The political economy of pricing and capacity decisions for congestible local public goods in a federal state

This paper studies the political economy of pricing and investment for excludable and congestible public goods in a federal state. Although the model applies to many local congestible public facilities (such as libraries, museums and public swimming facilities), our main motivation is the problem of providing and pricing road infrastructure in federal states. The two-region model we develop allows for spill-overs between regions, it takes into account congestion, and it captures demand heterogeneity both between and within regions. Regional decisions are taken by majority voting; federal decisions are taken by a minimum winning coalition in a legislature of regionally elected representatives. We have the following results. First, when users form the majority in at least one region, decentralized decision making performs certainly better than centralized decision making if spill-overs are not too large. Centralized decisions may yield higher welfare than decentralization only if users have a large majority and the infrastructure in a given region is intensively used by both local and outside users. Second, if non-users form a majority in both regions, centralized decision making and decentralized decision making yield the same socially undesirable outcome, with prices that are much too high. Third, the performance of decentralized supply is strongly enhanced by local self-financing rules; this prevents potential exploitation of users within regions.     

Does female management influence firm performance? Evidence from Luxembourg banks

In this study, we examine the relationship between the proportion of women in top management positions at banks and these institutions’ financial performance. Using prudential data from supervisory reporting for all credit institutions in the Grand Duchy of Luxembourg from 1999 to 2013, we find a positive association between female management and firm performance. The economic effect is substantial: a 10 % increase in women in top management positions improves the bank’s future return on equity by more than 3 % p.a. Moreover, we show that this positive relationship is (i) almost twice as large during the global financial crisis than in stable market conditions and (ii) non-linear, with banks having 20–40 % female management being the most successful.     

Managerial actions and nominal stock price levels

We examine nominal and real stock prices and the sequential price pattern of stock dividends and stock splits. We find that the average stock price has been fairly stable over time except for two decades in the beginning and end of the twentieth century. Inclusion of these periods yield a decline over time which is generally consistent with the drop in price levels found by Chittenden et al. [2010. “A Note on Affordability and the Optimal Share Price.” Financial Review 45: 205–216]. In a multivariate setting, the frequency of stock dividends and stock splits is positively related to the frequency for these events the prior year and recent market return. In further tests of the price change we find a positive relationship to the median price change for stock dividends/splits and negatively to labour income growth for stock splits. These findings indicate that stock price reduction via stock dividends and splits attracts individual investors as income grows. One key conclusion is that the primary reason for any stock action, dividend or split, is to fit the ‘norm’ stock price level of the market.     

Interest on bank reserves and optimal sweeping

A key rationale offered by the Federal Reserve for the payment of interest on reserves was to remove the incentive for banks to operate sweep accounts. Sweeping shifts funds from transactions deposits subject to reserve requirements to non-reservable deposits. This paper extends a conventional banking model to analyze sweeping behavior. Sweeping responds positively to increases in bank loan rates and reserve ratios and negatively to increases in the interest rate on reserves or exogenous increases in bank equity. Sweeping generates greater responsiveness in lending to changes in loan rates or the interest rate on reserves and lower responsiveness to changes in reserve ratios or equity than in its absence. Empirical analysis of an explicit condition that we derive suggests that, with an unchanged reserve requirement, the Fed could eliminate sweeping by setting the interest rate on reserves to no less than approximately 4% points below the market loan rate.     

Corporate finance and governance in emerging markets: A selective review and an agenda for future research

There are important organizational and behavioral differences between firms in emerging markets and those in developed markets. We propose a top-down approach to understand how key institutional forces shape the structures and policies of firms in emerging markets. We review a selective set of prior studies as well as papers included in this Special Issue in identifying government quality, state ownership, and financial development as critical institutional forces that shape the financing and governance of firms in emerging markets. We suggest that future research should pay attention to several important but unanswered topics related to informal enforcement, government incentives, family firms, and network organizations.     

World Ranking of Real Estate Research: Recent Changes in School Competitiveness and Research Institutions

Real estate programs are ranked based upon page counts of articles published in three major real estate journals. The page counts are employed to capture many variations in the length of articles. For each author, his/her most recent affiliation is used to evaluate the school competitiveness of current faculty members rather than a perceived school reputation of the past. In this study, we find that top-tier schools in real estate research are not necessarily the most famous schools in economics and finance; progressive universities specializing in real estate research hold the top ranks. Furthermore, school competitiveness has changed substantially in the United States. The changes are mainly because of a mobility of faculty members. The results also show that U.S. institutions dominate research in real estate.     

Market Sentiments,Winner’s Curse and Bidding Outcome in Land Auctions

This paper empirically tests auction theory by examining how the stock market evaluates the outcome of open-bid English auctions of rights to develop residential real estate projects in Hong Kong. To do so, we deconstruct the complexity surrounding actual auction events, and empirically isolate the influence of conflicting auction theory predictions using data from expert opinion around auction events, actual auction event and outcome data, and stock market data. The empirical findings include (1) with increasing uncertainty bidders reduce bids, thus confirming predictions following the winner’s curse thesis; (2) joint bidding does not lead to increased bids based on pooled (“better”) information, but instead leads to reduced competition; while increased competition leads to increased prices at auction, as expected; (3) the market interprets auction outcomes as information events which function to signal developers’ expectations about future market prospects; but if the winning bid is considered too high, this interpretation is revised to that of the winner’s curse; (4) with joint bidding and winning, the market’s response to joint winners is better explained by concern for winner’s curse (despite supposed better informed bids) than the acquisition of a below cost development project following reduced competition at auction; and (5) the market interprets increased competition at auction as indicator of the future direction of property price movements in the secondary market—the more intense the competition, the more positive the future prospect of the property market are seen to be.     

Time-varying performance of international mutual funds

We examine the ability of one- and two-factor regime switching models to describe US, developed, and emerging market mutual fund returns. We find that a two-factor fixed transition probability model adequately describes the multivariate series of mutual fund returns without the need to model time-varying transition probabilities. Mutual fund performance, as measured by a state dependent Jensen's alpha, varies with economic regimes that are defined according to the global equity market mean. Our primary two-factor fixed transition probability model shows that emerging market mutual fund alphas are often significantly positive in global bull regimes. Consideration of alternative second risk factors suggests that both the foreign exchange factor, or the recently proposed Hou, Karolyi and Kho (2011) value factor can improve series forecasts and out-of-sample portfolio performance.