a reexamination of the conglomerate merger wave in the 1960s an internal capital markets view one possible explanation for bidding firms earning positive abnormal returns in diversifying acquisitions in the 1960s is that internal capital markets were expected to overcome the information deficiencies of the less developed capital markets examining 392 bidder firms during the 1960s we find the highest bidder returns when financially unconstrained buyers acquire constrained targets this result holds while controlling for merger terms and for different proxies used to classify firms facing costly external financing we also find that bidders generally retain target management suggesting that management may have provided companyspecific operational information while the bidder provided capital budgeting expertise

inefficient credit booms this paper studies the welfare properties of competitive equilibria in an economy with financial frictions hit by aggregate shocks in particular it shows that competitive financial contracts can result in excessive borrowing ex ante and excessive volatility ex post even though from a first best perspective the equilibrium always displays under borrowing from a second best point of view excessive borrowing can arise the inefficiency is due to the combination of limited commitment in financial contracts and the fact that asset prices are determined in a spot market this generates a pecuniary externality that is not internalized in private contracts the model provides a framework to evaluate preventive policies which can be used during a credit boom to reduce the expected costs of a financial crisis copyright 2008 wiley blackwell

macroprudential policies capital flows and the structure of the banking sector abstract using a large sample of advanced and emerging market economies over the period 1999 2012 we examine the effectiveness of macroprudential policies mpps in managing cross border bank flows conditioning on the structure of the banking sector in the mpp implementing country we find that higher regulatory quality and a higher credit to deposit ratio increase the effectiveness of mpps while a higher cost to income ratio has the opposite effect if all three financial variables are evaluated at the median the marginal effect of our preferred mpp measure leads to a reduction of international bank inflows in percent of gdp by around half a percentage point and is only marginally significant however when the more enhanced 25th 10th percentiles of their respective distributions are considered we observe as a response to the same mpp measure a reduction of bank inflows by 3 44 5 39 percentage points that is highly statistically and economically significant additionally we find that the structure of the domestic banking sector determines spillovers from mpps across asset classes while spillovers from mpps across countries are a function of banking sector conditions both at home and abroad

measuring the efficiency of european railways this paper is concerned with the definition and measurement of efficiency in a public body specifically railways the authors argue against commonly used measures such as profit and labour productivity in favour of a production possibility frontier approach physical measures of input and output are derived and applied using a variety of methodologies results from some of the most popular such as data envelopment analysis and corrected ordinary least squares using the translog function are shown to be potentially misleading two original approaches one using uniform efficiency distributions and the other applying bayesian state space techniques are developed and applied but these too are found to be potentially unreliable comparison with results from other authors finally lead to the conclusion that accurate measurement of efficiency is not possible although the research is able to indicate good and bad performers the final conclusion is that efficiency on the railway is a product primarily of go

internal capital markets and the competition for corporate resources this article examines the role of corporate headquarters in allocating scarce resources to competing projects in an internal capital market unlike a bank headquarters has control rights that enable it to engage in winner picking the practice of actively shifting funds from one project to another by doing a good job in the winner picking dimension headquarters can create value even when it cannot help at all to relax overall firm wide credit constraints the model implies that internal capital markets may sometimes function more efficiently when headquarters oversees a small and focused set of projects this article analyzes the process by which internal capital markets channel limited resources to different uses inside a company in so doing it seeks to address two related sets of questions first what is the fundamental economic rationale for creating an internal capital market that is under what circumstances can it make sense to combine several technologically distinct projects under one roof and have them seek funding from corporate headquarters as opposed to setting them up as stand alone companies that each raise external financing on their own second given this rationale what is the optimal size and scope of an internal capital market should headquarters be involved in funding a large number of projects or just a few and should these projects be unrelated to one another or in similar lines of business the answers to both sets of questions flow from the insight that in a credit constrained setting where not all positive npv projects can be financed headquarters can create value by actively reallocating scarce funds across projects for example the cash flow generated by one division s activities may be taken and spent on investment in another division where the returns are higher or alternatively one division s assets may be used as collateral to raise financing that is then diverted to the other division simply put individual projects must compete for the scarce funds and headquarters job is to pick the winners and losers in this competition

market performance in an open developing economy technical and allocative efficiencies of korean industries this paper first examines determinants of technical efficiency in terms of competition and government regulation including protection in korean industries relying heavily upon the concepts of x efficiency and rentseeking activities allocative efficiency measured as profitability is then considered with technical efficiency as a determinant the outcome of the regression shows that both the sheltering of industries from international competition and the financial market distortions strongly affect technical efficiency and that technical efficiency as well as effective protection rate are important determinants of profitability

heterogeneous effects of competitiveness shocks on macroeconomic performance across euro area countries this paper considers how competitiveness impacts macroeconomic performance in 11 euro area countries var models are estimated for the individual countries using quarterly data from 1995q4 to 2013q4 besides unit labour costs as a competitiveness measure the models include gdp the current account balance and domestic credit the empirical analyses show that changes in unit labour costs help explain gdp dynamics in the short and medium term in most countries whereas they have little explanatory power for the current account balance or domestic credit for most countries overall the effects of the unit labour costs vary substantially across the countries in the euro area the heterogeneity suggests that policy measures aiming to improve economic growth correct current account imbalances and ensure financial stability need to take country specific features into account

breaking free of the triple coincidence in international finance the traditional approach to international finance is to view capital flows as the financial counterpart to savings and investment decisions assuming further that the gdp boundary defines both the decision making unit and the currency area this triple coincidence of gdp area decision making unit and currency area is an elegant simplification but misleads when financial flows are important in their own right first the neglect of gross flows when only net flows are considered can lead to misdiagnoses of financial vulnerability second inattention to the effects of international currencies may lead to erroneous conclusions on exchange rate adjustment third sectoral differences between corporate and official sector positions can distort welfare conclusions on the consequences of currency depreciation as macroeconomic risks may be underestimated this paper illustrates the pitfalls of the triple coincidence through a series of examples from the global financial system in recent years and examines alternative analytical frameworks based on balance sheets as the unit of analysis

