Max weber revisited: Some lessons from East Asian capitalistic development

Weber's thesis of the incompatibility of the Confucian ethos and rational entrepreneurial capitalism has been challenged by the economic miracles of many East Asian countries. One thesis presented here is that Confucianism is compatible with and has facilitated Asian capitalism by its influence on managerial values and practices. According to Weber, the release of tensions created by Calvinism was an important motivating force in the development of capitalism in the Occident. Confucianism offers a parallel mechanism to the profit-seeking drive in Western capitalism. We show that, in Confucian societies, there also exists tensions — in this case, between ideals and reality. These tensions are released through the Confucian concept of a ceaseless pursuit of renovation, a motivational mechanism for the development of capitalism in East Asian societies that parallels the West. Weber held that the classic model of bureaucracy, with impersonality at its core, is essential to the development and continuation of capitalism. Our second thesis is that humanism is an important element in Confucian bureaucracy and that humanistic bureaucracy can be both effective and efficient for the development of capitalism.     

PASSPORT OPTIONS

We relate the theory of passport options with general principles from martingale theory as well as with the theory of Bessel processcs. The calculation of the price of a passport option leads to an equality between two norms on continuous martingales. We also solve the discrete time case for passport options.     

Does stable ownership create value? Evidence from the global financial crisis

We investigate the value of stable ownership for a sample of European firms using the global financial crisis as an exogenous shock and pre-and post-crisis years as benchmark periods. Consistent with the argument that stable ownership allows managers to focus on the creation of long-term value, we find that stable ownership resulted in higher stock returns and a higher market-to-book ratio during the crisis. This positive effect of stable ownership was not reversed after the crisis. Stable institutional blockholdings were more valuable in countries with weaker investor protection. However, the positive effect does not apply to firms in which a family is the largest blockholder. Finally, we also find that ownership stability was associated with a higher level of investments, illustrating that stable ownership affects real corporate decisions.

     

An Ex Post Assessment of Investor Response to Catastrophes

A large body of research has examined abnormal stock returns for insurance companies in the wake of major catastrophes. Most of these studies have investigated the ex ante factors that investors may consider when generating expectations of future profits, represented by postcatastrophe stock returns. We instead ask whether these expectations were ultimately correct by investigating the relationship between returns and the disaster’s effect on future earnings. We find that returns immediately following a disaster are not associated with future earnings. Approximately six days following a catastrophe, however, returns begin to show a significant positive relationship with future earnings. This relationship becomes stronger in subsequent days. We conclude that investors are unable to correctly predict a disaster’s net impact on profits immediately after a disaster because existing public information is insufficient or misunderstood. Only once insurers begin disclosing their estimated losses can investors make accurate predictions about a disaster’s effect on earnings. Our study shows that the investor expectations inferred in much of the existing literature are not predictive of future profits. Our findings are consistent with semistrong-form market efficiency in the wake of a major disaster.