Is constant returns-to-scale a restrictive assumption for sector-level empirical macroeconomics? The case of Europe

Assuming constant returns-to-scale is commonly agreed for empirical macroeconomic studies when countries are of interest. Recently, an increasing number of works have started to look at sectors building on the same assumption. In this letter, we question the reliability of this assumption for 10 European sectors for the period 1995–2014, for different production factor combinations. We make use of a simple sample-based nonparametric test that does not require any assumptions for any aspect of the production process. Our results suggest that, in general, this assumption is rather acceptable and that the specification with only capital and labour is the best in this case.     

The Effect of Business and Financial Market Cycles on Credit Ratings: Evidence from the Last Two Decades

We analyze the effect of business and financial market cycles on credit ratings using a sample of firms from the Russell 3000 index that are rated by Standard and Poor's over the period 1986–2012. We also examine investor reaction to credit rating actions in different stages of business and financial market cycles. We document that credit rating agencies are influenced by business and financial market cycles; they assign lower credit ratings during downturns of business and financial market cycles and higher ratings during upturns. Our study is the first to find strong evidence of pro‐cyclicality in credit ratings using a long window. We also document stronger investor reaction to negative credit rating actions during downturns. Our results confirm theoretical predictions and inform regulators.     

Winners and losers in the Arab uprisings: a Mediterranean tourism perspective

This paper analyses the effects of the recent Arab uprisings on tourism destinations located along the Mediterranean coastline. It uses time-series analysis to model international tourist arrivals. First, autoregressive integrated moving average models are estimated for the period 1980–2009 and predicted for 2010–2014 to establish suitable country controls. Second, Bayesian structural time-series models – designed primarily to determine causal impacts in on-line marketing campaigns – are used to establish the effects of the events in Tunisia, Egypt, Morocco, Turkey, Spain and Greece. The main conclusion is that the models clearly capture the negative impact of the uprisings in Tunisia and Egypt and their positive impacts on Morocco and Turkey. However, the effects on Spain and Greece are less clear and depend crucially on the set of controls used in the analysis.     

Do Corporate Governance Motives Drive Hedge Fund and Private Equity Fund Activities?

We document empirical evidence that both hedge fund (HF) and private equity fund (PE) investments are driven by corporate governance improvements, but address different types of agency conflicts. Whereas HFs focus on firms without a controlling shareholder, in particular family shareholders, PEs invest in firms with low managerial ownership. Both appear to address free cash flow problems differently. Aiming at increasing dividends, HFs tend to use commitment devices that can be implemented over a short horizon. PEs are inclined to longer‐term strategies: they target firms that are particularly well suited for leverage increases because of low expected financial distress costs.     

Cash Flow Sensitivity of Investment

Investment cash flow sensitivity is associated with both underinvestment when cash flows are low and overinvestment when cash flows are high. The accessibility of external capital is positively correlated with cash flows, intensifying investment cash flow sensitivity. Managers actively counteract the variations in internal and external liquidity by accumulating working capital when liquidity is high and draining it when liquidity is low. These results imply that cash flow sensitive firms face financial constraints, which are binding in low cash flow years. Traditional indicators of financial constraints, such as size and dividend payout, successfully distinguish firms that may potentially face constraints, but are less successful in distinguishing between periods of tight and relaxed constraints. These periods are much more clearly separated by the KZ index, which, on the other hand, is less successful in identifying firms that are likely to face liquidity constraints.     

Farmers’ objectives as determinants of organic farming adoption: the case of Catalonian vineyard production

This article assesses the decision to adopt organic farming practices. We use Duration Analysis (DA) to determine why farmers adopt organic farming practices and what influences the timing of adoption. We extend previous studies by including farmers’ objectives, risk preferences, and agricultural policies as covariates in the DA model. The Analytical Hierarchy Process is used as a multicriteria decision‐making methodology to measure farmers’ objectives. The empirical analysis uses farm‐level data from a sample of vineyard farms in the Spanish region of Catalonia. Farmers’ objectives are found to influence the conversion decision. Moreover, farmers who are not risk averse are more likely to adopt organic farming. Results point to the policy changes that have been most relevant in motivating adoption of organic practices.     

Economic evaluation of rehabilitation: The quality of life approach using EuroQol

By using resources in a health care alternative activity, the objective for improved health requires the valuation of competing health care programs to inform resource allocation and facilitate prioritization. A measure of health status is used as an outcome of rehabilitation. This paper uses the EuroQol/EQ-5 as an instrument to measure health-related quality of life. Health status is used to determine values that correspond to preferences of the general public. This analysis assumes the existence of a structural problem where the performance of the rehabilitation program and the prognosis behind the definition of need for rehabilitation are determined simultaneously.     

Optimal dynamic regulation of carbon emissions market

In this article, we deal with optimal dynamic carbon emission regulation of a set of firms. On the one hand, the regulator dynamically allocates emission allowances to each firm. On the other hand, firms face idiosyncratic, as well as common, economic shocks on emissions, and they have linear quadratic abatement costs. Firms can trade allowances so as to minimize total expected costs, which arise from abatement, trading, and terminal penalty. Using variational methods, we first exhibit in closed form the market equilibrium in function of the regulator's dynamic allocation. We then solve the Stackelberg game between the regulator and the firms. The result is a closed-form expression of the optimal dynamic allocation policies that allow a desired expected emission reduction. The optimal policy is unique in the presence of market impact. In absence of market impact, the optimal policy is nonunique, but all the optimal policies share common properties. The optimal policies are fully responsive, and therefore induce a constant abatement effort and a constant price of allowances. Our results are robust to some extensions, like different penalty functions.     

Do All Emerging‐Market Firms Partner with Their Acquisitions in Advanced Economies? A Comparative Study of 25 Emerging Multinationals’ Acquisitions in France

Emerging multinationals’ acquisitions in advanced economies are a growing phenomenon that remains relatively unexplored. Although there is now a consistent body of knowledge concerning multinationals from major emerging countries such as China, empirical data encompassing a larger array of countries of origin are still lacking. This article contributes to a better, contextualized understanding of commonalities and differences among emerging multinationals in terms of how they manage their developed‐region‐based acquisitions. Adopting a comparative international management perspective, we discuss recurrent hypotheses about such multinationals’ management styles (e.g., their partnering or light‐touch integration approach following upmarket acquisitions) with empirical data on acquisitions in France by multinationals from 13 countries. While confirming some hypotheses, we refine the definition of the partnering approach and identify a new, previously overlooked integration mode. We also discuss the antecedents of integration approaches, highlighting the influence of administrative heritage and contextual factors on emerging multinationals’ international management practices. © 2016 Wiley Periodicals, Inc.     

Firms' Growth,Size and Age: A Nonparametric Approach

This paper offers empirical evidence of firm failurerates as well as the mean of the distribution ofrealized growth rates, distinguishing between thesample of non-failing firms and the sample of allfirms, failing and non-failing. Attention is directedat identifying a set of characteristics, in particularthe size and age of firms, systematically related tothe patterns of firm growth and exit, using a panel ofSpanish manufacturing firms. The two maincontributions of the paper are the use ofnonparametric techniques and the analysis of issuesignored in other studies like theregression-to-the-mean bias and the measurement oflearning effects. We find evidence that failure ratesand the mean growth rate of successful firms declinewith size and age. When failing firms are integrated,there are no significant differences in the meangrowth rate across the age and size of firms.Regression-to-the-mean does not prove to be asubstantial factor behind the negative relationshipbetween size and growth of surviving firms.