Equity value,implied cost of equity and shareholders’ real options

This study investigates the effects of shareholders’ real options on (i) firm financial performance and (ii) estimations of the implied cost of equity. After measuring the equity value of steady‐state operations using the residual income model, and the abandonment and expansion options using the Black‐Scholes option pricing model, I find that firms with a large expansion (abandonment) option value experience better (worse) financial performance than those with a small such value. I also find that ignoring these options results in a downward bias in implied cost of equity estimates by an average of 1.23 percentage points.     

Poor university professors? The relative earnings decline of German professors during the twentieth century

Using individual earnings data from university archives, we analyse the position of university professors within the aggregate income distribution over a time span covering the Kaiserreich, the Weimar Republic, the Third Reich as well as the Federal Republic of Germany. We find that not only did the earnings of professors deteriorate with respect to average incomes, due to the compression of the income distribution, but that professorial earnings no longer sufficed to lift professors into the top 1% of the aggregate income distribution.     

Return predictability and shareholders’ real options

This study re-interprets the properties of the residual income model by highlighting the shareholders’ abandonment (liquidation or adaptation) option. We estimate the value of this real option as an explicit component of abnormal earnings in the residual income model and test the improvement in valuation after incorporating it into the model. Relative to the traditional specification of the residual income model, this real options model has a stronger predictive power for future abnormal stock returns. We also find that the superior return predictability of the real options model is pronounced in the set of firms with a high probability of exercising liquidation options (for example, those with low profitability, low growth opportunities, high underlying asset volatility, and low intangible assets), which is consistent with the importance of shareholders’ abandonment option in equity valuation. The results are robust to extensive sensitivity checks.     

How FTAs Affect Income Levels of Member Countries

The purpose of this paper is to analyse whether FTAs cause the income levels of member economies to converge or diverge. Although existing studies predict the possibility of convergence among FTA members to a certain degree, they fail to provide definitive evidence. By using the concept of accelerating convergence, this study aims to estimate the pure convergence effects of FTAs, separate from the conventional notion of income convergence, so‐called β‐convergence. The neoclassical model of economic growth has been extended to incorporate varying steady states for an open‐economy framework. Applying the system GMM method to a dynamic panel of data consisting of major FTAs – comprising the European Union, NAFTA, Mercosur and AFTA, and encompassing the cases of launching an FTA, expanding membership or deepening FTA integration – we find considerable evidence for the income convergence effect of FTAs.     

What matters in technology leakage in small and medium enterprises: the case of Korea

Technology leakage in small and medium enterprises (SMEs) is a critical issue because while the number of main technologies in SMEs is small, these technologies are crucial to their survival. Related factors must be identified to prevent technology leakage from SMEs. In this paper, we use logistic regression to find significant factors in Korean SMEs, focusing on three aspects: characteristics of the technology, prevention strategy, and firm’s R&D characteristics. We use a survey conducted by related national institutions. According to the results of our empirical study, interaction effects among the factors of technology characteristics have highly significant effects on technology leakage. In particular, the interaction effect between the time needed to imitate the technology and the stage of business growth appears to have the highest influence on technology leakage. Based on our results, detailed strategies for preventing technology leakage are inferred in order to help SMEs prioritise their resources.     

Conjoint and WTP analyses of future mobile phones for digital convergence

Digital convergence for mobile phones is a hot issue. This study considers future development of mobile phones with a view toward consumers' usage and the amount they are willing to pay. In order to select preferable convergence technology, we utilize convergence concepts such as absorption, blending, and combination. The result of conjoint analysis shows that a preference for convergence technology will involve computing, media, navigation, and imaging. However, only the computing attribute increases consumers' willingness to pay. Our study results contribute to product planning and commercialization of innovative mobile phones.     

More Educated Sex Workers Earn More in Indonesia

Although sex work is prevalent, little is known about the relation between education and the price of sex. This study analyzed a dataset of 8,817 Indonesian sex workers (SWs) to conduct an econometric analysis of the relationship between education and the price of sex. When the study controlled for demographic variables, an additional year of schooling was related to a 10 percent increase in the price. About half of this relation was explained by the location of sex, implying that education provided SWs with access to higher-paying clients via locations. The study also analyzed data on comparable non-SWs and found that the relation between education and the price of sex for SWs was the same in size as that of education to hourly earnings for non-SWs. The findings are consistent with the growing body of research that highlights the beneficial effects of education on outcomes beyond the conventional labor market.