BANK INTEREST MARGINS AND BUSINESS START-UP COLLATERAL: TESTING FOR CONVEXITY

The paper investigates the relationship between bank interest rate margins and collateral for loans issued to new ventures. The analysis finds a convex U‐shaped relationship. The results indicate that while provision of collateral initially reduces bank exposure to risk (through security, more optimal levels of capital and lower moral hazard among entrepreneurs) that beyond a point, the positive risk‐wealth association gives rise to greater risk taking propensity among entrepreneurs and ultimately higher interest rates. This indicates that a lender's pricing policy may even somewhat help to level the competitive playing field between ventures launched by higher and moderately wealthy entrepreneurs.     

Threat Interpretation and Innovation in the Context of Climate Change: An Ethical Perspective

The ability of managers to identify and interpret challenges in the external environment is one of the micro-foundations of dynamic capabilities. The underlying literature on strategic issue interpretation suggests that interpreting environmental challenges as opportunities rather than threats is more likely to lead to proactive and innovative responses, but there are also potentially positive effects of threat interpretation, for instance high levels of commitment and risk-seeking behaviour. In this paper, I use the context of climate change to explore the link between threat interpretation and innovation in more detail. I use exploratory cluster analysis and illustrative case studies to develop a set of propositions to explain when threat interpretation can in fact encourage innovation. I identify two ethical mechanisms that positively mediate the relationship between threat interpretation and innovation: enlarged concept of responsibility to society and moral legitimacy. The paper contributes to the literature by identifying the importance of ethics in linking managerial interpretation to innovation, particularly in the context of global environmental and social challenges.     

PSYCHOLOGICAL CONTRACTS AND JOB SATISFACTION: CLUSTERING ANALYSIS USING EVIDENTIAL C‐MEANS AND COMPARISON WITH OTHER TECHNIQUES

The psychological contract refers to an individual employee's belief in mutual obligations between them and their employer. Psychological contracts are a key management concern, as they can impact employees' attitudes and behaviors in ways that influence organizational efficiency and effectiveness. In this paper, we analyse the relationship between the psychological contract and facets of job satisfaction among non‐profit sector employees, using the nascent non‐hierarchical evidential c‐means (ECM) clustering technique. To date, this technique has been theoretically discussed but not widely applied. Based on the Dempster–Shafer theory of evidence, ECM is novel in facilitating the assignment of objects, not only to single clusters, but to sets of clusters, and no clusters (outliers). The paper compares the theoretical underpinnings and findings from ECM with those of three other well‐known clustering techniques, namely (1) the hierarchical Ward's method, (2) the non‐hierarchical crisp k‐means and (3) the non‐hierarchical fuzzy c‐means approaches. We present and interpret the cluster solutions from each clustering technique. We establish three clusters differentiated by the content of the employees' psychological contracts. These clusters are validated by considering their relationship with facets of job satisfaction, to ensure the clusters are theoretically meaningful. Comparisons of the findings from each technique: (1) provide insights into the relationship between the psychological contract and job satisfaction; (2) reveal what ECM encompasses, relative to other clustering techniques; (3) inform the selection of an appropriate clustering technique for a specific research problem; and (4) demonstrate potential future directions in the development of cluster analysis. Copyright © 2012 John Wiley & Sons, Ltd.     

Do Binary Collateral Outcome Variables Proxy Collateral Levels? The Case of Collateral from Start-ups and Existing SMEs

This paper is designed to test whether the factors which affect the decision to collateralise business loans affect the level of collateralisation in the same manner. If the level of collateralisation does matter, the provision of collateral becomes more than a goodwill gesture to placate banks and more a device to ameliorate the risk of lending. We use a thitherto unseen dataset from a U.K. retail bank comprising 4,618 transfers and start-ups (TS group) who applied for business loans and overdrafts between January 1998 and January 2000. The control sample comprised 9,596 existing businesses from the same period. Our unique dataset permits an analysis of this kind for the first time because it contains a continuous variable for collateral unlike previous studies. Existing businesses exhibit a higher frequency (binary outcome) and level (tobit outcome) of collateral than the businesses who are start-ups or have transferred from another bank only when distortions within the data are not controlled for. These distortions negate the value of binary collateral variables. Factors such as business type and loan purpose are useful at explaining the likelihood of a borrower having his loan collateralised and the level of collateralisation for borrowers who provided collateral or not.     

New Ventures and their Credit Terms

Using UK bank data for 466 new venture loan applications, we explore the determinants of interest margin, the sanctioning decision and the amount borrowed when these factors are considered simultaneously. Collateral levels greatly influence the size of credits to new ventures, a finding consistent with existing work on firm foundation rates and assets (Black et al., Economic Journal 106, 60–75, 1996; de Meza and Webb, The Economic Journal 109, 153–163, 1999; Evans and Jovanovic, Journal of Political Economy 97(4), 808–827, 1989; Holtz-Eakin et al., 1994). Consistent with the RAND Journal of Economics 25, 334–347, Diversionary Models of debt, firms with larger credits enjoy discounted interest margins even when we have controlled for firm size.     

R&;D and Exporting: A Comparison of British and Irish Firms

This paper investigates the two-way relationship between R&D and export activity. In particular, we concern ourselves with the question whether R&D stimulates exports and, perhaps more importantly, whether export activity leads to increasing innovative activity in terms of R&D (learning-by-exporting). We use two unique firm level databases for Great Britain and the Republic of Ireland and compare the results for these two countries. We find that previous exporting experience enhances the innovative capability of Irish firms. Conversely, no strong learning-by-exporting effects are found for British firms. Arguably part of the differences between Ireland and Britain are attributable to different, cross-country exporting patterns where Irish firms have a greater interface with OECD markets. JEL no.  F14, F23     

The Higher Cost of Follow-Up Loans

This paper uses unique data and looks at the interest margin for follow-up finance vis-à-vis first round-finance. Applying data for asset values, we examine the substitution between collateral and interest margins. Consistent with the theories of Bester (1985), Besanko and Thakor (1987) and the empirical evidence of Cressy (1996b), we find that a trade-off between collateral and interest margins exists. Our main result indicates that follow-up finance is more expensive for loans but not for overdrafts. We suggest that a relatively fixed asset base (Land and Buildings), as seen in higher security to loan values, raises the price and risk of successive financial increments. This explains the higher relative cost of follow-up finance to borrowers.     

China’s CO2 emissions from power generating stations and the role of subsidies – a first exploration

Our analysis is the first of its kind to explore patterns of subsidization and CO₂ emissions in China’s electricity-producing sector. Applying data for all power plants across China and controlling for the age, capacity and location of generating stations, we find that plants attracting a higher government subsidy are also the plants generating a disproportionate share of CO₂ emissions. This distortion is incongruent with China’s aspiration for a greener economy but may be eliminated if China delivers on its November 2013 announcement to review many industry subsidies on its way to a fully fledged market economy.     

The effect of grant receipt on start-up size: Evidence from plant level data

In this paper, we use plant level data on the start-up size of new plant entries and detailed information on the grants received by such plants in order to investigate whether grant receipt encourages plants to start-up with more employment than without support. The data relate to manufacturing plants in the Republic of Ireland, where industrial policy has a long history of using discretionary grants to encourage employment growth. We use a matching procedure to deal with the issue of selectivity into grant receipt and a quantile regression estimator to allow for different effects of grants on plants depending on their position in the start-up size distribution. Our results provide evidence that grants do indeed encourage plants to start-up larger. We also find that this effect is generally higher for foreign than for domestic plants and that it differs for plants at different quantiles of the start-up size distribution.