optimal monetary policy in an economy with inflation persistence abstract this paper studies optimal monetary policy in a model where inflation is persistent two types of price setters are assumed to exist one acts rationally given calvo type constraints on price setting the other type sets prices according to a rule of thumb this results in a phillips curve with both a forward looking term and a backward looking term the phillips curve nests a standard purely forward looking phillips curve as well as a standard purely backward looking phillips curve as special cases a cost push supply shock is derived from microfoundations by adding a time varying income tax and by making the elasticity of substitution between goods stochastic a central bank loss function for this model is derived from a second order taylor approximation of the household s welfare function optimal monetary policy for different relative values of the forward and backward looking terms is then analyzed for both the commitment case and the case of discretion

optimal interest rate rule in a dsge model with housing market spillovers this paper studies the optimal interest rate rule in a dsge model with housing market spillovers iacoviello and neri 2010 we find that the optimal rule responds to house price inflation even when the stabilization of house price is not among the objectives of the policymaker and that the strength of the response depends crucially on a few structural parameters

inherited corporate control and returns on investment this paper contributes to the literature on management in family firms by investigating how succession in family firms affects returns on investment the identities of the chief executive officer ceo and the chairman of the board cob were used to establish whether the management of the firm can be characterized as founder descendant or external management a unique unbalanced panel data set on listed swedish firms covering the period from 1990 to 2005 was used in the analysis the results show that founder management has a positive effect on the returns on investment in family firms whereas descendant management has a negative impact an external ceo as a successor in family firms leads to more efficient investment policies with increased firm value as a result that is when studying corporate governance in family firms it is important to account for what type of management the firm has further studies are required to understand the relationship between ownership control management and firm performance

social capital informal governance and post ipo firm performance a study of chinese entrepreneurial firms social capital can serve as informal governance in weak investor protection regimes using hand collected data on entrepreneurs political connections and firm ownership we construct several original measures of social capital and examine their effect on the performance of entrepreneurial firms in china after their initial public offerings political connections or a high percentage of external investors tend to enhance firm performance but intragroup related party transactions commonly lead to performance decline these forms of social capital have a strong influence on the performance of chinese firms whereas formal governance variables such as board size or board independence have little effect although social capital may serve as an informal governance mechanism and effectively substitute for formal governance mechanisms in an emerging market this role of social capital raises several ethical concerns notably the development of rent seeking and crony capitalism

revisiting the bright and dark sides of capital flows in business groups prior studies report that the business group structure and the associated intra group capital flows are prone to conflicts of interest between controlling shareholders and minority investors yet business group is a prevalent and stable structure around the globe particularly where capital markets are underdeveloped using data from china this paper empirically studies the trade off between the negative and positive roles played by intra group capital flows and tests the efficiency implications of such trade off we find that from the perspective of the whole group intra group capital flows are most efficient when the groups are least subject to conflicts of interest between controlling shareholders and minority shareholders and when they face strong external financing constraints

monetary policy rules in theory and in practice evidence from the uk and the us given the large amount of interaction between research on monetary policy and its practice this article examines whether some simple monetary policy rules that have been proposed in the academic literature part of which has originated from within central banks provide a reasonable characterization of actual policy in the united kingdom and the united states the article finds the simple rule that describes best the actual us monetary policy is a speed limit rule with dynamics whilst for the uk it is a forward looking rule the simpler dynamics in the uk s monetary policy rule are reflective of the lower persistence of inflation as a result of its policy of inflation targeting

management ownership and market valuation an empirical analysis we investigate the relationship between management ownership and market valuation of the firm as measured by tobin s q in a 1980 cross section of 371 fortune 500 firms we find evidence of a significant nonmonotonic relationship tobin s q first increases then declines and finally rises slightly as ownership by the board of directors rises for older firms there is evidence that q is lower when the firm is run by a member of the founding family than when it is run by an officer unrelated to the founder

how forward looking is optimal monetary policy we calculate optimal monetary policy rules for several variants of a simple optimizing model of the monetary transmission mechanism with sticky prices and or wages we show that robustly optimal rules can be represented by interest rate feedback rules that generalize the celebrated proposal of taylor 1993 optimal rules however require that the current interest rate operating target depend positively on the recent past level of the operating target and its recent rate of increase in a way that is characteristic of estimated central bank reaction functions but not of taylor s proposal we furthermore find that a robustly optimal policy rule is almost inevitably an implicit rule that requires the central bank to use a structural model to project the economy s evolution under the contemplated policy action however calibrated examples suggest that optimal rules place less weight on projections of inflation or output many quarters in the future than do rules often discussed in the literature on inflation targeting or in the current practice of inflation forecast targeting central banks

optimal interest rate rules and inflation stabilization versus price level stabilization abstract this paper compares the properties of interest rate rules such as simple taylor rules and rules that respond to price level fluctuations called wicksellian rules in a basic forward looking model by introducing appropriate history dependence in policy wicksellian rules perform better than optimal taylor rules in terms of welfare robustness to alternative shock processes and are less prone to equilibrium indeterminacy a simple wicksellian rule augmented with a high degree of interest rate inertia resembles a robustly optimal rule i e a monetary policy rule that implements the optimal plan and that is also completely robust to the specification of exogenous shock processes

can foreign firms bond themselves effectively by renting u s securities laws abstract the study tests the functional convergence hypothesis which states that foreign firms can leapfrog their countries weak legal institutions by listing equities in new york and agreeing to follow u s securities law evidence shows that the sec and minority shareholders have not effectively enforced the law against cross listed foreign firms detailed evidence from mexico further shows that while some insiders exploited this weak legal enforcement with impunity others that issued a cross listing and passed through an economic downturn with a clean reputation went on to receive privileged long term access to outside finance as compared with legal bonding reputational bonding better explains the success of cross listings

