Relation between franking credits and the market risk premium: a comment

Based on the Officer (1994) model, Gray and Hall (2006) derive a relation between franking credits and the market risk premium. On the basis of this relation, the authors show that traditional estimates of the value of franking credits imply dividend yields that are inconsistent with historical equity market data. This inconsistency arises from assumptions about the franking credit payout ratio and the value of franking credits retained. With less than a 100 per cent payout ratio some franking credits are retained within the firm. Assuming that the retained franking credits have no value leads to the inconsistency in dividend yields. Current practice in the application of Officer's model makes this assumption and, therefore, leads to inconsistent results. Gray and Hall suggest resolving the inconsistency by setting the value of all franking credits to zero. An alternative solution is to recognize that retained franking credits might have a positive value.     

Individualism,Uncertainty Avoidance,and Earnings Momentum in International Markets

This study examines whether cultural dimensions such as individualism and uncertainty avoidance can explain the variation in the profitability of the earnings momentum strategies in international markets. Using the time‐varying cultural indices of Tang and Koveos (2008) for 30,383 firms from 41 countries over the period 1995–2008, we show that the level of individualism in a country is positively associated and the level of uncertainty avoidance is negatively associated with earnings momentum profits. Our findings are robust to the inclusion of a comprehensive set of control variables and alternative cultural metrics. The central message is that we emphasize the necessity to go beyond the assumption of perfect rationality and to account for innate differences among international investors to explain how accounting information is incorporated into stock prices. We recommend that cultural dimensions be included in cross‐country research to account for innate differences among international investors.     

Firm agglomeration and local poverty reduction: evidence from an economy in transition

We examine the linkages between firm agglomeration and the welfare of households in Vietnam. We measured firm agglomeration by per capita firm output at the district level and household welfare by per capita income, expenditure, and poverty. We find that firm agglomeration helps households move from the informal sector to the formal sector. As a result, there is a positive effect of firm agglomeration on per capita income, per capita expenditure, and poverty reduction, albeit of a small and time‐decreasing magnitude. The effect of firm agglomeration on per capita expenditure tends to be higher for households with men, younger, and more educated heads than households with women, older, and less educated heads. Households in rural areas and those that do not have crop land are more likely to benefit from firm agglomeration than those living in urban areas and having crop land.     

Does Peacetime Military Service Affect Crime?

Draft lottery data combined with Danish longitudinal administrative records show that military service can reduce criminal activity for youth offenders. For this group, property crime is reduced, and our results indicate that the effect is unlikely to be the result of incapacitation only. We find no effect of military service on violent crime, on educational attainment, or on employment and earnings, either in the short run or in the long run. These results suggest that military service does not upgrade productive human capital directly, but rather affects criminal activity through other channels (e.g., by changing attitudes to criminal activity).     

Corporate tax cuts,merger activity,and shareholder wealth

We study the impact of the Domestic Production Activities Deduction (DPAD) on mergers and acquisitions. DPAD reduces corporate tax rates on income from work or goods made in the U.S. Results indicate that the quantity and quality of acquisition bids by DPAD-advantaged firms conform to the predictions of the neoclassical theory of the firm and the theory of financial constraints. Specifically, bids, particularly those cash-financed, increase substantially in industries with large DPAD-related tax cuts and for firms with financial constraints. Moreover, DPAD improves acquisition quality where acquirers and targets are likely to generate incremental DPAD tax benefits through their merger.     

Quantifying and explaining parameter heterogeneity in the capital regulation-bank risk nexus

By examining the impact of capital regulation on bank risk-taking using a local estimation technique, this paper attempts to quantify for the first time the heterogeneous response of banks towards this type of regulation in banking sectors of western-type economies. Subsequently, using this information, we examine the sources of heterogeneity. The findings suggest that the impact of capital regulation on bank risk is very heterogeneous across banks and the sources of this heterogeneity can be traced into both bank and industry characteristics, as well as into macroeconomic conditions. An important implication of the findings is that common capital regulatory umbrellas are not sufficient to promote financial stability, especially if they are not accompanied by supervisory effectiveness. On the basis of our findings, we contend that more focus should be placed on the actions needed to restrain excessive risk-taking of banks.     

Optimal Countervailing Intervention

This paper examines the optimal countervailing measures in response to foreign subsidy. Two alternative objectives are considered: (1) to maintain the domestic producer price, or (2) to maintain the initial import level. Three different instruments are discussed: a tariff, a production subsidy, and a consumption tax. Their rankings in terms of welfare costs are established. One important finding is that, contrary to present convention, the optimal countervailing rate may have to exceed the foreign subsidy rate. [411]     

Reconciling microeconomic and macroeconomic estimates of price stickiness

This paper attempts to reconcile the high estimates of price stickiness from macroeconomic estimates of a New-Keynesian Phillips curve (NKPC) with the lower values obtained from surveys of firms’ pricing behaviour. This microeconomic evidence also suggests that the frequency with which firms adjust their prices varies across sectors. Building on the insights of Carvalho (2006), we present Monte Carlo evidence that suggests that in the presence of this heterogeneity estimates of the NKPC obtained using conventional methods, such as GMM, are likely to considerably overstate the degree of aggregate price stickiness. Furthermore, if roundabout production is a characteristic of the economy the NKPC will falsely suggest that a sizeable fraction of prices are indexed to past inflation. These problems arise because of a type of misspecification and a lack of suitable instruments.     

International briefing 18: training and development in Vietnam

Vietnam provides a typical case of an emerging economy, which has attempted to develop the country and join the world economic mainstream with a highly agricultural base, large and young labour force, and a dynamically growing private sector. After a long period of quantitative growth, it is now focusing on achieving quality of development, with a view to balance economic growth and quality of life improvement for its population. Education has been chosen to be the key plank in the successful implementation of this strategy. This article reviews the general socio‐economic background of the country, the high need for skilled labour, the structure of its educational system, the pitfalls at the high education level, and its strategy to overhaul the whole system in order to ensure quality from the input phase of the development process.     

Development of human resource management in Vietnam: A semantic analysis

The present study offers a logical understanding of the development of human resource management (HRM) in Vietnam over the past 30 years. While previous studies have examined the adoption of HR practices, there remains a need to understand the current state of HRM development in Vietnam. Using a semantic analysis approach, we systematically analyzed the themes and concepts from 100 journal articles related to HRM in Vietnam, selected from academic databases between 1984 and 2013. The main study findings show that the development of HRM is associated with the key stages of economic development in Vietnam.