some models for estimating technical and scale inefficiencies in data envelopment analysis in management contexts mathematical programming is usually used to evaluate a collection of possible alternative courses of action en route to selecting one which is best in this capacity mathematical programming serves as a planning aid to management data envelopment analysis reverses this role and employs mathematical programming to obtain ex post facto evaluations of the relative efficiency of management accomplishments however they may have been planned or executed mathematical programming is thereby extended for use as a tool for control and evaluation of past accomplishments as well as a tool to aid in planning future activities the ccr ratio form introduced by charnes cooper and rhodes as part of their data envelopment analysis approach comprehends both technical and scale inefficiencies via the optimal value of the ratio form as obtained directly from the data without requiring a priori specification of weights and or explicit delineation of assumed functional forms of relations between inputs and outputs a separation into technical and scale efficiencies is accomplished by the methods developed in this paper without altering the latter conditions for use of dea directly on observational data technical inefficiencies are identified with failures to achieve best possible output levels and or usage of excessive amounts of inputs methods for identifying and correcting the magnitudes of these inefficiencies as supplied in prior work are illustrated in the present paper a new separate variable is introduced which makes it possible to determine whether operations were conducted in regions of increasing constant or decreasing returns to scale in multiple input and multiple output situations the results are discussed and related not only to classical single output economics but also to more modern versions of economics which are identified with contestable market theories

the global credit boom challenges for macroeconomics and policy the recent financial crisis has put the spotlight on the rapid rise in credit which preceded it in this paper we provide an empirical and theoretical analysis of the credit boom and the macroeconomic context in which it developed we find that the boom was unusually long and associated with neither particularly strong growth nor rising inflation in the economies in which it took place we show that this type of credit and financial cycle is hard to reconcile with existing economic theory and argue that while the global savings glut may account for the cycle s initial phase other factors such as the conduct of monetary policy and perceptions of declining macroeconomic risk were more important from the mid 2000s onwards we conclude by identifying some of the challenges now facing macroeconomics and policy

measuring economic efficiency with incomplete price information with an application to european commercial banks measuring economic efficiency requires complete price information while resorting to technical efficiency exclusively does not allow one to utilise any price information in most studies at least some information on the prices is available from theory or practical knowledge of the industry under evaluation in this paper we extend the theory of efficiency measurement to accommodate incomplete price information by deriving upper and lower bounds for farrell s overall economic efficiency the bounds typically give a better approximation for economic efficiency than technical efficiency measures that use no price data whatsoever from an operational point of view we derive new data envelopment analysis dea models for computing these bounds using standard linear programming the practical application of these estimators is illustrated with an empirical application to large european union commercial banks

political credit cycles the case of the euro zone we study the mechanisms through which the adoption of the euro delayed rather than advanced economic reforms in the euro zone periphery and led to the deterioration of important institutions in these countries we show that the abandonment of the reform process and the institutional deterioration in turn not only reduced their growth prospects but also fed back into financial conditions prolonging the credit boom and delaying the response to the bubble when the speculative nature of the cycle was already evident we analyze empirically the interrelation between the financial boom and the reform process in greece spain ireland and portugal and by way of contrast in germany a country that did experience a reform process after the creation of the euro

zero interest rate policy and unintended consequences in emerging markets since 2009 central banks in the major advanced economies have held interest rates at very low levels to stabilise financial markets and support the recovery of their economies this paper outlines the unintended consequences of the prolonged period of very low world funding interest rates in emerging markets the paper is informed by a mises hayek bis view on credit booms and mises law of unintended consequences consistent with the presented credit boom view i provide evidence that the very low world funding interest rates are associated with a rise in volatile capital flows and asset market bubbles in fast growing emerging markets in line with mises law i further show that these unintended consequences give rise to a new wave of interventionism as policymakers in emerging markets increasingly reintroduce financially repressive measures to isolate the economies from foreign capital inflows

takeover motives during the conglomerate merger wave this article examines the stock market response to acquisition announcements during and immediately after the conglomerate merger wave of the late 1960s the main finding is that acquirer shareholders benefited from diversification acquisitions which implies that diversification was not driven by managerial objectives it is also shown that the market responded positively to bidders who retained the management of target companies and negatively to bidders who replaced target management this is consistent with the hypothesis that the market favored acquisitions intended to exploit managerial synergies it suggests that the market disliked takeovers that were motivated to discipline target management evidence on buyer and target price earnings ratios is presented that is inconsistent with the conjecture that conglomerates were able to mislead investors by earnings per share manipulation

the great moderation in international capital flows a global phenomenon abstract this paper highlights a recent great moderation in global capital flows characterised by smaller volumes and lower volatility of cross border transactions however there are substantial differences across countries and regions which we analyse by comparing the level of international capital flows observed in 2005 06 immediately prior to the onset of the global financial crisis to the post crisis period of 2013 14 when global flows arguably settled at a new normal we find that since the pre crisis period gross capital inflows recovered more for economies with smaller pre crisis external and internal imbalances lower per capita income improving growth expectations a less severe impact of the global financial crisis and less stringent macroprudential policy on the asset side countries with a more accommodative monetary policy a milder impact of the crisis and oil exporters managed to increase gross capital outflows in the post crisis period