china s secondary privatization new evidence on controlling shareholders tunnelling abstractthis article utilizes the 2005 split share structure reform sssr in china as a natural experiment and conducts difference in differences did tests to analyse corporate governance changes among chinese soes compared to poes we show that tunnelling significantly reduced in both poes and soes after the sssr more importantly we find a significant and positive privatization effect on soes tunnelling activities during the post reform period suggesting the reductions of tunnelling were smaller among soes than poes following the sssr in contrast excess returns around the sssr indicate that investors expected a negative privatization effect on soes tunnelling these findings suggest that the quality of corporate governance did not improve among soes as a result of the secondary privatization as the stock market expected without fundamental changes to firm ownership and control following the sssr the benefits of privatization accrue to the government controlling shareholders rather than mino

filling or abusing the institutional void ownership and management control of public family businesses in an emerging market despite increased attention given to family firms in the theory of organization and management the value of family governance in emerging markets is not clearly understood we draw insights from agency and institutional economics perspectives to address the debate on whether family governance fills or abuses the void left by weaker market and legal institutions we propose a dual focus on the pattern of family control and weak institutions to reconcile these opposed assessments we analyze how various combinations of family control over ownership strategy and operations yield different benefits and costs for the operational performance of firms in the absence of strong market and legal institutions the uneven development of market institutions across industries and the impact of independent directors reinforce the importance of separating different patterns of family control we find support for our hypotheses when tested on a data set consisting of all publicly listed firms in taiwan between 1996 and 2005 our study contributes to a deeper understanding of family businesses in emerging markets highlights the importance of weak institutions in shaping relative agency costs and illuminates the differential effects of independent directors

family control and loan collateral evidence from china using a sample of 612 listed chinese non soes from 2006 to 2009 we show that the use of collateral is higher in family controlled firms this effect is more pronounced when family firms have a larger control ownership wedge family representation in management and are led by a descendant chairman ceo we further document that having multiple large shareholders paying higher dividends having completed the split share structure reform and being located in provinces with more competitive credit markets can mitigate the incentive of controlling families to engage in expropriation and reduce the level of collateral required overall we contend that in china the risk of expropriation associated with family control leads to an increased credit risk and in turn higher collateral being required by banks

encouraging whistle blowing to improve corporate governance a malaysian initiative this article reviews if the introduction of new laws to encourage and protect whistleblowers is sufficient to improve corporate governance in malaysian public listed companies it provides suggestions to formulate internal whistle blowing policies for companies it concludes that due to the culture of the people and the taxonomy of malaysian public listed companies and companies in other countries in the asia pacific region having laws to encourage and protect whistleblowers to get rid of corporate wrong doings is not necessarily the only solution the article defines whistle blowing and the benefits of encouraging whistleblowers it proceeds to highlight the issues of concern on whistle blowing it also deliberates particular issues of whistleblowing in malaysia by discussing the taxonomy of malaysian public listed companies the strength of the regulators in enforcement the malaysian culture and the malaysian corporate scandals the article elaborates on the whistle blowing laws in malaysia and concludes by providing alternate ways to encourage whistle blowing in malaysian companies having in mind the taxonomy of malaysian companies enforcement by regulators and the malaysian culture

monetary stimulation bank relationship and innovation evidence from china using china s four trillion yuan stimulus package of 2008 4 trillion plan as an exogenous shock we find that monetary stimulation could benefit the real economy to some extent specifically compared with propensity score matched control firms firms more likely affected by the stimulus plan e g bank connected firms are granted with 18 to 24 more patents afterwards further evidence shows that the effect of monetary stimulation is more pronounced in firms with financial constraints in firms located in regions with lower house price growth and in firms with better corporate governance finally monetary stimulation also increases r d expenditure leaving innovation efficiency unaffected

south korean chaebols and value based management south korean industrial conglomerates chaebols are discussed in the context of value based management vbm recent economics and finance literature on the diversion of corporate resources from the firm to the controlling shareholders tunneling for which chaebols are notoriously known is discussed chaebols have engaged in empire building and expropriation of minority shareholders distorting the process of efficient resource allocation in south korea and became the root cause of the 1997 financial crisis we argue that the 1997 crisis should be viewed as a consequence of chaebols systematic deviation from the guiding principles of vbm we use tunneling within chaebols as an example of the need to directly address prohibition of the expropriation of minority shareholders as a primary postulate of vbm we argue that vbm should require that the value generated by the firm not be expropriated from minorities or any stakeholders by dominant shareholders we also examine moral and ethical considerations and present explanations as to why the unethical practice of tunneling has been tolerated by the south korean public we show that public opinion on tunneling is changing and that the treatment of minority shareholders by chaebols controlling families is becoming increasingly unacceptable to south koreans

the value of interest rate stabilization policies when agents are learning we examine the expectational stability e stability of rational expectations equilibrium under optimal interest rate rules in the context of the standard new keynesian model of the monetary transmission mechanism we focus on the case where the monetary authority adds interest rate stabilization to its other objectives of inflation and output stabilization we consider both the case where the monetary authority lacks a commitment technology and as well as the case of full commitment we show that for both cases optimal interest rate rules yield rational expectations equilibria that are e stable for a wide range of empirically plausible parameter values this finding stands in contrast to the findings of evans and honkapohja 2002 2003ab for optimal monetary policy rules in environments where interest rate stabilization is not part of the central bank s objective function

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

rights offerings takeup renounceability and underwriting status rights offerings in australia provide valuable choices to the issuer in terms of both underwriting and renounceability we formulate a set of hypotheses from a quality signaling perspective affording an analysis of the key interrelations between quality underwriting status renounceability takeup and subscription price discount we analyse rights offerings from two perspectives market reaction to rights announcements and identification of the factors driving the choice of issue type evidence strongly supports the relation between quality signals and issue type using a robustly constructed takeup variable we establish empirical relations between takeup underwriting status and renounceability that differ significantly from those previously reported but which are consistent with the hypotheses developed in this paper 2008 elsevier b v all rights reserved

