investor preference for large firms new evidence on economies of size in the last several decades industrial organization literature has been replete with studies demonstrating a systematic relationship between accounting rates of return and firm size in the direction of greater and more stable accounting profits for larger firms these studies have been subject to criticism for an alarming number of statistical and conceptual problems the most important of which alleges a serious bias in accounting profit measures as proxies for economic profit 2 the criticisms have resulted in a stalemate in the interpretation of empirical evidence on firm size and performance nevertheless there is continued interest in the area ostensibly resulting from policy concerns with large firm advantages in both product and capital markets this paper provides new evidence concerning the industrial organization literature controversy of the connection between firm size and performance stock market data are used to examine the relationship between capital market returns risk and firm size the findings suggest that even if there were no advantages of large size in the product market equal rates of operating profit large firms would still have a substantial capital raising advantage over small firms this advantage is unrelated to the widely recognized floatation cost economies even after controlling for nondiversifiable risk using the capital asset pricing model capm investors still demonstrate a statistically significant and economically important preference for the securities of larger firms investors apparently place a premium on large firms which is not attributable to large firms observed lower risk as captured by the widely used measure of nondiversifiable risk beta risk this finding a fresh contribution to the

regional bias in new firm formation in the uk whittington r c 1984 regional bias in new firm formation in the uk reg studies 18 253 256 theories explaining regional differences in new firm formation rates are tested and refining previous theory a model is constructed the major influences on new firm formation rates are found to be the regional proportions of manual workers and home ownership and the change in the rate of regional unemployment in the preceding year new firm formation rates are measured by new vat registrations the implications of these results for government small firm policy are discussed

small firms and the merger mania empirical research has found an average or even superior performance of small firms this seems to be at variance with the secular concentration process and the recurrent merger waves this paper tries to integrate size and merger research higher profitability of small firms is explained by their incentive structure and shorter decision lags but also by lower wages and higher individual risk premia their faster growth in the eighties was in addition fostered by diversification of demand miniaturization of technology and a need for flexibility under uncertainty the merger wave on the other hand does not necessarily prove that large firms are superior managers and shareholders may be seduced by stockmarket optimism a sizeable industry of banks agents and lawyers have their own interests in mergers mergers may be important in declining markets and for the acquisition of technology on average mergers do not improve efficiency profits or internal growth small and large firms serve different purposes performance depends on the market incentives and technology the establishment growth and closure of small firms as well as mergers are attempts to find the optimal organization for utility maximization in a world of severe uncertainty and diverse needs

on the relationship between aggregate merger activity and the stock market abstract this paper presents substantial evidence to show that the well documented correlation between aggregate merger activity and indices of share prices is unstable and thus of little predictive value further granger causality testing suggests that such correlations are spurious reflecting other more fundamental forces which jointly determine movements in both series

trading patterns and prices in the interbank foreign exchange market the behavior of quote arrivals and bid ask spreads is examined for continuously recorded deutsche mark dollar exchange rate data over time across locations and by market participants a pattern in the intraday spread and intensity of market activity over time is uncovered and related to theories of trading patterns models for the conditional mean and variance of returns and bid ask spreads indicate volatility clustering at high frequencies the proposition that trading intensity has an independent effect on returns volatility is rejected but holds for spread volatility conditional returns volatility is increasing in the size of the spread there is a growing body of theoretical studies on the pattern of trading activity in financial markets with implications for the time series behavior of transactions prices and intensity of trading the empirical literature addressing similar concerns using intraday market data appropriate for such tasks is sparse particularly in the area of the trading of currencies the purpose of this paper is to examine both international patterns of intraday trading activity and the time series properties of returns and bid ask spreads for the deutsche mark dollar exchange rate in the interbank foreign exchange market the goal is to provide information useful in the further development of market microstructure models of trading and to compare empirical findings against theoretical results already in existence the foreign exchange market is in operation twenty four hours a day seven

