Forecasting recovery rates on non-performing loans with machine learning

We compare the performance of a wide set of regression techniques and machine-learning algorithms for predicting recovery rates on non-performing loans, using a private database from a European debt collection agency. We find that rule-based algorithms such as Cubist, boosted trees, and random forests perform significantly better than other approaches. In addition to loan contract specificities, predictors that refer to the bank recovery process — prior to the portfolio’s sale to a debt collector — are also shown to enhance forecasting performance. These variables, derived from the time series of contacts to defaulted clients and client reimbursements to the bank, help all algorithms better identify debtors with different repayment ability and/or commitment, and in general those with different recovery potential.     

The average consumer, the unfair commercial practices directive, and the cognitive revolution

This article examines the merit of the test of the average consumer as a basis for judicial and regulatory action. In the first part, we describe the origin of the test, its application in the Unfair Commercial Practices Directive and its possible developments. In the second part, we discuss the theoretical grounds of the average consumer test (i.e., information and rationality), drawing upon the studies of cognitive psychology and behavioural economics concerning consumers’ behaviour. The result of our analysis is that we call into serious question the practical workability of the test of the average consumer, which requires consumers an overly demanding standard of rationality and information without dedicating much attention to the real functioning of consumer behaviour. The average consumer may be described as an interesting, anti-paternalistic and, to some extent, useful notion. It is, however, an overly simplistic concept with little correspondence with the real world of individual consumer behaviour and should be reinterpreted more flexibly, or even abandoned to mirror consumer behaviour more effectively.

Macroeconomic forecasting and structural change

The aim of this paper is to assess whether modeling structural change can help improving the accuracy of macroeconomic forecasts. We conduct a simulated real‐time out‐of‐sample exercise using a time‐varying coefficients vector autoregression (VAR) with stochastic volatility to predict the inflation rate, unemployment rate and interest rate in the USA. The model generates accurate predictions for the three variables. In particular, the forecasts of inflation are much more accurate than those obtained with any other competing model, including fixed coefficients VARs, time‐varying autoregressions and the naïve random walk model. The results hold true also after the mid 1980s, a period in which forecasting inflation was particularly hard. Copyright © 2011 John Wiley & Sons, Ltd.     

Enhancing environmental information transparency through corporate social responsibility reporting regulation

This research aims to contribute to the scientific debate about the lack of interlinkages between mandatory non-financial reporting and sustainable business models. For our purposes, a counter-accounting analysis was conducted on the non-financial reports of a sample of 145 Italian firms interested by the Directive 2014/95/EU effects. Specifically, the study adopts an empirical approach to evaluate environmental information transparency, which represents one of the main critical issues concerning the non-financial declarations prepared by European Italian Public Interest Entities (PIEs) to comply with Directive 2014/95/EU. The results highlight that corporate governance and report characteristics affect environmental transparency. Furthermore, the results confirm the overall attitude to avoid the disclosure of unfavourable or unavailable environmental information through impression management strategies. Finally, the analysis underlines the opportunities for policymakers to rethink mandatory non-financial reporting to sustain the ecological transition of European PIEs.     

Atypical work: a threat to labour productivity growth? Some evidence from Italy

Various theories suggest the existence of a negative relationship between the use of atypical employment contracts and productivity growth, arguing that firms’ utilisation of atypical contracts may reduce the incentive to innovate and internal training, inducing firms to follow a ‘low-road’ to competitiveness, based upon cost-cutting strategies.

This paper aims to provide new evidence on the occurrence of these effects in the Italian economy, where changes in labour legislation from the mid-Nineties onwards, associated with an ‘institutional’ wage moderation period, have brought about a significant process of job creation, but also an appreciable slowdown in labour productivity.

This issue is investigated using a microeconomic approach, taking a rich source of microdata for firms and estimating a dynamic model for labour productivity on a pseudo-panel of firms for the period 2003-2008.

The results support the hypothesis of a negative impact of external labour flexibility on labour productivity growth at firm level, such effect proving stronger for small and medium than for large enterprises and of varying magnitude for the different atypical contracts.     

