JOINT VENTURES AND OFFSHORE OIL LEASE SALES

Alternative explanations of joint bidding for offshore oil tract leases are examined. The models suggest that firms undertake joint bids: 1) to reduce risk by spreading ownership across tracts; 2) to share technical expertise including information; and 3) to ameliorate financial constraints. These hypotheses are examined empirically using the multiple logit technique and other tests with data constructed from the Baltimore-Canyon sale of 1976. The results suggest that firms' behaviors are consistent with the explanations of diversification and sharing of expertise; explanations based on financial constraints are shown to be consistent with the data in the risk-averse case but not in the risk-neutral case. Implications of these results for research and policy are discussed.     

COSTLY EXTERNAL FINANCE AND INVESTMENT EFFICIENCY IN A MARKET EQUILIBRIUM MODEL

The corporate finance literature suggests that a financially constrained firm invests less than an identical unconstrained firm. This does not imply that financial frictions cause firms to invest less than in a frictionless economy. When firms compete for investment funds, an increase in financial frictions can lead individual firms to increase their investment levels. A greater than the frictionless level of investment is likely in low-productivity firms, in cash-rich firms, and in firms with cheap external capital. Government programs that make capital cheaper for small firms may lead to lower levels of investment for all firms and decrease efficiency (JEL O16, E22, E44, G20)     

Hochtechnologische Unternehmen im Spiegel des „Varieties-of-Capitalism“-Ansatzes

What role do national institutions of labor regulation as well as work and employment systems at the company level play for the development of “new economy” industries? The article is based on eleven company case studies in the Swedish, Polish and German video game industry as well as on an analysis of industry-related expert interviews and data. Power relations between hardware, publishing and development companies play a significant role in the industry. Independent development firms are the weakest link in the value chain; they have to carry the greatest risks. The results show that the lack of a financial system for the high risky software development is a decisive factor for the low international competitiveness of the industry in all three countries. They demonstrate as well that, especially in the field of labor regulation, the “Varieties of Capitalism”-approach underestimates the divergence of industries in national economies and a leeway for flexibility in institutional systems. For instance, employment flexibility of video game development firms is very high. The comparison of the “coordinated market economies” of Germany and Sweden reveals differences regarding the integration of the industry into nation-specific institutional systems, such as the establishment of adequate vocational education and interest representation by unions.     

THE IMPACT OF TRADE COSTS ON FIRM ENTRY,EXPORTING, AND SURVIVAL IN KOREA

This study examines how changes in trade costs have affected entry, exit, productivity, and exporting in the Korean manufacturing sector. We verify several predictions of heterogeneous‐firm models of international trade. For example, falling import‐trade costs are associated with less entry and lower market shares among existing domestic firms, and higher total factor productivity for Korean manufacturing as a whole. The size of firms plays an important role in many of our results. New domestic firms are more likely to be small, but large firms are less likely to exit and more likely to have an increase in total factor productivity. (JEL F10, D24)     

FURTHER RESULTS ON EQUILIBRIUM PATTERNS OF COMPETITION IN OCS LEASE SALES

A prior model of competitive bidding for offshore petroleum leases is subjected to more extensive empirical testing based on underlying geological data prepared by the U.S. Geological Survey. The current results strongly reinforce the tentative conclusions advanced in the previous paper, and demonstrate the robustness of the model. In light of the current results, it seems very likely that participants in offshore lease sales behave as if their operations were constrained physically such that only a limited volume of petroleum reserves are pursued in any one sale.     

EMPLOYMENT FLUCTUATIONS AND THE MITIGATION OF RISK

The main ideas discussed in this paper can be briefly summarized as follows: First, although risk-mitigating arrangements — specifically, risk shifting in labor markets and risk pooling in product markets — suggest an explanation for certain specified features of macroeconomic fluctuations, risk-mitigating contractual arrangements are neither necessary nor sufficient to cause any particular disturbance to produce output and employment fluctuations. Second, given that a stochastic disturbance is going to affect output and employment, risk-mitigating arrangements can affect the amplitude of these fluctuations. Specifically, risk-mitigating arrangements reduce and reallocate the risks associated with stochastic disturbances. This process produces at least three effects on the variation in aggregate employment. These effects are changes in worker tolerance of employment fluctuations, increased variation in spot product prices, and relatively greater income variation for agents who probably have relatively high marginal spending propensities. In addition to these effects the existence of contractual markets has a potential effect on the form of the inference problem that agents face in determining the nature of disturbances in a context of incomplete information. Third, despite some similarities, a macroeconomic model that encompasses risk-mitigating arrangements differs in important ways from models that utilize the non-market-clearing approach to analysis of the determination of income and employment.     

AGGREGATE DEMAND AND INTEREST RATES: A MACROECONOMIC APPROACH TO THE TERM STRUCTURE

This paper develops a model in which the term-structure of interest rates obtains as an equilibrium outcome of the interactions of firms, households and rationally informed speculators. Exogenous disturbances whose impact effects fall only in the market for short-term bonds generate equilibrium movements in the yield on long-term bonds and the level of investment spending. In the case of risk-averse speculators, a purely transitory, unanticipated shock to the money supply generates a long distributed-lag effect on the level of aggregate demand.     

