Power and Size of Firms as Reflected in Cleaning Subcontractors’ Practices of Social Responsibility

Recent discussions in the area of corporate social responsibility suggest that organizational size has complex meanings and thus requires more scholarly attention. This article explores organizational size in the context of relative power in inter-organizational networks. To shed light on the ways relative power interacts with size we studied social responsibility practices among cleaning subcontractors in three firms of different sizes. Our focus on the network differentiates these firms on the basis of their size and sector. Semi-structured interviews were used to trace cleaning subcontractors’ CSR-related practices. We analyzed subjective reports and discursive practices involved in subcontractors’ self-presentations. While the economic and philanthropic dimensions of social responsibility were presented by the cleaning subcontractors as independent of network constraints, the findings show that the legal and ethical dimensions were subject to large client–firm pressures. What we learn from our data is that the four dimensions of Carroll’s model, the economic, legal, ethical, and philanthropic, should all develop from and be evaluated against a fifth root dimension of inter-personal commitment.     

An Empirical Analysis of and Policy Recommendations to Improve the Nutritional Quality of School Meals

The National School Lunch Program is not meeting its nutritional goals. Data for 330 Minnesota school districts are analyzed to derive recommendations for improving the nutritional quality of school lunches. This study finds, contrary to widely held views, that lunch sales do not decline when healthier meals with less fat, for example, are served and that more nutritious lunches do not necessarily cost more. Healthier meals have higher labor costs, but lower costs for processed foods. Indirect costs, paid by the food service to the school district, negatively affect meal quality by decreasing funds to upgrade kitchens and train staff to prepare more nutritious meals.     

Default and Recovery Risk Dependencies in a Simple Credit Risk Model

This paper provides evidence for the relationship between credit quality, recovery rate, and correlation. The paper finds that rating grade, rating shift, and macroeconomic factors provide a highly significant explanation for default risk and recovery risk of US bond issues. The empirical data suggest that default and recovery processes are highly correlated. Therefore, a joint approach is required for estimating time‐varying default probabilities and recovery rates that are conditional on default. This paper develops and applies such a model.     

Different but Similar: Geothermal Energy and the Role of Politics in Germany, Iceland and the United States

This article looks into the role of the state in geothermal energy development. Based on the findings in three countries studied, it demonstrates that the demand for political intervention is strongly tied to the state of the technological and industry development. While government’s most important role in the early stages is R&D-support and regulatory guidelines, the relevance of market-based instruments and network support kicks in later. Between these two phases is a period where both ‘toolkits’ of political intervention (direct investment and indirect support efforts) have to be provided by state actors. Furthermore, the project timeline has to be kept in mind. Supporting project economics alone is not sufficient if project-internal barriers exist that cannot be overcome without specific support. The installation of an insurance scheme for dry wells in Germany and a similar mechanism in Iceland can be regarded as outstanding examples of this. However, it is important to note that geothermal energy generally will not be developed without strong public support in all development phases. The common cross-case barriers alone are sufficient for project developers and investors to be cautious about entering the industry. But if governments engage with the right instruments at the right time, there is reason to say that geothermal energy can provide a contribution to the energy turn towards renewable energies in many parts of the world, even apart from high-enthalpy regions.     

Beyond the purchasing power parity: testing for cointegration and causality between exchange rates, prices, and interest rates

This paper reexamines the causality between the dollar and the yen in a multivariate framework with the aid of cointegration and error-correcting modeling for the 1951–94 period. The Phillips-Perron tests and Johansen's tests are performed. While causality from interest rates to exchange rates is found in the short run, no causality between prices and exchange rates is found in the short run. However, causality is found running from relative prices to exchange rates along with interest rates between the U.S. and Japan in the long run, which supports the long-run PPP hypothesis.     

