China Adopts EVA: An Essential Step in the Great Leap Forward*

At the start of 2010, the Central SASAC initiated a three‐year “Performance Assessment Policy” that has the potential to transform Chinese business practices. Since 2010, return on capital has been a major criterion in the performance evaluation and compensation of the senior managements of the 100 largest Chinese state‐owned enterprises. Although sales growth will still count for 60% of executive assessment, 40% will be determined by a simplified version of EVA, or Economic Value Added. The guiding principle behind the new policy is simple and straightforward: Executives of state‐owned enterprises are now being asked to manage capital more efficiently than they have in the past—and in much the same way that private enterprises are now expected to do. Observers might be inclined to downplay this change. The assessed cost for capital, at 5.5%, is well below the market's required rate of return. And SASAC may not allow the firms to close plants, make positions redundant, and lay off employees. Veteran managers may try to outlive the interest in EVA, expecting SASAC's new standards to be unenforced. But SASAC's leaders expect a few pioneering companies to take the framework farther than the guidelines demand. To the extent they succeed in creating value for their shareholders, these companies could help bring about important change at many other Chinese companies.     

EXPRESS LANE OR TOLLBOOTH IN THE DESERT? THE SEC'S FRAMEWORK FOR SECURITY ISSUANCE

U.S. companies that need capital may choose between selling securities in the private and public markets. These venues differ in terms of direct issuance costs, the required information disclosed, the liability incurred, and the mechanics of the capital-raising process itself. During the last two decades, the Securities and Exchange Commission (SEC) has deregulated private offerings by broadening their investor base and increasing secondary market liquidity. At the same time, SEC policy has bifurcated the offering process in the public market into two distinct segments based largely on company size and seasoning. Large public issuers have seen a gradual deregulation and acceleration of their capitalraising processes. Important changes for issuers include allowing them to incorporate information into registration statements by reference to Exchange Act reports, to use shelf registration to speed up offers, and to place securities offshore with less regulatory uncertainty. Though small issuers enjoy some of the benefits of these changes, deregulation of their offerings has been somewhat less pronounced. In a Commission report and a subsequent concept release, the SEC indicates it may restructure and unify these three disparate strands of capital raising through an innovative schema of registering companies rather than securities.     

Dividend Stickiness,Debt Covenants,and Earnings Management

Consistent with the notion that dividends are very sticky, Daniel, Denis, and Naveen ( 2008 ) report evidence that firms manage earnings upward when pre‐managed earnings are expected to fall short of dividend payments. However, we find that this evidence is not robust when controlling for firms' tendency to manage earnings upward to avoid reporting earnings declines; only firms with high leverage exhibit a statistically weak tendency to manage earnings to close deficits of pre‐managed earnings relative to dividends. We further report that the decision to cut dividends depends on whether reported earnings fall short of past dividends, but not on earnings management that eliminates a shortfall in pre‐managed earnings relative to dividend payments. Overall, our evidence suggests that firms that face dividend constraints are more likely to cut dividends than to manage earnings to avoid dividend cuts.     

Genetische Untersuchungen im Versicherungsbereich – Offene Fragen im Rahmen von § 18 GenDG

The paper refers to legal questions that arise in connection with the collection and use of genetic data in the context of private insurance. The content and meaning of § 18 GenDG is described. Then, § 18 GenDG is set in relation to notification requirements out of the VVG. The paper exemplarily emphasizes that, despite the codification of GenDG, specific legal problems arise. Accordingly, the paper provides solutions to overcome these problems. Particular problems refer to the role of genetic data of third parties and according relations to the family history, possibilities to communicate genetic data by the insured in case of medical indication, the ratio of predictive and diagnostic genetic testing and the range of the total limits of § 18 I 2 GenDG.     

Market Response to Investor Sentiment

This paper reconsiders the effect of investor sentiment on stock prices. Our main contribution is that, in addition to the intermediate term return predictability, we also analyze the immediate price reaction to the publication of survey‐based investor sentiment indicators. We find that the sign of the immediate market response is the same as that of the predictability at intermediate time horizons. This is consistent with underreaction to cash flow news or with investor sentiment being related to mispricing. It is inconsistent with the alternative explanations of a rational response to cash flow news or sentiment indicators providing information about future expected returns.     

