Losses from Failure of Stakeholder Sensitive Processes: Financial Consequences for Large US Companies from Breakdowns in Product,Environmental, and Accounting Standards

This article makes first use of a set of databases that are authoritative, independent, and consistent to examine an old research question: do firms hurt their financial performance by damaging stakeholder interests? The databases are US government on-line listings of fines for environmental breaches, unsafe workplaces, fraudulent accounting standards, and product recalls. These measures are assumed to proxy for signals to stakeholders of the environmental, social, and governance (ESG) risks in transacting with the firm and appear to have fewer biases than conventional measures of stakeholder standards. Using a sample of all non-financial S&;P 500 firms during the most recent 1998–2003 full cycle in the market, after controlling for firm-specific differences, sales margins of firms fell by 0.8% if they announced a product recall and by 0.4% if cited by OSHA for an unsafe workplace; and shareholder return was significantly reduced by an EPA or SEC prosecution. This study links the risk of transaction uncertainty, information signaling theory, and the resource-based view of the firm to company financial performance. Results support the normative assumption that a firm’s sales margin will be damaged by unethical treatment of stakeholders as evidenced by ESG breaches, presumably because risk-averse customers and suppliers are alert to signals of counterparty risk.     

Interest Rate Derivatives in a Duffie and Kan Model with Stochastic Volatility: An Arrow-Debreu Pricing Approach

Simple analytical pricing formulae have been derived, by different authors and for several derivatives, under the Gaussian Langetieg (1980) model. The purpose of this paper is to use such exact Gaussian solutions in order to obtain approximate analytical pricing formulas under the most general stochastic volatility specification of the Duffie and Kan (1996) model. Using Gaussian Arrow-Debreu state prices, first order stochastic volatility approximate pricing solutions will be derived only involving one integral with respect to the time-to-maturity of the contingent claim under valuation. Such approximations will be shown to be much faster than the existing exact numerical solutions, as well as accurate.     

Reflexivity,stress, and unlearning in the new product development team: the moderating effect of procedural justice

The success of new product development (NPD) depends on a team's abilities to integrate, build, and reconfigure internal and external competences and the flexibility to address rapidly changing environments. To develop innovative products it is desirable that these processes should not be constrained by current beliefs and routines. NPD teams therefore need to engage in an unlearning process to overcome any resistance to new ideas and to facilitate a fresh approach. The paper recognizes that the controlled experience of stress plays a part in unlearning (e.g., confusion about technology or market change can encourage changes) and argues that teams should systematically reflect on the progress they are making in projects and in unlearning. The fairness of procedures used by the management moderates the proposed relationships. Two hundred and ninety eight team members and 77 NPD team leaders participated in the study. The results indicate that team reflexivity positively influences unlearning and product innovation, while team stress has a negative effect. The perceived fairness of management procedures strengthens the positive effects of team reflexivity on unlearning and product innovation, and reduces negative effect of team stress.     

ECONOMETRIC ISSUES IN MACROECONOMIC MODELS WITH GENERATED REGRESSORS

Abstract. The paper critically reviews the literature on the econometric issues raised by the use of generated regressors (GR) in empirical models. The economic rationale for the use of GR is considered, with examples being drawn from several macroeconomic examples, including New Classical Macroeconomic (NCM) models which postulate monetary ncutrality. Various estimation methods are discussed for models which include 'surprise' or 'unexpected' terms and the strengths and weaknesses of each approach are investigated. Drawing upon the work of McAleer and McKenzie (1991b), situations where the typically inefficient two-step estimation (2SE) method will be efficient are highlighted. Problems of model misspecification and measurement errors are also investigated. An empirical section highlights some of the dangers of using uncorrected 2SE estimation results through a careful consideration of many recent attempts to test the NCM monetary neutrality hypothesis.     

Narratives in managers’ corporate finance decisions

This article uses the extended case method to explore senior executives’ corporate finance decisions. We quantified firm’s finance practices using a mail survey, and then – to resolve puzzles in managers’ decision processes – conducted face‐to‐face interviews with chief finance officers of large listed firms. The interviews identified six themes as consistent influences on finance decisions: pressures imposed by clienteles; constraints on resources; risk management; heuristics; real options; and sustainability. We conclude that managers are logical and rational in their decisions, but employ a wider range of criteria than assumed in conventional finance theories.     

MEASURING NEW ZEALAND'S GDP 1865–1933: A COINTEGRATION-BASED APPROACH

Official and semi-official estimates of New Zealand's national income are available on an annual basis for the years since 1932. Retrospective, non-official, estimates are available from 1859. Chiefly these are constructed following Doblin's (1951) pioneering use of money stock data, velocity, and the implications of the Quantity Theory of Money, and include the estimates of Hawke (1975), Rankin (1992) and Cashin (1995).
This paper estimates New Zealand real GDP per capita with monetary data using valid, intervention-free, cointegration methods. The new measures avoid the ad hoc adjustments found in Rankin (1992), yet unlike Cashin (1995), they incoporate specific New Zealand monetary features. The new time series conform well with independent benchmarks and the historiography of the pre-1914 period. Alternatively, they suggest an interpretation of New Zealand's growth experience for years around World War One which differs from that of Australia, and from the findings of Rankin (1992) and Cashin (1995).     

A pulse check on recent developments in time series econometrics

This article motivates and summarizes the contributions of the special issues on Recent Developments in Time Series Econometrics.