comment on small firms and merger mania considering its importance to the field of industrial organization our understanding of the determinants of firm size has some major gaps this becomes quite clear upon reading aiginger and tichy s recent review hereafter a t 1991 of the many empirical studies of firm size they critically examine the separate literatures on the performance of large and small firms and on the efficiency of mergers they find inconsistencies within each of these literatures more interesting they discuss a glaring inconsistency between the evidence in the literature and actual behavior while much of the performance literature indicates that small firms have average or superior performance large firms typically takeover smaller firms efficiency and survival would seem to dictate against this merger mania a t provide a number of interesting insights they offer six hypotheses on why small firms might outperform large firms and challenge the industrial organization view that economies of scale and scope require large firm size they stop short however of arguing that large firms are inefficient recognizing that they may simply perform different roles than small firms their discussion or mergers is more critical of large firms while they do not entirely dismiss the possibility that mergers may yield efficiencies they offer six alternative hypotheses they suggest that mergers tend to r ieci tnance stotiniaierormanagenteili optimism nonprofit maximizing behavior and other unproductive tendencies this comment focuses on the role of firmspecific capital product life cycles and product niches the relative performance of large vs small firms is reconsidered in this light followed by an examination of the merger literature and the practice of takeovers by large firms large firms are viewed less skeptically here than by a t nevertheless the purpose of this note is less to challenge a t than to elaborate on some of their points and suggest additional possibilities the questions raised by a t are central to the field of industrial organization and worthy of further attention

spatial variations in new manufacturing plant openings some empirical evidence from greece fotopoulos g and spence n 1999 spatial variations in new manufacturing plant openings some empirical evidence from greece reg studies 33 219 229 this research deals with the determinants of regional variation in new plant openings in greek manufacturing industries over the period 1980 91 key findings of this first detailed attempt to do so in a greek context relate to the significant direct effects of regional specialization the extent of local production links and investment in public infrastructure on new manufacturing activity confirming research findings in other countries the results obtained here indicate small firm presence the local supply of skilled labour and wealth and labour productivity differentials across regions to be significant and positive influences on new firm formation fotopoulos g et spence n 1999 la variation geographique de la creation d entreprises industrielles quelques preuves empiriques provenant de la grece reg studies 33 219 229 cet article traite

security analysis and trading patterns when some investors receive information before others in existing models of information acquisition all informed investors receive their information at the same time this article analyzes trading behavior and equilibrium information acquisition when some investors receive common private information before others the model implies that under some conditions investors will focus only on a subset of securities herding while neglecting other securities with identical exogenous characteristics in addition the model is consistent with empirical correlations that are suggestive of oft cited trading strategies such as profit taking short term position reversal and following the leader mimicking earlier trades in existing models of information acquisition all informed investors receive their information at the same time while these models provide many important insights in reality some investors either fortuitously or owing to superior skill acquire pertinent information before others by being first an investor can exploit this information to great advantage information that is uncovered only slightly later is less valuable even if it has not yet been publicly revealed we show in this article that the sequential nature of information arrival has a significant effect on both the trading decisions and the types of information collected by investors the model we develop describes the investment choices of a set of competitive risk averse investors who investigate the long term prospects of firms lucky or high ability investors uncover the

spatial variations in new firm formation in the republic of ireland 1980 1990 hart m and gudgin g 1994 spatial variations in new firm formation in the republic of ireland 1980 1990 reg studies 28 367 380 this paper presents results of an investigation into regional 26 county differences in the formation of new manufacturing firms in the republic of ireland over the period 1980 90 the results of a multivariate analysis of the determinants of new firm formation at the regional level reveal that the proportion of small manufacturing establishments in an area growth in local industrial demand the proportion of professional and managerial occupations in the population and the impact of government new and small firms policy are all positive influences on gross formation rates the paper concludes by arguing that the process of new firm formation should not be viewed as the sole means of generating local economic growth and that the growth of existing small firms should also form an integral part of any development strategy hart m et gudgin g 1994 les variations geograp

aggregation of information in large cournot markets consider a homogeneous product market where firms have private information about an uncertain demand parameter and compete in quantities we examine the convergence properties of bayesian cournot equilibria as the economy is replicated and conclude that large cournot or almost competitive markets do not aggregate information efficiently except possibly when the production technology exhibits constant returns to scale even in a competitive market there is a welfare loss with respect to the first best outcome due to incomplete information in general nevertheless a competitive market is efficient taking as given the decentralized private information structure of the economy endogenous and costly information acquisition is examined and seen to imply that the market outcome always falls short of the first best level with decreasing returns to scale the results are also shown to be robust to the addition of extra rounds of competition which allows firms to use the information revealed by past prices explicit closed form solutions yielding comparative static results are obtained for models characterized by quadratic payoffs and affine information structures

