It's so hard to be fair

When employees believe they are being treated fairly-when they feel heard, when they understand how and why important decisions are made, and when they believe they are respected-their companies will benefit. Research shows that practicing process fairness reduces legal costs from wrongful-termination suits, lowers employee turnover, helps generate support for new strategic initiatives, and fosters a culture that promotes innovation. What's more, it costs little financially to implement Yet few companies practice it consistently. Joel Brockner examines this paradox, exploring psychological and other reasons that cause managers to resist embracing process fairness. The fact that it's relatively inexpensive to implement, for instance, may be why some numbers-oriented executives undervalue it. Many managers believe that they practice process fairness, but 360-degree feedback tells another story. Some corporate policies actually undermine it--such as when the legal department won't let managers fully explain decisions for fear that disclosure could expose the firm to lawsuits. And, frequently, managers simply follow the all-too-human tendency to avoid uncomfortable situations. But the good news is that organizations can take concrete steps to promote greater process fairness. Many studies have shown that training programs make a big difference, and the author describes the most effective format. In addition, warning your managers that they may experience negative emotions when practicing fair process will help prepare them to cope with those feelings. Finally, role modeling fair process on the executive level will help spread the practice throughout the organization. The fact is, process fairness is the responsibility of all executives, at all levels and in all functions; it cannot be delegated to HR. The sooner managers realize that and work to make it a company norm, the better off the organization will be.     

Bootstrapping the Box–Pierce Q test: A robust test of uncorrelatedness

This paper describes a test of the null hypothesis that the first K autocorrelations of a covariance stationary time series are zero in the presence of statistical dependence. The test is based on the Box–Pierce Q statistic with bootstrap-based P-values. The bootstrap is implemented using a double blocks-of-blocks procedure with prewhitening. The finite sample performance of the bootstrap Q   test is investigated by simulation. In our experiments, the performance is satisfactory for samples of n=500$n=500$. At this sample size, the differences between the empirical and nominal rejection probabilities are essentially eliminated.     

The Revenue Consequences of Using Formula Apportionment to Calculate U.S. and Foreign-Source Income: A Firm-Level Analysis

This paper examines the 1989–1993 publicly available financial reports of 46 U.S.-based multinationals to estimate the revenue implications of implementing a U.S. federal formula apportionment system. Ignoring behavioral responses, we estimate shifting to an equal-weighted, three-factor formula would have increased their U.S. tax liabilities by 38 percent, with an 81 percent increase for oil and gas firms. We find the firms report a lower percentage of their worldwide profits as American profits than their American share of assets, sales, or payroll. The results may be attributed to more profitable foreign operations, tax-motivated income shifting, or measurement error.     

Growth machines and social movements in mature tourist destinations Costa del Sol-Málaga

Abstract

The purpose of this study is to analyse the new processes of tourism growth and its conflicts from the perspective of social movements. First, the urban growth machine analysis model is applied by the systematisation of six projects. Second, the resistance movements against those projects and whether this resistance could be the start of local tourism degrowth policies are examined. The methodology is qualitative, based on documentary analysis, participatory observation, discussion groups and interviews. The case study is the destination of Costa del Sol-Málaga. The results enable the development of the urban growth machine model in tourist destinations. Meanwhile, social movements demystify the argument based on neoclassical economic progress. The social movements condemn the effects of large-scale top-down projects, and implement alternative bottom-up proposals. Although the social movements do not reject tourism, they call for greater control over its impact, denounce unlimited growth, overtourism and the loss of urban quality of life. These movements advocate a lifestyle linked to the everyday space, which they believe is threatened by excessive urban-tourism growth. They are a symptom of the need to devise a proposal using the principles of degrowth.     

