates to the size of the insurance premium. We also find that banks that choose to operate at the regulatory minimum capital level, would increase asset risk with increased capital requirements if (1) the implicit interest paid to insured and uninsured depositors is equally sensitive to changes in risk and capital adequacy and (2) the insurance premium is independent of the level of risk and capital adequacy. Under the present risk-based premium structure, asset risk has the potential to decline when the regulatory agency raises capital requirements. Finally, we examine the time series behavior of insured and uninsured interest rates to see if it is consistent with our theoretical model. We find that insured and uninsured rates, along with deposit insurance premiums, are cointegrated series as suggested by our model.     

SOLUTION OF SPATIAL TRADING SYSTEMS WITH CONCAVE CUBIC PROGRAMMING*

Standard spatial equilibrium activity analysis models, as developed by Takayama and Judge (1971), are based on linear supply and demand functions and fixed input-output coefficients. Such models are suitable for multiple market level trading systems where the fixed input-output coefficients are appropriate. A primal-dual price form of these models is developed in which the assumption of constant per unit costs of transformation is relaxed. In the case when the average cost curves of transformation are quadratic in nature the problem becomes one that will be termed cubic programming (that is, a cubic objective function and linear and/or quadratic constraints) which is solved in a concave region of the solution space. In the paper, the formulation of a simplified spatial equilibrium model with quadratic average costs of transformation is presented and solved. A discussion of possible applications of such a model is also presented.     

The external indebtedness and creditworthiness of countries in the east Asian and pacific region

This article examines recent trends in the East Asia and Pacific region's external indebtedness, debt servicing capability, and creditworthiness. Despite the fact that the East Asia and Pacific region is regarded as the most creditworthy of all developing country regions, there are some indications that if borrowings continue to grow at the current pace, particularly in relation to debt servicing ability, the region may begin to encounter more debt repayment problems. In addition, this paper investigates the relationship between country credit ratings for the twenty largest developing country borrowers and interest rates on new obligations. The observed relationship between country creditworthiness and interest rates, while inverse, was not as strong as financial theory would suggest.     

ON PREFERRED STOCK

Preferred stock is issued by many corporations in spite of its apparent disadvantages. This study explains why. A simple partial equilibrium model is presented in which preferred shares are both supplied and demanded. Stronger tax incentives in Canada than in the United States may create a positive preferred equilibrium. Empirical evidence on the relative use of preferred stock in the two countries is presented to support this hypothesis.     

The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and Are There Efficiency Gains?

We analyze the market for corporate assets. There is an active market for corporate assets, with close to seven percent of plants changing ownership annually through mergers, acquisitions, and asset sales in peak expansion years. The probability of asset sales and whole-firm transactions is related to firm organization and ex ante efficiency of buyers and sellers. The timing of sales and the pattern of efficiency gains suggests that the transactions that occur, especially through asset sales of plants and divisions, tend to improve the allocation of resources and are consistent with a simple neoclassical model of profit maximizing by firms.