Last resort gambles, risky debt and liquidation policy

This paper develops a real option model in which the interaction between debt, liquidation policy and risky investments is studied. We consider a manager who owns the firm and faces the opportunity to invest in risky projects which may boost current profits at the cost of bankruptcy if they turn out to be unsuccessful. These investments are “last resort gambles” in the sense that, if successful, they save the company from insolvency, while, if unsuccessful, they make liquidation unavoidable. It is shown that last resort gambles delay liquidation. We study how the liquidation trigger and the last resort investment decisions are affected by the firm's capital structure.     

Forecasting economic time series with unconditional time-varying variance

The classical forecasting theory of stationary time series exploits the second-order structure (variance, autocovariance, and spectral density) of an observed process in order to construct some prediction intervals. However, some economic time series show a time-varying unconditional second-order structure. This article focuses on a simple and meaningful model allowing this nonstationary behaviour. We show that this model satisfactorily explains the nonstationary behaviour of several economic data sets, among which are the U.S. stock returns and exchange rates. The question of how to forecast these processes is addressed and evaluated on the data sets.     

Anstieg der Staatsverschuldung stellt Finanzpolitik vor große Herausforderungen

Zusammenfassung  Aufgrund der derzeitigen Finanz- und Wirtschaftskrise wird die Verschuldung der ?ffentlichen Haushalte in diesem und dem kommenden Jahr so erheblich steigen, dass es selbst unter günstigen gesamt- und finanzwirtschaftlichen Rahmenbedingungen mindestens ein Jahrzehnt dauern k?nnte, bis Deutschland wieder beide Verschuldungsgrenzen des Maastricht-Vertrages einhalten wird. Wie rasch kann die hohe Staatsschuldenquote zurückgeführt werden? Welchen Beitrag kann die Finanzpolitik für ein angemessenes Wirtschaftswachstum leisten? Wie sollte die Konsolidierungsstrategie ausgerichtet sein? Heinz Gebhardt, 56, Dipl.-Volkswirt, arbeitet in den Kompetenzbereichen „?ffentliche Finanzen“ und „Wachstum und Konjunktur“ des RWI Essen; Dr. Rainer Kambeck, 47, ist Leiter des Kompetenzbereichs „?ffentliche Finanzen“. Die Autoren danken Christoph M. Schmidt für kritische Anmerkungen und hilfreiche Kommentare.     

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When Organizational Justice Matters for Affective Merger Commitment

We investigate when organizational justice matters to employees’ commitment in the postacquisition process after a company is taken over in a cross‐border acquisition. Overwhelming evidence from the literature suggests that employees who are treated fairly during acquisitions are more committed to their new firms. We extend this finding by dividing organizational justice into three subdimensions: informational justice, interpersonal justice, and procedural justice. We find evidence that procedural justice is an important antecedent of affective merger commitment at an early stage of the integration period, while informational justice becomes important at a later stage. Further analysis on heterogeneity between the target firm's employees and the bidder firm's employees reveals that, immediately after the acquisition, target firm's employees value knowing where they will be at the new firm (procedural justice), while bidder firm employees are more concerned about communication and transparency (informational justice). Our results point to the importance of organizational justice in a cross‐border merger and acquisition (M&A) setting and the need for a separate study of issues related to bidder firms and target firms. © 2016 Wiley Periodicals, Inc.