bank integration and co movements across housing markets this paper investigates whether bank integration measured by cross border bank flows can capture the co movements across housing markets in developed countries by using a spatial dynamic panel model the transmission can occur through a global banking channel in which global banks intermediate wholesale funding to local banks changes in financial conditions are passed across borders through the banks balance sheet exposure to credit currency maturity and funding risks resulting in house price spillovers while controlling for country level and global factors we find significant co movement across housing markets of countries with proportionally high bank integration bank integration can better capture house price co movements than other measures of economic integration once we account for bank exposure other spatial linkages traditionally used to account for return co movements across region such as trade foreign direct investment portfolio investment geographic proximity etc become insignificant moreover we find that the co movement across housing markets decreases for countries with less developed mortgage markets characterized by fixed mortgage rate contracts low limits of loan to value ratios and no mortgage equity withdrawal

disclosure venture capital and entrepreneurial spawning venture capital vc funds have been facing increasing regulatory scrutiny since the 2007 financial crisis particularly with respect to calls for increased disclosure requirements in this paper we examine the effect of more stringent securities regulation on the supply and performance of vc as well as on new business creation i e entrepreneurial spawning using country level and investment level data from 34 countries over the years 2000 2008 we find that more stringent securities regulation is positively associated with the supply and performance of vc around the world more stringent securities regulation is also positively associated with entrepreneurial spawning induced by vc among different forms of securities regulation disclosure stands out as having the most economically meaningful impact which casts doubt on the oft repeated objections to disclosure in vc that it would stifle the vc industry because secrets would have to be revealed to competitors and the public these findings are robust to numerous robustness checks for endogeneity the policy implications are clear however regardless of endogeneity concerns vc and entrepreneurship markets are enabled not curtailed in countries with better disclosure standards when one compares the existing differences in disclosure around the world and changes thereto over the 2000 2008 period

the effect of unconventional monetary policy on cross border bank loans evidence from an emerging market abstract we analyze the impact of quantitative easing by the federal reserve european central bank and bank of england on cross border credit flows relying on comprehensive loan level data we find that fed qe strongly boosts cross border credit granted to turkish banks by banks located in the us euro area and uk while ecb and boe qes work only moderately through banks in the ea and uk respectively in general qe works at short maturities across bank locations and loan currencies more strongly for weaker lenders and borrowers and may have resulted in maturity mismatches in turkish banks searching for yield 99 words

how much of the diversification discount can be explained by poor corporate governance we investigate whether the diversification discount occurs partly as an artifact of poor corporate governance in panel data models we find that the discount narrows by 16 to 21 when we add governance variables as regression controls we also estimate heckman selection models that account for the endogeneity of diversification and dynamic panel generalized method of moments models that account for the endogeneity of both diversification and governance we find that the diversification discount persists even with these controls for endogeneity however in selection models the discount disappears entirely when we introduce governance variables in the second stage and in dynamic panel gmm models the discount narrows by 37 when we include governance variables

can chinese state enterprises perform like market entities productive efficiency in the chinese iron and steel industry as a consequence of economic reforms in china firms have ben affected by three essential changes first instead of surrendering all profits to the government firms now pay tax on their profits according to a contract between them and the government and retain the balance as their own controllable surplus second the central economic plan determines only part of firms production after fulfilling the command plan firms are allowed to adjust their production scale by the availability of inputs and the profitability of production third most consumer and investment goods have two prices a plan price and a market price as most of the plan prices are always lower than the market prices the latter play a basic role in determining firms profits after a decade of economic reforms the important question is can chinese state enterprises perform like market entities the analysis shows that chinese firms in transition domimic the production behaviour of market based efficiency oriented firms

estimation of technical inefficiency in manufacturing industry an extension of the method of estimation of technical ineficiency is presented based on the stochastic production frontier approach a derivation of the estimation procedure is given and the technique applied at the industry level the choice of production function is considered and empirical results pertaining to australia and the uk are presented

macroprudential and monetary policies the need to dance the tango in harmony abstract considering a sample of 37 emerging and advanced economies from 2000q1 to 2014q4 we empirically assess how effective macroprudential policies are in curbing domestic credit growth and whether their effectiveness is affected by monetary policy conditions we obtain three important results first our findings suggest in line with previous research that an overall tightening in macroprudential policies is associated with a reduction in credit growth second we show that a restrictive monetary policy enhances the impact of macroprudential tightening on credit growth third our results seem to suggest that monetary policy helps to reduce the transmission delay of macroprudential policy actions consequently our results confirm the need for coordination between the two policies

mountain or molehill downward biases in the conglomerate discount measure abstract the berger and ofek 1995 excess value measure comparing a conglomerate s actual market value to an imputed value based on standalones has become the standard method to determine value effects of diversification in this paper we address a significant bias in this procedure stemming from the difference in cash holdings between diversified and standalone firms excess values are based on firm values including corporate cash positions as standalones hold significantly more cash the imputed cash value is higher than the conglomerate s actual cash value resulting in a downward biased excess value we thus propose to calculate excess values based on enterprise values replacing total debt by net debt based on an extensive us sample we show that there is significantly less evidence of a diversification discount when adjusting for the cash bias in terms of average dollar losses the firm value based models overestimate the conglomerate discount by at least 25 apart from removing the cash bias we propose a second modification to the excess value measure arguing that standalone industry multipliers should be calculated using geometric mean aggregation instead of median aggregation

endogeneity and the dynamics of internal corporate governance abstract we use a well developed dynamic panel generalized method of moments gmm estimator to alleviate endogeneity concerns in two aspects of corporate governance research the effect of board structure on firm performance and the determinants of board structure the estimator incorporates the dynamic nature of internal governance choices to provide valid and powerful instruments that address unobserved heterogeneity and simultaneity we re examine the relation between board structure and performance using the gmm estimator in a panel of 6 000 firms over a period from 1991 to 2003 and find no causal relation between board structure and current firm performance we illustrate why other commonly used estimators that ignore the dynamic relationship between current governance and past firm performance may be biased we discuss where it may be appropriate to consider the dynamic panel gmm estimator in corporate governance research as well as caveats to its use

