Structural policies and growth: Time series evidence from a natural experiment

Documenting the long term impact of structural policies on economic performance has generated tremendous interest in the development literature. In contrast, contemporary effects of structural policies are difficult to establish. Structural policies seldom change sufficiently in the short run, and accepted instruments to control for endogeneity in cross sections are inappropriate for time series analysis. In this paper we utilize an eleven year panel of 26 transition countries to identify short term effects of structural policies that are large and significant. A ten percent change in the quality of structural policies (or the Rule of Law) towards OECD standards is shown to raise annual growth by about 2.5%. To control for endogeneity, we develop an instrument using the hierarchy of institutions hypothesis and find that it holds a robust explanatory power. We also document that early reformers reap the greatest benefits, but that it is never too late to begin structural policy reforms.     

Management von Controllingwissen mit Communities of Practice bei DaimlerChrysler

Ohne Zusammenfassung Prof. Dr. Wolfgang Becker ist Inhaber des Lehrstuhls für Unternehmensführung und Controlling Dr. Thomas Riegler ist Chief Financial Officer Dipl.-Kfm. Daniel Schreiber ist Doktorand in der Finance Academy     

Kohlekraftwerke mit CO<Subscript>2</Subscript>-Abscheidung: Strategien,Rahmenbedingungen und umweltseitige Auswirkungen

A successful implementation of CO₂-capture in power plants is mainly depending on the energy political or economical environment. The future role of lignite and hard coal power production varies widely in presumed energy scenarios. This report considers the actual projections of BDEW. Increasing demand, the replacement of old plants and the compensation of efficiency losses due to CCS-technology cause highly ambitious expansion rates, assuming a retrofit time horizon of 10 years starting in 2020. The corresponding coal demand increases strongly. Therefore, a solely concentration of CO₂-reduction potential is not sufficient. Other environmental impacts triggered through emissions are low compared to the total German impacts. Nevertheless, the compliance with national ceilings for NO_x emissions for example can only be reached by compensation measures in other sectors.     

Too big to succeed or too big to fail?

It is often argued that smaller/younger firms are more innovative than older/larger firms—the latter may be “too big to succeed.” We show in the context of a simple industry model with consumer search frictions why evidence suggesting that smaller or younger firms are more successful at innovation may be subject to sample selection bias. Specifically, smaller more recent entrants may appear to innovate more successfully simply because unsuccessful larger incumbent firms’ size advantage enables them to survive when unsuccessful smaller ones cannot—they may be “too big to fail.”     

A Tale of Two Pizzas: Building Up from a Basic Product Versus Scaling Down from a Fully-Loaded Product

Consumers in the U.S. and Italy were asked to either build up from a consumable base product (pizza) by adding components or scale down from a fully-loaded product by subtracting components. In each country consumers ended up with significantly more ingredients, and a pizza for a higher cost, in the Scale Down Condition than in the Build Up Condition. Results are discussed in terms of the principle of loss aversion underlying phenomena such as the endowment effect, marketing implications of this effect, and future research needs.     

The Owner–Manager Conflict in Insured Banks: Predetermined Salary versus Bonus Payments

This article examines the incentive of a bank's owners and manager to increase the level of assets risk if bank deposits are insured. The model consists of three players: a public insurer (e.g., the FDIC), the bank's owners, and its manager. Empirical evidence has shown that the management of risk (e.g., credit and interest rate risk) and a low level of audit and control can be instrumental in causing banks to fail or get into financial difficulties. In the model, the form of compensation to the manager plays a crucial role in determining the level of asset risk. The article shows under which conditions and form of compensation bank's owners and manager have an incentive to raise the risk level. The model is run first under the assumption that the information between the bank and the insurer is symmetrical, and then under the assumption that it is asymmetrical for two forms of pay: a predetermined salary; and bonus payments whose value is not known at the time the contract between the owners and the manager is signed. The article also examines whether there is a Pareto-optimal contract between the owners and the manager as regards the risk level, given the two forms of pay. This question is important because the absence of such a contract could indicate the existence of a source of instability in the banking system.     

Seasonality in outliers of daily stock returns: A tail that wags the dog?

We document significant intra-year seasonality in outliers of S&P500 daily rates of return. Controlling for outliers in dummy regressions reveals that both the January and Monday effects turn from insignificant to highly significant. Mean daily return on January doubles and becomes significantly higher than all other months of the year, and Monday's mean return turns significantly positive and higher than other days of the week. The recently documented Halloween effect turns significant only after controlling for outliers as June, August, and September turn out to be months with remarkably low rates of returns. Being random, outliers cannot serve as instrumental variables for designing trading rules, yet, their impact on options pricing through the increase in volatility, may be applied for profitable options strategies.     

Technological forecasting and planning exercises in engineering curricula

To sensitize graduate students in engineering to the multidisciplinary nature of decision making in contemporary situations, the elements of technological forecasting have been used as the basis for a graduate course. The principal objective is to use the technological forecasting approach in a structured problem resolution sequence, one of which is discussed here. Faced with a hypothetical problem of diversification in a medium-sized, high-technology organization, the student group employed objective trees, cross-impact matrices and structured interviews (Delphi rounds) in order to define quantitatively the nature and scope of opportunities open within the framework of economic, societal, political, and technological environments pertaining to their situation. Delphi-style debates, using a Consensor, were used to resolve group or individual conflicts. The exercise is intended to expedite adaptation of graduate engineers to the environment (industrial, social, etc.) within which they will be expected to perform as useful decision makers.     

Are Audit Firms' Compensation Policies Associated with Audit Quality?

We examine how compensation policies of audit firms are associated with audit quality. Specifically, we investigate the effects of the ratio of variable to fixed compensation and the size of the basis for profit sharing (i.e., whether partners share profits in a small or in a large profit pool). For our analyses, we use detailed mandatory disclosure of the compensation policies in German audit firms. We document that compensation policies vary considerably across audit firms. We find that profit sharing in a small profit pool and high variable compensation are two characteristics of auditor compensation associated with lower audit quality. We also find some evidence suggesting that audit quality may be most at risk in cases in which partners rely more heavily on variable compensation to divide a relatively small profit pool. In additional analyses, we find that these associations are more pronounced in medium-sized audit firms. We argue that this finding may result from these firms being too large for audit partners to directly monitor each other effectively, yet simultaneously too small to have sophisticated centralized monitoring systems in place. Finally, we find that integrating partner-specific, nonprofit-related performance metrics into the compensation structure mitigates the adverse effects of small profit pools and high variable compensation.