divergence of cash flow and voting rights opacity and stock price crash risk international evidence this study investigates whether and how the deviation of cash flow rights ownership from voting rights control or simply the ownership control wedge influences the likelihood that extreme negative outliers occur in stock return distributions which we refer to as stock price crash risk we do so using a comprehensive panel data set of firms with a dual class share structure from 20 countries around the world for the period of 1995 2007 we predict and find that opaque firms with a large wedge are more crash prone than opaque firms with a small wedge in addition we predict and find that the positive relation between the wedge and crash risk is less pronounced for firms with more effective external monitoring and for firms with greater growth opportunities the results of this study are broadly consistent with jin and myers s theory that agency costs combined with opacity exacerbate stock price crash risk

founders heirs and corporate opacity in the united states abstract we argue that information about firm activities can vary substantially in the presence of founder or heir ownership thereby influencing the risks borne by minority investors we explore two hypotheses with regard to these controlling shareholders and corporate transparency focusing on their role as monitor in place and their potential to exploit firm opacity to accrue private benefits of control to test these notions we create an opacity index that ranks the relative transparency of the two thousand largest industrial us firms and find founder and heir ownership in 22 and 25 of these firms respectively our analysis indicates that in large publicly traded companies both founder and heir firms are significantly more opaque than diffuse shareholder firms we also find that founder and heir controlled firms exhibit a negative relation to performance in all but the most transparent firms surprisingly additional tests reveal that concerns about divergences in ownership versus control management type dual class shares and board influence appear to be substantially less important than corporate opacity in explaining the performance impacts of founder and heir control finally we decompose corporate opacity into disclosure and market scrutiny components finding that the disclosure quality component appears to be of greater importance to investors however irrespective of whether these controlling shareholders create or stay in the firm because of corporate opacity our analysis suggests that founders and heirs in large publicly traded firms exploit opacity to extract private benefits at the expense of minority investors

portfolio preferences of foreign institutional investors the authors examine the relationship between foreign investment and the attributes of emerging market countries and firms in which investment is made their findings indicate that countries with higher levels of economic development and floating exchange rate regimes tend to have greater ability to obtain foreign capital after controlling for the country s level of economic development they find that firms in countries with stronger shareholder rights and legal framework attract more foreign capital the authors also find that foreign institutions allocate more of their assets to firms with better corporate governance after controlling for other country and firm attributes the main firm level measures of corporate governance are derived from accounting quality variables their results imply that steps can be taken both at the country and the firm level to create an environment conducive to foreign portfolio investment the analysis is based on a unique dataset consisting of equity positions of u s mutual funds in emerging markets

factors that drive chinese listed companies in voluntary disclosure of environmental information based on the institutional theory this article attempts to examine two consecutive questions regarding the impact of various factors on corporate decision in environmental information disclosure eid 1 whether or not to disclose and 2 the level of disclosure the relevance of these factors is empirically tested using data collected from publicly listed manufacturing companies from 2006 to 2008 in china some interesting findings appear we find that firms that are state owned those that operate in environmentally sensitive industries those having more industrial peers engaged in eid and those with better reputation are more likely to disclose environmental information when it comes to the content of eid variables that attempt to capture external institutional pressures exhibit either no or weak explanatory power only the variable of organizational image and reputation is demonstrated to have a significant impact on both the act and the content of eid this study provides a snapshot of the dialogues between constituencies in the organizational field and eid development

corporate environmental responsibility in polluting industries does religion matter using a sample of chinese listed firms in polluting industries for the period of 2008 2010 we empirically investigate whether and how buddhism china s most influential religion affects corporate environmental responsibility cer in this study we measure buddhist variables as the number of buddhist monasteries within a certain radius around chinese listed firms registered addresses in addition we hand collect corporate environmental disclosure scores based on the global reporting initiative gri sustainability reporting guidelines using hand collected buddhism data and corporate environmental disclosure scores we provide strong and robust evidence that buddhism is significantly positively associated with cer this finding is consistent with the following view buddhism can serve as social norms to evoke the consciousness of social responsibility and thereof strengthen cer our findings also reveal that the positive association between buddhism and cer is attenuated for firms with higher law enforcement index the results are robust to various measures of buddhism and a variety of sensitivity tests

the use of foreign currency derivatives corporate governance and firm value around the world abstract this paper examines the impact of currency derivatives on firm value using a broad sample of firms from thirty nine countries with significant exchange rate exposure derivatives can be used for managers self interest for hedging or for speculative purposes we hypothesize that investors can appeal to a firm s internal firm level and external country level corporate governance to draw inferences on a firm s motive behind the use of derivatives since well governed firms are more likely to use derivatives to hedge rather than to speculate or pursue managers self interest consistent with this explanation we find strong evidence that the use of currency derivatives for firms that have strong internal firm level or external country level governance is associated with a significant value premium

national culture and corporate debt maturity abstract we investigate the influence of national culture on corporate debt maturity choice based on the framework of williamson we argue that culture located in social embeddedness level can shape contracting environments by serving as an informal constraint that affects human actors incentives and choices in market exchange we therefore expect national culture to be related to debt maturity structure after controlling for legal political financial and economic institutions using hofstede s four cultural dimensions uncertainty avoidance collectivism power distance and masculinity as proxies for culture and using a sample of 114 723 firm years from 40 countries over the 1991 2006 period we find robust evidence that firms located in countries with high uncertainty avoidance high collectivism high power distance and high masculinity tend to use more short term debt we interpret our results as consistent with the view that national culture helps explain cross country variations in the maturity structure of corporate debt

how forward looking is the fed direct estimates from a calvo type rule we estimate an alternative type of monetary policy rule according to which the central bank targets a discounted infinite sum of expected inflation and output gaps empirical results suggest that the fed has a mean forward horizon of 4 to 8 quarters

inflation forecasts and monetary policy proposals for inflation targeting as a strategy for monetary policy leave open the important operational question of how to determine whether current policies are consistent with the long run inflation target an interesting possibility is that the central bank might target current private sector forecasts of inflation either those made explicitly by professional forecasters or those implicit in asset prices we address the issue of existence and uniqueness of rational expectations equilibria when the central bank uses private sector forecasts as a guide to policy actions in a dynamic model which incorporates both sluggish price adjustment and shocks to aggregate demand and aggregate supply we show that strict targeting of inflation forecasts is typically inconsistent with the existence of rational expectations equilibrium and that policies approximating strict inflation forecast targeting are likely to have undesirable properties we also show that economies with more general forecast based policy rules are particularly susceptible to indeterminacy of rational expectations equilibria we conclude that although private sector forecasts may contain information useful to the central bank ultimately the monetary authorities must rely on an explicit structural model of the economy to guide their policy decisions this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