equilibrium asset pricing with epstein zin and loss averse investors abstract we study multi period equilibrium asset pricing in an economy with epstein zin ez agents whose preferences for consumption are represented by recursive utility and with loss averse la agents who derive additional utility of gains and losses and are averse to losses we propose an equilibrium gain loss ratio for stocks and show that the la agents are more less risk averse than the ez agents if their degree of loss aversion is higher lower than this ratio when all the agents have unitary relative risk aversion degree and elasticity of intertemporal substitution we prove the existence and uniqueness of the equilibrium and the market dominance of the ez agents in the long run finally we extend our results to the case in which the la agents use probability weighting in their evaluation of gains and losses

raiders or saviors the evidence on six controversial investors abstract carl icahn irwin jacobs carl lindner david murdock victor posner and the late charles bluhdorn are usually portrayed as corporate raiders the evidence here however shows that between 1977 and 1982 when it was first announced that they had purchased stock in a given firm stock prices on average increased significantly the investors activities in target firms for the two years following the initial stock purchase are likewise inconsistent with raiding we discuss two hypotheses that are consistent with the evidence first these investors improve the management of target firms second they are systematically able to identify under priced stocks

competitive rational expectations equilibria without apology abstract consider a financial market with n risk averse asymmetrically informed traders when n grows at the same rate as noise trading prices in competitive and in strategic rational expectations equilibrium converge to each other at a rate of 1 n equilibria in the two scenarios are close when noise trading volume per informed trader is large in relation to risk bearing capacity both equilibria converge to the competitive equilibrium of a limit continuum economy as the market becomes large at a slower rate of 1 n the results extend to endogenous information acquisition and the connections with the grossman stiglitz paradox are highlighted

european industrial policy and industrial policy in europe among the most vexing problems facing those concerned with the formation and implementation of industrial policy is deciding what it is why it exists and whether there ought to be more or less of it than exists at present any random collection of six economists is sure to produce at least a dozen different opinions on the subject not least because many economists have trouble in reconciling their gut reaction that industrial policy should not exist with the obvious fact that it does the vigorous debate that now rages between those who believe that industrial policy should and those that believe that it should not be consciously pursued by gov ernments is but a pale reflection of the true diversity of opinion that exists on the subject even amongst that group of economists who are enthusiastic about industrial policy the range of specific policy proposals that have been put forth is enormous and the debate within this group is no less active and acrimonious than that between the pros and antis following what is a clear if unintended character istic of many of the contributions to this debate this paper is devoted to complicating ratherthan simpli fying the issues in particular the question that we shall explore is whether there might be a type of industrial policy which should be applied at a supra national level although this question has been actively discussed in europe since the signing of the treaty of rome at least the revival of free marketideologies the looming menace of 1992 and recent discussions of european political union have all added a good deal of fuel to the fire more than a few ambitious european politicians have launched initiatives that apparently usurp national policy prerogatives and the response by many national governments has become increasingly angry and strident traditional liberalism struggled for years to define the boundaries of the state in terms of the

knowing what others know coordination motives in information acquisition we explore how optimal information choices change the predictions of strategic models when a large number of agents play a game with strategic complementarity information choices exhibit complementarity as well if an agent wants to do what others do they want to know what others know this makes heterogeneous beliefs di cult to sustain and may generate multiple equilibria in models with substitutability agents prefer to difierentiate their information choices we use these theoretical results to examine the role of information choice in recent price setting models and to propose modeling techniques that ensure equilibrium uniqueness

prospect theory and market quality abstract we study equilibrium trading strategies and market quality in an economy in which speculators display preferences consistent with prospect theory kahneman and tversky 39 tversky and kahneman 63 i e loss aversion and mild risk seeking in losses loss aversion risk seeking in losses induces speculators to trade less more and less cautiously more aggressively with their private information but also makes them less more inclined to purchase private information when it is costly in order to mitigate enhance their perceived risk of a trading loss we demonstrate that these forces have novel nontrivial state dependent effects on equilibrium market liquidity price volatility trading volume market efficiency and information production

