Stock exchange governance initiatives: Evidence from the Italian STARs

Can a stock exchange improve corporate governance and transparency by designating companies that exhibit superior corporate governance? In 2000, the Borsa Italiana created a mid-cap segment with strong listing standards, which is composed of firms (called STARS) that follow stricter standards of transparency, disclosure, monitoring and liquidity. We find that STAR firms exhibit governance characteristics not observed in non-STAR firms, such as a higher incidence of audit and executive committees and higher debt ratios. They experienced a modestly favorable share price response upon the implementation of the STAR initiative. Moreover, they experienced significantly higher buy and hold returns and transparency after the initiative. Several governance characteristics are cross-sectionally associated with performance following the STAR initiative. Overall, the results suggest that firms may be willing to improve governance when they are endorsed by a credible agency for doing so, and such improvements may lead to better performance. The STAR initiative may serve as a model that can be adapted by other stock exchanges to promote transparency and governance.     

On the Choice of Superannuation Funds in Australia

Using a sample of Australian retail and wholesale superannuation funds to proxy for choice and limited choice alternatives, respectively, we investigate the costs and benefits of providing choice to investors. We find that investors who have choice don't respond to fees. Also, loads - typical of the choice environment - are likely to be a dead-weight loss borne by investors. Employees who involuntarily contribute to (employer) funds, tend to pay the lowest fees. Given these results, the advantages of choice become questionable. Our results show that managers of limited choice funds achieve greater positive abnormal returns than retail fund managers. The analysis of flows provides insight into why choice funds do not perform better than limited choice funds. Investors are not responding to historical performance as predicted.     

Occupational status,earnings, and fertility expectations: Development and estimation of a causal model

Summary This paper tests, within the framework of LISREL, the causal structures of occupational status, earnings, and fertility expectations using data from the 1984 Canadian Fertility Survey of currently married and common-law women aged 18–44. Differential occupational status, earnings, and fertility among three groups of wives classified by generation of Canadian residence are also examined. The models incorporate age, education, work experience, and ethnic/English language ability as exogenous determinants of occupational status, earnings, and fertility.The major findings are: (1) lower earnings of third generation wives are strongly related to lower levels of education, work experience, and job status; (2) wives who speak an ethnic language are likely to have lower fertility than comparable wives who do not speak an ethnic language; and (3) generational effects on earnings and fertility are limited to differences in education, work experience, and occupational status.The author is grateful to Dr. Karol J. Krotki, co-director of the Canadian Fertility Study, for permission to analyze the Canadian Fertility Survey data. Special thanks are also due to Ms. Margaret King for her comments on an earlier draft of the paper.     

Income diversification and risk: Does ownership matter? An empirical examination of Indian banks

We examine the impact of ownership on income diversification and risk for Indian banks over the period 2001–2009. We investigate both the determinants of non-interest income and the impact of diversification on various profitability and insolvency risk measures for public sector, private domestic, and foreign banks. We document that ownership does matter in the pursuit of non-interest income. Relative to private domestic banks, public sector banks earn significantly less fee-income, while foreign banks report higher fee income. Public sector banks with higher levels of governmental ownership are significantly less likely to pursue non-interest income sources. Fee-based income significantly reduces risk, measured by profitability variables, for public sector banks. Default risk is also reduced for these banks. From a regulatory perspective, it appears that diversification benefits India’s public sector banks. Our research has implications for the changes in the risk profile for banks in emerging banking markets pursuing non-interest revenue sources.     

Institutional quality,investment efficiency,and the choice of public–private partnerships

We examine a sample of 625 public–private partnership (PPP) firms from 1980 to 2015 that straddle nine countries with varying degrees of economic development and PPP markets. We find that the motivations of the firms that undertake PPP investments vary. While private sector firms in economies with low institutional quality choose to engage in PPPs to alleviate capital constraints attributed to underinvestment, those in economies with high institutional quality participate in PPPs to solve the problem of overinvestment due to an abundant cash flow. In the long run, the benefits of lower capital constraints through PPP investments are more pronounced in economies with high institutional quality.     

Analysing the performance of managed funds using the wavelet multiscaling method

We propose a new approach for investigating the performance of managed funds using wavelet analysis and apply it to an Australian dataset. This method, applied to a multihorizon Sharpe ratio, shows that the wavelet variance at the short scale is higher than that of the longer scale, implying that an investor with a short investment horizon has to respond to every fluctuation in the realized returns, while for an investor with a much longer horizon, the long-run risk associated with unknown expected returns is not as important as the short-run risk. Using multihorizon Sharpe ratios of six groups of managed funds, we find that none of the fund groups are dominant over all time scales.

Information content of IPO grading

In the year 2007, Indian capital market regulator-SEBI, introduced a unique certification mechanism for IPOs whereby all IPOs have to undergo mandatory quality grading by independent rating agencies. In this paper we argue that such objective, independent and exogenous certifying mechanism provides a better opportunity to test the well established certification hypothesis, especially in the context of emerging markets with institutional voids. Using a sample of 163 Indian IPOs we test the efficacy of IPO grading mechanism. We find, grading decreases IPO underpricing and positively influences demand of retail investors. Grading reduces secondary market risk and improves liquidity. However, grading does not affect long run performance of the IPOs. IPO grading successfully capture firm size, business group affiliation and firm’s quality of corporate governance. Our findings imply that, in emerging markets, regulator’s role to signal the quality of an IPO contributes towards the market welfare.     

A Simple Method of Incorporating Income Effects into Logit and Nested-Logit Models: Theory and Application

Substantive income effects are incorporated in a logit or nested-logit model by assuming that utility is a piece-wise linear spline function of residual income. Specific income data are not required, only income by category. Expected compensating variation is easily and accurately approximated by the difference between expected maximum utility in the proposed and initial state, multiplied by the inverse of the individual's initial marginal utility of money. This approximation is almost exact because although any policy can, in theory, cause an individual to jump income categories, for most policies this probability will be very small.     

A quantitative model for the evaluation of technological alternatives

This paper presents a quantitative model that may be of use to the national development planners, investment funding authorities, and entrepreneurs, who are confronted with the problems of choosing the appropriate technology among many available alternatives. The model provides a systematic and analyst-independent methodology for the multicriterion technology selection process, which requires consideration of socioeconomic as well as technological factors. The procedure is mathematically straightforward and has the capability of integrating both objective and subjective aspects of the evaluation process, resulting in a unified technology measure as a guide for decision making. A case study is presented to illustrate the applicability and workability of the development model.     

Beyond Moulin mechanisms

The only known general technique for designing truthful and approximately budget-balanced cost-sharing mechanisms with good efficiency or computational complexity properties is due to Moulin [1999. Incremental cost sharing: Characterization by coalition strategy-proofness. Soc. Choice Welfare 16 (2), 279–320]. For many fundamental cost-sharing applications, however, Moulin mechanisms provably suffer from poor budget-balance, poor economic efficiency, or both.We propose acyclic mechanisms, a new framework for designing truthful and approximately budget-balanced cost-sharing mechanisms. Acyclic mechanisms strictly generalize Moulin mechanisms and offer three important advantages. First, it is easier to design acyclic mechanisms than Moulin mechanisms: many classical primal-dual algorithms naturally induce a non-Moulin acyclic mechanism with good performance guarantees. Second, for important classes of cost-sharing problems, acyclic mechanisms have exponentially better budget-balance and economic efficiency than Moulin mechanisms. Finally, while Moulin mechanisms have found application primarily in binary demand games, we extend acyclic mechanisms to general demand games, a multi-parameter setting in which each bidder can be allocated one of several levels of service.