doing more with less innovation input and output in family firms family firms are often portrayed as an important yet conservative form of organization that is reluctant to invest in innovation however simultaneously evidence has shown that family firms are flourishing and in fact constitute many of the world s most innovative firms our study contributes to disentangling this puzzling effect we argue that family firms owing to the family s high level of control over the firm wealth concentration and importance of nonfinancial goals invest less in innovation but have an increased conversion rate of innovation input into output and ultimately a higher innovation output than nonfamily firms empirical evidence from a meta analysis based on 108 primary studies from 42 countries supports our hypotheses we further argue and empirically show that the observed effects are even stronger when the ceo of the family firm is a later generation family member however when the ceo of the family firm is the firm s founder innovation input is higher and contrary to our initial expectations innovation output is lower than that in other firms we further show that the family firm innovation input output relationships depend on country level factors namely the level of minority shareholder protection and the education level of the workforce in the country

the agency problems embedded in firm s equity investment we find that agency problems are embedded in firm s excess and abnormal equity investments that are mainly dictated by controlling shareholder s motives and ethical choices manifested in ownership and board structure the excess equity investment is gauged with respect to industry average the abnormal equity investment is specifically referred to the number of nominal investment companies that are fully controlled by the controlling owners while subject to little governance our empirical evidences of 345 taiwanese non financial listed firms show that firm s excess and abnormal equity investments are negatively correlated with controlling shareholder s cash flow rights while are positively correlated with the control cash flow deviation and board affiliation the results are supportive of the positive incentive hypothesis and the negative entrenchment hypothesis put forth by la porta et al 2002 journal of finance57 1147 1171 and claessen et al 2002 journal of finance57 2741 2742 the negative relation between equity investment and firm s value further supports the agency postulation that corporate excess and abnormal equity investments represent a leeway for controlling shareholder to exploit wealth of minority shareholders this study potentially contributes to the literature of business ethics by portraying an empirically testable linkage from controlling owner s ethical choices to his actions and therefore firm s value

idiosyncratic risk the private benefits of control and investment timing this paper develops an incomplete markets model of investment timing by a firm s controlling shareholder who is exposed to idiosyncratic risk and pursues private benefits at the expense of outside shareholders we show that the timing of investment selected by the controlling shareholder reflects a tradeoff between his incentives to pursue private benefits and the costs of nondiversification the firm may overinvest or underinvest depending on the magnitude of the agency conflicts moreover our theoretical model predicts that increasing the cash flow ownership of the controlling shareholder will decease the total social welfare which provides novel testable empirical implications for investment

ownership concentration in privatized firms the role of disclosure standards auditor choice and auditing infrastructure we rely on a unique data set to estimate the impact of disclosure standards and auditor related characteristics on ownership concentration in 190 privatized firms from 31 countries accounting transparency can help alleviate the agency conflict between minority investors and controlling shareholders which is evident in the extent of ownership concentration since the expropriation of corporate resources by insiders hinges on these private benefits remaining hidden after controlling for other country level and firm level determinants we find weak no evidence that extensive disclosure standards auditor choice reduce ownership concentration in contrast we provide strong robust evidence that ownership concentration is lower in countries with securities laws that specify a lower burden of proof in civil and criminal litigation against auditors consistent with ball s 2001 predictions collectively our research implies that minority investors worldwide value legal institutions that discipline auditors in the event of financial reporting failure over both the presence of a big five auditor and better disclosure standards

does ownership structure of emerging market firms affect their outward fdi the case of the indian automotive and pharmaceutical sectors this paper examines the impact of ownership structures of emerging market firms which are shaped by local institutions on the decision of these firms to undertake outward fdi our results suggest that family firms and firms with concentrated ownerships both ubiquitous in emerging markets are less likely to invest overseas and that strategic equity holding by foreign investors facilitates outward fdi we conclude that organisational forms such as family firms which are optimal outcomes of institutions prevailing in emerging markets may be suboptimal in a changing business environment in which outward fdi is necessary for access to resources and markets

bad luck bad policy and learning a markov switching approach to understanding postwar u s macroeconomic dynamics abstract this paper evaluates the role of monetary policy in understanding the u s post war macroeconomic fluctuations we construct a medium size dsge model in which the central bank through a real time learning process can make mistakes in estimating key elasticities between macroeconomic aggregates and the central banks objectives may change over time the model also features time varying volatilities of non policy shocks we find that misperceptions of the persistence of inflation and the slope of the phillips curve could affect optimal monetary policy decision making therefore their accurate prediction is key for achieving successful monetary policy outcomes in addition we argue that the monetary policy shift geared toward inflation stabilization in the late 1970s changed the composition of output making the marginal efficiency of investment shock that proxies for the functioning of the financial sector the most important contributor to the business cycle

the optimal perception of inflation persistence is zero this study shows that in an economy with inflation persistence it is always welfare improving for a central bank that operates under discretion to behave as if there were no inflation persistence under reasonable assumptions about inflation persistence all of the inefficiency associated with discretionary policymaking is then removed

incentive and entrenchment effects in european ownership in a large sample of european firms we analyze the value discount associated with disproportional ownership structures first documented by claessens et al 2002 consistent with a theoretical model of incentive and entrenchment effects we find higher value discount in family firms in firms with low cash flow concentration and in industries with higher amenity value furthermore the discount is higher in countries with good investor protection and higher for dual class shares than for pyramids we find no impact on operating performance likelihood of bankruptcy dividend policy or growth finally we discuss policy implications of these findings

