Which Microfinance Institutions Are Becoming More Cost Effective with Time? Evidence from a Mixture Model

Microfinance institutions (MFIs) play a key role in many developing countries. Utilizing data from Eastern Europe and Central Asia, MFIs are found to generally operate with lower costs the longer they are in operation. Given the differences in operating environments, subsidies, and organizational form, this finding of increasing cost effectiveness may not aptly characterize all MFIs. Estimation of a mixture model reveals that roughly half of the MFIs are able to operate with reduced costs over time, while half do not. Among other things, we find that larger MFIs offering deposits and those receiving lower subsidies operate more cost effectively over time.     

Semi-Parametric Comparison of Stochastic Volatility Models using Realized Measures

This paper proposes a procedure to test for the correct specification of the functional form of the volatility process within the class of eigenfunction stochastic volatility models. The procedure is based on the comparison of the moments of realized volatility measures with the corresponding ones of integrated volatility implied by the model under the null hypothesis.
We first provide primitive conditions on the measurement error associated with the realized measure, which allow to construct asymptotically valid specification tests.
Then we establish regularity conditions under which the considered realized measures, namely, realized volatility, bipower variation, and modified subsampled realized volatility, satisfy the given primitive assumptions.
Finally, we provide an empirical illustration based on three stocks from the Dow Jones Industrial Average.     

CEOs' Outside Employment Opportunities and the Lack of Relative Performance Evaluation in Compensation Contracts

Although agency theory suggests that firms should index executive compensation to remove market‐wide effects (i.e., RPE), there is little evidence to support this theory. Oyer (2004, Journal of Finance 59, 1619–1649) posits that an absence of RPE is optimal if the CEO's reservation wages from outside employment opportunities vary with the economy's fortunes. We directly test and find support for Oyer's (2004) theory. We argue that the CEO's outside opportunities depend on his talent, as proxied by the CEO's financial press visibility and his firm's industry‐adjusted ROA. Our results are robust to alternate explanations such as managerial skimming, oligopoly, and asymmetric benchmarking.