Analyst forecasts and European mutual fund trading

This paper addresses the questions whether European mutual fund managers rely on sell-side analyst information and whether this behavior impacts fund performance. Results show that mutual funds significantly increase (decrease) their holdings in stocks when any of the consensus forecast measures increases (decreases) within the quarter prior to the observation period. Furthermore, mutual fund managers primarily attribute high information value to consensus forecast revisions that contain positive information, that are based on a sufficiently high number of inputs, and with more unanimous inputs to the consensus. Finally, following sell-side research seems to be beneficial for mutual fund managers since our results show that stock trades that are in line with analyst forecast revisions significantly outperform trades that are contrary to analyst research.     

Why Do European Firms Go Public?

We survey chief financial officers (CFOs) from 12 European countries regarding the determinants of going public and exchange listing decisions. Most CFOs identify enhanced visibility and financing for growth as the most important benefits of an IPO, but other motivations for IPOs differ significantly across firms, countries, and legal systems. We find strong support for the IPO theories that emphasise financial and strategic considerations, such as enhanced reputation and credibility, and financial flexibility as a major advantage of an IPO. At the same time, we find moderate support for theories that focus on exit strategy, balance of power with creditors, external monitoring, and merger and acquisition motivations. European CFOs' views on the major benefits of an IPO are generally similar to those of US managers as reported in Brau and Fawcett (2006) , but differ significantly on outside monitoring; outside monitoring is considered a major benefit by European CFOs but a major cost by US CFOs. Our evidence suggests that the decision to go public is a complex one, and cannot be explained by one single theory because firms seek multiple benefits in going public. These motivations are influenced by the firm's ownership structure, size and age as well as by the home country's institutional and regulatory environment.     

OVERINVESTMENT IN TEAM SPORTS LEAGUES: A CONTEST THEORY MODEL

This paper applies contest theory to provide an integrated framework of a team sports league and analyzes the competitive interaction between clubs. We show that dissipation of the league revenue arises from 'overinvestment' in playing talent as a direct consequence of the ruinous competitive interaction between clubs. This overinvestment problem increases if the discriminatory power of the contest function increases, revenue-sharing decreases, and the size of an additional exogenous prize increases. We further show that clubs invest more when they play in an open league compared with a closed league. Moreover, the overinvestment problem within open leagues increases with the revenue differential between leagues.     

Cost-effectiveness analysis of the SAPIEN 3 TAVI valve compared with surgery in intermediate-risk patients

Objective: Transcatheter aortic valve implantation (TAVI) has become the therapy of choice for treating severe aortic stenosis in patients at high-risk for surgery or where it is considered too risky to attempt. This uptake varies across geographies however, and its cost or value has frequently been cited as the reason for this. We sought to evaluate the potential cost and clinical impact of TAVI in intermediate risk patients from a French collective perspective.

Materials and methods: The analysis was performed using a novel Markov model with data derived from the PARTNER II randomized controlled trial for survival, clinical event rates, and quality-of-life. The simulated time horizon was 15?years, costs were from French sources and presented in 2016 Euros. Discounting of all outcomes was at 4% annually and the effect of uncertainty in model parameters was explored by deterministic and probabilistic sensitivity analysis (PSA).

Results: In comparison to surgery, TAVI resulted in improved clinical outcomes (life expectancy and quality-adjusted life expectancy) and lower costs over a lifetime time horizon. The base case results showed increases of 0.42?years and 0.41 QALYs with lifetime cost savings of €439 for TAVI compared to surgery. PSA results showed a >50% likelihood of cost-effectiveness at €0 willingness-to-pay and a 100% likelihood at ～€15,000.

Limitations: Clinically, survival projections are based on limited follow-up data and introduce uncertainty into the outcomes from the model. Economically, procedure costs are derived from a heterogeneous mix of patient risk groups, although this is much more likely to bias against TAVI and under-estimate overall cost savings.

Conclusions: In our analyses of intermediate risk patients, TAVI is associated with superior clinical outcomes compared to surgery and is cost saving. It could be expected that cost savings are conservative and likely to increase over time.     