disentangling the incentive and entrenchment effects of large shareholdings this article disentangles the incentive and entrenchment effects of large ownership using data for 1 301 publicly traded corporations in eight east asian economies we find that firm value increases with the cash flow ownership of the largest shareholder consistent with a positive incentive effect but firm value falls when the control rights of the largest shareholder exceed its cash flow ownership consistent with an entrenchment effect given that concentrated corporate ownership is predominant in most countries these findings have relevance for corporate governance across the world

insider ownership and financial flexibility this study examines the cash flow sensitivity of external financing financial flexibility ff of firms from the perspective of the agency by focusing on whether and how insider ownership has a modifying effect on the ff of firms given the documented relationship between corporate governance and cost of external financing insider ownership an important proxy of corporate governance should affect ff via the agency cost channel a review of the us nonfinancial firms from 1992 to 2009 indicates that insider ownership aids in determining the ff of firms more specifically results indicate the existence of optimal insider ownership and any deviation from it causes ff to decrease in addition ff is higher when ceo ownership is lower 0 08 and this phenomenon is more pronounced for financially unconstrained firms furthermore ff is higher when non ceo insider ownership is in the middle range 0 12 0 43 for financially constrained firms whereas non ceo insider ownership has minimal impact on ff fo

investor protection and corporate governance recent research has documented large differences among countries in ownership concentration in publicly traded firms in the breadth and depth of capital markets in dividend policies and in the access of firms to external finance a common element to the explanations of these differences is how well investors both shareholders and creditors are protected by law from expropriation by the managers and controlling shareholders of firms we describe the differences in laws and the effectiveness of their enforcement across countries discuss the possible origins of these differences summarize their consequences and assess potential strategies of corporate governance reform we argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank centered and market centered financial systems

country level institutions firm value and the role of corporate social responsibility initiatives drawing on transaction cost theories and the resource based view of a firm we posit that the value of corporate social responsibility csr initiatives is greater in countries where an absence of market supporting institutions increases transaction costs and limits access to resources using a large sample of 11 672 firm year observations representing 2445 unique firms from 53 countries during 2003 2010 and controlling for firm level unobservable heterogeneity we find supportive evidence that csr is more positively related to firm value in countries with weaker market institutions we also provide evidence on the channels through which csr initiatives reduce transaction costs we find that csr is associated with improved access to financing in countries with weaker equity and credit markets greater investment and lower default risk in countries with more limited business freedom and longer trade credit period and higher future sales growth in countries with weaker legal institutions our findings provide new insights on non market mechanisms such as csr through which firms can compensate for institutional voids

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

tunneling and propping a justification for pyramidal ownership abstract this paper links existence of the pyramidal ownership structure to tunneling and propping tunneling refers to a transfer of resources from a lower level firm to a higher level firm in the pyramidal chain whereas propping concerns a transfer in the opposite direction intended to bail out the receiving firm from bankruptcy we show that tunneling alone cannot justify the pyramidal structure unless outside investors are myopic since rational outside investors anticipate tunneling and adjust their willingness to pay for the firm s shares accordingly with propping however they may be willing to be expropriated in exchange for implicit insurance against bankruptcy

finance and inequality the case of india although theory emphasizes the role of financial market frictions in explaining income inequality there is little empirical research exploring how financial development and financial sector reforms influence the evolution of income inequality this article examines how finance impacts income inequality in india using annual time series data for over half a century the results indicate that while financial development helps reduce income inequality financial liberalization seems to exacerbate it the results are robust to the use of different measures for financial development and financial liberalization although the relationship between financial development and economic growth has been extensively studied in the literature see for example king and levine 1993 demetriades and hussein 1996 arestis and demetriades 1997 levine loayza and beck 2000 bell and rousseau 2001 ang and mckibbin 2007 little is known about how finance impacts income inequality the importance of the finance inequality relationship has recently been highlighted in an insightful survey article by claessens and perotti 2007 they indicate that while financial development can help reduce income inequality financial liberalization captured by established interests may do the opposite the theoretical predictions of the effects of finance on income inequality are controversial rajan and zingales 2003b argue that improvements in the formal financial sector primarily benefit the rich greenwood and jovanovic 1990 predict a nonlinear relationship between financial development and income inequality where it is hypothesized that income inequality first increases with the degree of sophistication in the financial systems then stabilizes and eventually declines others propose that the presence of financial market imperfections deters the poor from borrowing adequately to invest in human and physical capital implying that financial development helps alleviate income inequality banerjee and newman 1993 galor and zeira 1993 aghion and bolton 1997 mookherjee and ray 2003 2006 given that theories provide ambiguous predictions regarding the effects of finance on the distribution of income it is useful to approach the issue at the empirical level this could facilitate our understanding of the relationship between finance and inequality and help us to assess the validity of each theoretical model despite the important role of financial market frictions in the theories of poverty and income inequality researchers so far have not adequately addressed whether financial

optimal interest rate smoothing this paper considers the desirability of the observed tendency of central banks to adjust interest rates only gradually in response to changes in economic conditions it shows in the context of a simple model of optimizing private sector behaviour that assignment of an interest rate smoothing objective to the central bank may be desirable even when reduction of the magnitude of interest rate changes is not a social objective in itself this is because a response of policy to irrelevant lagged variables may be desirable owing to the way it steers private sector expectations of future policy

comovement information production and the business cycle abstract recent theoretical research suggests that information production is a positive externality of aggregate economic activity veldkamp 2005 both the quantity and quality of information increase during periods of economic expansion and decrease during periods of contraction based on this insight we hypothesize and confirm that time varying information production drives the comovement patterns observed in stock returns we examine stock return comovement in 36 countries from 1980 to 2007 and show that consistent with the theory comovement patterns are countercyclical that is when information production is high low comovement is low high we also find that the relation between comovement and the business cycle is stronger in countries that experience large intertemporal swings in information production finally we show that the relation between business cycle and comovement is stronger in poor countries countries with less developed financial markets and countries with weaker accounting and transparency standards these results suggest that financial development and transparency are conducive to a steady flow of financial information over the business cycle

