Hedging,Financing and Investment Decisions: A Simultaneous Equations Framework

We empirically investigate the interactions among hedging, financing, and investment decisions. We argue that the way in which hedging affects a firm's financing and investing decisions differs for firms with different growth opportunities. We find that high growth firms increase their investment, but not leverage, by hedging. However, we also find that firms with few investment opportunities use derivatives to increase their leverage.     

Through Trial and Error to Collusion*

In this article we study a very simple trial and error learning process in the context of a Cournot oligopoly. Without any knowledge of the payoff functions players increase, respectively decrease, their quantity as long as this leads to higher profits. We show that despite the absence of any coordination or punishing device this process converges to the joint‐profit‐maximizing outcome.     

The FRC AND Accounting Standard‐Setting: Should I Still Call Australia Home?

This paper analyses the decision of the Financial Reporting Council (FRC) to replace Australian accounting standards with international accounting standards on 1 January, 2005. Two main topics are considered: the appropriateness of the FRC's directive, and the case against the proposed adoption date. We argue that the FRC has not conducted sufficient consultation with affected parties and that the hasty implementation will impose costs that could have been avoided with the exercise of more caution.     

Executives’ Orientations as Indicators of Crisis Management Policies and Practices*

ABSTRACT The paper examines effects of executives’ orientations on crisis management awareness and practices, drawing on the simplicity and paradox management theories. It is suggested that a focus on single‐sided management constitutes an antecedent of crisis proneness. Employing a set of key corporate domains and based on a holistic organizational approach, the study aims at assessing the extent to which companies are crisis prone or prepared. In a sample of 82 Istaeli business and not‐for‐profit organizations it was found that human resource management, strategy, structure, and unlearning factors significantly predicted crisis preparedness. These results suggest that unlearning, despite a mere allusion to this correlate in the simplicity and paradox management theories, correlates better with crisis preparedness. By contrast, traditional strategy‐related and structural effects were marginally related to crisis management policies. Implications and suggestions for further research are proposed.     

Determining factors in entry choice for international expansion. The case of the Spanish hotel industry

The hotel sector, as a service industry where it is possible to separate capital investment from management skills, is a clear example of how internationalisation can be modelled without shareholding involvement through foreign direct investment. This paper is an empirical examination of the key factors influencing the decision process carried out by Spanish hotel companies in choosing an entry mode for international expansion. The main objective is to verify whether the concepts derived from the transaction-cost, agency and the strategic theories of organisational capability and knowledge in companies can really explain the mode of foreign expansion employed by the Spanish hotel sector. This study will allow comparison of findings on holiday resort hotel chains with other analyses on the international hotel industry.     

Bivariate and multivariate scaled association models. An application to homogamy of social origin and education in Hungary between 1930 and 1979

In this article we compare bivariate and multivariate models for homogamy of social origin and education to test whether bivariate models of homogamy lead to biased results. We use data on Hungarian couples married between 1930 and 1979 and loglinear models of scaled association. The results indicate some differences between bivariate and multivariate analyses. At each point of time bivariate models overestimate homogamy, both with respect to education and social origin. However, results on trends in time do not differ much between the two analyses. The exception is the period 1940–1959, in which bivariate analysis showed decreasing educational homogamy, and multivariate analysis showed an increasing trend. The latter finding can be explained by declining homogamy of social origin, as well as the weaker reproduction and cross-effects in this period.     

CREDIT CYCLES REDUX*

Theoretical studies have shown that under unorthodox assumptions on preferences and production technologies, collateral constraints can act as a powerful amplification and propagation mechanism of exogenous shocks. We investigate whether or not this result holds under more standard assumptions. We find that collateral constraints typically generate small output amplification. Large amplification is obtained as a “knife‐edge” type of result.     

A theoretical framework to evaluate different margin‐setting methodologies

The margin system is the first line of defense against the default risk of a clearinghouse. From the perspectives of a clearinghouse, the utmost concern is to have a prudential system to control the default exposure. Once the level of prudentiality is set, the next concern will be the opportunity cost of the investors, because high opportunity cost discourages people from hedging futures, and thus defeats the function of a futures market. In this article, we first develop different measures of prudentiality and opportunity cost. We then formulate a statistical framework to evaluate different margin‐setting methodologies, all of which strike a balance between prudentiality and opportunity cost. Three margin‐setting methodologies, namely, (1) using simple moving averages; (2) using exponentially weighted moving averages; (3) using a GARCH approach, are applied to the Hang Seng Index futures. Keeping the same prudentiality level, it is shown that the one using a GARCH approach by and large gives the lowest average overcharge. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:117–145, 2004     

The index futures markets: Is screen trading more efficient?

This article uses a nonparametric test based on the arc‐sine law (see, e.g., Feller, 1965 ), which involves comparing the theoretical distribution implied by an intraday random walk with the empirical frequency distribution of the daily high/low times, in order to address the question of whether the abandonment of pit trading has been associated with greater market efficiency. If market inefficiencies result from flaws in the market microstructure of pit trading, they ought to have been eliminated by the introduction of screen trading. If, on the other hand, the inefficiencies are a reflection of investor psychology, they are likely to have survived, unaffected by the changeover. We focus here on four cases. Both the FTSE‐100 and CAC‐40 index futures contracts were originally traded by open outcry and have moved over to electronic trading in recent years, so that we are able to compare pricing behavior before and after the changeover. The equivalent contracts in Germany and Korea, on the other hand, have been traded electronically ever since their inception. Our results overwhelmingly reject the random‐walk hypothesis both for open‐outcry and electronic‐trading data sets, suggesting there has been no increase in efficiency as a result of the introduction of screen trading. One possible explanation consistent with our results would be that the index futures market is characterized by intraday overreaction. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:337–357, 2004     

An empirical analysis of the relationship between the hedge ratio and hedging horizon: A simultaneous estimation of the short‐ and long‐run hedge ratios

This article analyzes the effects of the length of hedging horizon on the optimal hedge ratio and hedging effectiveness using 9 different hedging horizons and 25 different commodities. We discuss the concept of short‐ and long‐run hedge ratios and propose a technique to simultaneously estimate them. The empirical results indicate that the short‐run hedge ratios are significantly less than 1 and increase with the length of hedging horizon. We also find that hedging effectiveness increases with the length of hedging horizon. However, the long‐run hedge ratio is found to be close to the naïve hedge ratio of unity. This implies that, if the hedging horizon is long, then the naïve hedge ratio is close to the optimum hedge ratio. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:359–386, 2004