an inverse relationship between efficiency and profitability according to size of upper austrian firms some further tentative results this paper examines the relationships between profitability and firm size and efficiency and firm size based on firms in upper austria there is considerable evidence suggesting that the average profitability of small enterprises exceeds that of large firms however productivity tends to be positively related to firm size these empirical findings present something of a paradox

walrasian tâtonnement auctions on the tokyo grain exchange the tokyo grain exchange tge s itayose mechanism provides the opportunity to analyze functioning walrasian t tonnement auctions wta in 15 677 auctions conducted over 1997 1998 for corn and redbean futures contracts price formation is unexpectedly similar to that observed in continuous double auctions provisional prices and pledges are informative in contrast to behavior observed in experiments few pledges are deceptive because the traders participate repeatedly and because the auctioneer has flexibility when changing the provisional price and ending the auction both the risk of the auction ending and the more equitable dispersion of information increase depth and the speed at which information is embodied in price

would freeing up world trade reduce poverty and inequality the vexed role of agricultural distortions trade policy reforms in recent decades have sharply reduced the distortions that were harming agriculture in developing countries yet global trade in farm products continues to be far more distorted than trade in nonfarm goods those distortions reduce some forms of poverty and inequality but worsen others so the net effects are unclear without empirical modeling this paper summarizes a series of new economy wide global and national empirical studies that focus on the net effects of the remaining distortions to world merchandise trade on poverty and inequality globally and in various developing countries the global linkage model results suggest that removing those remaining distortions would reduce international inequality largely by boosting net farm incomes and raising real wages for unskilled workers in developing countries and would reduce the number of poor people worldwide by 3 percent the analysis based on the global trade analysis project model for a sample of 15 countries and nine stand alone national case studies all point to larger reductions in poverty especially if only the non poor are subjected to increased income taxation to compensate for the loss of trade tax revenue

asymmetric price movements and borrowing constraints a rational expectations equilibrium model of crises contagion and confusion this study proposes a rational expectations equilibrium model of crises and contagion in an economy with information asymmetry and borrowing constraints consistent with empirical observations the model finds 1 crises can be caused by small shocks to fundamentals 2 market return distributions are asymmetric and 3 correlations among asset returns tend to increase during crashes the model also predicts 1 crises and contagion are likely to occur after small shocks in the intermediate price region 2 the skewness of asset price distributions increases with information asymmetry and borrowing constraints and 3 crises can spread through investor borrowing constraints

new business formation in a rapidly growing economy the irish experience the extraordinary growth of the irish economy since the mid 1990s the celtic tiger has attracted a great deal of interest commentary and research indeed many countries look to ireland as an economic development role model and it has been suggested that ireland might provide key lessons for other eu members as they seek to achieve the objectives set out in the lisbon agenda much of the discussion of ireland s growth has focused on its possible triggers the long term consequences of the late 1980s fiscal stabilisation eu structural funds education wage moderation and devaluation of the irish punt the industrial policy perspective has highlighted the importance of inflows of foreign direct investment but a notable absence from the discourse on the celtic tiger has been any mention of the role of new business venture creation and entrepreneurship in this paper we use unpublished irish vat data for the years 1988 2004 to provide the first detailed look at national trends in business birth and death rates in ireland over the take off period we also use sub national vat data to shed light on spatial trends in new venture creation our overall conclusions are that new business formation made no detectable contribution to the acceleration of ireland s growth in the late 1990s although we do find evidence of spatial convergence in per capita business stocks