the drivers of financial globalization over the past decade emerging markets have accounted for a growing fraction of world gdp and international trade reflecting fast growth in china and india but also strong economic performance across the board and the spec tacular increase in foreign exchange reserve holdings the growing importance of sovereign wealth funds and the pattern of global imbal ances more generally suggest that these coun tries are also playing a major role in financial globalization

estimation of the efficiency of structural funds a parametric and nonparametric approach this article seeks to perform an analysis of the efficiency of the application of the structural funds in the regions classified as objective 1 over the period 2000 to 2006 applying the techniques known as data envelopment analysis dea and stochastic frontier in the first place we are going to identify which are the most efficient regions finally we will analyse the extent to which certain factors have repercussions on the efficiency such as country geographical location and contribution of agriculture of gross domestic product gdp and the result indicates that some of these variables have significantly influences of technical efficiency

the impact of conglomeration on the option value of equity abstract using contingent claims analysis i quantify the effect of risk reducing corporate diversification on the value of equity as a call option on firm assets the impact of conglomeration on firm risk is heavily conditioned on firm size in contrast to small firms the risk of large firms does not decline with increasing conglomeration accounting for this effect the expected equity discount is much lower than commonly assumed and can even turn into a premium if the path dependency of equity is incorporated my results stand in direct contrast to those of mansi and reeb 2002 and caution against using asset substitution as a qualitative argument for explaining economy wide value phenomena

the determinants of price discovery evidence from us canadian cross listed shares abstract we examine the determinants of price discovery for canadian firms cross listed on the main us stock exchanges over the period 1996 2011 sampling at a one minute frequency we compute gonzalo and granger component shares cs and employ a system gmm approach to control for persistence in price discovery and endogeneity between cs and its determinants we find that price discovery is highly persistent and that there is strong evidence of simultaneity between cs and its determinants we conclude that lower relative spreads and higher relative trading activity increase an exchange s contribution to price discovery we also document that it is small trades that drive price discovery particularly since the introduction of decimalization

on sustainability and the economics of survival this paper investigates the implications of sustainability and survival strategies for economic analysis it reviews connections between the approaches used by economists and biological scientists in the study of survival the paper emphasizes the role of irreversibility and uncertainty in the investigation of sustainability issues implications of the results for the analysis of economic behavior are discussed

the positive announcement period returns of equity carveouts asymmetric information or divestiture gains using a sample of 336 carveouts that occurred in the period 1980 97 this article shows that the announcement period returns increase with the ratio of subsidiary to nonsubsidiary assets this finding contradicts the asymmetric information model proposed by nanda additional tests relate the returns to the following divestiture based explanations proposed by schipper and smith and others refocusing of the parent and subsidiary operations financing of new and existing projects reducing the complexity of stock valuation and enabling an eventual spinoff or third party acquisition the combined evidence rejects the asymmetric information hypothesis and supports the divestiture gains hypothesis of carveouts

how do diversity of opinion and information asymmetry affect acquirer returns we examine the theoretical predictions that link acquirer returns to diversity of opinion and information asymmetry theory suggests that acquirer abnormal returns should be negatively related to information asymmetry and diversity of opinion proxies for equity offers but not cash offers we find that this is the case and that more strikingly there is no difference in abnormal returns between cash offers for public firms equity offers for public firms and equity offers for private firms after controlling for one of these proxies idiosyncratic volatility jel g31 g32 g34 this article examines whether variables suggested by diversity of opinion models and information asymmetry models are helpful in understanding the cross sectional variation in acquirer announcement returns using a sample of pure equity offers and pure cash offers for public and private firmsfrom1980to2002 wedocumentthatthesevariables theuncertainty proxies explain a significant fraction of the cross sectional variation in acquirer announcement returns perhaps most strikingly after controlling for the uncertainty proxies there is no difference in abnormal returns between cash offers for public firms equity offers for public firms and equity offers for private firms using two proxies for diversity of opinion employed previously in the literature the standard deviation of analyst forecasts and breadth of ownership we show that bidder abnormal returns for acquisitions of

credit cycle coherence in the eurozone was there a euro effect this paper examines effects of the euro introduction on credit cycle coherence in the eurozone through six channels we construct and describe credit cycles for total bank credit household mortgages and non financial business loans for 16 emu economies over 1990 2015 credit cycle coherence is measured by synchronicity of cycle movements and similarity of their amplitudes we find that the effect of euro introduction runs through elimination of currency risk and higher capital flows which decrease coherence of total credit and mortgage credit cycles but increase coherence of business credit cycles falling interest rates contribute to the convergence of total and mortgage credit cycles financial deregulation and legal harmonization are associated with lower coherence of all credit cycles while trade openness has the opposite impact the findings impinge on monetary policy effectiveness in the eurozone with implications for macroprudential policy

external imbalances in the eurozone the paper examines the extent to which current account imbalances of euro area countries are related to intra euro area factors and to external trade shocks we argue that the traditional explanations for the rising imbalances are correct but are incomplete we uncover a large impact of declines in export competitiveness and asymmetric trade developments vis a vis the rest of the world x96 in particular vis a vis china central and eastern europe and oil exporters x96 on the external balance of euro area debtor countries while current account imbalances of euro area deficit countries vis a vis the rest of the world increased they were financed mostly by intra euro area capital inflows in particular by the purchase of government and financial institutions securities and cross border interbank lending which permitted external imbalances to grow over time ruo chen gian maria milesi ferretti and thierry tressel

econometric estimation of technical and environmental efficiency an application to dutch dairy farms in this article we estimate the technical and environmental efficiency of a panel of dutch dairy farms nitrogen surplus arising from the application of excessive amounts of manure and chemical fertilizer is treated as an environmentally detrimental input a stochastic translog production frontier is specified to estimate the output oriented technical efficiency environmental efficiency is estimated as the input oriented technical efficiency of a single input the nitrogen surplus of each farm the mean output oriented technical efficiency is rather high 0 894 but the mean input oriented environmental efficiency is only 0 441 intensive dairy farms are both technically and environmentally more efficient than extensive farms

