Introductory Essay for a Symposium on “Urban Interventionism”

The Review of Austrian Economics -     

CEO's Operating Ability and the Association between Accruals and Future Cash Flows

This study investigates whether an individual CEO's operating ability, operationalized as the extent to which an individual CEO utilizes the company's assets efficiently to generate profits, explains the association between accruals and future cash flows. While this mapping can be driven by both the quality of accounting measurement and CEO operating ability, there is little empirical evidence on the latter link. After controlling for the CEO's accounting estimation ability, we find that the association between current period accruals and future cash flows is stronger when the CEO demonstrates superior operating ability. This suggests that a CEO's operating ability is an important determinant of the informativeness of current accruals for future cash flows.     

Forecasting U.S. Recessions with Probit Stepwise Regression Models

Yield spreads have been repeatedly used in the literature as the top candidates in predicting future recessions. In this paper, we show that existing model specifications are good but fall short of the performance of more complete models. Applying a probit stepwise regression procedure to a large number of economic indicators, we find models that dramatically outperform those used in the literature. Due to a time series that only began in 1964Q1 and very few historical recessions, any model specification may capture only a few of the economy’s many aspects and thus can potentially be biased. Nevertheless, models with better statistical properties should have a better chance to capture the occurrence of recession. Our chosen models are not immune to statistical limitations but should forecast better than the existing models in the literature.     

Clinical,humanistic, and economic outcomes between drug-eluting stent (DES) and bare metal stent (BMS): 18-month follow-up study

Background: Percutaneous coronary intervention (PCI) is one of the most performed interventions for ischemic heart diseases. In Hong Kong, the total number of patient discharges and deaths for ischemic heart diseases in 2009 was 33,363, including 4,360 deaths. There are over 5,000 cases of PCI yearly. This study aimed to compare clinical, economic, and humanistic outcomes among patients receiving drug-eluting stent (DES) or bare metal stent (BMS) in Hong Kong.

Methods: Patients who received stent implantation between September 15, 2009 and October 11, 2010 in Prince of Wales Hospital, Hong Kong, were recruited and followed for 18 months. Occurrence of major adverse cardiac events (cardiac death, non-fatal MI, TLR and TVR) was employed as the clinical outcome measurements. Improvement in quality-of-life by stent interventions was measured as quality-adjusted life-year (QALY). EQ-5D questionnaire was adopted to assess the QALY gained. Cost-utility analysis and cost-effectiveness analysis for BMS and DES were employed as the economic outcome measurement.

Results: Six hundred and eighty-four patients (DES?=?402; BMS?=?282) were included. From 0–18 months, TLR rate (2.7% vs 3.5%, p?=?.549) and TVR rate (3.7% vs 6.4%, p?=?.111) were lower in the DES group, but without statistical significance. EQ VAS (71.06?±?14.56 vs 71.07?±?16.57, p?=?.998) and utility score (0.81?±?0.17 vs 0.78?±?0.16, p?=?.162) were comparable between DES and BMS group. Overall, the cost per QALY gained was HKD + 1,178,100 and ICER was HKD + 187,000 (1USD?=?7.8 HKD).

Conclusions: No significant difference in TVR, TLR rates, EQ VAS, and utility score was found between the DES and BMS group. The higher cost of index procedure for the DES group was found to be partly offset by reduced cost of follow-up, offering cost-effectiveness in ACS patients, predominantly in STEMI patients. DES was recommended for STEMI patients.     

Leading change when business is good. Interview by Paul Hemp and Thomas A. Stewart

Lou Gerstner's was a hard act to follow. As CEO in what were arguably IBM's darkest hours, Gerstner brought the company back from the brink. After nearly ten wrenching years, in which the big-machine manufacturer remade itself into a comprehensive software, hardware, and services provider, business was looking good. So the challenge for Sam Palmisano, when he took over as CEO in 2002, was to come up with a mandate for a second act in the company's transformation. His primary aim was to get different parts of the company working together so IBM could offer customers "integrated solutions"--hardware, software, services, and financing--at a single price. As part of this effort, he asked all of IBM's 320,000 employees, in 170 countries, to weigh in on a new set of shared corporate values. Over a 72-hour period, thousands of IBMers throughout the world gave Palmisano and his executive team an earful in an intranet discussion dubbed "Values-Jam," an often-heated debate about the company's heart and soul. Twenty-four hours into the exercise, at least one senior exec wanted to pull the plug. The jam had clearly struck a chord with employees, but it was a dissonant one, full of rancor and discontent. Palmisano let the discussion continue, and the next day, the mood began to shift. The criticism became more constructive. Out of the million words generated by the jam grew a set of values that, as Palmisano explains in this interview, are meant to guide the operational decisions made by IBM's employees-and, more important, to serve as Palmisano's mandate to continue the reinvention of the company.     

Rational Moralists and Moral Rationalists Value-Based Management: Model,Criterion and Validation

This paper considers ethical decision making by blending three streams of related research: cognitive moral development of the decision maker, rational choice theory and a subjective expected utility model. Ethical dilemmas can be defined as situations where moral certainty is compromised by rational cognition. In this paper, the authors assume that some people use a morality-first perspective and others a rationality-first perspective. Ethical scenarios were written and used to test hypotheses derived from this perspective. The instrument developed was shown to be in need of further refinement. Results are discussed in terms of relationships between participant-characteristics variables overall and subscale responses to the ethical scenarios.     

A Comparison of Option Prices Under Different Pricing Measures in a Stochastic Volatility Model with Correlation

This paper investigates option prices in an incomplete stochastic volatility model with correlation. In a general setting, we prove an ordering result which says that prices for European options with convex payoffs are decreasing in the market price of volatility risk.As an example, and as our main motivation, we investigate option pricing under the class of q-optimal pricing measures. The q-optimal pricing measure is related to the marginal utility indifference price of an agent with constant relative risk aversion. Using the ordering result, we prove comparison theorems between option prices under the minimal martingale, minimal entropy and variance-optimal pricing measures. If the Sharpe ratio is deterministic, the comparison collapses to the well known result that option prices computed under these three pricing measures are the same.As a concrete example, we specialize to a variant of the Hull-White or Heston model for which the Sharpe ratio is increasing in volatility. For this example we are able to deduce option prices are decreasing in the parameter q. Numerical solution of the pricing pde corroborates the theory and shows the magnitude of the differences in option price due to varying q.JEL Classification: D52, G13     

Hungary's export prospects in the EC market

Political changes in Eastern Europe will help to cement improving economic relations between those countries and the EC, accelerating a trend that flows in part from the continuing economic difficulties in Eastern Europe. Hungary has little alternative but to seek to continue strengthening these ties. Membership in the EC could lead to an expansion of Hungarian exports to the Communities of some 48 percent, with the main gains occurring for meats, iron and steel, fruit and vegetables, textiles, and clothing. Even if membership is unattainable, Hungary stands to gain considerably from an improvement in its standing in the EC pyramid of privileges, and must seek some closer relationship with the EC, encompassing agriculture as well as manufactures, and tariffs and non-tariff barriers.