imperfect competition in a multi security market with risk neutrality the central purpose of this paper is to develop a model of insider trading i e trading based on private information in the context of an imperfectly competitive multi security market with risk neutral agents imperfect competition allows us to consider strategic behavior and a multi security market lets us study the effect of a correlated environment on equilibrium we employ the informational assumption that market makers can observe all order flows and so portfolio diversification arises in this model for strategic reasons given correlated fundamentals market makers can potentially learn about every security from each order flow this causes even a risk neutral trader who does not face short selling restrictions to refrain from determining the demand for each security independently this contrasts with traditional multi asset models which focus on the incentive to reduce portfolio variance or the effect of short selling restrictions or budget constraints under imperfect competition correlation has two effects one ceteris paribus it allows the uninformed to learn from additional variables since each order flow could potentially have information about all payoffs on the other hand it creates an incentive for informed traders to restrict what others can learn from public information thus our analysis can be viewed as an application to the multi security heterogeneous information model in admati 1985 of the imperfectly competitive equilibrium concept which kyle 1985 first applied to the single security homogeneous information model of grossman and stiglitz 1980 our principal results include an explicit characterization of a linear equilibrium as a function of three general covariance matrices associated with payoffs noise trading and errors in private signals under general covariance structures we show that there always exists an equilibrium in which the relationship between the vector of prices and the vector of order flows is governed by a symmetric positive definite matrix the plan of the paper is as follows in section 2 we introduce our model we derive the equilibrium in section 3 and section 4 comments on the properties of the equilibrium the proofs of the results are in the appendix

optimal portfolio choice under loss aversion this paper analyzes the optimal investment strategy for loss averse investors assuming a complete market and general ito processes for the asset prices the loss averse investor follows a partial portfolio insurance strategy when the investor s planning horizon is short less than 5 years he or she considerably reduces the initial portfolio weight of stocks compared to an investor with smooth power utility the empirical section of the paper estimates the level of loss aversion implied by historical u s stock market data using a representative agent model we find that loss aversion and risk aversion cannot be disentangled empirically

information expected utility and portfolio choice we study the consumption investment problem of an agent with a constant relative risk aversion preference function who possesses noisy information about the future prospects of a stock we also solve for the value of information to the agent in closed form we find that information can significantly alter consumption and asset allocation decisions for reasonable parameter ranges information increases consumption in the vicinity of 25 information can shift the portfolio weight on a stock from 0 to around 70 thus de pending on the stock beta the weight on the market portfolio can be considerably reduced with information causing the appearance of underdiversification the model indicates that stock holdings of informed agents are positively related to wealth unrelated to systematic risk and negatively related to idiosyncratic uncertainty we also show that the dollar value of information to the agent depends linearly on his wealth and decreases with both the propensity to intermediate consumption and risk aversion

public information and uninformed trading implications for market liquidity and price efficiency abstract we develop a rational expectations equilibrium model in which noise trading comes from discretionary liquidity traders the equilibrium quantity of aggregate noise trading is endogenously determined by the population size of liquidity traders active in the financial market by improving market liquidity public information reduces the expected trading loss of liquidity traders and thus attracts more such traders to the market which negatively affects information aggregation analyzing an alternative setting that models noise trading as coming from hedgers yields similar insights in a setting with endogenous information public information can harm information aggregation both through crowding out private information and through attracting noise trading

new firms and rural industrialization in east anglia gould a and keeble d 1984 new firms and rural industrialization in east anglia reg studies 18 189 201 the paper analyses key aspects of the formation of new independent manufacturing firms in east anglia between 1971 and 1981 special attention is paid to trends in formation rates over time to the spatial bias of new firm origins towards both rural areas and the cambridge region and to the location character and impact of high technology new firms original findings include the contention that spatial variations chiefly reflect variation in the occupational structure of the resident workforce together with industrial mix plant size and previous industrial immigration some implications for government policy to new firms are discussed

factor substitution in u s manufacturing does plant size matter we use micro data for 10 412 u s manufacturing plants to estimate the degrees of factor substitution by industry and by plant size we find that 1 capital labor energy and materials are substitutes in production and 2 the degrees of substitution among inputs are quite similar across plant sizes in a majority of industries two important implications of these findings are that 1 small plants are typically as flexible as large plants in factor substitution consequently economic policies such energy conservation policies that result in rising energy prices would not cause negative effects on either large or small u s manufacturing plants and 2 since energy and capital are found to be substitutes the 1973 energy crisis is unlikely to be a significant factor contributing to the post 1973 productivity slowdown

portfolio choice and trading volume with loss averse investors this paper presents a model of portfolio choice and stock trading volume with lossaverse investors the demand function for risky assets is discontinuous and non monotonic as wealth rises beyond a threshold investors follow a generalized portfolio insurance strategy this behavior is consistent with the evidence in favor of the disposition effect in addition loss averse investors will not hold stocks unless the equity premium is quite high the elasticity of the aggregate demand curve changes substantially depending on the distribution of wealth across investors in an equilibrium setting the model generates positive correlation between trading volume and stock return volatility but suggests that this relationship should be non linear