measuring technical efficiency in the stochastic varying coefficient frontier model due to the assumption that the best practice methods refer to each input separately instead of the whole set of inputs used by a firm the benchmark technology as defined in the stochastic varying coefficient frontier model may be infeasible and theoretically improper whenever the maximum response coefficients are not coming from the same production unit to overcome this problem we propose alternative measures of output oriented and single factor technical efficiencies inspired from the maximum likelihood formulation of the nonneutral frontier model the empirical results indicate that there are significant differences between the two in terms of the estimated efficiency scores but not significant differences we detected in terms of the efficiency ranking

financial flows financial crises and global imbalances abstract in this lecture i document the proliferation of gross international asset and liability positions and discuss some consequences for individual countries external adjustment processes and for global financial stability in light of the rapid growth of gross global financial flows and the serious risks associated with them one might wonder about the continuing relevance of the net financial flow measured by the current account balance i argue that global current account imbalances remain an essential target for policy scrutiny for financial as well as macroeconomic reasons nonetheless it is critically important for policymakers to monitor as well the rapidly evolving structure of global gross assets and liabilities

technical and allocative efficiency of irrigation water use in the guanzhong plain china due to increasing water scarcity accelerating industrialization and urbanization efficiency of irrigation water use in northern china needs urgent improvement based on a sample of 347 wheat growers in the guanzhong plain this paper simultaneously estimates a production function and its corresponding first order conditions for cost minimization to analyze efficiency of irrigation water use the main findings are that average technical allocative and overall economic efficiency are 0 35 0 86 and 0 80 respectively in a second stage analysis we find that farmers perception of water scarcity water price and irrigation infrastructure increase irrigation water allocative efficiency while land fragmentation decreases it we also show that farmers income loss due to higher water prices can be offset by increasing irrigation water use efficiency

corporate debt firm size and financial fragility in emerging markets abstract the post global financial crisis period shows a surge in corporate leverage in emerging markets and a number of countries with deteriorated corporate financial fragility indicators altman s z score firm size plays a critical role in the relationship between leverage firm fragility and exchange rate movements in emerging markets while the relationship between firm leverage and distress scores varies over time the relationship between firm size and corporate vulnerability is relatively time invariant all else equal large firms in emerging markets are more financially vulnerable and also systemically important consistent with the granular origins of aggregate fluctuations in gabaix 2011 idiosyncratic shocks to the sales growth of large firms are positively and significantly correlated with gdp growth in our emerging markets sample relatedly the negative impact of exchange rate shocks has a more acute impact on the sales growth of the more highly levered large firms

efficiency and farm size in egypt a unit output price profit function approach the main objective of this study is to analyse size and efficiency in egyptian agriculture using an econometric approach free of the problem of simultaneous equation bias associated with the production function technique the identification of factors which affect farm level productivity in the study area are also considered the results reveal that the efficiency of management in both large and small farms is the same and that large farms appear not to be more efficient than small farms the study also indicates that increasing the ulitilization of cultivated land and machinery service and raising the output price are important if production is to increase

structural models and endogeneity in corporate finance the link between managerial ownership and corporate performance this paper presents a parsimonious structural model that isolates primary economic determinants of the level and dispersion of managerial ownership firm scale and performance and the empirical associations among them in particular variation across firms and through time of estimated productivity parameters for physical assets and managerial input and corresponding variation in optimal compensation contract and firm size combine to deliver the well known hump shaped relation between tobin s q and managerial ownership to assess the effectiveness of standard econometric approaches to the endogeneity problem we apply those remedies to panel data generated from the model the unfortunate conclusion is that at least in the ownership performance context proxy variables fixed effects and instrumental variables do not generally provide reliable solutions to simultaneity bias

ride the wild surf an investigation of the drivers of surges in capital inflows over the past 15 years gross inflows to industrial and developing countries have enjoyed a wild ride after reaching record highs in the run up to the global financial crisis they collapsed dramatically in 2008 09 as signs of global recovery reappeared capital inflows resumed although at different speeds the recovery in flows was faster and sharper in developing countries this paper aims at understanding the domestic and external drivers of these surges in gross inflows using quarterly data for 67 countries from 1975 to 2010 it finds that domestic and external factors have significant explanatory power in driving surges of inflows this finding holds for the sample of industrial countries whereas domestic factors play a significantly larger role in explaining surges to developing countries zooming into the findings shows that a financial booms tend to attract massive capital inflows b surges to either industrial or developing countries are driven by regional contagion and c strong growth and natural resource abundance are keys to attract inflows of foreign capital into developing countries

measuring productivity growth under factor non substitution an application to us steam electric power generation utilities a theoretical framework is developed for decomposing partial factor productivity and measuring technical inefficiency when the underlying technology is characterized by factor non substitution with farrell s 1957 radial index of technical inefficiency being inappropriate in this case russell non radial indices are adapted to measure technical inefficiency in a leontief type model a system of factor demand equations with a regime specific technical inefficiency term is proposed and estimated allowing for dependence across inputs using a copula approach then the paper presents a complete decomposition of partial factor productivity changes using a dataset of us steam power electric generation utilities

do capital flows change domestic credit allocation since the 1990s domestic bank credit has been reallocated away from lending to non financial business and toward households an expanding literature discusses negative effects on growth and stability of this change in credit allocation we research its drivers we hypothesize that if foreign capital flows into economies with few investment opportunities it may substitute for domestic bank lending to non financial business so that bank balance sheets become more dominated by household lending in gmm estimations on data for 36 economies over 1990 2011 we find evidence consistent with this mechanism foreign capital inflows into the non bank sector but not into the bank sector are associated with lower shares of business lending in domestic bank portfolios the association is weaker in economies with more investment opportunities whether proxied by investment shares current account surpluses or emu membership our results highlight the importance of sectoral destination in determining the effects of capital flows