AMBITIONS AND OPPORTUNITIES FOR ASSESSING MILITARY PERFORMANCE IN CRISIS RESPONSE OPERATIONS

This paper addresses the issue of measuring armed forces’ performance in crisis response operations. By means of interviews (17 respondents) and a large scale survey (1,253 respondents) field and general officers of the Netherlands Armed Forces (NAF) have been questioned on perceived organisational success in crisis response operations. The Dutch officers assess the NAF's performance positively. A number of senior officers are hesitant about the usefulness of measuring the performance of crisis response operations. According to them the context in which the operations are being executed is too complex. Most interviewees, however, are convinced that measuring performance is useful and should be improved. These military leaders express a strong need for criteria to assess their performance on the job.     

New Service Development: An Analysis of 27 Years of Research *

This study examines the state of the art in new service development (NSD) research published in the period between 1982, when the first NSD article appeared in an academic journal, and 2008. First, a multisource search was conducted, which resulted in the identification of 145 NSD‐related articles. Then, a content analysis was performed of these articles using multiple classifier variables with regard to general publication characteristics, focus of the research, and the research methodology that was employed. By examining the results, a number of developments in and patterns of scholarly research in NSD are revealed. More specifically, it appears that the greatest attention in the early writings was on a narrow set of NSD topics like critical success factors and the NSD process, which were predominantly investigated through large‐scale surveys with single respondents in the U.S., Canadian, and U.K. financial services industry. The analytical techniques that were used at that time were rather simple. In contrast, in recent NSD works there is an expansion of research topics (such as customer involvement and the organization of NSD) that are increasingly investigated in high‐tech service industries in Europe through qualitative research designs. Also, multiple respondent studies have started to appear in NSD investigations, while analytical techniques have also become more advanced. This pattern clearly uncovers signs of increasing maturation for the NSD discipline. In addition, some underresearched areas are identified, leading to suggestions for future research into this growing and important field.     

Prevention versus Treatment under Precautionary Regulation: A Case Study of Groundwater Contamination under Uncertainty

Policy discussions on agricultural pollution problems characterize prevention as more cost effective and precautionary than ex post treatment. We derive conditions under which treatment alone is more cost effective in situations involving multiple sources of emissions, multiple sites affected, and a commonly used precautionary approach to uncertainty. We also show that a greater degree of precaution can result in less reliance on prevention. An empirical case study indicates that treatment alone is the most cost-effective means of dealing with nitrate in most Maryland community water system wells. The use of leaching prevention measures is restricted to the most intensive poultry producing areas. The incremental cost of precaution is substantial.     

The iLUC dilemma: How to deal with indirect land use changes when governing energy crops?

Due to land use effects, bioenergy use may cause adverse effects on biodiversity, soil and water and may even fail to guarantee a GHG emissions reduction compared to fossil fuel use. Accounting methodologies and policy instruments were elaborated to prevent these effects, but there is still no sound and consensual methodology to take into account indirect land use change that substantially contributes to GHG emissions as well as a loss of biodiversity. While the iLUC hypothesis, that is the potentiality of adverse effects arising from indirect land use change related to biomass cultivation, is hardly subject to dispute, the quantification of these effects and especially their policy implications are however contentious. Hence, bioenergy policies worldwide face a dilemma: Neglecting iLUC effects that do in fact exist or taking them into account although no sound methodology is available? The article covers the current state of the discussion and also analyses the approaches developed for taking indirect land use change into account. Assessment criteria for coping with the iLUC dilemma are developed and policy recommendations are derived from that.     

Spatial statistical modelling of insurance risk: a spatial epidemiological approach to car insurance

Spatial models, such as the Besag, York and Mollie (BYM) model, have long been used in epidemiology and disease mapping. A common research question in these subjects is modelling the number of disease events per region; here the BYM models provides a holistic framework for both covariates and dependencies between regions. We use these tools to assess the relative insurance risk associated with the policyholders geographical location. A Bayesian modelling approach is presented and an elastic net is used to reduce the large number of possible geographic covariates. The final inference is performed using Integrated Nested Laplace Approximation. The model is applied to car insurance data from If P&C Insurance together with spatially referenced covariate data of high resolution, provided by Insightone. The entire analysis is performed using freely available R-packages. Including spatial dependence when modelling the number of claims significantly improves on the result obtained using ordinary generalised linear models. However, the support for adding a spatial component to the model for claims cost is weaker.