Does Corporate Diversification Destroy Value?

We analyze several hundred firms that expand via acquisition and/or increase their number of business segments. The combined market reaction to acquisition announcements is positive but acquiring firm excess values decline after the diversifying event. Much of the excess value reduction occurs because our sample firms acquire already discounted business units, and not because diversifying destroys value. This implies that the standard assumption that conglomerate divisions can be benchmarked to typical stand-alone firms should be carefully reconsidered. We also show that excess value does not decline when firms increase their number of business segments because of pure reporting changes.     

Panel Asymptotics and Statistical Decision Theory

This paper develops some applications of asymptotic statistical decision theory in econometrics, focusing on settings where the data are organized into groups or cells with heterogeneous parameters. Even if the groups are of different sizes, local asymptotic normality holds under suitable regularity conditions, and this can greatly simplify analysis of different types of econometric problems. We apply these results to the analysis of treatment assignment rules, and to estimators of cell‐specific parameters that employ shrinkage towards parametric models.     

Technological convergence, R&D, trade and productivity growth

This paper analyses productivity growth in a panel of 14 United Kingdom manufacturing industries since 1970. Innovation and technology transfer provide two potential sources of productivity growth for a country behind the technological frontier. We examine the roles played by research and development (R&D), international trade, and human capital in stimulating each source of productivity growth. Technology transfer is statistically significant and quantitatively important. While R&D raises rates of innovation, international trade enhances the speed of technology transfer. Human capital primarily affects output through private rates of return (captured in our index of labour quality) rather than measured TFP.     

On a family of data-based transformed models useful in forecasting technological substitutions

This paper examines, via real data, some well known models for technology substitution analysis. We propose a family of data-based transformed models that will include the models under examination as special cases. The basic thrust of the paper is the recognition that for technology substitution analysis, the observations are time series data and hence are not independent. Also, the functional form of the model should be determined by both theoretical considerations as well as the data on hand. This suggests that the traditional ordinary least squares procedure used in estimating the parameters and the resulting forecasting procedures are not adequate. The existing models examined here are Fisher–Pry, Gompertz, Weibull, and Normal. We stress the statistical aspects of the models and their relative merits in terms of predictive power. The criteria used for the purpose of comparison are the mean squared deviation and the mean absolute deviation of the predicted values compared with the actual observations.     

PRICES AND PRICE ANALYSIS IN THE FRAMEWORK OF THE NATIONAL ACCOUNTS

The paper discusses the role of prices in the framework of the new System of National Accounts (SNA) in terms of three major uses: (1) deflation, (2) price indicators, and (3) price analysis. Following a brief review of the price and quantity measures required by the new SNA with its emphasis on deflation of commodity flows and input-output accounts, in addition to the more conventional deflation of final demand categories, the paper discusses some of the conceptual, methodological and data problems involved in implementing the various uses of prices in the new SNA. Implementing the use of prices as deflators depends, in part, on the concept of output selected (national versus domestic; gross versus net), and which of six concepts of valuation, ranging from purchasers'value to true factor cost, is used. Some of the difficulties in deflating nonmarket flows (e.g., interplant transfers) and industry value added, based on the double deflation method, are discussed. In concept price deflators, which have shifting weights, cannot be used as price indicators, which should have fixed weights. In practice, this is often disregarded and the deflators are used as price indicators. The paper support the SNA recommendation for the development of price indexes with fixed weights to be used as price indicators, in addition to the implicit price deflators. Research in the United States indicates that differences in weights can result in different price measures for various subperiods, components of demand and sector output. Periodic revisions in weights to provide more current fixed weights for price and quantity indexes in each subperiod may minimize the problem but it introduces a new problem—lack of comparability with the constant price tables in the SNA which have fixed weights for the entire period. The new SNA provides a comprehensive and integrated framework for price analysis including the analysis of the structure of aggregate price changes, the industrial origin of final demand prices, and the impact of price change in one sector of the economy on the rest of the economy. Some major gaps which need to be overcome in order to implement the use of the new SNA for price analysis include the development of industry capital stock estimates, separate estimates of proprietors’income, reconciliation of value added and distribution share estimates, and the development of a wide variety of information to supplement the conventional input-output tables in the SNA. Implementing the various objectives of price measures within the framework of the accounts will require a number of improvements in existing price measures and expanding the scope of coverage. “List” prices should be superseded by “transactions” prices and better techniques and data need to be developed to provide for quality adjustment of prices. Coverage will need to be expanded to include services, freight rates, trade margins, government expenditures, and also fill in gaps for many manufactured products. Finally, where possible, use of unit values as price indexes or deflators, e.g., imports and exports, should be replaced by direct price measures.     

Liquidity constrained exporters and trade

We present a model of a risk-averse exporting firm subject to liquidity constraints. We show that preferences and expectations become important for optimum export and hedging decisions. Only firms that have sufficient financial resources can fully materialize gains from trade.