internal capital markets and firm level compensation incentives for division managers do multidivisional firms structure compensation contracts for division managers to mitigate incentive problems in their internal capital markets i find evidence that compensation and investment incentives are substitutes firms providing a stronger link to firm performance in incentive compensation for division managers also provide weaker investment incentives through the capital budgeting process specifically as the proportion of incentive pay for division managers that is based on firm performance increases division investment is less responsive to division profitability these findings are generally consistent with a model of influence activities by division managers in interdivisional capital allocation decisions

monetary policy as financial stability regulation this paper develops a model that speaks to the goals and methods of financialstability policies there are three main points first from a normative perspective the model defines the fundamental market failure to be addressed namely that unregulated private money creation can lead to an externality in which intermediaries issue too much short term debt and leave the system excessively vulnerable to costly financial crises second it shows how in a simple economy where commercial banks are the only lenders conventional monetary policy tools such as open market operations can be used to regulate this externality while in more advanced economies it may be helpful to supplement monetary policy with other measures third from a positive perspective the model provides an account of how monetary policy can influence bank lending and real activity even in a world where prices adjust frictionlessly and there are other transactions media besides bank created money that are outside the control of the central bank

domestic credit growth and international capital flows during the pre crisis period europe experienced substantial cross country variation in domestic credit growth and cross border capital flows we investigate the inter relations between domestic credit growth and international capital flows during the period 1993 2008 with a special focus on the boom period of 2003 2008 we establish that domestic credit growth in european countries is strongly related to net debt inflows but not to net equity inflows this pattern also holds for an extended sample of 54 advanced and emerging economies

evidence on the dark side of internal capital markets this article documents differences between the sensitivity of investment of stand alone firms and unrelated segments of conglomerate firms unrelated segments exhibit lower o sensitivity of investment than stand alone firms this fact is driven by unrelated segments of conglomerate firms that tend to invest less than stand alone firms in high s industries this finding is robust to matching on industry year size age and profitability the differences are more pronounced in conglomerates in which top management has small ownership stakes suggesting that agency problems explain the investment behavior

foreign independent directors and the quality of legal institutions foreign directors can affect firm value through their advising and monitoring functions however the demand for these directors as well as their effect on firm performance is likely to be influenced by firm and country level characteristics in a large sample of non us firms we find that foreign directors are more likely to be associated with firms that have more foreign operations and an international shareholder base and firms that are located in countries with a limited supply of potentially qualified domestic directors countries with a smaller less well educated populace and lower levels of capital market development we also find that the association between foreign directors and firm performance is more positive in countries with lower quality legal institutions and when the director comes from a country with higher quality legal institutions than the firm s host country our study highlights the importance of considering national demographic factors and levels of capital market development when modeling the supply and demand for foreign directors and also underscores the importance of institutional quality in the foreign director s home and host country when assessing the effect of that director on firm performance

bank bias in europe effects on systemic risk and growth europe s financial structure has become strongly bank based far more so than in other economies we document that an increase in the size of the banking system relative to equity and private bond markets is associated with more systemic risk and lower economic growth particularly during housing market crises we argue that these two phenomena arise owing to an amplification mechanism by which banks overextend and misallocate credit when asset prices rise and ration it when they drop the paper concludes by discussing policy solutions to europe s bank bias which include reducing regulatory favouritism towards banks while simultaneously supporting the development of securities markets

external adjustment and the global crisis abstract the period preceding the global financial crisis was characterized by a substantial widening of current account imbalances across the world since the onset of the crisis these imbalances have contracted to a significant extent in this paper we analyze the ongoing process of external adjustment in advanced economies and emerging markets we find that countries whose pre crisis current account balances were in excess of what could be explained by standard economic fundamentals have experienced the largest contractions in their external balance we subsequently examine the contributions of real exchange rates domestic demand and domestic output to the adjustment process allowing for differences across exchange rate regimes and find that external adjustment in deficit countries was achieved primarily through demand compression rather than expenditure switching finally we show that changes in other investment flows were the main channel of financial account adjustment with official external assistance and ecb liquidity cushioning the exit of private capital flows for some countries

technical efficiency of alternative farming systems the case of greek organic and conventional olive growing farms abstract olive growing is a major farming activity in greek agriculture this paper analyzes empirically the technical efficiency of organic and conventional olive growing farms using a stochastic production frontier methodology and a translog functional specification findings indicate that the organic olive growing farms examined exhibit a higher degree of technical efficiency relative to their production frontier than do conventional olive growing farms reasons may include lower profit margins and restrictions on inputs permitted thus forcing organic farmers to be more cautious with input use however both input and output oriented technical efficiency scores are still relatively low for both types of olive farming thus there is considerable scope for cost reducing and farm income improvement in both farming modes this could prove crucial for the long run viability and the future course of the sector

evaluating the cost efficiency of the italian banking system what can be learned from the joint application of parametric and non parametric techniques abstract research on bank efficiency has developed in two separate streams econometric studies and data envelopment analysis a linear programming technique these two branches of literature have developed quickly but separately in this paper these two approaches have been tested on a common panel of 270 italian banks and this has suggested the following i econometric and linear programming results do not differ dramatically when based on the same data and conceptual framework ii when differences arise they can be explained by going back to the intrinsic features of the models moreover some findings on italian banks may be of interest also to the international reader i efficiency scores show a high variance ii the banking system is split in two between northern and southern banks iii there is a direct rather than inverse relationship between productive efficiency and asset quality iv the efficiency of italian banks did not increase over the period 1988 1992

