Leverage and investment in diversified firms

Within diversified firms, the negative impact of leverage on investment is significantly greater for high q than for low q segments and significantly greater for non-core than for core segments. This differs substantially from focused firms and is consistent with the view that diversified firms allocate a disproportionate share of their debt service burden to their higher q and non-core segments. We also find that, among low-growth firms, the positive relation between leverage and firm value is significantly weaker in diversified firms than in focused firms. We conclude that the disciplinary benefits of debt are partially offset by the additional managerial discretion in allocating debt service that is provided by the diversified organizational structure.     

Customer churn analysis: Churn determinants and mediation effects of partial defection in the Korean mobile telecommunications service industry

Retaining customers is one of the most critical challenges in the maturing mobile telecommunications service industry. Using customer transaction and billing data, this study investigates determinants of customer churn in the Korean mobile telecommunications service market. Results indicate that call quality-related factors influence customer churn; however, customers participating in membership card programs are also more likely to churn, which raises questions about program effectiveness. Furthermore, heavy users also tend to churn. In order to analyze partial and total defection, this study defines changes in a customer's status from active use (using the service on a regular basis) to non-use (deciding not to use it temporarily without having churned yet) or suspended (being suspended by the service provider) as partial defection and from active use to churn as total defection. Thus, mediating effects of a customer's partial defection on the relationship between the churn determinants and total defection are analyzed and their implications are discussed. Results indicate that some churn determinants influence customer churn, either directly or indirectly through a customer's status change, or both; therefore, a customer's status change explains the relationship between churn determinants and the probability of churn.     

Consequences of further opening of the Korean dairy market

This paper develops a simulation of Korean dairy policy that is tailored to the data, institutions, and policies in South Korea. It compares potential effects of changes in trade and domestic policy to baseline projections to 2015. Beverage milk continues to be supplied from domestic sources, implying imports compete in the manufacture of tradable products. We model manufactured dairy product supply, demand, and trade on a milk fat and non-fat-solid component basis reflecting product fungibility over the 10-year horizon used for our trade policy analysis. We find that if the domestic price support is removed with no change in trade policy, the market price of raw milk falls by about 2% and raw milk production declines by 4.5%. Under substantial tariff cuts of 30–40% with no effective change in domestic dairy policy, Korean fat and non-fat-solid prices fall by 7% and 11%, fat and non-fat-solid imports rise by 9% and 7% and Korea raw milk production falls by about 2% relative to the baseline. Prices of Korean farmer-owned dairy inputs, labor, and capital fall by about 1%.     

A dynamic multi-commodity model of the agricultural sector: A regional application in Brazil

This paper develops a dynamic model to analyze the development process in the agricultural sector. Formulated as a recursive linear programming model, it contains several commodities as outputs, farm and regional resource constraints on owned and purchased inputs-including working capital-and several farm sizes. The objective function is assumed to be separable for each farm size and additive for the region and measures for each year the net expected revenues from crop and livestock production less an investment charge. Prices are exogenous. The model is applied to a rapidly developing agricultural region in Southern Brazil and tested for its ability to trace regional farm sector development over a decade. It is then used to analyze the impact of alternative agricultural policies including price and credit subsidies.     

Word-Of-Mouth Communication and Community Enforcement

We study a repeated game where a seller, who has a short-term incentive to supply low quality, is periodically matched with a randomly selected buyer. Buyers observe only the outcomes of their neighbors' games and may receive signals from them. When the buyer population is large, the seller may sell high quality even when each buyer observes her action in any given period with an arbitrarily small probability. When networking among buyers is costly, low quality is always supplied with a positive probability. For this case, we characterize an equilibrium where the seller randomizes between high and low quality.     

Price convergence among Indian cities: A cointegration approach

Price dynamics in Indian cities were examined using cointegration analysis. We identified and calculated a common trend for prices in 25 major cities in India. Impulse response functions were obtained to calculate the rates of convergence to the prices and we found that the half-life of any shock is very small for Indian cities. Although a close to 3-month half-life seems too fast, there is some indication in the literature that half-life can be much smaller than the conventional rates of 3–5 years. We have calculated half-life using the panel unit root method, and found that estimates of half-life from cointegration analysis provide a faster convergence rate than estimates using the panel unit root method. We also analyzed how shock can be transmitted from one city to another and found no systematic behavior of transmission from one city to another.     

Inference of Seasonal Cointegration: Gaussian Reduced Rank Estimation and Tests for Various Types of Cointegration*

An extension of Gaussian reduced rank estimation of Ahn and Reinsel (Journal of Econometrics, Vol. 62, pp. 317–350, 1994) to seasonal periods other than four is presented. Simple adjustments for estimation that are necessary because of complex‐valued seasonal unit roots are presented in detail and the asymptotic distribution of the estimators that takes the same form as that in Ahn and Reinsel (1994) is derived. Tests for contemporaneous cointegration and common polynomial cointegrating vectors (PCIVs) for different seasonal unit roots are presented. Finite sample properties are briefly examined through a small Monte Carlo simulation study and a numerical example is presented to illustrate the methods.     

Locally Complete Markets,Exchange Rates and Currency Options

This paper extends the Heath, Jarrow and Morton model (1992) to atwo country setup. In the presence of common shocks and country specificshocks, we retrieve each country's pricing kernel implied by itsterm structure dynamics and show that the pricing kernels impose a constrainton the exchange rate to be the ratio of the pricing kernels. Under therisk neutral measure, the drift of the exchange rate is the interest ratedifferential, and the volatility reflects the forward rate risk-premiumdifferential of the two countries. The result implies that the risk premiumwill enter the currency option pricing model through the volatility term.Under the assumption of non-stochastic forward rate drift and volatility,we are able to derive closed-form solutions for currency options.     

The differential effects of classified boards on firm value

Classified boards actually benefit firms that have low monitoring costs and greater needs for advisory services. Previous literature has emphasized the entrenchment effect of classified boards. However, we find that this adverse impact of classified boards can be offset or even superseded by the potential benefits of board classification for firms who hope to benefit from the advisory services of their independent directors. We show that firms with greater advising needs appoint more outside directors with diverse attributes and expertise, qualifications that enhance the ability to provide useful advice to managers. Furthermore, in such firms, board classification is associated with higher performance sensitivity of forced CEO turnover and better acquisition performance. Conversely, in firms with high monitoring costs, board classification hurts managerial equity-based incentives and risk-taking incentives. These findings suggest how and through which channels classified boards engender the differential effects on firm value.     

Panel data models with multiple time-varying individual effects

This paper considers a panel data model with time-varying individual effects. The data are assumed to contain a large number of cross-sectional units repeatedly observed over a fixed number of time periods. The model has a feature of the fixed-effects model in that the effects are assumed to be correlated with the regressors. The unobservable individual effects are assumed to have a factor structure. For consistent estimation of the model, it is important to estimate the true number of individual effects. We propose a generalized methods of moments procedure by which both the number of individual effects and the regression coefficients can be consistently estimated. Some important identification issues are also discussed. Our simulation results indicate that the proposed methods produce reliable estimates.