full privatization through controlling rights transfer in china the extent of its success this article investigates the effect of the second step of privatization in china which is full privatization through controlling rights transfer after share issue partial privatization it finds that fully privatized firms perform worse than state controlled enterprises expropriation by private block shareholders is greater than that by state block shareholders furthermore increase in expropriation is negatively related to performance change the results suggest that full privatization may not yield the expected efficiency gains in transition economies with weak legal system they also emphasize the importance of preventing private block shareholders from exploiting minority shareholders in the process of full privatization

do countries matter for voluntary disclosure evidence from cross listed firms in the us this paper explores the likelihood and consequences of voluntary disclosure proxied by management earnings forecasts for a sample of 1005 cross listed firms in the us from 40 countries over the period 1996 2005 our study is grounded in a three tiered conceptual framework that relies on insights from and implications of institutional theory agency theory and bonding theory to explain the costs and benefits associated with voluntary disclosure consistent with institutional theory and agency theory our results indicate that disclosure likelihood increases with the strength of cross listed firms home country legal institutions and is also influenced by us listing type product market internationalization and ownership structure further our results show that voluntarily committing to us disclosure practice is associated with lower information asymmetry which supports reputational bonding theory overall our study provides a costs and benefits framework to understand voluntary disclosure practices in an international context our work also presents evidence that home country institutions still matter when foreign firms migrate into the us financial market which highlights the importance of country level institution development

estimation and control of an optimization based model with sticky prices and wages abstract this paper provides estimates of an optimization based equilibrium model with sticky prices and wages the estimated model is used to analyse the welfare properties of various interest rate rules for conducting monetary policy an important feature of this model is that it involves a tradeoff between the variances of price and wage inflation and the output gap this tradeoff implies that it is desirable for the monetary authority to respond to wage inflation in addition to price inflation output and past interest rates when setting the current interest rate the issue whether wages and prices can be indexed to steady state inflation has important implications both for the characterization of optimal interest rate rules and interest rate volatility in particular optimal policy in the presence of indexation induces implausibly high steady state inflation

firm ownership and productivity a study of family and non family smes motivated by a lack of consensus in the current literature the objective of this paper is to reveal whether family firms are more or less productive than non family firms as a first step this paper links family business research to the theoretical notion that family involvement has an effect on the factors of production from a productivity standpoint second by using a cobb douglas framework we provide empirical evidence that family labour and capital indeed yield diverse output contributions compared with their non family counterparts in particular family labour output contributions are significantly higher and family capital output contributions significantly lower interestingly differences in total factor productivity between family and non family firms disappear when we allow for heterogeneous output contributions of family production inputs these findings imply that the assumption of homogeneous labour and capital between family and non family firms is inappropriate when estimating the production function

has monetary policy become more effective we investigate the implications of changes in the structure of the u s economy for monetary policy effectiveness estimating a vector autoregression over the pre and post 1980 periods we provide evidence of a reduced effect of monetary policy shocks in the latter period we estimate a structural model that replicates well the economy s response in both periods and perform counterfactual experiments to determine the source of the change in the monetary transmission mechanism and in the economy s volatility we find that by responding more strongly to inflation expectations monetary policy has stabilized the economy more effectively in the post 1980 period

a multilevel analysis of the performance implications of excess control in business groups a central premise of business groups is that controlling shareholders seize disproportionate control in excess of their ownership as a means of becoming and remaining competitive we reexamine this axiom by exploring the relationship between excess control rights and performance outcomes in business groups using a sample of 106 taiwanese business groups we confirm that the effects of excess control in business groups are double edged such that group level excess control exhibits an inverted u shaped relationship with group performance at the same time results show that when group level excess control is high there is a stronger negative relationship between firm level excess control and firm performance moreover the study indicates that the detrimental effect of excess control is less pronounced in business groups that are governed by family members or by professional managers findings offer a far deeper view than previously proposed on the excess control phenomenon in business groups and the ne

learning about monetary policy rules when the cost channel matters abstract we study how monetary policy may affect determinacy and expectational stability e stability of rational expectations equilibrium when the cost channel of monetary policy matters focusing on instrumental taylor type rules and optimal target rules we show that standard policies can induce indeterminacy and expectational instability when the cost channel is present a naive application of the traditional taylor principle could be misleading and expectations based reaction function under discretion does not always induce determinate and e stable equilibrium this result contrasts with the findings of bullard and mitra 2002 learning about monetary policy rules journal of monetary economics 49 1105 1129 and evans and honkapohja 2003 expectations and stability problem for optimal monetary policies review of economic studies 70 807 824 for the standard new keynesian model the ability of the central bank to commit to an optimal policy is an antidote to these problems

does corporate governance risk at home affect investment choices abroad abstract disparity between control and ownership rights gives rise to the risk of tunneling by the controlling shareholder and is prevalent in many emerging market economies and present in some developed countries at the same time international investors come from different countries whose home markets are characterized by varying degrees of control ownership disparity this paper studies whether this difference in investors home countries affects their portfolio choice in an emerging market it combines two unique data sets on ownership and control in business groups and investor stock level foreign investment in korea a key finding is that investors from low disparity countries disfavor high disparity stocks in korea but investors from high disparity countries are indifferent moreover investors from low disparity countries became averse to disparity only after the asian financial crisis these results suggest that the nature of corporate governance in international investors home countries affects their portfolio choice abroad and therefore these investors should not be lumped together in the analyses of their portfolio choice

legal institutions and fragile financial markets abstract this study investigates equity liquidity variation with a funding constraint across 38 countries and examines whether the effectiveness of a country s legal institutions is systematically related to cross country differences in fragile equity liquidity our results show that firms from countries with more extensive disclosure requirements tend to have lower liquidity shocks due to funding constraints leading to higher firm value this effect is stronger for ex ante disclosures especially for countries with a high level of openness and market volatility our empirical results are robust to the 2sls regression model the random effect regression model the alternative measure of fragile equity liquidity and the alternative measure of disclosure and enforcement variables our study provides a better understanding of the effect of information environments amidst periods of funding constraint