the great retrenchment international capital flows during the global financial crisis the current crisis saw an unprecedented collapse in international capital flows after years of rising financial globalization we identify the stylized facts and main drivers of this development the retrenchment in international capital flows is a highly heterogeneous phenomenon first across time being especially dramatic in the wake of the lehman brothers failure secondly across types of flows with banking flows being the hardest hit due to their sensitivity of risk perception and thirdly across regions with emerging economies experiencing a shorter lived retrenchment than developed economies our econometric analysis shows that the magnitude of the retrenchment in capital flows across countries is linked to the extent of international financial integration its specific nature with countries relying on bank flows being the hardest hit as well as domestic macroeconomic conditions and their connection to world trade flows gian maria milesi ferretti and cedric tille

cost functions under production uncertainty we characterize the cost functions which would be consistent with expected utility maximization when production is uncertain it is not generally possible assuming risk aversion to use only expected output as the constraint in a cost minimization problem in some leading cases cost functions consistent with expected utility maximization are particularly useful because they are devoid of risk preferences

productive performance in west german manufacturing industry 1970 80 a farrell frontier characterisation some measure of the success with which economic resources are utilised lies at the heart of any meaningful indicator of economic performance a traditional and obvious point of departure is to say that for a given state of technical knowledge and initial endowments of factor inputs resource allocation depends on the degree of ability to transform inputs into outputs and the relative returns which these resources can earn in this paper the more recent productive performance of the west german manufacturing sector is appraised from one particular viewpoint whilst remaining firmly within what might be called the conventional framework of relating outputs to the factor inputs labour and capital section ii provides an initial brief overview of the west german manufacturing sector over the period i 970 80 in which some of the more interesting trends are noted for a more detailed analysis in later sections section iii sets out the approach used again this is not very extensive given the relatively well documented nature of the methodology section iv takes the form of some notes on the data used with a more substantial section v containing the major analysis some more general observations and concluding comments are brought together in a final section vi

impact of energy policy instruments on the estimated level of underlying energy efficiency in the eu residential sector the promotion of energy efficiency is seen as one of the top priorities of eu energy policy ec 2010 in order to design and implement effective energy policy instruments it is necessary to have information on energy demand price and income elasticities in addition to sound indicators of energy efficiency this research combines the approaches taken in energy demand modelling and frontier analysis in order to econometrically estimate the level of energy efficiency for the residential sector in the eu 27 member states for the period 1996 to 2009 the estimates for the energy efficiency confirm that the eu residential sector indeed holds a relatively high potential for energy savings from reduced inefficiency therefore despite the common objective to decrease wasteful energy consumption considerable variation in energy efficiency between the eu member states is established furthermore an attempt is made to evaluate the impact of energy efficiency measures undertaken in the eu residential sector by introducing an additional set of variables into the model and the results suggest that financial incentives and energy performance standards play an important role in promoting energy efficiency improvements whereas informative measures do not have a significant impact

from efficiency measurement to efficiency improvement the choice of a relevant benchmark abstract this article deals with efficiency improvement and how to identify appropriate benchmarks for inefficient firms to imitate we argue that the most relevant benchmark is the most similar efficient firm having interpreted similarity in terms of input endowments the problem reduces to find the closest reference firm on the efficient subset of the isoquant to such an end we introduce the concept of input specific contractions this concept allows to find the shortest path to the efficient subset this information can be used to advise inefficient firms about which efficient firm to visit in order to detect its mistakes and to learn better managerial practices

the measurement of productive efficiency a reconsideration the purpose of this paper is to generalize the farrell indexes of productive efficiency to nonhomothetic production technologies and at the same time maintain the cost interpretation of the farrell measures since the generalized indexes rely heavily on recent developments in the estimation of frontier cost and production functions several frontier models are reviewed in addition to generalized indexes of technical allocative and overall productive efficiency a variety of single factor efficiency measures are discussed the applicability of the proposed efficiency measures is illustrated with a numerical example of electric power generation

frontier production functions and technical efficiency a survey of empirical applications in agricultural economics abstract the modelling and estimation of frontier production functions has been an important area of econometric research during the last two decades forsund lovell and schmidt 1980 and schmidt 1986 present reviews of the concepts and models involved and cite some of the empirical applications which had appeared to their respective times of publication this paper seeks to update the econometric modelling of frontier production functions associated with the estimation of technical efficiency of individual firms a survey of empirical applications in agricultural economics is an important part of the paper

cross country evidence on determinants of fiscal policy effectiveness the role of trade and capital flows this article studies the determinants of size differentials between fiscal multipliers in countries around the world both advanced and developing economies we introduce variables not considered b

agricultural credit programs and production efficiency an analysis of traditional farming in southeastern minas gerais brazil over the past two decades the effectiveness of subsidized credit programs in improving the productivity of traditional farmers in developing countries has been extensively debated this study analyzes the effects of one such program prodemata on the technical and allocative efficiency of traditional farmers in minas gerais brazil the empirical results suggest that prodemata has had no effect on technical efficiency and a slightly negative effect on allocative efficiency

are internal capital markets efficient using segment information from compustat we find that the investment by a segment of a diversified firm depends on the cash flow of the firm s other segments but significantly less than it depends on its own cash flow the investment by segments of highly diversified firms is less sensitive to their cash flow than the investment of comparable single segment firms the sensitivity of a segment s investment to the cash flow of other segments does not depend on whether its investment opportunities are better than those of the firm s other segments