individual preferences monetary gambles and stock market participation a case for narrow framing we argue that narrow framing whereby an agent who is offered a new gamble evaluates that gamble in isolation may be a more important feature of decision making than previously realized our starting point is the evidence that people are often averse to a small independent gamble even when the gamble is actuarially favorable we find that a surprisingly wide range of utility functions including many nonexpected utility specifications have trouble explaining this evidence but that this difficulty can be overcome by allowing for narrow framing our analysis makes predictions as to what kinds of preferences can most easily address the stock market participation puzzle

causes of increased competition in the u s economy 1939 1980 examines the sources of increased competition in the united states u s between 1939 to 1980 in this paper authors consider the review of related literature trends and patterns of competitive structure in the u s economy influence of antirust actions on competition

how good are the uk vat registration data at measuring firm births this paper utilises some data from a survey of recent vat registrations in the north of england to examine two issues first the extent to which registrants are involved in setting up entirely new businesses and secondly the relationship between the date of registration and the start of trading the paper suggests that some caution should be exercised in the use of vat registration statistics in the analysis of firm births

the winner s curse and bidder competition in acquisitions evidence from failed bank auctions this study examines the effect of bidder competition in acquisitions we use predictions from auction theory to test whether acquirers of failed banks overpay the winner s curse when bidding in fdic sealed bid purchase and assumption p a transactions auctions the empirical results indicate that winning bids tend to increase as the number of competitors increases as predicted by theory we also find that bid levels of all bidders increase with increased competition which is consistent with bidders failing to adjust for the winner s curse in a common value auction setting however additional tests using winning bids only are consistent with both a common value and a private values model so this result should be interpreted with caution the winner s curse hypothesis states that the winner of a sealed bid auction in which the value of the object being competed for is uncertain tends to be the one who most overestimates the true value of the auctioned object as a result auction winners who fail to recognize this possibility are likely to be cursed by having paid more for the object than its true worth this hypothesis has been applied to various situations including bidding on oil and gas leases capen et al 3 and corporate takeovers roll 16 varaiya 19 support for the existence of the winner s curse has been reported primarily from laboratory experiments bazerman and samuelson 1 kagel and levin 12 testing of the winner s curse hypothesis with market data is in its early stages gilley karels and leone s 7 study of bidding for oil leases provides mixed suport brannman klein and weiss 2 examine bidding behavior in a variety of auction markets and interpret some of their results as supporting the winner s curse hypothesis our study examines the effects of bidder competition and the winner s curse hypothesis within the context of fdic auctions of failed banks our study may also have relevance for the broader corporate control literature this literature uniformly indicates that shareholders of acquired firms earn large

optimal research for cournot oligopolists we extend the classical cournot model to take account of uncertainty in either the cost function or the demand function by undertaking research firms can acquire private asymmetric information to help resolve their uncertainty and make a more informed production decision the model is a two stage game in the first stage research levels are chosen and in the second stage conditional on private research outcomes production decisions are made we find that for a linear continuous information structure there is a unique nash equilibrium to the game in the equilibrium there may be an inefficient amount of aggregate research and there may be incomplete pooling as well the model specializes to the classical case when the cost of research is zero and each firm gains essentially the same information by doing an infinite amount of research or when the cost of research is so high no firm undertakes research

computing second order accurate solutions for rational expectation models using linear solution methods this paper shows how to compute a second order accurate solution of a non linear rational expectation model using algorithms developed for the solution of linear rational expectation models the result is a state space representation for the realized values of the variables of the model this statespace representation can easily be used to compute impulse responses as well as conditional and unconditional forecasts

small business dynamics in europe this paper examines how the firm size distribution has shifted over the last two decades across a broad spectrum of european countries the evidence suggests that a shift away from large firms and towards small business has taken place particularly is the southern regions and in the high technology indutries