PETROZUATA: A CASE STUDY OF THE EFFECTIVE USE OF PROJECT FINANCE

Companies are increasingly using project finance to fund large-scale capital expenditures. In fact, private companies invested $96 billion in project finance deals in 1998, down from $119 billion in 1997 largely due to the Asian crisis, but up more than threefold since 1994. The decision to use project finance involves an explicit choice of organizational form as well as financial structure. With project finance, sponsoring firms create legally distinct entities to develop, manage, and finance the project. These entities borrow on a limited or non-recourse basis, which means that loan repayment depends on the project's cash flows rather than on the assets or general credit of the sponsoring organizations. Despite the non-recourse nature of project borrowing, projects are highly leveraged entities, with debt to total capitalization ratios averaging 60–70%. Petrozuata, a $2.4 billion oil field development project in Venezuela, is a recent example of the effective use of project finance for several reasons. First, the analysis shows a typical setting where project finance is likely to create value, that of a large-scale investment in Greenfield assets (in this case, wells, pipelines, and upgrader) that can function as a stand-alone economic entity and support a high leverage ratio. Given the nature of this investment, one can think of project finance as venture capital for fixed assets, except that the investments are 100 to 1000 times larger and financed primarily with debt rather than equity. Besides highlighting the types of assets appropriate for project finance, this article illustrates the sizeable transactions costs associated with structuring a deal as well as the full range of benefits accruing to project sponsors. The structure allows sponsors to capture tax benefits not otherwise available, reduces information costs for creditors and other investors, and lowers the overall cost of financial distress. The combination of high leverage, concentrated equity ownership, and direct control in project finance also addresses a wide range of incentive problems that destroy value in diversified companies. Analysis of the explicit contractual terms of the deal reveals a careful allocation of project risks in an attempt to elicit optimal behavior by each of the participants. As illustrated in the Petrozuata case, limiting completion and operating risks are important undertakings. But project finance is most valuable as an instrument for managing sovereign risks. Indeed, the ability of project finance to limit sovereign risk is the one feature that cannot be replicated under conventional corporate financing schemes.     

Frequency of observation and the estimation of integrated volatility in deep and liquid financial markets

Using two newly available ultrahigh-frequency datasets, we investigate empirically how frequently one can sample certain foreign exchange and U.S. Treasury security returns without contaminating estimates of their integrated volatility with market microstructure noise. Using the standard realized volatility estimator, we find that one can sample dollar/euro returns as frequently as once every 15 to 20 s without contaminating estimates of integrated volatility; 10-year Treasury note returns may be sampled as frequently as once every 2 to 3 min on days without U.S. macroeconomic announcements, and as frequently as once every 40 s on announcement days. Using a simple realized kernel estimator, this sampling frequency can be increased to once every 2 to 5 s for dollar/euro returns and to about once every 30 to 40 s for T-note returns. These sampling frequencies, especially in the case of dollar/euro returns, are much higher than those that are generally recommended in the empirical literature on realized volatility in equity markets. The higher sampling frequencies for dollar/euro and T-note returns likely reflect the superior depth and liquidity of these markets.     

A macro stress test model of credit risk for the Brazilian banking sector

This paper proposes a model to conduct macro stress test of credit risk for the banking sector based on scenario analysis. We employ an original bank-level data set that splits bank credit portfolios in 21 granular categories, covering household and corporate loans. The results corroborate the presence of a strong procyclical behavior of credit quality, and show a robust negative relationship between the logistic transformation of non-performing loans (NPLs) and GDP growth, with a lag response of up to three quarters. The results also indicate that the procyclical behavior of loan quality varies across credit types. This is novel in the literature and suggests that banks with larger exposures to highly procyclical credit types and economic sectors would tend to undergo sharper deterioration in the quality of their credit portfolios during an economic downturn. Lack of sufficient portfolio granularity in macro stress testing fails to capture these effects and thus introduces a source of bias that tends to underestimate the tail losses stemming from the riskier banks in a system.     

Household Behavior with Imperfect Labor Markets

A household model with differential asset endowments and idiosyncratic transactions costs in accessing labor markets is developed to (1) explain membership of farm households to alternative labor regimes (sellers, employers, or self-sufficient in labor), (2) test for recursivity between production and consumption decisions selectively by labor regime, and (3) identify the determinants of differential labor productivity across labor regimes. The model is applied to a 1994 household survey of the Mexican land reform sector.     

What Do Rental Contracts Reveal About Adverse Selection and Moral Hazard in Rental Housing Markets?

This article examines the pricing of rental contracts for two types of renter households: those who are able to amass a large, up-front security deposit and those with little, or no, security to offer. Empirical tests are presented to suggest that, in dealing with renter households who have little, or no, security to offer, landlords earn at a similar rate of return as lenders who make riskier loans at a high interest rate to borrowers of dubious credit. The analysis suggests that this situation occurs in large part because of the problem of asymmetric information and moral hazard between landlords and renter households regarding the latter's use of the premises.