reviewing the business case for corporate social responsibility new evidence and analysis this study complements previous empirical research on the business case for corporate social responsibility csr by employing hitherto unused data on corporate social performance csp and proposing statistical analyses to account for bi directional causality between social and financial performance by allowing for differences in the importance of single components of csp between industries the data in this study overcome certain limitations of the databases used in earlier studies the econometrics employed offer a rigorous way of addressing the problem of endogeneity due to simultaneous causality although the study s results provide no evidence that there is a generic or universal business case for csr they indicate that there is a strong link between single stakeholder related issues of csr and financial performance however the analysis does not establish causality within these relationships

financing reputation and information disclosure quality in the chinese market abstractin this article we propose a theoretical model based on the reputation theory and hypothesize a positive relation between the information disclosure quality and the company s refinancing decision we collected data from the listed companies which refinances in shenzhen main board and sme board during 2006 2012 as a panel sample and tested the hypothesis empirically the results indicate that there exists a significant positive correction short term relation between refinancing decision and the information disclosure quality but in the long term the relationship between the information disclosure quality and refinancing decision is not significant

principal principal conflicts and corporate philanthropy evidence from chinese private firms the principal principal perspective suggests that controlling shareholders have excessive influence on corporate philanthropy and may direct corporate funds to charitable causes to support their personal interests analysis of a sample of chinese private firms listed on the shenzhen or shanghai stock exchange between 2004 and 2011 shows that 1 there is a significant and negative relationship between corporate giving and the share held by the largest shareholders suggesting that controlling shareholders are opportunistic in directing corporate charitable contributions 2 there is a significant and positive relationship between corporate giving and the political connections of the largest shareholders and their agents suggesting compatibility between corporate contributions and the personal interests of the controlling shareholders 3 there is a stronger negative relationship between corporate giving and the share of the company held by the largest shareholders in politically connected firms suggesting that political connections contribute to increased opportunistic corporate giving overall our study provides important evidence for the one dominant controlling shareholder phenomenon yigududa by testing and extending the principal principal framework and showing that the largest shareholders of chinese firms appear to donate to charitable causes that ultimately serve their personal interests at the expense of minority shareholders

the new keynesian monetary model does it show the comovement between gdp and inflation in the u s abstract this paper analyzes the performance of alternative versions of the new keynesian monetary nkm model in replicating the comovement observed between output and inflation following den haan 2000 the comovement between output and prices journal of monetary economics 46 3 30 we analyze comovement by computing the correlations of var forecast errors of the two variables at different forecast horizons the empirical correlation is negative and marginally significant for the one ahead forecast horizon but the correlations are non significant for the other forecast horizons studied in contrast a simple nkm model under a standard parameterization provides a high and significant negative comovement at all forecast horizons however a generalized version including habit formation and a forward looking taylor rule is able to mimic the observed weak comovement at medium and long term forecast horizons

founding family leadership and industry profitability in this article we argue that firms in high margin industries can benefit from founding family influence specifically in more profitable markets the influence of the founding family provides an additional corporate governance monitoring function the sample consists of 294 firm year observations from 98 publicly traded companies headquartered in sweden representing approximately half of all non financial traded firms our support that the effect of family leadership in publicly held firms should be assessed in relation to the intensity of industry competition

does home bias affect firm value evidence from holdings of mutual funds worldwide this study finds strong evidence that home bias affects firm valuation at both country and firm levels at the country level increasing the bias of domestic investors toward home equity lowers the market valuation of home equity at the firm level firm value increases as the compositions of local equities held by domestic and foreign investors tend toward the firms global market capitalization weights but decreases as their weights deviate from global weights overall the evidence is consistent with the optimal global risk sharing hypothesis that the greater risk sharing between domestic and foreign investors in international capital markets reduces the cost of capital and hence enhances market valuation

robust optimal policy in a forward looking model with parameter and shock uncertainty this paper characterizes a robust optimal policy rule in a simple forward looking model when the policymaker faces uncertainty about model parameters and shock processes we show that the robust optimal policy rule is likely to involve a stronger response of the interest rate to fluctuations in inflation and the output gap than is the case in the absence of uncertainty thus parameter uncertainty alone does not necessarily justify a small response of monetary policy to perturbations however uncertainty may amplify the degree of super inertia required by optimal monetary policy we finally discuss the sensitivity of the results to alternative assumptions copyright 2007 john wiley sons ltd

small business groups enhance performance and promote stability not expropriation evidence from french smes abstract this paper investigates the influence that a firm s distance from control has on its performance using balance sheet information and a unique data set on small business ownership this study fills a gap in the empirical governance literature by investigating whether there is expropriation of minority shareholders in small business groups contrary to observations for large business groups results show a positive relationship between the separation of control from ownership and firm performance results also underline that tunneling promotes controlling shareholders profit stability rather than profit maximization in small business groups

convertible bonds issued in the bear market period evidence from taiwan we argue that the behaviour of enterprises might be modified or even changed completely after black swan events occur we explore why high tech firms preferred to issue convertible bonds in 2001 2003 the bear market period after the tech bubble in taiwan we show that firms issuing convertible bonds are those with low directors holding ratio and high debt ratio results also reveal that corporate governance was worse in the firms that issued convertible bonds as revealed by the finding that the directors holding ratio of these issuing firms declined considerably this finding also implies that corporate governance issues become more serious after black swan events

the effectiveness of public enforcement evidence from the resolution of tunneling in china this paper examines the effectiveness of public enforcement by studying the effects of regulatory intervention to curb tunneling through intercorporate loans in china specifically we explore whether public enforcement efforts in 2006 blacklisting and sanctions resulted in less tunneling and ultimately in increased performance for tunneling firms we show that tunneling is among the dominant factors increasing the likelihood of becoming blacklisted we also find that firms tunneling mechanisms decreased significantly after the regulatory shock and that their performance increased significantly compared to non tunneling firms after the regulatory shock finally we find a positive market reaction to the public announcement of tunneling both for firms that have been blacklisted and other tunneling firms that are not blacklisted collectively these results suggest that public enforcement in the presence of a credible threat succeeds in deterring the effect on tunneling behavior in china