The financialization of the non‐financial corporation. A critique to the financial turn of accumulation hypothesis

One aspect in which non‐financial corporations (NFCs) are said to be financialized is that they have been increasingly engaged in financial accumulation from which they derive a growing proportion of financial income. This is what we call the financial turn of accumulation hypothesis. In this article, we show that the evidence used to sustain it, in the U.S. setting, has to be reconsidered. Our findings show that, contrary to the financial turn of accumulation hypothesis, financial income averages 2.5% of NFCs’ total income since the 1980s, oscillating since the beginnings of the 1990s until 2005 and then declining. In terms of assets, some of the alleged financial assets might actually reflect other activities in which NFCs have been increasingly engaged, such as tax avoidance, internationalization of production, activities refocusing and M&As.     

International evidence on fiscal solvency: Is fiscal policy “responsible”?

We conduct a cross-country empirical analysis of fiscal solvency based on dynamic stochastic general equilibrium conditions. The results show evidence of fiscal solvency, in the form of a robust positive conditional response of the primary balance to changes in public debt, in panels for emerging and industrial economies and in a combined panel. Emerging economies show a stronger response and hence converge to lower mean debt-output ratios, as observed in the data. The results are weaker for countries with debt ratios exceeding panel means and medians. Hence, we can separate countries where fiscal solvency holds from those where it remains in doubt.     

A Look Back at Modern Finance: Accomplishments and Limitations

In a conversation held in June 2016 between Nobel laureate Eugene Fama of the University of Chicago and Joel Stern, chairman and CEO of Stern Value Management, Professor Fama revisited some of the landmarks of “modern finance,” a movement that was launched in the early 1960s at Chicago and other leading business schools, and that gave rise to Efficient Markets Theory, the Modigliani‐Miller “irrelevance” propositions, and the Capital Asset Pricing Model. These concepts and models are still taught at prestigious business schools, whose graduates continue to make use of them in corporations and investment firms throughout the world. But while acknowledging the staying power of “modern finance,” Fama also notes that, even after a half‐century of research and refinements, most asset‐pricing models have failed empirically. Estimating something as apparently simple as the cost of capital remains fraught with difficulty. He dismisses betas for individual stocks as “garbage,” and even industry betas are said to be unstable, “too dynamic through time.” What's more, the wide range of estimates for the market risk premium—anywhere from 2% to 10%—casts doubt on their reliability and practical usefulness. And as if to reaffirm the fundamental insight of the M&M “irrelevance” propositions—namely, that what companies do with the right‐hand sides of their balance sheets “doesn't matter”—Fama observes that “we still have no real resolution on the key questions of debt and taxes, or dividends and taxes.” But if he has reservations about much of modern finance, Professor Fama is even more skeptical about subfields now in vogue such as behavioral finance, which he describes as “mostly just dredging for anomalies,” with no underlying theory and no testable predictions. Although he does not dispute that a number of well‐documented traits from cognitive psychology show up in individual behavior, Fama says that behavioral economists have thus far failed to come up with a testable theory that links cognitive psychology to market prices. And he continues to defend the concept of “efficient markets” with which his name has long been closely associated, while noting that empirically based asset pricing models such as his (with Ken French) “three‐factor” CAPM have produced much better results than the standard CAPM.     

Optimal capital structures for private firms

This article shows how to construct an optimal capital structure for a private firm. Since the agents who supply the firm’s capital are risk averse, they diversify by holding both debt and equity. This can mitigate, or even eliminate, the classical risk shifting problem. There is a wealth effect since the optimal capital structure, which can involve multiple types of debt, depends on the amount of wealth that each agent contributes to the firm. However, it is shown that the agents’ equity holdings do not depend on the contributed amounts of wealth. Thus the model can produce a wedge between ownership rights and equity cashflow rights. These features are illustrated in a firm with three agents.     

Financial globalization, financial crises and contagion

Two observations suggest that financial globalization played an important role in the recent financial crisis. First, more than half of the rise in net borrowing of the U.S. non-financial sectors since the mid-1980s has been financed by foreign lending. Second, the collapse of the U.S. housing and mortgage-backed-securities markets had worldwide effects on financial institutions and asset markets. Using an open-economy model where financial intermediaries play a central role, we show that financial integration leads to a sharp rise in net credit in the most financially developed country and to large asset price spillovers of country-specific shocks to bank capital. The impacts of these shocks on asset prices are amplified by bank capital requirements based on mark-to-market.