It is not a flat world after all: Tax repatriation costs and cash value

US corporations have accumulated record‐high amounts of cash, and most of it is trapped in foreign accounts. This study tests the hypothesis that the marginal value of cash decreases in the presence of tax repatriation costs, as these costs are a strong indication that part of the cash is trapped abroad. Cash abroad is not readily available to the company because it is subject to an additional layer of tax before it can be used or distributed. Moreover, uncertainty surrounds the potential use of foreign cash, and research documents that firms holding high amounts of cash abroad are likely to invest in negative net present value activities. Finally, possible changes in tax regulation are an additional source of uncertainty. Consequently, foreign cash should be worth less than domestic cash. Using a large sample of US firms drawn from COMPUSTAT during the 1991–2012 period, the analysis suggests that shareholders value an extra dollar of cash at $1.086. However, this result changes dramatically when the change in cash is interacted with the tax cost of repatriating the earnings. That is, the marginal value of cash decreases significantly in the presence of tax repatriation costs, and shareholders discount cash when it is likely to be held abroad. This study contributes to the literature on cash holding by investigating whether tax repatriation costs affect the value of corporate cash. Moreover, the findings show that there are important economic consequences linked to the phenomenon of cash accumulation in foreign countries and therefore provide regulators with a sound foundation on which to take additional actions to require more disclosure of and transparency in the actual location of firms’ cash holdings.     

An application of nonparametric volatility estimators to option pricing

We discuss the impact of volatility estimates from high frequency data on derivative pricing. The principal purpose is to estimate the diffusion coefficient of an Itô process using a nonparametric Nadaraya–Watson kernel approach based on selective estimators of spot volatility proposed in the econometric literature, which are based on high frequency data. The accuracy of different spot volatility estimates is measured in terms of how accurately they can reproduce market option prices. To this aim, we fit a diffusion model to S&P 500 data, and successively, we use the calibrated model to price European call options written on the S&P 500 index. The estimation results are compared to well-known parametric alternatives available in the literature. Empirical results not only show that using intra-day data rather than daily provides better volatility estimates and hence smaller pricing errors, but also highlight that the choice of the spot volatility estimator has effective impact on pricing.     

Does sport make you happy? An analysis of the well‐being derived from sports participation

This paper examines the impact of sports participation upon the subjective well‐being of individuals. Encouraging participation in sports activity is now an important public policy issue, as it is argued that there are benefits in terms of health and well‐being to individuals as well as to society through externalities. Controlling for personal and socio‐demographic characteristics affecting well‐being, this paper examines if participation in, and the frequency and duration of, 67 sports activities affects well‐being. The form in which sports participation takes place is also investigated by examining if social‐interaction sports produce more well‐being. This paper demonstrates that sports participation has a positive affect upon the subjective well‐being of the population and, moreover, estimates its monetary value. The effects are larger if one allows for social interactions.     

Tales of Motives in Bank M&As in Emerging Markets

For the past 12 years volatile waves of M&As and divestments in the banking sector were generated by numerous, but often similar motives. This article analyses the motives behind bank M&As regarding the acquirer's and the target's reasons and their perceived criteria of success or failure. The study has identified soft “irrational” factors such as bargain deals or excess cash, behind several economic motives such as synergies, survival, market penetration, or following the customer. Overall, the motives proved to be interconnected, allowing traceable further bank consolidation, especially during financial crisis, at the intercountry level. © 2013 Wiley Periodicals, Inc.     

Non-market valuation of forest goods and services: Good practice guidelines

The European COST Action E45 on European Forest Externalities (EUROFOREX) participants developed a set of good practice guidelines for the non-market valuation of forests, elaborating on stated and revealed preference methodologies, as well as benefit transfer and meta-analytical procedures. This article presents a summary of the guidelines.     

Biden’s Security Policy: Democratic Security or Democratic Exceptionalism?

Intereconomics - By emphasising the internal-external security nexus inherent in democratic security, the US could aspire again to lead through the example of its democracy’s resilience and...     

The pro-cyclicality of risk weights for credit exposures: Driven by the retail segment

This paper examines the pro-cyclicality of implicit risk weights of credit exposures and the potential contribution of accommodative monetary policy using data for the Czech Republic. The empirical results indicate that risk weights behave pro-cyclically under the IRB approach and acyclically under the STA approach. The pro-cyclical behaviour of IRB risk weights is caused primarily by the retail exposures, the strongest effects being in the highest and lowest quantiles of risk weights. The risk weights for retail exposures behave pro-cyclically not only with regard to the business cycle, but also with respect to the financial cycle and house price growth. In addition, monetary policy easing contributes to the pro-cyclicality in higher quantiles of risk weights.     

Long-term health economic benefits of sensor-augmented pump therapy vs continuous subcutaneous insulin infusion alone in type 1 diabetes: a UK perspective

Aims/hypothesis:

Continuous subcutaneous insulin infusion (CSII) is an important treatment option for type 1 diabetes patients unable to achieve adequate glycemic control with multiple daily injections (MDI). Combining CSII with continuous glucose monitoring (CGM) in sensor-augmented pump therapy (SAP) with a low glucose-suspend (LGS) feature may further improve glycemic control and reduce the frequency of hypoglycemia. A cost-effectiveness analysis of SAP?+?LGS vs CSII plus self-monitoring of blood glucose (SMBG) was performed to determine the health economic benefits of SAP?+?LGS in type 1 diabetes patients using CSII in the UK.

Methods:

Cost-effectiveness analysis was performed using the CORE diabetes model. Treatment effects were sourced from the literature, where SAP?+?LGS was associated with a projected HbA_1c reduction of ?1.49% vs ?0.62% for CSII, and a reduced frequency of severe hypoglycemia. The time horizon was that of patient lifetimes; future costs and clinical outcomes were discounted at 3.5% and 1.5% per annum, respectively.

Results:

Projected outcomes showed that SAP?+?LGS was associated with higher mean quality-adjusted life expectancy (17.9 vs 14.9 quality-adjusted life years [QALYs], SAP?+?LGS vs CSII), and higher life expectancy (23.8 vs 21.9 years), but higher mean lifetime direct costs (GBP 125,559 vs GBP 88,991), leading to an incremental cost-effectiveness ratio (ICER) of GBP 12,233 per QALY gained for SAP?+?LGS vs CSII. Findings of the base-case analysis remained robust in sensitivity analyses.

Conclusions/interpretation:

For UK-based type 1 diabetes patients with poor glycemic control, the use of SAP?+?LGS is likely to be cost-effective compared with CSII plus SMBG.