Effects of Adverse Selection on a Multinational Firm’s Decision on where to Subcontract

This paper analyses the effects of adverse selection on a multinational firm’s decision on where to subcontract. Adverse selection arises since subcontractor firms have more information than the multinational concerning their production costs. The results obtained show that adverse selection confers to subcontractor firms an advantage in their relationship with the multinational, inducing the multinational to subcontract in more than one country. In this way, adverse selection modelling outcomes justify, and are coherent with, the empirical evidence such as, the diversity of countries that multinational firms subcontract and the fast production relocation between countries.      

A Signalling Model of Firms' Foreign Direct Investment Relocation Decision

We analyse whether the foreign government can influence the multinational firm's relocation decision, through signalling the amount of subsidy it can grant. The foreign country is one of two possible types which differ on their investment conditions. Comparing the results obtained with an adverse selection model (the government knows the country type but the firm does not) with the results of a signalling model, we conclude that relocation is more likely, and the necessary subsidy is smaller, in the signalling model than with adverse selection. This can explain the proliferation of Investment Support Agencies worldwide.     

What Does Objective Mean in a Dirichlet‐multinomial Process?

The Dirichlet‐multinomial process can be seen as the generalisation of the binomial model with beta prior distribution when the number of categories is larger than two. In such a scenario, setting informative prior distributions when the number of categories is great becomes difficult, so the need for an objective approach arises. However, what does objective mean in the Dirichlet‐multinomial process? To deal with this question, we study the sensitivity of the posterior distribution to the choice of an objective Dirichlet prior from those presented in the available literature. We illustrate the impact of the selection of the prior distribution in several scenarios and discuss the most sensible ones.     

The New Macro Political Economy of Alberto Alesina

The paper examines the scientific work of Alberto Alesina as leader of a new school of macroeconomic political economy which has renovated and broadened the content of this branch of the economic science. His political economy is not dominated by the axiomatic normative economics, where benevolent planners maximize the aggregate welfare dressed in simplistic neo-Keynesian clothing. After an examination of its roots in the Italian tradition of political economy and public finance the paper makes a comparison with the public choice approach, with decision-making by the electors and politicians is done. However, Alesina new macro-economic perspective incorporates the hypothesis of rational agents while the public choice approach is inherently micro economic and is generally based on limited rationally.     

The Banking Relationship's Role in the Choice of the Target's Advisor in Mergers and Acquisitions

We analyse the factors influencing the target company's choice of bank advisor in mergers and acquisitions (M&As). We first examine the choice of hiring an advisor, which is nontrivial, since in one‐third of transactions our sample target companies did not hire one. We also analyse the choice to hire as advisor a bank with a strong prior relationship with the company (i.e., the main bank). Using data on 473 European M&A transactions completed in the period 1994–2003, we find evidence that the decision to hire an advisor depends on three main factors: (i) the intensity of the previous banking relationship, (ii) the reputation of the bidder company's advisor, and (iii) the complexity of the deal. We also investigate the impact of the bank advisor on shareholder wealth. We find that the abnormal returns of target company shareholders increase with the intensity of the previous banking relationship, thus indicating a ‘certification role’ on the part of investment banks.     

Carry Trade Returns with Support Vector Machines

This paper proposes a novel approach to directional forecasts for carry trade strategies based on support vector machines (SVMs), a learning algorithm that delivers extremely promising results. Building on recent findings in the literature on carry trade, we condition the SVM on indicators of uncertainty and risk. We show that this provides a dramatic performance improvement in strategy, particularly during periods of financial distress such as the recent financial crises. Disentangling the measures of risk, we show that conditioning the SVM on measures of liquidity risk rather than on market volatility yields the best performance.     

Antecedents of Managers Moral Reasoning

This research investigates the degree to which there are differences in the moral reasoning ability of business top, middle, and first-line managers in selected industries. This study considered the influence of three independent variables: reported organizational ethical climate, locus of control, and selected demographic and institutional variables on managers reasoning ability. This researcher relies on Kohlberg's theory of moral development, Victor and Cullen's ethical work climate theory, and Rotter's theory of internal-external locus of control (which evolved from Carl Jung). A short form of Rest's DIT instrument measured the moral reasoning abilities of the participants. Selected demographic and institutional variables (age, work tenure, education, gender, management level and industry category) were also measured. A survey questionnaire was sent to 400 managerial and executive level employees at a random sample of Fortune 500 firms throughout the United States: Dun &; Bradstreet provided the researcher with a proportional stratified random sample of these 400 managerial and executive level employees at a variety of organizations. Interestingly, women exhibited insignificant higher (more external) mean I-E scores and (more principled) higher mean “P” score than men. Statistically significant relationship between age and perceived organizational ethical climate types (Caring, Law and Code, Rule, Instrument, and Independence) and between management levels and organizational ethical climate were also found.