Mandatory disclosure,greenhouse gas emissions and the cost of equity capital: UK evidence of a U-shaped relationship

This paper examines the effects of disclosing greenhouse gas (GHG) information mandatorily on the cost of equity capital (COC) using a longitudinal unbalanced panel database of the United Kingdom's FTSE 350 firms for the period 2011–2016. We use a nonlinear panel quantile regression (PQR) model to examine the relationship between GHG disclosure (GHGD) and COC in the United Kingdom. This technique was supplemented by conducting a two-step generalised method of moment (GMM) estimation to address any concerns related to the potential existence of endogeneity problems. Our findings suggest that high-level GHGD appeared to be negatively associated with COC up to a certain level, which is known as the turning point; then, any increase in GHGD is likely to increase the COC. This means that the nonlinear association between GHGD and COC is evidenced in our study and takes a U shape. Likewise, our findings are associative of a moderating effect of the 2013 carbon disclosure regulation (CDR) on the GHGD–COC nexus. We argue that mandatory GHGD and GHG risk are linked so that those companies that are associated with higher GHG risk have a tendency to be better disclosers. Consequently, we urge regulators to design GHGD regulations in a way that mirrors corporate environmental risk and leads to a lower COC in order to align the interests of corporations with those of the society at large.     

公共真实中的社会和谐

公共真实是社会和谐必不可少的条件。只有在享有公共真实的社会中,人们才能有效地一起辨认当前生活中的不和谐因素,并一起克服这些因素。这样一个允许自由讨论和共同行动的社会空间就是公民社会。公民社会是就它做什么,而不是就它是什么而言的。公民社会不单单是一个拥有形式公民身份者构成的社会,而是一个让普通人能通过说真话和积极参与起到公民作用的社会。公民社会的和谐是由每一个公民的宪法权利来保障的。在公民社会中,生活在和谐之中,也就是生活在公共真实之中。公共真实是社会和谐的基础,社会和谐则是公共真实的结果。     

Missing Markets and Redundant Reservoirs

This paper uses a two-sector, two-period,spatial model of groundwater usage withstochastic surface water supply to illustratethe potential for the suboptimal management ofthe timing of groundwater uses. A ``timeprofile externality' is said to exist when thetiming of groundwater extraction by one set ofusers impacts on the time profile of wateravailability to another set of users. Theexistence of the time of use externalitydepends on the presence of importantdifferences in the preferences between thecontrol and non-control sectors. It alsodepends on the absence of the markets thatwould internalise these differences. Oneimportant implication of the existence of suchexternalities is that they can inducesub-optimal insurance investments in the formof water storage capital, i.e., unnecessarysurface water reservoirs.     

Free Entry under Uncertainty

When focusing on firm’s risk-aversion in industry equilibrium, the number of firms may be either larger or smaller when comparing market equilibrium with and without price uncertainty. In this paper, we introduce risk-averse firms under cost uncertainty in a model of spatial differentiation and show that the impact of uncertainty will increase the number of firms in an industry. With increased uncertainty, the risk premium of the marginal buyer increases by more than the risk premium of the average buyer, so that the price increases by more than the risk premium. When turning to the free entry game, we find that the market generates too many firms.     

Declining Discount Rates: The Long and the Short of it

The last few years have witnessed important advances in our understanding of time preference and social discounting. In particular, several rationales for the use of time-varying social discount rates have emerged. These rationales range from the ad hoc to the formal, with some founded solely in economic theory while others reflect principles of intergenerational equity. While these advances are to be applauded, the practitioner is left with a confusing array of rationales and the sense that almost any discount rate can be justified. This paper draws together these different strands and provides a critical review of past and present contributions to this literature. In addition to this we highlight some of the problems with employing DDRs in the decision-making process, the most pressing of which may be time inconsistency. We clarify their practical implications, and potential pitfalls, of the more credible rationales and argue that some approaches popular in environmental economics literature are ill-conceived. Finally, we illustrate the impact of different approaches by examining global warming and nuclear power investment. This includes an application and extension of Newell and Pizer [‘Discounting the benefits of climate change mitigation : how much do uncertain rates increase valuations?’ Journal of Environmental Economics and Management 46 (2003) 52] to UK interest rate data.     