to steal or not to steal firm attributes legal environment and valuation data on corporate governance and disclosure practices reveal wide within country variation that decreases with the strength of investors legal protection a simple model identifies three firm attributes related to that variation investment opportunities external financing and ownership structure using firm level governance and transparency data from 27 countries we find that all three firm attributes are related to the quality of governance and disclosure practices and firms with higher governance and transparency rankings are valued higher in stock markets all relations are stronger in less investor friendly countries demonstrating that firms adapt to poor legal environments to establish efficient governance practices

investment and monetary policy learning and determinacy of equilibrium we explore determinacy and expectational stability learnability of rational expectations equilibrium ree in new keynesian nk models that include capital using a consistent calibration across three different models labor only firm specific capital or an economy wide rental market for capital we provide a clear picture of when ree is determinate and learnable and when it is not under a variety of monetary policy rules our findings make a case for greater optimism concerning the use of such rules in nk models with capital while bullard and mitra s 2002 2007 findings for the labor only nk model do not always extend to models with capital we show that determinate and learnable ree can be achieved in nk models with capital if there is i plausible capital adjustment costs ii some weight given to output in the policy rule and or iii a policy of interest rate smoothing

environmental tariffs on polluting imports this paper examines the implications for the use of trade measures as weapons to address global environmental concerns there are already proposals in the u s senate to impose an environmental tariff against foreign nations whose cost advantages stem from less stringent environmental standards than the u s the paper argues that trade policy measures typically are not the first best instruments for achieving environmental objectives even theoretically they could be shown to be welfare improving only under a very narrow range of circumstances their use in place of more efficient policy instruments may not only end up distorting the patterns of world trade but also may worsen the overall patterns of environmental quality simulation exercises undertaken here suggest that it is highly unlikely that countries would alter their environmental behavior because of the imposition of the proposed u s tariff hence the proposed legislation has very uncertain environmental consequences even if the policy has been mainly designed to protect domestic industries it would only provide a minor margin of protection because the costs of complying with the environmental standards represent a relatively small element in the total costs the analysis suggests that trade policy introduced in this fashion will have no significant impact on the patterns of world trade and pollution

changing performance of business groups over two decades technological capabilities and investment inefficiency in korean chaebols abstract this article differentiates itself from the large volume of existing literature on business groups such as korean chaebols in several aspects first it uses productive efficiency rather than financial efficiency as a performance measure second it defines chaebols in three alternative ways and checks whether the results are robust third and most important it explains the sources of the post crisis change in the performance of korean chaebols in terms of technological capabilities and investment inefficiency this study finds that chaebols have become more efficient than non chaebols in the post crisis period compared with the pre crisis period that inefficiency in investment has always been critical in determining productive inefficiency and that after the 1997 financial crisis korean chaebols have improved their performance by reducing investment inefficiencies and enhancing technological capabilities the results of this study are consistent with the often acknowledged advantages of bus

the effects of legal reforms on the ownership structure of listed companies a general view in the corporate governance literature is that corporate ownership structures are rather stable in time and change slowly however even if changes in ownership structures are difficult due to path dependence anecdotal evidence indicates that some sort of transition towards the us style corporate ownership could be occurring in civil law countries the aim of this article is to test the so called law and finance view which predicts that this convergence will only happen if the appropriate regulatory framework is in place we test this prediction using longitudinal data from italian listed companies assessing the effects of recent legal reforms our results show that an increase in the protection of investors rights is associated with a lower use of control enhancing mechanisms and a lower separation of control and cash flow rights while it is less evident if it is associated with a more dispersed ownership these findings carry important implications for theory and practice

strategic ownership structure and the cost of debt we theoretically and empirically address the endogeneity of corporate ownership structure and the cost of debt with a novel emphasis on the role of control concentration in postdefault firm restructuring control concentration raises agency costs of debt and dominant shareholders trade off private benefits of control against higher borrowing costs in choosing their ownership stakes based on our theoretical predictions and using an international sample of syndicated loans and unique dynamic ownership structure data we present new evidence on the firm and macro level determinants of corporate control concentration and the cost of debt jel g21 g32

creating value by changing the old guard the impact of controlling shareholder heterogeneity on firm performance and corporate policies theory suggests that controlling shareholders can influence firm value through both shared benefits creation and private benefits consumption using negotiated control block transfers from 31 countries we look beyond ownership concentration and investigate how controlling shareholder heterogeneity influences the relative importance of these two effects we document that a control transfer precipitates positive firm outcomes particularly when the vendor has maintained control over an extended period and the acquirer displays a strong incentive to engage in restructuring in such cases we observe a sustained positive price reaction more focused corporate investments lower leverage higher operating efficiency and superior long term performance

donate money but whose an empirical study of ultimate control rights agency problems and corporate philanthropy in china using empirical evidence gathered from chinese listed companies this article explores the relationship between micro governance mechanisms and corporate philanthropy from a corporate governance perspective in china s emerging market ultimate controlling shareholders of state owned enterprises soes are reluctant to donate their assets or resources to charitable organizations in private enterprises pes marked by more deviation in voting and cash flow rights such donations tend to be more likely however the ultimate controllers in pes refuse to donate assets or resources they control or own which implies that corporate philanthropy by pes comes at the cost of others through assets or resources owned by minority shareholders even after devastating natural disasters such as the 2008 wenchuan earthquake the controlling shareholders continue to express reluctance to donate any assets they control despite widespread evidence that corporate philanthropy boosts corporate growth and profitability these ultimate controllers indicate no intention to donate their own money as a means to improve corporate performance

the performance of forecast based monetary policy rules under model uncertainty we investigate the performance of forecast based monetary policy rules using five macroeconomic models that reflect a wide range of views on aggregate dynamics we identify the key characteristics of rules that are robust to model uncertainty such rules respond to the one year ahead inflation forecast and to the current output gap and incorporate a substantial degree of policy inertia in contrast rules with longer forecast horizons are less robust and are prone to generating indeterminacy in light of these results we identify a robust benchmark rule that performs very well in all five models over a wide range of policy preferences