The colors of investors’ money: The role of institutional investors around the world

We study the role of institutional investors around the world using a comprehensive data set of equity holdings from 27 countries. We find that all institutional investors have a strong preference for the stock of large firms and firms with good governance, while foreign institutions tend to overweight firms that are cross-listed in the U.S. and members of the Morgan Stanley Capital International World Index. Firms with higher ownership by foreign and independent institutions have higher firm valuations, better operating performance, and lower capital expenditures. Our results indicate that foreign and independent institutions, with potentially fewer business ties to firms, are involved in monitoring corporations worldwide.     

UNEMPLOYMENT, HYSTERESIS AND TRANSITION

In this paper, we quantify the degree of persistence in the unemployment rates of transition countries using a variety of methods benchmarked against the EU. Initially, we work with the concept of linear ‘Hysteresis’ as described by the presence of unit roots in unemployment as in most empirical research on this area. Given that this is potentially a narrow definition, we also take into account the existence of structural breaks and nonlinear dynamics in unemployment. Finally, we examine whether CEECs' unemployment presents features of multiple equilibria, that is, if it remains locked into a new level whenever some structural change or sufficiently large shock occurs. Our findings show that, in general, we can reject the unit‐root hypothesis after controlling for structural changes and business‐cycle effects, but we can observe the presence of a high and low unemployment equilibria. The speed of adjustment is faster for CEECs than the EU, although CEECs tend to move more frequently between equilibria.     

Awareness of Distributed Denial of Service Attacks' Dangers: Role of Internet Pricing Mechanisms

Denial of Service (DoS) attacks consist of overwhelming a server, a network or a Web site in order to paralyze its normal activity. The additional parameter in Distributed Denial of Service (DdoS) attacks is the distributing strategy. It means that DDoS attacks do not come from a single computer but stem from all accessible channels and servers. Consequences are multiple, ranging from system errors, temporary inability to access the Web site for normal users to challenging the actual reliability of the Internet. Despite this, Internet users show carelessness. The explanation lies in the specificities of DDoS attacks. We explore possibilities to raise users' awareness about the actual amplitude of problems caused by DDoS attacks. We suggest a careful examination of Internet pricing mechanisms and switching from flat to usage-constraining pricing schemes.     

Severance Payment Programs in Latin America

Latin America stands out among different regions in the world for her high employment termination costs. To this contribute both a high level of severance payments and the existence of overlapping benefits. The effectiveness of these protective measures, however, is limited by the size of the informal sector, which, in turn, may be related to employment protection levels. Another important limitation on the effectiveness of employment protection regulation is the often large transaction costs associated with making good of law provisions for the worker. Equilibrium severance pay levels may thus be well below what law mandates as evidence of low coverage rates and undesirable side effects is mounting, reform seems a critical policy issue. However, this reform cannot focus exclusively on severance pay, but it has to incorporate other overlapping benefits, such as UISAs, and advance notice. It also has to contend with a problematic political economy. Jaramillo is a Senior Researcher at the Group for Analysis of Development, GRADE. Saavedra is with the World Bank. Authors are grateful to Eduardo Nakasone for superb research assistance. They also wish to thank participants at the World Bank’s International Workshop on Severance Payments Reform (Laxenberg/Vienna, 2003) for valuable comments.     

A welfare analysis of social security in a dynastic framework*

In this article, we study the welfare effects of unfunded social security in a general equilibrium model populated with overlapping generations of altruistic individuals that differ in lifetime expectancy and earnings ability. Contrary to previous research, our results indicate that steady‐state welfare increases with social security for most households, although by very different amounts. This result is mainly due to two factors. First, the presence of two‐sided altruism significantly mitigates the crowding out effect of unfunded social security. Second, ability shocks and uncertain lifetimes generate significant heterogeneity among households to yield different induced preferences for social security.     

A Suggested Interpretation of Some Experimental Results on Preplay Communication

M. Rabin (1994, J. Econ. Theory63, 370-391) proposes a model of behavior in two-person complete-information games with preplay communication, using non-equilibrium notions in the spirit of rationalizability to derive lower bounds on players' expected payoffs when players have unlimited communication opportunities. This paper adapts Rabin's model so that it can be used to analyze the results of the experiments of R. Cooper et al. (1989, Rand J. Econ.20, 568-587) on structured preplay communication in the Battle of the Sexes and the results of the unstructured bargaining experiments of Roth, Malouf, and Murnighan. Adding empirically motivated restrictions that allow the model to predict the payoff effects of changes in bounded communication possibilities like those in the experiments, it is shown that the data from both experiments are generally consistent with Rabin's model, and with the predictions of the extended model. Journal of Economic Literature Classification Numbers: C70, C72, C78, C91.     

Towards a Theory of Organizational Improvisation: Looking Beyond the Jazz Metaphor

abstract This paper calls for research on organizational improvisation to go beyond the currently dominant jazz metaphor in theory development. We recognize the important contribution that jazz improvisation has made and will no doubt continue to make in understanding the nature and complexity of organizational improvisation. This article therefore presents some key lessons from the jazz metaphor and then proceeds to identify the possible dangers of building scientific inquiry upon a single metaphor. We then present three alternative models – Indian music, music therapy and role theory. We explore their nature and seek to identify ways in which the insights they generate complement those from jazz. This leads us to a better understanding of the challenges of building a theory of organizational improvisation.     

A Theory of Corporate Capital Structure and Investment

This article uses a general equilibrium framework to explorethe origins and limitations of financial intermediaries. Inthe model, investors have a generic lending technology thatthey can improve at a cost. Those who upgrade become intermediariesto exploit their advantage. However, conflicts with depositorswill limit the banks' market presence, and they will only lendto moderately endowed firms while bondholders will finance cash-richcorporations. The article also analyzes the extent to whichinvestors adopt the superior lending technique, the nature ofbank competition, and how corporate and bank conditions affectinterest rates and investment.     

Prepurchase financing pool: Revealing the IRR problem

Internal rate of return (IRR) is one of the most common and important indicators in investment analysis because it is often used by managers and practitioners as a decision-making criterion. Moreover, the IRR reflects the financial cost in financing decisions and it helps to answer the following question when comparing different financing alternatives: “Which loan is the cheapest?” Among the different types of loans in Brazil, there is a financial product called a prepurchase financing pool (PPFP) that is generally regarded as the best option for financing or loans. The objective of this article is to use the prepurchase financing pool to show the flaws of IRR in financial analysis. In particular, when IRR is used to evaluate the prepurchase financing pool, one finds problems of reliability regarding (i) existence, (ii) uniqueness, and (iii) economic interpretation of the rate. The results show that the prepurchase financing pool is relevant evidence that the IRR flaws are found in financial products.     

Organisational citizenship behaviours and effectiveness: an empirical study in two small insurance companies

The study relates six dimensions of organisational citizenship behaviours (OCB) at the branch level with several indicators of the effectiveness of 38 branches of two insurance companies. Results suggest that the branches where employees display more OCB are the most effective. These findings are discussed in the context of a scarcity of empirical studies on the topic, despite researchers' assumption that OCB enhances team and organisational effectiveness.