Limits to expansion: transnational corporations and territorial embeddedness in the Japanese temporary staffing market

Recent changes to employment legislation have combined with shifting macro‐economic conditions to drive dramatic growth in Japan's temporary staffing industry. Leading transnational staffing agencies have sought to capitalize on this growth as part of their wider globalization strategies but have faced substantial challenges both in entering the market and in their subsequent attempts at expansion. In this article, we explore the ways in which the particularities of the Japanese host market regulatory and institutional environment combine with the inherent characteristics of the temporary staffing business model to challenge the expansionary strategies of these firms. We argue that while transnational firms have sought to adapt their business practices and strategies to the Japanese case, the attributes of the Japanese staffing market mean they have been unable to make significant inroads into the dominant market shares held by their domestic rivals.     

Factor demands, effective discount rates, and liquidity constraints in the retail trade firm

This is a firm-level empirical study of the impact of credit market frictions on firm factor demands. It extends previous work in two ways: it studies the impact of liquidity constraints on both fixed investment and employment and examines data on retail firms. Using the Euler equation approach, it finds strong evidence for the impact of financial constraints on factor demands. Estimated relationships in turn induce striking countercyclical movements in effective discount rates of firms with limited access to credit. The article concludes that the results found in previous work regarding excess sensitivities of investment to liquidity are indeed due to liquidity constraints.     

EQUILIBRIUM PATTERNS OF COMPETITION IN OCS LEASE SALES

An equilibrium model of bidding behavior is developed that accounts for observed fluctuations in the degree of competition to acquire offshore petroleum leases. As one might expect, such fluctuations are related to the heterogeneity of geological prospects that are offered for sale, with a relatively high degree of competition to acquire tracts of the highest quality. The equilibrium configuration of bids is also shown to reflect structural characteristics, such as capital market constraints, that may restrict competition in the lease auction. Empirical evidence is presented which tends to confirm our general theory of bidding equilibria, but which contradicts the popular notion that capital constraints have restricted competition in OCS lease sales. Policy implications are discussed in the concluding section.     

Boeing’s Diffusion of Commercial Aircraft Technology to Japan: Surrendering the U.S. Industry for Foreign Financial Support

Japanese firms have become increasingly important first-tier suppliers to the U.S. commercial aircraft industry (large passenger jets). Over time, this relationship has evolved from a simple “build to print” subcontractor arrangement to a turnkey “design and build” risk-sharing partnership. Using the Boeing 767, 777, and 787 as examples, we argue that the motives for Boeing’s commercial outsourcing to Japan are to access the Japanese market, spread risk, gain access to capital, and lower U.S. spending on research and development (R&D). This has clear implications for U.S. trade and employment, in that Japanese-subcontracting boosts foreign imports and reduces the need for domestic production workers and U.S. suppliers. From a trade perspective, however, a troubling feature of allowing the Japanese to produce large commercial aircraft subassemblies is that major Japanese public financial supports are involved which contravene existing international agreements on production subsidies. We review the types of production contracts that Japanese companies have sought on the Boeing 767, 777, and 787 programs. These contracts have allowed the Japanese to develop new capabilities in terms of production capacity, tooling, design, and final assembly. Ultimately, these capabilities imply that Japan will eventually enter the market as a fully-fledged producer of commercial aircraft. This does not bode well for the U.S. commercial aerospace sector.     

MANAGERIAL MOTIVES, MARKET STRUCTURES AND THE PERFORMANCE OF HOLDING COMPANY BANKS

Since the late 1960's bank holding companies have become a dominant force in U. S. banking; they now account for over 2/3 of the nation's total deposits. This paper tests the hypothesis that the holding company form of organization leads to relatively risk-taking behavior by affiliated banks. A major finding is that holding company banks react to monopolistic market situations by choosing risker portfolios and by leveraging to a greater extent than their independent counterparts. Such a behavioral characteristic has important implications for the allocation of resources in the country's 2600 local banking markets and for the regulation of financial institutions in general.     

Social Impact Investing in Germany: Current Impediments from Investors’ and Social Entrepreneurs’ Perspectives

The paper provides empirical evidence on impediments of the emerging social impact investment field in Germany. The study is based on 19 in-depth interviews with social impact investing funds, investment advisors, and social entrepreneurs as investees. It takes an explorative approach because of the nascent stage of research on the subject. By systematically relating the perspectives of the actors involved, the study gives a broad empirical picture on the major challenges for social impact investing in Germany. Results reveal nine critical problem areas we have arranged along three dimensions: financial returns, social returns, and relationships and infrastructure. They comprise investors’ and social entrepreneurs’ practices, institutional settings which are still heavily influenced by peculiarities of the German welfare systems, as well as undeveloped framework conditions in the social investment market. By interpreting the results through a lens of conflicting institutional logics, we further contribute to this research stream by showcasing social impact investing as a core area of friction between the logics of the market and civil society.     