Problems and environment of small businesses in the Czech Republic

The impressive and spontaneous build-up of the private small and medium-sized enterprises (SMEs) in the Czech Republic in 1990–93 coincided with the similarly dramatic changes in the public administration and in the whole environment for decision-making. The resulting problems of SMEs in the Czech Republic seem to be common to all economies in transition. A lot of the problems are caused by the macroeconomic policy for which this sector is not the most important part of the national economy. The paper shows some conflicts between macroeconomic anti-inflationary (monetary and fiscal) policies, and interests of small businesses. The authors stress the importance of SMEs during the period of transition. Informal aspects of the functioning of small firms are discussed, especially their relation with banks and public administration. The paper offers some empirical evidence and available statistics on SMEs developments during 1990–94 focusing particularly on manufacturing.     

Book Reviews

Andrew MacIntyre (ed.), Business and Government in Industrialising Asia, Allen & Unwin, Sydney, 1994, pp. xii + 312. Paper: A$29.95.

John Bresnan, From Dominoes to Dynamos: The Transformation of Southeast Asia, Council on Foreign Relations, New York, 1994, pp. x + 115. $17.95.

Anthony Reid, Southeast Asia in the Age of Commerce 1450–1680: Volume Two, Expansion and Crisis, Yale University Press, New Haven and London, 1993, pp. xv + 390.

Binhadi, Financial Sector Deregulation, Banking Development and Monetary Policy: The Indonesian Experience (1983–1993), Indonesian Bankers' Institute, Jakarta, 1995.

Anwar Shah and Zia Qureshi, with Amaresh Bagchi, Brian Binder, and Heng-fu Zou, Intergovernmental Fiscal Relations in Indonesia: Issues and Reform Options, World Bank Discussion Papers 239, Washington DC, pp. xxxii + 279. $17.95; A$425.00; NZ$30.25.

Jacqueline Vel, The Uma-economy: Indigenous Economics and Development Work in Lawonda, Sumba (Eastern-Indonesia), Wageningen, pp. xiv + 283. $20.00 + $8 postage & handling.

Joao Mariano de Sousa Saldanha, The Political Economy of East Timor Development, translated by Theresia Slamet and P.G. Kattopo, Pustaka Sinar Harapan, Jakarta, 1994, pp. 414.

Jan-Paul Dirkse, Frans H$uUsken and Mario Rutten (eds), Development and Social Welfare: Indonesia's Experiences under the New Order, KITLV Press, Leiden, 1993, pp. 267.

W.G. Huff, The Economic Growth of Singapore: Trade and Development in the Twentieth Century, Cambridge University Press, Cambridge, 1994, pp. xxi + 472. A$60.

Saha Dhevan Meyanathan (ed.), Industrial Structures and the Development of Small and Medium Enterprise Linkages: Examples from East Asia, The World Bank (Economic Development Institute of the World Bank Seminar Series), Washington DC, 1994, pp. v + 158. Paper: $9.95.

Thee Kian Wie, Industrialisasi di Indonesia: Beberapa Kajian, LP3ES, Jakarta, pp. xxvi + 278 (including Introduction by Mari Pangestu).     

Economies of scale and scope in French banking and savings institutions

In this study, we analyze the costs incurred by French commercial banks and savings institutions. One of the main distinctions between these two types of financial entities concerns management costs, which are higher for commercial bank demand deposits than for the savings institutions' tax-free livret A passbook accounts. Taking this differential into consideration by constructing separate models based on different principles, we find that the average overall and operating costs of the savings institutions are half those of commercial banks. As regards operating costs, small savings institutions enjoy a significant cost advantage over small commercial banks, but this cost advantage is smaller when one compares the performance of large savings institutions to the large banks. The results of our econometric estimates suggest a possible explanation, as we find increasing returns to scale for the banks and diminishing returns for the savings institutions. The value of the returns-to-scope parameter at the mean point appears to indicate a complementarity between certain pairs of outputs. Therefore, ouptut diversification appears to have a positive impact on cost levels for both savings institutions and commercial banks; while institution size, measured by the total assets, has a different impact in these two industries.     

Long term dependence in stock returns

We show, using the modified rescaled range statistic, that none of the return series of indices of five European countries, the United States and Japan exhibits long term dependence. This statistic — introduced by Lo (1991) — correct Hurst's (1951) ‘classical’ rescaled range statistic for short term dependence. We also report the classical rescaled range statistic after adjusting the series for short term dependence. This procedure shows, for cases where the results of the modified rescaled range statistic are mixed, that no long term dependence can be found. Simulations indicate reasonable power of this adjustment procedure. Furthermore, we find that estimates of the Hurst exponent, a related measure of long term dependence, are also biased by short term dependence. Simulations show that this measure — that has recently attracted growing interest — cannot distinguish between models with or without long term dependence.