Do Banks Value Innovation? Evidence from US Firms

This study evaluates how innovation within companies alleviates the information asymmetry problems in relationship lending. We hypothesize that patenting activities could reveal favorable private information and, hence, reduce the information asymmetry between innovative borrowers and banks. Using a sample of US patenting firms from 1987 to 2004, we show that borrowers with higher innovation capability (revealed by having more patent applications, higher research & development (R&D) productivity, or higher‐quality patents) enjoy lower bank‐loan spreads and better nonprice‐related loan terms. Our evidence further suggests that the information benefits of patenting activities on loan spreads is more pronounced for small or less R&D‐intensive firms.     

Quality Differentiation Under Mixed Competition in Hospital Markets

We use a Hotelling-type model of two hospitals, one for-profit (FP) and the other not-for-profit (NFP) using quality to compete for patients. In an equilibrium that constrains the NFP to zero profits, the NFP share of the market decreases as fixed costs or patient’s marginal utility of quality increase, or as transportation and marginal quality costs decrease, conditions that make quality a more effective tool for attracting patients, improving the ability of the FP to compete for market share. We show that an NFP hospital cannot take the entire market without significant fundraising ability. The market shares predicted by our model are consistent with what is presently observed in Europe and the US.     

Industry-level determinants of the linkage between credit and stock markets

This paper examines the relationship between US credit default swaps (CDS) and stock returns on an industry-wide basis across a number of investment horizons, with particular focus on the major determinants of such a relationship. Wavelet analysis is first applied to extract the CDS–stock wavelet correlation for each US industry. Then, Bayesian Model Averaging is employed to identify the key driving factors of the industry CDS–stock wavelet correlations at short- and long-term horizons. The empirical results indicate that the wavelet correlations between the industry CDS and stock returns are primarily negative over time and across time scales. Moreover, the CDS–stock correlation at longer horizons exhibits a much more stable pattern than its counterpart at shorter time frames. The results also demonstrate that the volatility of US Treasury and stock markets, as measured by the MOVE and VIX indices, respectively, the volatility of volatility, as captured by the VVIX index, and US economic policy uncertainty, as measured by the EPU index, are the most robust determinants of the correlation between CDS and stock returns at shorter and longer horizons for most US industries. In contrast, the Fama–French systematic equity factors exhibit a practically negligible explanatory power on the CDS–stock link.     

The pattern of deaths in road traffic crashes in Sindh, Pakistan

The objectives of this study were to examine the pattern and magnitude of deaths in road traffic crashes (RTCs) in Sindh province of Pakistan. This cross-sectional study used data obtained from government documents and content analysis of daily newspapers' reports on incidents of deaths in RTCs. Results showed that the total annual number of RTCs, fatal RTCs and deaths in RTCs were 2272 (+/-293), 1104 (+/-89) and 1321 (+/-136) respectively. On average, there were four deaths per day in RTCs. The victims were 85% male and the majority were between 15 and 49 years of age. Pedestrians, passengers, motorcyclists and drivers were most commonly the victims. Deaths in RTCs were double in rural areas compared to urban areas. The most common causes of fatal RTCs were by being hit by a vehicle, breakdown and collision of motor vehicles and speeding. The frequent involvement of the men of working age in RTCs may have serious social and economic implications; therefore, the prevention of RTCs, as far as possible, is imperative.     

Improving International Comparisons of Prices at Basic Heading Level: An Application to the Asia‐Pacific Region

The International Comparisons Program (ICP) run by the World Bank compares prices and real incomes across countries, and plays a pivotal role in the Penn World Table. Using a unique dataset consisting of over 600,000 price quotes from nine countries in the Asia‐Pacific region, we consider ways of improving the basic heading price indexes that form the building blocks of ICP. Current ICP methodology computes these price indexes using the country–product–dummy (CPD) method applied to the country average prices. We contrast this approach with: (i) a weighted version of CPD; (ii) CPD applied directly to the individual price quotes; and (iii) extended versions of CPD that include adjustments for unrepresentative products, urban–rural price differences, and different outlet‐types. Also considered are new CPD‐based methods for measuring urban–rural price differences, and the implications of our findings for the downward revision in China's GDP in ICP 2005.     