Does Overconfidence Bias Explain Volatility During the Global Financial Crisis?

This paper explores the problem of the current global financial crisis, using a behavioral perspective. Particularly, the main objective of this paper is to test whether overconfidence bias can explain excessive volatility witnessed during global financial crisis in developed and emerging equity markets. Empirical results of EGARCH estimated models show an asymmetric effect of volatility for all equity market indexes. The relation between excessive trading volume of overconfident investors and excessive prices volatility is then estimated. The results indicate that conditional volatility is positively related to trading volume caused by overconfidence bias. This finding provides strong statistical support to the presence of overconfidence bias among investors in developed and emerging stocks markets. This cognitive bias contributes to the exceptional financial instability that erupted in 2008. However, during the subprime financial crisis period overconfidence bias cannot explain volatility because of the loss of confidence by investors in financial markets.     

DEPOSIT INSURANCE AND EXTERNAL FINANCE

In this article we examine one potential explanation for the cross-country differences in the importance of banks and capital market financing of investment. We provide both an equilibrium model predicting and empirical evidence showing that countries with explicit deposit insurance and a high degree of state-owned bank assets have smaller equity markets, a lower number of publicly traded firms, and a smaller amount of bank credit to the private sector. Finally, our results suggest that the effects of deposit guarantees are more important than the origins of national legal systems. (JEL G21 , G22 , G32 )     

Structural Risks of Foreign Liabilities: Impact of Investment Income Repatriation in Emerging Economies

This paper explores the structure of foreign liabilities, the extent of capital repatriation in the form of investment income of foreign investors and its impact in emerging markets. The concept “coverage ratio of foreign investment” is introduced, which is defined as the share of total income repatriated by foreign investors in the respective cumulative inflows of the financial account. The impact of foreign investors’ returns onto external imbalances in emerging economies is studied empirically. The tendency of growing role of the investment income balance in the formation of the current account balance reveals new threats for the emerging economies.     

THE EFFECTS OF PUBLIC SPENDING COMPOSITION ON FIRM PRODUCTIVITY

This paper exploits the unique institutional features of South Africa to estimate the impact of provincial public spending on firm productivity. In contrast to existing microeconomic evidence, we explore the effects of fiscal expenditures and remove the effects of revenue raising policies. Our identification strategy is based on differences in the effects of public spending across firms within the same industry and province. We show that public spending composition affects productivity depending on the capital intensity of firms, with less capital intensive firms being particularly affected. These effects appear to be robust. (JEL D24, H32, H72)     

Psychological mechanisms of investors in Chinese Stock Markets

The study investigated the psychological mechanisms of risky investment behaviors in Chinese Stock Markets. A 42-item questionnaire was developed and distributed to 1547 individual investors recruited by stratified random sampling from Nan Fang Bond Company. A speculative orientation and a low level of risk perception among Chinese investors were revealed. The results also showed that investors were deficient in investment knowledge and skills. Structural equation modeling was used to generate a risk perception-mediated model for investment behaviors. We found that information from organizational/institutional level can precipitate low risk perception and policy-oriented speculation of investors, which could be accounted for by the collectivistic culture in China and may not be beneficial to risk management in Chinese Stock Markets. Suggestions were made regarding the further development of stock markets in China.     

Globalizing Firms and Small Communities: The Apparel Industry's Changing Connection to Rural Labor Markets*

Abstract This paper explores changing relationships between apparel firms and rural labor markets in Wisconsin over the last decade. Mainstream explanations of recent changes in the apparel industry suggest that rural communities will lose tedious or physically demanding, low‐skilled apparel manufacturing jobs but will gain more information‐intensive and desirable “apparel service” employment. Through case studies of apparel firms located in two Wisconsin communities, the paper argues that current changes in the industry not only affect communities unevenly but, even in regions where apparel service firms have provided significant numbers of new jobs, these jobs are less well paid, more casually structured, and less secure than manufacturing employment has been. The paper argues that current concepts of the economic embeddedness of firms in communities need to be refined to permit consideration of the kinds of leverage and voice that community organizations have in confronting new forms of corporate capital. The two case studies demonstrate that corporate embeddedness and its labor market outcomes are linked to changes in the global market in which firms compete.     

Savings–Investment Correlation and Capital Outflow: The Case of Pakistan

This study explores the savings–investment relationship in the context of financial liberalization and flexible exchange rate regime in Pakistan. Ng–Perron test is employed to examine the order of integration of the variables used in the model. For long-run analysis, ARDL bounds testing approach is used and short-run dynamics are captured from error correction model (ECM). Time series data are utilized covering the period 1976–2006. Empirical findings indicate that in the case of Pakistan, there is a weak correlation between savings and investment. The study suggests that in the presence of inadequate capital mobility within the country, domestic investors have financed investment projects from international market. Furthermore, devaluation and inflation have stimulated investment activities in the country and significantly contributed in closing the gap between domestic savings and investment.