measurement of energy efficiency based on economic foundations abstract energy efficiency policy is seen as a very important activity by almost all policy makers in practical energy policy analysis the typical indicator used as a proxy for energy efficiency is energy intensity however this simple indicator is not necessarily an accurate measure given changes in energy intensity are a function of changes in several factors as well as true energy efficiency hence it is difficult to make conclusions for energy policy based upon simple energy intensity measures related to this some published academic papers over the last few years have attempted to use empirical methods to measure the efficient use of energy based on the economic theory of production however these studies do not generally provide a systematic discussion of the theoretical basis nor the possible parametric empirical approaches that are available for estimating the level of energy efficiency the objective of this paper therefore is to sketch out and explain from an economic perspective the theoretical framework as well as the empirical methods for measuring the level of energy efficiency additionally in the second part of the paper some of the empirical studies that have attempted to measure energy efficiency using such an economics approach are summarized and discussed

bank business models as a driver of cross border activities abstract much of the post crisis moderation in international banking has been shown to be attributable to euro area banks using a confidential bank level dataset on euro area resident banks this paper sheds light on the type of banks responsible for the decline in cross border lending overall globally systemically important banks g sibs were markedly different from other bank types resident in the euro area as they not only increased their extra euro area positions but also contributed to maintaining cross border flows within the euro area over the past decade in addition we also highlight that banks with initially higher capitalisation more deposit funding and lower non performing loan rates exhibit less cross border retrenchment these findings have clear policy implications for the design of bank regulations appropriate for a deepening european banking union

the role of the reference technology in measuring productive efficiency after a twenty year lull the measurement of productive efficiency is enjoying a revival in particular the index of efficiency developed by debreu i95i and later utilised by farrell i957 has received considerable attention these measures have been used fairly extensively in empirical work in both the operations research and economic literature these types of indexes have also appeared in the growing literature on testing for regularity conditions in production e g in afriat i972 diewert and parkan i983 and varian 1984 since the farrell type measure is the focus in this paper a brief review is useful in the farrell framework overall efficiency oe can be decomposed into two multiplicative components allocative efficiency ae and technical efficiency te

cross border spillovers of monetary policy what changes during a financial crisis abstract this paper analyses cross border spillovers of monetary policy by examining two countries that were in the eye of the storm during the euro area sovereign debt crisis namely ireland and portugal the research provides insight as to how banking and sovereign stress affect the inward transmission of foreign monetary policy to two economies that share many characteristics but that also have many distinct features in particular our research addresses the question of whether a banking system in distress reacts more or less to monetary policy changes in other major economies the empirical analysis indicates that international spillovers are present for us and uk monetary policy for both ireland and portugal but there is heterogeneity in the transmission mechanisms by which they affect credit growth in the two economies

euro area current account imbalances a tale of two financial liberalizations abstract this paper explores the extent to financial liberalization in the euro area had a differential impact on members current account positions theoretically it builds on an inter temporal consumption model augmented with household heterogeneity low middle income groups are impatient and constrained whilst high income groups are patient and under no constraint increased access to international credit in previously financially repressed countries implies a relaxation of collateral constraints specifically for the low skilled low middle income group who differently from high income agents borrows to finance current consumption it follows that financial liberalization is associated with deteriorating external positions there where initial levels of financial openness are lowest and the share of the low skilled low middle income group with potentially binding collateral constraints largest the same approach is useful to understand asymmetric current account reversals which relates to suddenly biting collateral constraints in indebted peripheral countries where the great recession hit disproportionally the low skilled

economic efficiency and frontier techniques abstract most of the literature related to the measurement of economic efficiency has based its analysis either on parametric or on non parametric frontier methods the choice of estimation method has been an issue of debate with some researchers preferring the parametric and others the non parametric approach the aim of this paper is to provide a critical and detailed review of both core frontier methods in our opinion no approach is strictly preferable to any other moreover a careful consideration of their main advantages and disadvantages of the data set utilized and of the intrinsic characteristics of the framework under analysis will help us in the correct implementation of these techniques recent developments in frontier techniques and economic efficiency measurement such as bayesian techniques bootstrapping duality theory and the analysis of sampling asymptotic properties are also considered in this paper

estimating the potential for electricity savings in households abstract improving efficiency in the use of energy is an important goal for many nations since end use energy efficiency can help to reduce co 2 emissions furthermore since the residential sector in industrialised countries requires around one third of the end use electricity it is important for policy makers to estimate the scope for electricity saving in households to reduce electricity consumption by using appropriate steering mechanisms we estimate the level of technical efficiency in the use of electricity using data from a swiss household survey we find an average inefficiency in electricity use by swiss households of around 20 to 25 bottom up economic engineering models estimate the potential in switzerland to be around 15 in this paper we use a sub vector input distance frontier function based on economic foundations our estimates lie at the upper end of the electricity saving potential estimated by the afore mentioned economic engineering approach

estimating input specific technical inefficiency the case of the tunisian banking industry abstract this paper presents an econometric model to estimate input specific technical efficiency iste in a panel data framework it extends the few existing models to estimate iste it can be applied to any flexible functional form and technical inefficiency is firm specific and time variant this model is applied to obtain estimates of technical inefficiency specific to factors of production in the tunisian banking industry it is shown that technical efficiency of labor and capital inputs are decreasing over time labor input is more inefficiently used than capital input and banks which are relatively more efficient in using capital input are less efficient in using labor input

does the current account still matter do global current account imbalances still matter in a world of deep international financial markets where gross two way financial flows often dwarf the net flows measured in the current account contrary to a complete markets or consenting adults view of the world large current account imbalances while very possibly warranted by fundamentals and welcome can also signal elevated macroeconomic and financial stresses as was arguably the case in the mid 2000s furthermore the increasingly big valuation changes in countries net international investment positions while potentially important in risk allocation cannot be relied upon systematically to offset the changes in national wealth implied by the current account the same factors that dictate careful attention to global imbalances also imply however that data on gross international financial flows and positions are central to any assessment of financial stability risks the balance sheet mismatches of leveraged entities provide the most direct indicators of potential instability much more so than do global imbalances though the imbalances may well be a symptom that deeper financial threats are gathering