Screening,Market Signalling,and Capital Structure Theory

This paper develops an equilibrium model in which informational asymmetries about the qualities of products offered for sale are resolved through a mechanism which combines the signalling and costly screening approaches. The model is developed in the context of a capital market setting in which bondholders produce costly information about a firm's a priori imperfectly known earnings distribution and use this information in specifying a bond valuation schedule to the firm. Given this schedule, the firm's optimal choices of debt-equity ratio and debt maturity structure subsequently signal to prospective shareholders the relevant parameters of the firm's earnings distribution.     

Litigation, School Finance Reform, and Aggregate Educational Spending

In the past two decades, litigation in many U.S. stateshas triggered educational reform movements designed to reducethe inequalities in educational expenditures across school districts.This paper uses a panel data set across all the states from 1970–1990to examine the role of litigation and educational finance reformin determining the level of education funding in a flexible,dynamic setting. An important finding of our work is that litigationand reform have differential effects across the states, in somecases leading to increases while in other cases decreases inpredicted spending.     

Characteristics,consumer surplus,and new activities: A proposed ski area

Physical characteristics of activities and personal characteristics of the individual are incorporated into an expenditure function. This function is used to define the compensating and equivalent variation for changes in the costs or physical characteristics of the existing activities, or for a proposed activity as a function of its proposed characteristics and cost. The model is used to estimate the demand for, and the CVs and EVs associated with, the development of a Colorado ski area. These vary across skiers as a function of skiing ability, value of time, location of residence, and skiing budget.     

Are regulations the answer for emerging stock markets? Evidence from the Czech Republic and Poland

Does the emergence of a stock market require a well-developed legal and/or regulatory system? Although historical work by Neal and Davis [Neal, L., & Davis, L. (2005). The evolution of the rules and regulations of the first emerging markets: The London, New York, and Paris stock exchanges, 1792–1914. Quarterly Review of Economics and Finance, 45, 296–311] and Stringham [Stringham, E. (2003). The extralegal development of securities trading in seventeenth century Amsterdam. Quarterly Review of Economics and Finance, 43, 321–344] suggests that securities markets have successfully developed with little government oversight, numerous authors [including Black, B. (2001). The legal and institutional preconditions for strong securities markets. University of California Law Angeles Law Review, 48, 781–855; Coffee, J. (1999). Privatization and corporate governance: The lessons from securities market failure. Journal of Corporation Law, 25, 1–39; Frye, T. (2000). Brokers and bureaucrats: Building market institutions in Russia. Ann Arbor: University of Michigan Press; Glaeser, E., Johnson, S., & Shleifer, A. (2001). Coase versus the Coasians. Quarterly Journal of Economics, 116, 853–899; Mlčoch, L. (2000). Restructuring of property rights: An institutional view. In L. Mlčoch et al. (Eds.), Economic and Social Changes in Czech Society After 1989. Prague: The Karolinum Press; Pistor, K. (2001). Law as a determinant for equity market development – the experience of transition economies. In Peter Murrell (Ed.), The Value of Law in Transition Economies (pp. 249–287). Ann Arbor: Michigan University Press; Stiglitz, J. (1999). Whither reform. Ten years of the transition. Keynote Address, Annual Bank Conference on Development Economics, Washington, DC, April 28–30, 1999; Zhang, X. (2006). Financial market governance in developing countries: Getting the political underpinnings right. Journal of Developing Societies, 2, 169–196] argue that the Czech Republic and other Eastern European governments need more regulation for their newly created stock markets. They maintain that the Warsaw Stock Exchange, which is seen as more regulated, has outperformed the Prague Stock Exchange which is seen as largely unregulated. Thus increased regulations are a key to increased performance. This article, however, maintains that the evidence from the Czech experience has been misinterpreted. This article provides an in depth case study of the Czech stock market and finds that (a) Czech capital markets have been hindered by government intervention from their beginning, (b) that the evidence on Poland's superior performance is not as strong as suggested, and (c) that Czech regulators seem to be unqualified, lack the proper incentives, and are unlikely to benefit the market. Under these circumstances it appears that Neal and Davis (2005:311) are correct that increased government involvement is unlikely to improve the situation.     

Globalization and Contemporary Banking: On the Impact of New Technology

Technological innovation has contributed to recent changes inthe conduct and character of banking, but its impact has beencontradictory. First, money-dealing transactions have becomecheaper, but investment costs have increased and a broader rangeof services had to be provided. The cost efficiency of bankshas not improved. Second, banks have developed computationallyintensive, ‘arms length’ techniques to assess creditworthinessand manage risk. Thus, they have been able to generate new revenuestreams from lending to individuals and from fees for moneymarket mediation. This shift has signalled a decline of ‘relational’banking. Third, new technology and related practices have facilitatedthe entry of foreign banks into developing countries, wherethey can exploit ‘arms length’, technologicallydemanding niches in domestic markets. This has not improvedthe efficiency of host banking systems, nor increased the availabilityof credit to the productive sector.     

Developing Organizational Trust Through Advancement of Employees’ Work Ethic in a Post-Socialist Context

The paper highlights the dependence of the level of organizational trust on work ethic and aims to show that development of trust in organizations can be␣stimulated by raising the level of work ethic with organizational practices. Based on the framework by Kanungo, R. N. and A. M. Jaeger (1990, ‘Introduction: The Need for Indigenous Management In Developing Countries’, in A. M. Jaeger and R. N. Kanungo (eds.), Management in Developing Countries (Routledge, London), pp. 1–23), historical–cultural analysis of the Lithuanian context is carried out. The country is chosen as an example of a post-socialist context where work ethic and trust in the society tended to be rather low. The authors discuss organizational practices, particularly the ones related to people management, which can facilitate development of work ethic, and thus, trust in organizations operating in a post-socialist context. The importance of a processual approach to the development of organizational trust and the ethical content of organizational practices, which are aimed at developing organizational trust is highlighted. Directions for further research are indicated.     

Trade liberalization, outsourcing, and the hold-up problem

This paper shows that, in a bilateral relationship where a foreign supplier has to make a relationship-specific investment but cannot enforce a complete contract, the standard hold-up problem of underinvestment is aggravated when trade incurs a tariff. In this context, we identify two new channels through which trade liberalization enhances international trade. First, lower tariffs increase the incentives of foreign suppliers to undertake cost-reducing investments. Second, lower tariffs may prompt vertical multinational integration. These indirect effects imply that responses of trade volumes to trade liberalization are greater than standard trade models suggest and help explain current trends toward foreign outsourcing and intra-firm trade.     

Democracy,Veto Players and the Depth of Regional Integration

We examine how domestic political factors influence the type of regional integration arrangement (RIA) that states enter. States can pursue at least five types of RIA, in order of their depth of policy integration: preferential trade agreements, free trade areas, customs unions, common markets and economic unions. We argue that a country's regime type and the number of institutional ‘veto players’ strongly affect the type of arrangement that states choose. Democracies are more likely to form an RIA than other states, a tendency that becomes more pronounced as the proposed level of integration in an arrangement rises. However, all democracies are not the same. As the number of veto players rises, the likelihood of a democracy entering an RIA declines. Furthermore, veto players are expected to have a larger effect on the odds of a democracy forming an RIA, the greater is the extent of integration that the arrangement aims to achieve. A series of statistical tests, based on analysis of all pairs of countries from 1950 to 2000, support our arguments.