Valuing the Longevity Insurance Acquired by Delayed Claiming of Social Security

Individuals can claim Social Security at any age from 62 to 70, although most claim at 62. We show that expected present value calculations substantially understate both the optimal claim age and the losses resulting from early claiming because they ignore the value of the additional longevity insurance acquired because of delay. Using numerical optimization techniques, we illustrate that the optimal claim age is between 67 and 70. We calculate that the amount by which benefits payable at suboptimal ages must be increased so that a household is indifferent between claiming at those ages and the optimal combination of ages can be as high as 19.0 percent.     

The cost of being late? The case of credit card penalty fees

This paper is the first in the literature to examine the determinants of US credit card penalty fees. Many critics of credit card fees – including a number of US Senators – have argued that credit card penalty fees reflect banks’ market share. Using a unique data set we find that fees are increasing in customer risk which supports the position of defenders of penalty fees, such as banks. However, our finding that fees are increasing in a bank's market share is consistent with the concerns expressed by politicians and regulators. We also find card penalty fees are direct substitutes for card interest rates.     

Estimating the Equity Risk Premium Using Accounting Fundamentals

This study uses recent developments in the theoretical modelling of the links between unrecorded accounting goodwill, accounting profitability and the cost of equity, together with Capital Asset Pricing Model (CAPM) betas, to estimate the ex-ante equity risk premium in the UK. The results suggest that, over our sample period from 1968 to 1995, the premium has been in the region of 5%. Our estimate lends support to the view that the ex-ante equity risk premium is substantially less than the historical average of the excess of equity returns over the risk-free rate, and is similar to the rates applied recently by UK competition regulators.     

IMPACT OF DIVIDEND‐PROTECTED EMPLOYEE STOCK OPTIONS ON PAYOUT POLICIES: EVIDENCE FROM TAIWAN

Abstract. This study used a sample of 1035 Taiwanese firms to examine the impact of dividend protected employee stock options on stock repurchase and cash dividend policies from 2000 to 2005. This study finds a positive relationship between cash dividends and executive options, implying that executives holding stock options might prefer to distribute cash dividends to boost the stock price. This result, unlike in earlier studies, arises from the dividend protected characteristic of Taiwanese employee stock options. Finally, free cash flow, firm profitability, level of debt, investment opportunities and firm size are found to considerably influence payout decisions.     

Capitalism and democracy in the 21st century: a Kaleckian interpretation of a Schumpeterian problem

The paper reinterprets Schumpeter's views on the dynamic effects of taxation, as originally expressed in Crisis of the Tax State, from a Kaleckian perspective. In light of Schumpeter's rejection of Keynesian and Marshallian approaches to taxation, the paper argues that a recently developed Kaleckian approach provides an appropriate basis from which to analyse the effects on the business cycle of balanced changes in the structure of taxation. It is shown that, under certain shifting assumptions, increases in the taxation of wages or profits will stimulate investment and attenuate the amplitude of the business cycle. Ultimately, the shifting of taxes reduces to a conflict over income shares. The changing distribution of income in the United Kingdom in recent years suggests that investment is likely to remain sluggish unless there is a significant reversal of income shares. This may give rise to increasing economic and political tensions into the 21st century.     

The Welfare State, Budgetary Pressure and Labour Market Shifts

Public debate about the welfare state in OECD countries has emphasized the need for reform to meet a twofold set of shocks: budgetary pressure and a labour market shift against unskilled workers. The aim of the paper is to set out a framework for examining the implications of these shocks for the optimal scale of social transfers and, in particular, the impact on different societies, distinguishing a restricted welfare state, labelled "the United States" and a more extensive welfare state, labelled "Continental Europe".     

Accounting and the environment

Introducing a discussion of some of the ways in which accounting and other calculative mechanisms are involved in environmental matters, the article focuses on a number of questions that emerge from accounting for carbon emission permits and corporate environmental reporting. Both are areas where there is already a need for more research and where that need will increase in the coming years. Identifying some of the interests and pressures that already influence approaches in the area, the case is made for the need for both critical and facilitative research.     

What Is in a Municipal Bond Rating?

Studies on the determinants of municipal bond ratings contain two conspicuous patterns: the use of financial accounting variables and the application of discriminant analysis to them. Over 70 different financial accounting variables have been specified, leading to different findings across the studies. In addition, discriminant analysis has been applied in these studies without correcting for violations of its underlying assumptions. Akaike's information criterion and Lachenbruch's U method are used to show how a probit model specified with economic base diversification, economic expansion, and fiscal management variables may be an improvement over the application of discriminant analysis to financial accounting variables in the determination of a triple A bond rating.     

Adjusting for the intervalling effect bias in beta: A Test using Paris Bourse Data

This paper uses a sample of daily returns data from the Paris Bourse to test the predictions of and adjustment procedures implied by the Cohen-Hawawini-Maier-Schwartz-Whitcomb (1983a,b) model of the intervalling effect bias in OLS beta estimates. CHMSW show that the bias diminishes asymptotically to zero as the differencing interval increases and that the sign of the bias depends on a stock's relative value of shares outstanding. We employ the three-pass regression procedure of CHMSW (1983b), but we test a broader set of second pass functional forms and use the Box-Cox (1964) transformation model to verify our chosen form. The CHMSW adjustment procedures are compared with that of Scholes-Williams (1977), and the latter is shown to contain a significant intervalling effect bias.