Assessing social impact in the field of sustainable tourism development: Evidence from Cabo Delgado (MZ)

ABSTRACT

Assessing the social impact of tourism-related activities is of paramount importance to promoting sustainable development. The present study aimed to assess the social impact of a project in Cabo Delgado (MZ), designed to increase local community residents’ employability in the emerging tourism sector through the delivery of vocational training programmes, utilising a multi-phase and mixed-method design. The study comprised three different phases (before, during, and after the intervention) and took into account the perspective of a variety of stakeholders. Programmes were perceived to be effective by local operators in the tourism sector and trainees, as they enhanced their living conditions and increased their employability. International operators and tourists, however, had not yet perceived their effectiveness. This study offers a methodological framework for social impact assessment by performing a programme evaluation as an integral part of the intervention itself. This methodology can be extended to other non-tourism related contexts.     

Loan Supply Shocks and the Business Cycle

This paper provides empirical evidence on the role played by loan supply shocks over the business cycle in the euro area, the UK and the USA from 1980 to 2011 by estimating time‐varying parameter vector autoregression models with stochastic volatility and identifying these shocks with sign restrictions consistent with the recent macroeconomic literature. The evidence suggests that in all three economic areas loan supply shocks appear to have a significant effect, with clear signs of an increasing impact over the past few years. Moreover, the role of loan supply shocks is estimated to be particularly important during recessions. Copyright © 2016 John Wiley & Sons, Ltd.     

Diversity challenge: An integrated process to bridge the ‘implementation gap’

At this time of crisis, companies rediscover the key role people play in achieving a sustainable competitive advantage. Taking into account the heterogeneity of their workforces, boards of directors and managers alike face the challenge of understanding how to manage diversities such that the benefits outweigh the costs. This article argues that companies can deal with this challenge by adopting an integrated process of change across strategic, tactical, and operational levels. Indeed, people's differences and diversity management need to be introduced and integrated within company values and vision (strategic level). This vision has to be translated into strategies, a specific policy, and its associated practices to promote the development of synergic cultural and organizational changes that affect the whole company (tactical level). Finally, this policy and its associated practices need to be turned into real actions (operational level). Herein, we propose and discuss an integrated process to implement diversity management in a detailed and sufficiently flexible way such that it can be personalized and adapted to a specific organization. From a managerial standpoint, the proposed model could be a guide for bridging the ‘implementation gap’ of diversity management.     

A Reduction in Social Security Contributions: Which Alternatives for Financing Coverage?

This paper uses the INTIMO model of the Italian economy to analyze the economic impacts of a reduction in social security contributions. This manoeuvre is intended to reduce the tax wedge on labour cost. There is a wide choice of ways to neutralize the revenue effects of a lower tax yield, because several of the existing taxes could be increased and new ones could be introduced. In this study, alternative financing coverages are developed and applied in the model. The results of the study show that substituting different taxes for social security contributions affects the cost of production, and impacts vary with industries. A reduction in contributions compensated for by an increase in value-added tax produces the best results in terms of short-term economic indicators, but the improvement in environmental conditions—not analyzed in this study—achieved by energy taxes could be a very important target and could justify the recourse to this tool.     

Inefficient entry order in preemption games

In a preemption game, players decide when to take an irreversible action. Delaying the action exogenously increases payoffs, but there is an early mover advantage. Riordan (1992) shows that in a preemption game with two asymmetric players, players act in decreasing order of efficiency. This provides a microfoundation to the assumption that entry in a market occurs in the order of profitability, commonly used in the empirical analysis of market entry. We provide a counterexample showing that with more than two players this intuitive result can be reversed. We present a preemption game of entry into a new market. The potential entrants are three asymmetric firms: one “efficient” firm with high post-entry profits, and two “inefficient firms”. We show that the set of parameters such that the equilibrium entry order does not reflect the efficiency ranking is nonempty, and analyse which changes in post-entry profits preserve this entry order.