Tax Pot Episodes in OECD Countries

How to use an unexpected increase in tax revenues (tax pots) was an important issue in most OECD countries in the second half of the 1990s, the question being more precisely what to do with those windfall revenues: decrease taxes, reduce debt, increase expenditures? In this paper, we study such tax pot episodes in OECD countries over the past 40 years. To that end, we propose a definition of a fiscal pot episode. Once identification is complete, we examine the macroeconomic environment within in those episodes, the way this surplus of revenues has been used, and the degree of success in reducing public debt and in fostering growth. As in the fiscal adjustment literature, we then obtain relatively orthodox conclusions about the use of windfall tax revenues, as it is generally better for future growth and debt level to use the money to reduce expenditures and taxes. J. Japan. Int. Econ., December 2002, 16(4), pp. 436–461. University of Toulouse (IDEI), Toulouse, France; and University of Toulouse (GREMAQ, LEERNA, and IDEI), Toulouse, France, Institut Universitaire de France, and CEPR. © 2002 Elsevier Science (USA).Journal of Economic Literature Classification Numbers: E6, H6.     

Virtual Experiments and Their Use in Teaching Experimental Design

The ability to design experiments in an appropriate and efficient way is an important skill, but students typically have little opportunity to get that experience. Most textbooks introduce standard general‐purpose designs, and then proceed with the analysis of data already collected. In this paper we explore a tool for gaining design experience: computer‐based virtual experiments. These are software environments which mimic a real situation of interest and invite the user to collect data to answer a research question. Two prototype environments are described. The first one is suitable for a course that deals with screening or response surface designs, the second one allows experimenting with block and row‐column designs. They are parts of a collection we developed called ENV2EXP, and can be freely used over the web. We also describe our experience in using them in several courses over the last few years.     

The OECD's new global model

This paper provides a summary of the OECD's new global macroeconometric model, including an overview of model structure and a selection of simulations illustrating its main properties. Compared with its predecessors, the new model is more compact and regionally aggregated, but gives more weight to the focus of policy interests in global trade and financial linkages. The country model structures typically combine short-term Keynesian-type dynamics with a consistent long-run neo-classical supply-side. While retaining a conventional treatment of international trade and payments linkages, the model has a greater degree of stock-flow consistency, with explicit modelling of domestic and international assets, liabilities and associated income streams. Account is also taken of the influence of financial and housing market developments on asset valuation and domestic expenditures via house and equity prices, interest rates and exchange rates. As a result, the model gives more prominence to wealth and wealth effects in determining longer-term outcomes and the role of asset prices in the transmission of international shocks both to goods and financial markets.     

The reluctance of construction purchasers towards project partnering

While the literature argues that there are several benefits for construction purchasers who join forces to co-develop the project with contractors and to increase cooperation between the various project stakeholders (construction partnering), little research has been done on the reasons for the lack of extensive diffusion of such methods in the construction industry. This paper aims at understanding the rationale behind the reluctance of construction purchasers for this coordination mechanism in France. In particular the paper investigates the impact of the characteristics of the project but also of the characteristics of the purchasing companies in their project procurement behaviour. The findings reveal that the characteristics of the purchasing companies in terms of purchasing strategy, structure and culture seem more explanatory of their procurement behaviour than of the project characteristics. The paper suggests that the lack of diffusion and understanding of construction partnering may be due to the resistance of purchasers who feel threatened by the structural changes it involves in their purchasing habits.     

The consequences of earnings management for the acquisition premium in friendly takeovers

This study investigates the effect of earnings management (EM) on deal premiums in friendly takeovers. It examines both accruals and real EM in the year preceding the deal announcement, based on a sample of 578 European firms subject to an acquisition or acquisition attempt between 2005 and 2015. The empirical findings suggest that downward EM is associated with a higher premium offered by the acquirer. The results suggest that income-decreasing accounting choices could be a negotiated strategy between the acquirer and target firms’ managers to clean the balance sheet, reduce the likelihood of litigation, and create a fictive performance through an accrual reversal post-acquisition.     

Gold rush fever in business cycles

A flexible price model of the business cycle is proposed, in which fluctuations are driven primarily by inefficient movements in investment around a stochastic trend. A boom in the model arises when investors rush to exploit new market opportunities even though the resulting investments simply crowd out the value of previous investments. A metaphor for such profit driven fluctuations are gold rushes, as they are periods of economic boom associated with expenditures aimed at securing claims near new found veins of gold. An attractive feature of the model is its capacity to provide a simple structural interpretation to the properties of a standard consumption and output Vector Autoregression.