Pricing the risks of default

This paper decomposes default risk into timing and recovery risks. The two default components are explicitly priced as if they were traded in the futures market. We develop estimation strategies evaluating recovery risks and then construct implicit prices of contingent securities reflecting purely the timing risk. The models are estimated on monthly data for rates on certificates of deposit offered by institutions in the Savings and Loan Industry, during the 1987–1991 period. Empirical results support market expectations of lower likelihoods of default after 1989.     

POLICY PAPER: The Technical Process of Bank Privatization in Mexico

This paper describes the process of Mexican bank privatization that took place in 1991. We show that the Mexican government was very careful to ensure due process and transparency through the entire bank privatization process. However, the lack of a legal and regulatory framework and lax oversight shadowed the success of the technical process. Hence, the financial system in Mexico had to deal with a banking crisis shortly after their privatization, in 1994.     

Hedging and Coordinated Risk Management: Evidence from Thrift Conversions

We provide an explanation for hedging as a means of allocating rather than reducing risk. We argue that when increases in total risk are costly, firms optimally allocate risk by reducing (increasing) exposure to risks that provide zero (positive) economic rents. Our evidence shows that mutual thrifts that convert to stock institutions increase total risk following conversion, consistent with their increased abilities and incentives for risk taking. They achieve this increase by hedging interest-rate risk and increasing credit risk. We provide some evidence that risk-management activities are related to growth capacity and management compensation structure attained at conversion.     

Change in market assessments of deposit-institution riskiness

Using the Goldfeld and Quandt switching regression method, this article investigates variability over 1975–1985 in the risk components of bank and saving and loan stock. We develop evidence that the market-beta, interest-sensitivity, and residual risk of deposit-institution stock vary significantly during this period. Reassessing previous event studies in light of these findings suggests that event-study methods tend to overreach their data. The Ohio State University University of Maryland     

Role of absorptive capabilities in outsourcing the headquarters selling task in the United States

Manufacturers often outsource headquarters selling task to sales and marketing agencies. Headquarters selling task is one of the most outsourced sales and marketing functions and it entails all the activities that a manufacturer conducts in order to sell its product line to the headquarters of a retailer. Thus, effective management of headquarters selling task has a strategic importance for the manufacturer. This study examines the role of absorptive capabilities in outsourcing headquarters selling task. Using resource-advantage theory, this study proposes a theoretical model to link the resources and absorptive capabilities of the outsourcer (manufacturer) and the outsourcee (sales and marketing agency) to performance outcomes. Using data from field interviews of managers an empirical model was tested. The results showed that resources of both the outsourcer and the outsourcee are important in turning potential complementarities into higher outsourcing performance. Contrary to the common belief that outsourcing is a one-sided transaction where only the outsourcee is responsible from the performance outcomes, this study suggests that both parties involved need to combine their resource assortments in the accomplishment of the task.     

China's Foreign Trade: A “New Normal”

Since the global financial crisis of 2007/2008, China's foreign trade has continued to grow faster than international trade, but its drivers are now different from those prevailing before. The participation of the Chinese economy in the global production chains through processing activities is no longer the main driver of its trade performance. The new driving force of change is ordinary trade, based mainly on local inputs and domestic demand. China, which played a major role in the globalization process as an export base for multinational companies, is now shifting to having a “normal” foreign trade system, which is more closely integrated into the domestic economy.     

Examing the effects of positive social labeling,time, and request sizes on compliance in a multistage marketing survey context

Following the lead of Reingen and Bearden (1983), this study examines the effectiveness of positive social labeling, particularly in conjunction with other factors, as a means of influencing verbal and behavioral compliance in a multistage marketing survey context. Such results offer a systematic extension to the labeling literature and provide further insight into labeling’s role as a practicable method of shaping and stimulating respondent behavior.     

Introduction to the Special Issue: The Bank Structure Conference through the years

This is a special issue dedicated to the Federal Reserve Bank of Chicago’s annual Conference on Bank Structure and Competition. Invited articles are from financial economists that have had long standing relationships with the conference. Additionally, the effectiveness of the conference in influencing public policy and the financial and economic literature is evaluated.     

Travel and Leisure Services Preferences and Patronage Motives of Older Consumers

The population is aging and the number of people over 55 (older consumers) is increasing. Firms which recognize the importance of the older consumer segment can use this demographic change to their advantage. However, the older consumer market is more heterogeneous than the younger consumer market when it comes to preferences, motives, and spending patterns. Travel and leisure services are no exception. This study reports the result of a large‐scale study that examined the responses to travel and leisure services and patronage motives of different age and lifestyle groups. The results suggest several marketing strategies that would be most appropriate for reaching older consumers of travel and leisure services.