Congestion effects in a public-good economy

This paper considers a public-good economy with congestion, where participants jointly produce a public good from input of a private good. This economic model gives rise to a transferable-utility game, the profit game, that depends on consumer preferences and a congestion parameter. The simplicity of the game allows the maximum level of congestion that guarantees the nonemptiness of the core of the economy to be determined. It is known that the sustainability of the Lindahl equilibrium in the core of the economy depends on the distribution of profits. In this paper two distributions of profits are compared: the Lindahl solution and the marginal-contribution solution. The latter is more often in the core than the Lindahl solution which in turn Lorenz-dominates the marginal-contribution solution.     

The Two Faces of Analyst Coverage

We find that positive excess (strong) analyst coverage is associated with overvaluation and low future returns. This finding is consistent with the view that excessive analyst coverage, driven by investment banking incentives and analyst self-interests, raises investor optimism causing share prices to trade above fundamental value. However, weak analyst coverage causes stocks to trade below fundamental values. This finding indicates that investors tend to believe that these firms are more likely to be plagued by information asymmetries and agency problems. The results remain robust after controlling for the possible endogenous nature of analyst coverage and analysts' self-selection bias.     

Securityholder Taxes, Corporate Capital Structures and the Priority Structure of Debt

This paper shows that the firm has an incentive to issue multiple classes of debt that are differentiated by seniority to enhance securityholder tax-timing option values. The analysis establishes that there is at least one mix of senior and junior debt that maximizes the tax option gain from having multiple priority classes of debt. An analytic example provides specifications for the optimal amount of leverage and the optimal mix of senior and junior debt. Relative to the case of only one class of debt, a multiple debt priority structure increases the optimal amount of corporate leverage.     

Credit risk transfer and contagion

Some have argued that recent increases in credit risk transfer are desirable because they improve the diversification of risk. Others have suggested that they may be undesirable if they increase the risk of financial crises. Using a model with banking and insurance sectors, we show that credit risk transfer can be beneficial when banks face uniform demand for liquidity. However, when they face idiosyncratic liquidity risk and hedge this risk in an interbank market, credit risk transfer can be detrimental to welfare. It can lead to contagion between the two sectors and increase the risk of crises.     

Technology and Rights

What do we know about technology and rights? This article provides a fairly comprehensive overview of current issues regarding this topic. We explore and analyse a wide spectrum of rights that are challenged in this current era of technological convergence. We use the United States Bill of Rights as an example of the vulnerability of legal protections for rights against particular political and technological changes in this post 9-11 climate. New streams of rights acting as a safeguard against further incursions of technology into civil liberties are explored. We also address intellectual property rights and international trends in copyright, patent and trademark laws. We question whether these issues of technology and rights have a place in current technological literacy scenarios.     

Ownership structure and the pricing of discretionary accruals in Japan

This paper examines the valuation effect of discretionary accruals for Japanese firms, taking into account the book value of equity. Consistent with US evidence, the Japanese market prices discretionary accruals, indicating that discretionary accruals enhance the value relevance of reported earnings. This value relevance is lower for cross-held firms, consistent with the view that cross-business shareholding aggravates tunneling or managerial opportunism through discretionary accounting choices. On the other hand, foreign shareholding and bond financing provide effective monitoring on managerial discretion of profit firms to enhance the valuation of discretionary accruals.     

New development: Unified scores of governance capacity using a Bayesian latent variable analysis

A plethora of governance measures has been developed to assess governance capacity in different countries. Choosing one indicator over another involves discretionary decision issues. This article presents a new unified measure of governance capacity for the administrative and political dimensions. The unified measure provides a more accurate understanding of governance than single indices.     

An Analysis of Trade Patterns and the Effects of the Real Exchange Rate Movements in East Asia

This article investigates the patterns of vertical specialization in trade among China, Japan and Korea, and the effects of real exchange rate fluctuations under a multistage production process. By extending the models of Yi (2003, 2010), we derive two distinct features of vertical specialization and test them using Time-Varying Parameter (TVP) VAR. We find that a positive shock to China’s final good consumption increases the intermediate goods trade between Korea and China, with expanding magnitude over time. In addition, the positive effect of a real exchange rate depreciation on intermediate goods trade is strengthened through the competitiveness-enhancing channel, with this effect being more pronouncing in Korea-China trade than in Korea-Japan trade.     

The Role of Total Factor Productivity Growth in Middle-Income Countries

We examine the importance of total factor productivity (TFP) growth in middle-income countries (MICs) based on cross-country panel data for the period of 1975–2014. We find that TFP growth contributed significantly to a country’s upward transition from middle-income to high-income country group. The TFP growth model reveals that the catch-up effect, human capital, smaller population, weak currency, and research and development growth are significant sources of TFP growth. We do not find a systematic difference in the TFP growth models for MICs. In analyzing the role of factors influencing TFP growth at different income stages, strengthening innovative activities and building innovative capacities are important in overcoming the challenges that MICs face when transitioning to the high-income group. Governments of upper MICs need to initiate reform to motivate innovation by optimizing national R&D systems, and redesigning the educational system to target promoting innovation.     

Debt financing in private and public firms

Using administrative confidential data on the universe of Canadian corporate firms, we compare debt financing choices of private and public firms. Private firms have higher leverage ratios, which are entirely driven by private firms’ stronger reliance on short-term debt. Further, private firms rely more of leverage during economic expansions, while public firms rely on equity financing. Specifically, private firms manage to increase their long-term debt during expansions, while short-term debt is used during downturns. Our findings have implications for a better understanding of the role of asymmetric information in private firms’ capital structure decisions.