the success of mergers in the 1920s a stock market appraisal of the second merger wave abstract this paper examines the impact on acquiring firm shareholder wealth of mergers during the oligopoly merger wave of the 1920s these acquisitions were relatively unregulated the securities and exchange commission did not exist and antitrust laws were only loosely enforced although the lack of financial market controls and the possibility of monopoly gains should have permitted acquiring companies to capture large take over profits stock price data on 134 firms indicate only modest success the average profitability of an acquisition in the 1920s does not differ from the profitability resulting from mergers in the 1960s and 1970s despite vast differences in the economic environments

new firm formation and regional development the italian case garofoli g 1994 new firm formation and regional development the italian case reg studies 28 381 393 the italian case appears to have had a very high firm birth rate mainly in manufacturing in comparison with the experience of other economically advanced countries regional differentiation in new firm formation has been very high in italy in the analysed period 1987 1991 the paper deals with the hypotheses to be tested for the interpretation of the regional differentiation in firm birth and analyses the problem of the choice of socio economic variables which must be examined the results of the regression analysis prove that production structure and mainly local productive specialization firms size social structure and professional employment structure are the most important explanatory variables for new firm formation and for its regional differentiation the level of local demand does not seem to be a significant factor and increases in unemployment appear to reduce firm births all t

the effect of public information and competition on trading volume and price volatility in a one period model of market making with many exogenously informed traders we first show that the variance of prices and expected trading volume depend on the public information released at the start of trading this is accomplished by representing beliefs with elliptically countoured distributions for which the form of optimal decision rules does not depend on the specific distribution used second if the model is altered so that the decision to become informed is made endogenous then the decision rules of the market maker and infomed traders depend on the public information third in a multiperiod model with many informed traders and long lived private information recursion formulas similar to those of kyle 1985 hold for all elliptically contoured distributions trading volume is autocorrelated and unless per period liquidity trading is bounded away from zero as new trading periods are added informed traders profits vanish article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

confronting the implications of the cournot model with industry and firm data this paper derives testable implications of the standard cournot models and confronts these implications with real world data though we cannot expect that real world may be characterized by a simple static homogeneous model it is surprising that little empirical work exists on testing the implications of this most popular model of oligopoly and non cooperative game theory

trading and liquidity on the tokyo stock exchange a bird s eye view the trading mechanism for equities on the tokyo stock exchange tse stands in sharp contrast to the primary mechanisms used to trade stocks in the united states in the united states exchange designated specialists have affirmative obligations to provide continuous liquidity to the market specialists offer simultaneous and tight quotes to both buy and sell and supply sufficient liquidity to limit the magnitude of price changes between consecutive transactions in contradistinction the tse has no exchange designated liquidity suppliers instead liquidity is provided through a public limit order book and liquidity is organized through restrictions on maximum price changes between trades that serve to slow down trading in this article we examine the efficacy of the tse s trading mechanisms at providing liquidity our analysis is based on a complete record of transactions and best bid and best offer quotes for most stocks in the first section of the tse over a period of 26 months we study the size of the bid ask spread and its cross sectional and intertemporal stability intertemporal patterns in returns volatility volume trade size and the frequency of trades and market depth based on the response of quotes to trades and the frequency of trading halts and warning quotes the trading mechanism for equities on the tokyo stock exchange tse stands in sharp contrast to the primary mechanisms used to trade stocks in the united states in the united states exchange designated specialists have affirmative obligations to provide continuous liquidity in the market and to maintain a private limit order book with the public s limit orders on the tse exchange designated intermediaries saitori log limit orders and match them to incoming market orders but provide no market making services in the united states specialists offer simultaneous and tight quotes to both buy and sell on the tse public limit orders constitute the available bids and offers in the united states specialists supply sufficient liquidity to limit the magnitude of price changes between consecutive transactions 1 on the tse the market mechanism places limits on the magnitude of consecutive price

globalization and global inequality assessing the impact of the rise of china and india 1980 20051 this article uses updated purchasing power parity measurements of countries income and a new strategy for approximating global inequality to examine how global income inequality as a combination of increasing average within country inequality and decreasing between country inequality changed in the period 1980 2005 in view of the overwhelming influence of china and india on trends in global inequality change the authors base their strategy on estimating the change in world average within country inequality from change in within country inequality of these two countries the authors find that global inequality decreased continuously throughout the period they also project that global inequality will likely rise again in the next 25 years unless the stellar economic performance of china and india spreads widely to other developing countries