Banking Structure,Marketization, and Small Business Development: Regional Evidence From China

This paper provides an empirical examination of the regional banking structures in China and their effects on entrepreneurial activity. Using a panel of 27 provinces and four directly controlled municipalities from 1997 through 2008, we find that the presence of large banking institutions negatively correlates with small business development in local markets and that this negative relation is driven mainly by participation of large banks in the short‐term loan market. Rural banking institutions, in contrast, are found to promote regional entrepreneurial activity. Moreover, large state banks facilitate small business development in concentrated markets. When we interact measures of banking financing by state banks and rural banking institutions with a set of provincial‐level marketization indexes, we find that extensive marketization, factor market development and sophistication of legal frameworks mitigate the negative effect of large state banks on small business development. In provinces with advanced market development, efficient factor markets and favourable institutional settings, the positive effect of rural banking institutions on small business growth is even stronger.     

An IT professional’s dilemma: be an entrepreneur or a consultant?

Using a simple model, this paper examines the behavior of an IT professional who faces the choice between becoming an entrepreneur or an employee. To our knowledge, this is the first formal study of the dilemma facing an IT professional. IT professionals are somewhat unique in that they embody enough labor input/intellectual property that even a single professional can deliver a viable product/service. An incentive contract is auctioned to attract the highest bid in return for partial ownership from venture capitalists. Failure to raise venture finance results in the professional seeking employment. Both venture finance and employment are uncertain. The comparative-static effects of changes in project size and VC competition are determined. We find that under certain conditions a larger project is associated with a cost-plus contract, while greater VC competition results in a fixed-price contract being offered. The agent’s effort is lower in a larger project, but non-negative under greater VC competition.     

The US bankruptcy law and private equity financing: empirical evidence

The generous personal bankruptcy law in the United States is important to entrepreneurs because failed entrepreneurs can resort to this system to shelter part of their wealth against negative consequences of business failure. Fan and White (Journal of Law and Economics XLVI:543–567, 2003) documented that high bankruptcy exemptions provide incentives for entrepreneurs to start/own new businesses. The partial wealth insurance effect provided by the bankruptcy exemptions also has a significant and negative impact on the entrepreneurs’ access to bank credits (Berkowitz and White, The Rand Journal of Economics 35(1):69–84, 2004; Gropp Scholz and White, The Quarterly Journal of Economics 112(1):217-251, 1997). In this article, we investigate whether and to what extent the US bankruptcy law has any effect on venture capital (VC) investment. Making use of company level information, we document that the amount of venture financing received is negatively related to the bankruptcy exemption levels, and the number of rounds of financing as well as the number of VC funds involved is negatively associated with bankruptcy exemptions. Further, we report consistent evidences based on state level data with regard to the effects of the US personal bankruptcy law.

EU's competition policy and the GE‐Honeywell merger fiasco: Transatlantic divergence and consumer and regulatory issues

This article discusses and analyzes the European Union's (EU's) competition policy and the 2001 General Electric‐Honeywell merger fiasco within the areas of global business and transatlantic issues. Based on a brief literature review of marketing, competition policy/antitrust law, vertical/horizontal integration, and global business, the article tries to explain those conditions that led to this failed merger. It is expected that in the coming years, the EU's competition policy and the United States' antitrust law will continue to differ and may create problems for those multinationals seeking large‐scale mergers and acquisitions in North America and Europe. © 2005 Wiley Periodicals, Inc.     

Professors in the Boardroom and Their Impact on Corporate Governance and Firm Performance

We find that companies with directors from academia are associated with higher performance. This relation is driven by professors without administrative positions. We also find that academic directors play an important governance role through their advising and monitoring functions. Specifically, our results show that the presence of academic directors is associated with greater acquisition performance, a higher number of patents and citations, higher stock price informativeness, lower discretionary accruals, lower chief executive officer (CEO) compensation, and higher CEO forced turnover‐performance sensitivity. Overall, our results indicate that academic directors are valuable advisors and effective monitors and firms benefit from having academic directors.