Interest rate risk in an emerging economy

The sharp decrease in inflation over the last decade—from 26% in 1990 to 4% in 2001—led the Central Bank of Chile to set its monetary policy interest rate in nominal terms since August 2001. This paper analyzes the effect of nominalization on the behavior of nominal, inflation-linked, and real interest rates, and its subsequent effects on the financial market. We find that nominalization has made nominal interest rates less volatile, while the opposite holds for inflation-linked interest rates. The effect on real interest rates is less unambiguous, but nominalization appears to have increased the cost of borrowing.     

Malleability of taste perception: biasing effects of rating scale format on taste recognition,product evaluation,and willingness to pay

Product-related cues, such as brand or price, can influence consumers’ taste perception. Going beyond this observation, we examine the extent to which a stimulus-extrinsic factor, such as the format of the measurement tool on which consumers describe attributes of a taste sample, influences concurrent taste perception, and in turn, later taste recognition, overall product evaluation, and willingness to pay (WTP). The results of two experiments show that rating scale format (i) influences consumers’ concurrent impression of a taste sample, (ii) systematically biases later identification of the sample in a taste recognition test, and (iii) affects overall product evaluation and WTP. However, scale format (iv) does not influence ratings and downstream judgments when consumers are highly knowledgeable in the product domain. These findings demonstrate that the experience of taste is fleeting and not well represented in memory, and that like other subjective experiences, taste needs to be reconstructed based on accessible cues.     

Redistribution,trade and corruption: an empirical assessment

ABSTRACT

This article explores the role of institutional quality in the trade and inequality nexus. Does corruption shape the relationship between trade and inequality through its impact on redistribution? Our answer to this question builds on the hypothesis that trade raises inequality and that governments may want to intervene through appropriate redistribution schemes that aim at taxing the gains from trade in a way that offsets the negative effects of trade on inequality. Moreover, we argue that this mechanism may be distorted by corruption and bad institutions in general. Quite to the contrary to common wisdom, we find that trade reduces inequality in countries with high institutional standards by means of a low level of corruption but increases inequality in countries with low levels of institutional quality.     

Stock volatility and pension funds under an individual capitalization-based system

The existence of feedback effects between volatility and institutional investor holdings has been extensively studied for the United States. This article contributes to the literature by investigating this issue for Pension Fund Administrators (PFAs) in Chile. To this end, data on PFAs' holdings is gathered for 42 firms actively traded on the Santiago Stock Exchange during December 2002–July 2008. The main findings of this study are the following. First, an increase in PFAs' stock holdings translates into a mild effect on stock return volatility. Second, an increase in stock return volatility leads to a moderate decrease in PFAs' stock holdings, suggesting PFAs' preference for safer stocks. The key policy implication of these conclusions is that PFAs' stock trading does not have a destabilizing impact on the domestic stock market.     

Legal rights,national culture and social networks: Exploring the uneven adoption of United Nations Global Compact

We develop and test a novel framework for explaining cross-country differences in corporate participation in a prominent initiative often associated with social responsibility, United Nations Global Compact (UNGC). Drawing upon neo-institutional and cross-country comparative literatures, we explore the impact of (a) stakeholder legal rights; (b) national culture, and (c) the country's social network position, as reflected by international trade patterns. Results suggest that firms from countries with strong labor rights, collectivist cultures, and long traditions of stock trading join UNGC at higher rates. Our framework can be modified for future cross-country research on the adoption of practices.     

Reactions of the Spanish capital market to qualified audit reports

Since mandatory auditing of financial statements was first established in Spain, very few studies have been conducted to test the information content of audit reports in the Spanish capital market. The aim of this study is, then, to test empirically whether there is a relationship between audit qualifications and stock prices in the context of the Spanish market. We have used the event study methodology for this purpose. Our findings show that qualified audit reports do not have information value for investors.     

The corporate image of auditors in a developing audit market within the EU: the case of Spain

This paper examines the images of audit firms in Spain. Spain offers a valuable research context in that it is a relatively new audit market and one where the top company audits are not totally dominated by the large multinational audit firms, allowing for a comparison of the images of such firms against those associated with smaller, national audit firms. The findings of this survey are pertinent given the current level of debate internationally over the role, regulation and quality of auditing services and concerns over the potential impact of recent corporate scandals on auditor reputation.

Our study shows that the images of audit firms in Spain have differed on a number of dimensions, mostly concerned with the pricing of audit services and the spread of audit clients. Significantly, no differences were obtained in relation to the perceived competence or ethical standing of the large multinational and Spanish, national audit firms. The study also shows the areas of the audit firm's corporate image where the actual image of the firm differs significantly from that desired by the management of their clients.     

The Financialization of A Social Housing Provider

Why does a social housing provider bet on interest rate fluctuations? This article presents a case study of the financialization of both housing and the state. Social housing in the Netherlands is provided by non‐profit housing associations that have since 1989 been set apart from the state. Many associations started developing housing for profit, borrowing on global capital markets or buying derivatives. Whereas other semi‐public institutions moved into the world of finance due to financial constraints, housing associations did so to capitalize on the possibilities offered by their asset‐rich portfolios. Vestia, the largest of them all, is an extreme––but not exceptional––case of what can happen when public goals are left to be realized by inadequately supervised and poorly managed private organizations. As a result of gambling on derivatives, Vestia had to be bailed out to the tune of over 2 billion euros. To recoup the losses, housing was sold off and rents were raised. Almost half of Dutch housing associations used derivatives, although most refrained from using them purely speculatively. The changes in the housing sector that led to its financialization cannot be separated from the wider financialization of the state.     

Liberalisation,Financial Risk,and Formal Financial Participation in Pakistan: Hyperinflationary Microeconomic Responses to Moderate Volatility in a Developing Economy

With formal financial inclusion much lower than its neighbours, Pakistan has been the focus of intensive efforts to ‘bank’ the ‘unbanked’. Yet, after a drop in deposits in the wake of Pakistan’s 2008 crisis, deposits are still struggling to return to their mid-1990s’ levels. Focusing on distortions in the banking sector, the Central Bank attributes this to ‘crowding out’ amidst a steep rise in the propensity to consume. This study draws on extensive fieldwork, identifying heightened financial risk driven by multifaceted monetary instability since the liberalisation of the rupee and of Pakistani markets. It proposes that heightened monetary risk has translated into a broad-based shift out of the rupee akin to hyperinflationary responses, but revealed in relatively moderate monetary conditions. It argues that, exposed to global markets, national currency itself has become a risky asset, pushing store-of-value and transactional holdings into unconventional liquid assets. This suggests that monetary stability, expressed in the currency itself and in broader pricing patterns in the economy, is key to the uptake of financial intermediation. The issue at the root of disintermediation in Pakistan, it is argued, is less one of ‘crowding out’ than of disruption to the role of national currency as money itself.     

Management in social enterprises: the influence of the use of strategic tools in business performance

If social enterprises are to be competitive in the marketplace, they must use Strategic Management tools to improve efficiency, while maintaining their effectiveness levels. They can achieve this goal by introducing new management methods that make use of innovation. The aim of the current study was to analyze the effect of the use of management tools in social enterprises, referred to here as Social Management, on the effectiveness and efficiency levels of these enterprises. From a sample of 129 work integration social enterprises (WISEs), this study shows the existence of a statistically significant relationship between the application of Strategic Management tools, more commonly found in for-profit organizations, and the effectiveness and efficiency of WISEs in the social economy. The influence of the use of these tools was found to be positive in the case of social effectiveness (improving the employment rate) but negative in the case of economic effectiveness (profitability).