Development costs capitalization and debt financing

This study investigates debt market effects of research and development (R&D) costs capitalization, using a global sample of public bonds and private syndicated loans issued by public non‐financial firms. Firstly, we show that firms capitalize larger amounts of R&D in a year when they exhibit a propensity for issuing bonds, rather than borrowing funds privately from the syndicated loan market, in the subsequent year. Secondly, we provide evidence that capitalized R&D investments reduce the cost of debt. We infer that debt market participants are able to identify firms’ motives for R&D capitalization, as we find a reduction in the cost of debt only for those firms that do not show indications of employing R&D capitalization for earnings management reasons. Indeed, only for this sub‐sample of firms, the amount of capitalized R&D contributes positively to future earnings. We confirm that R&D capitalization is positively associated with audit fees and thus can be deemed to be a signaling device. Lastly, we find that it is the amount of R&D a firm is expected to capitalize and not the discretionary counterparts, which facilitates a firm's access to public debt markets, reduces bond and syndicated loan prices, and contributes to future benefits.     

Cross‐sectional Tests of Conditional Asset Pricing Models: Evidence from the German Stock Market

We study the performance of conditional asset pricing models and multifactor models in explaining the German cross‐section of stock returns. We focus on several variables, which (according to previous research) are associated with market expectations on future market excess returns or business cycle conditions. Our results suggest that the empirical performance of the Capital Asset Pricing Model (CAPM) can be improved when allowing for time‐varying parameters of the stochastic discount factor. A conditional CAPM using the term spread explains the returns on our size and book‐to‐market sorted portfolios about as well as the Fama‐French three‐factor model and performs best in terms of the Hansen‐Jagannathan distance. Structural break tests do not necessarily indicate parameter instability of conditional model specifications. Another major finding of the paper is that the Fama‐French model – despite its generally good cross‐sectional performance – is subject to model instability. Unconditional models, however, do a better job than conditional ones at capturing time‐series predictability of the test portfolio returns.     

Merger policy and tax competition: the role of foreign firm ownership

In many situations, governments have sector-specific tax and regulation policies at their disposal to influence the market outcome after a national or an international merger has taken place. In this paper we study the implications for merger policy when countries non-cooperatively deploy production-based taxes and firms may be partly owned by foreigners. We find that when foreign firm ownership is low in the pre-merger situation, non-cooperative tax policies are more efficient after a national merger, and smaller synergy effects are needed for this type of merger to be proposed and cleared. In contrast, cross-border mergers dominate when the degree of foreign firm ownership is high initially. These results suggest a link between increasing international portfolio diversification and the rising share of cross-border mergers.     

Prediction markets for foresight

To navigate turbulent business environments, organizations have to develop foresight capacities that enable them to anticipate probable futures, respond rapidly to emerging changes, and support future oriented action. However, there are remaining barriers that impede a wider implementation of foresight. In particular, the necessities to deal with the future, anticipate change, enhance participation and reduce costs and complexity call for new methods to improve current foresight activities. In this paper, we introduce prediction markets to the field of foresight. Prediction markets are a structured approach to collect and aggregate information from groups and have recently gained attention in forecasting. Prediction markets go beyond simple forecasting and can contribute to foresight by providing advantages in terms of continuous and real-time information aggregation, motivation of participation and information revelation as well as cost-efficiency and scalability. We suggest four promising fields of application for prediction markets to enhance foresight: (1) continuous forecasting and environmental scanning, (2) combining with deliberative approaches, (3) continuous idea generation and (4) expert identification. We conclude by considering prediction markets as a nascent and promising method for foresight and advocate for further research.     

IT Controlling – Concepts and Transformation into Practice

In the first part the paper depicts central IT controlling terms and selected IT controlling concepts of the last decade. In the second part a performance oriented IT controlling concept describes central processes of the IT controlling concept by using a three step life cycle model in terms of a reference model. Finally some important results from a current survey concerning the development of IT controlling in German speaking countries are given. Based on these facts the paper describes the needs for action in academia and practice: The role of the IT controller has been established in German speaking countries, but there is disagreement concerning targets, tasks and processes of IT controlling, cost oriented tasks and reporting are dominating the practitioner’s work, established economic methods of IT controlling are not consistently used in companies. This article is also available in German in print and via http://www.wirtschaftsinformatik.de: Gadatsch A (2009) WIRTSCHAFTSINFORMATIK. doi: 10.1007/11576-009-0166-x.     

Demand for redistribution,support for the welfare state,and party identification in Austria

This paper describes subjective wage inequality and the demand for redistribution in Austria using individuals’ estimates of occupational wages from the International Social Survey Program. Although these estimates differ widely across individuals, the data clearly show that most individuals would like to decrease wage inequality, relative to the level of inequality which they perceive to exist. The empirical analysis also shows that the demand for redistribution is strongly associated not only with variables describing self-interested motives for redistribution, but also with perceptions of and social norms with respect to inequality. Further, the demand for redistribution is a strong predictor for whether an individual is supportive of redistribution by the state. On the other hand, however, I find almost no evidence for an empirical association between the demand for redistribution and individuals’ party identification.     

A Theory of Menu Federalism: Decentralization by Political Agreement

This paper analyzes agreements between governments that determine the division of policy-making power between central and regional governments. Our analysis demonstrates that initial circumstances and political risks affect the degree of centralization that will be adopted, and that asymmetric forms of federalism are often consequences of ongoing negotiations between regional and central governments over the assignment of policy-making authority. We analyze three settings where gains from constitutional exchange may exist: (i) the under-centralized state, (ii) the over-centralized state, and (iii) the constitutional convention. In each case, an asymmetric form of federalism is the predicted outcome, although the degree of asymmetry differs according to starting point. Modern and historical examples are used to illustrate the relevance of our analysis.     

Interbank Relationships and the Credit Channel in Germany

A crucial condition for the existence of a credit channel through bank loansis that monetary policy should be able to change bank loan supply. This papercontributes to the discussion on this issue by presenting empirical evidence fromdynamic panel estimations based on a dataset that comprises individual balancesheet information on all German banks. It shows that the average bank reduces itslending more sharply in reaction to a restrictive monetary policy measure the lowerits ratio of short-term interbank deposits to total assets. A dependence on its size canonly be found if explicitly controlled for this dominating effect. Overall, the evidenceis compatible with the existence of a credit channel but the results indicate that it is weakened by the network structures that exist in the German banking system.     

Macroeconomic Fluctuations and Bank Lending: Evidence for Germany and the Euro Area

Abstract. This paper analyzes the dynamic response of loans to the private sector and of economic activity to aggregate supply, demand and monetary policy shocks in Germany and the euro area based on a standard macroeconomic VAR using sign restrictions to identify the structural shocks. The main results of this analysis are that (i) with the exception of the response to the supply shock in Germany, the response of loans to the three macroeconomic shocks is rather weak and in most cases insignificant; (ii) the 2000–05 credit slowdown and weak economic performance in Germany were primarily driven by adverse supply shocks; and (iii) the marked slowdown in credit creation in Germany over this period actually represents a realignment of the outstanding stock of loans with its deterministic level. In order to assess the role of bank lending in the transmission of macroeconomic shocks, we further perform counterfactual simulations and analyze the dynamic responses of German loan subaggregates in order to test the distributional implications of potential credit market frictions. These exercises do not indicate that credit market frictions play an amplifying role in the transmission of macroeconomic fluctuations.