Modeling and Measuring Economic Reality: Reply to the Reviews

To begin with, we'd like to express our appreciation to our three commentators for their thoughtful and helpful reviews. Like the founders of the subject, we believe, and our reviewers seem to agree, that structural econometrics has the potential to enable us to develop serious working models of how different economies actually operate, and also to tell us something about the changing patterns of their growth and transformation. But both we and our reviewers agree that there is a great deal wrong with the way econometrics is practiced today.     

Government Stakes as an Insurance Policy: Evidence from Seasoned Equity Offerings of Chinese Firms

While privatization has attracted much more attention in the literature, one type of reverse privatization, a privately-controlled firm inviting government ownership as its minority shareholders, is neglected in the literature. Using large-scale census firm data from China, we investigate the determinants of this kind of reverse privatization and its impact on firm performance. We find that (1) the decision of reverse privatization by Chinese private firms is affected by local political risk, firm-level financial characteristics, and industry-level characteristics, (2) the reverse privatization significantly affects the firm’s performance, which is measured in different proxies but the effects are not consistent, and (3) moreover, we find that the benefit of reverse privatization decreases as government ownership increases. Our results suggest that the prevalence of reverse privatization in China is a political outcome, which is affected by the trade-off of political risk and political privilege. Our work suggests that political risk and political considerations are the main driving factors of privatization, or its opposite, reverse privatization. Reverse privatization, to some extent, is a rational choice in some transition economies. Our findings offer clear policy implications to the nationalization phenomenon taking place around the world recently.     

Western sanctions—Only half the challenge to Russia’s economic union

Tensions over Russia’s recent actions in Ukraine and the Middle East have resulted in wide-ranging Western sanctions. An understanding the destabilizing regional and institutional effects of sanctions is, therefore, fundamental for policymakers on both sides. Data from 2007 to 2015 are used to analyze the effect of funding, bank ownership and credit quality across Russia’s wider Economic Union. Results enable systemic insights into an often opaque region during a period of crises and sanctions. Specifically we find that sanctions result in institutional illiquidity, limited capital market access and a rise in state funding coupled with bank take-overs by governments. Government Institutions exploit their access to state funding to increase market share but the positive effects are limited since there is clear evidence of ongoing poor credit management. An increase in loan loss provisions, lagged abnormal credit losses, suggest that until this second but significant ‘weak management’ effect is addressed, it will be difficult for institutions in the region to overcome the debilitating effects of sanctions.     

Intercorporate Ownership,Taxes, and Corporate Payout Choices*

This paper examines whether corporate payout choices (dividends or share repurchases) are associated with intercorporate ownership in a firm. Using the System for Electronic Document Analysis and Retrieval (SEDAR) and the Inter‐Corporate Ownership (ICO) database from Statistics Canada, I find that intercorporate ownership is positively associated with a firm’s propensity to pay dividends and negatively associated with a firm’s propensity to repurchase shares. The findings are robust to the endogeneity of intercorporate ownership and the inclusion of various control variables such as firm size, risk, liquidity, growth, and profitability.     

The impact of governance and transparency on firm investment in Vietnam

A large literature asserts a causal relationship between the quality of economic governance and economic performance. However, attempts to establish such a link at an aggregate level have met with considerable methodological criticism. This paper seeks to overcome this limitation. We match a panel of Vietnamese enterprises from 2006 to 2010 with a unique panel dataset measuring sub‐national economic governance to estimate a relationship between local governance and private investment. We do not find a significant relationship between investment and most traditional forms of governance. However, there is one important exception – transparency, especially the public posting of planning documents, is strongly associated with higher investment across a range of different specifications. Our results have significant implications for policy, given the prevailing theory that changes in the quality of local economic governance will spur improved economic performance.     

Foreign investment,corporate governance and performance in the Chinese listed A Share companies

We present a novel lens on the presence and impact of qualified foreign institutional investors (QFII) in top shareholdings of the non-financial domestically listed Chinese ‘A’ share firms. The initial results suggest that the presence of a QFII as a top shareholder in these companies is associated with their better performance, using both Tobin’s Q and ROA as the performance measures. Our models include variables representing corporate governance mechanisms, foreign legal person shares, a proxy for international affiliations and a number of time-variant firm characteristics. Economically, the coefficient of impact on the market measure is the more significant, while the effect of having a QFII in top shareholdings on both performance measures is empirically significant. Previously, studies have often ignored the potential for reverse causality beyond using lagged regressors. This is problematic. Therefore, we follow up with a 2SLS instrumental variables and system GMM model to further mitigate this potential and find the empirical relationship holds. Contrary to earlier work on QFIIs and governance post-implementation of the QFII scheme, the findings from our models suggest that the presence of a QFII top shareholder augments market performance holding equal existing corporate governance mechanisms and other controls.     

Direct Democracy and Local Public Finances under Cooperative Federalism

In this paper, we exploit the introduction of the right of local initiatives in the German state of Bavaria in 1995 in order to study the fiscal effects of direct democracy. Our identification strategy combines difference‐in‐differences and regression discontinuity methods: we compare municipal expenditure and revenue between pre‐ and post‐reform periods at population thresholds where the signatures needed to launch initiatives and minimum quorum requirements decrease discontinuously (difference‐in‐discontinuities design). The results suggest that stronger direct democratic institutions lead to an expansion of local government size.     

Choice-Based Conjoint Analysis of the Local Coupon Preferences of Millennials

This article explores the local coupon preferences of the 18–29-year old market. Choice-based conjoint analysis was used to determine Millennials’ local coupon needs and preferences. From this data, three need-based segments were identified and discussed. The findings indicate that while overall, millennials are resistant to receiving coupons for local businesses through their cell phones, there is one segment that is receptive to this method of coupon delivery method.     

Wage Differentials among Ownership Groups and Worker Quality in Vietnamese Manufacturing

Wholly foreign multinational enterprises (WFs), joint-venture multinationals (JVs), state-owned enterprises (SOEs) pay higher wages than domestic private firms in Vietnamese manufacturing. In large samples of medium–large (20+ employees) firms, conditional differentials accounting for worker education and occupation, as well as capital intensity, size, and shares of female workers, were substantially smaller, but positive and significant. Wage levels and differentials varied substantially among industries. Conditional differentials remained positive and significant for WFs and JVs in most of the 11 industries examined, but estimates of SOE-private differentials were insignificant in most industries. Robustness checks using 2007 data yielded similar results.     

Local Powers of Optimal One‐sample and Multi‐sample Tests for the Concentration of Fisher‐von Mises‐Langevin Distributions

One‐sample and multi‐sample tests on the concentration parameter of Fisher‐von Mises‐Langevin distributions on (hyper‐)spheres have been well studied in the literature. However, only little is known about their behaviour under local alternatives, which is due to complications inherent to the curved nature of the parameter space. The aim of the present paper therefore consists in filling that gap by having recourse to the Le Cam methodology, which has recently been adapted from the linear to the spherical setup. We obtain explicit expressions of the powers for the most efficient one‐ and multi‐sample tests. As a nice by‐product, we are also able to write down the powers (against local Fisher‐von Mises‐Langevin alternatives) of the celebrated Rayleigh test of uniformity. A Monte Carlo simulation study confirms our theoretical findings and shows the empirical powers of the above‐mentioned procedures.