prospect theory and mean variance analysis the experimental results of prospect theory pt reveal suggest that investors make decisions based on change of wealth rather than total wealth that preferences are s shaped with a risk seeking segment and that probabilities are subjectively distorted this article shows that while pt s findings are in sharp contradiction to the foundations of mean variance mv analysis counterintuitively when diversification between assets is allowed the mv and pt efficient sets almost coincide thus one can employ the mv optimization algorithm to construct ptefficient portfolios the markowitz 1952a tobin 1958 mean variance mv rule is probably the most popular investment decision rule under uncertainty in economics and in finance and it is widely employed by both academics and practitioners the strength of the mv analysis is that in the case of normal return distributions the choice of any expected utility maximizing risk averse individual will be according to the mv rule 1 the mv framework is the foundation of the sharpe 1964 lintner 1965 capital asset pricing model capm which is a cornerstone of modern finance moreover the mv framework provides a very important practical procedure for the construction of efficient portfolios while standard economic theory and in particular mv analysis assume expected utility maximization and risk aversion in a breakthrough article kahneman and tversky 1979 show that the actual behavior of individuals systematically and consistently violates these

information trade and derivative securities hellwig s 1980 model is used to analyze the value of improving trading opportunities by more frequent trading in the underlying asset or by trading in a derivative asset with multiple trading sessions uninformed investors behave as rational trend followers while more informed investors follow a contrarian strategy as trading becomes continuous pareto efficiency is achieved with trading in an appropriate derivative security pareto efficiency may be achieved in only a single round of trading all derivative claims are then priced on black and scholes 1973 principles and in the absence of further supply shocks no trading will take place in subsequent trading rounds article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

risk aversion market liquidity and price efficiency a model of a noncompetitive speculative market is analyzed in which privately informed traders and market makers are risk averse market liquidity is found to be nonmonotonic in the number of informed traders their degree of risk aversion and the precision of their information it is also shown that increased liquidity trading leads to reduced price efficiency and that under endogenous information acquisition market liquidity may also be nonmonotonic in the variance of liquidity trades article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

estimating the relative benefits of agricultural growth on the distribution of expenditures does the sectoral composition of aggregate economic growth affect poverty we ask whether agricultural growth in developing countries increases the expenditures of poorer households more than growth in other sectors while some reduced form analyses have tackled this question using either country level time series data regional panel data for one country or cross sectional country data this paper is unusual in using panel data for many countries we improve on much of the existing literature by devising an instrumental variables strategy to correct for the endogeneity of sectoral gdp growth involving averaging over sectoral income growth rates for neighboring countries our principal finding from our instrumental variable estimator is that the estimated elasticities associated with growth in agricultural income are significantly greater than for non agricultural income for all but the extreme top and bottom deciles in the middle range of the income distribution the effect of a given gdp growth due to agriculture is 3 4 times larger than if it was due to non agricultural activities having established that on average growth in gdp originating in agriculture is more beneficial for poorer deciles we finally explore whether this is a pattern which holds across different groupings of countries a second important finding is that there is heterogeneity across some groupings most particularly we find that it is the poorest people in the poorest countries for whom agricultural income growth is the most beneficial

assessing the profitability of growth by acquisition a premium recapture approach abstract this paper makes a case that because of the large premiums paid over the last 20 years by companies undertaking growth by acquisition this growth probably has been unprofitable the case has three parts the first develops a model designed to show for any premium paid for any acquiree the performance improvement required to recapture this premium and create value for the acquiring company the second part reports the distribution of premiums paid for a large sample of acquirees and uses this model to determine the specific performance improvements necessary to bring about value creation for the new parents of the acquirees the third part uses historical rate of return data to show that for typical acquirees these improvements call for levels of performance that are difficult to attain and sustain in u s industrial markets

reply on comment to small firms and the merger mania research on performance differences between small and large firms is booming it emerges relatively separated from the mainstream industrial organization literature inspired by levy s comment on an earlier paper we try to bridge the gap between the two areas especially we screen non cooperative game theoretical models for predictions on performance differences most of them forecast higher profits for larger firms but there exist also some models which predict the opposite for very specific circumstances

short term investment and equilibrium multiplicity abstract i study the effects of the heterogeneity of traders horizons in a 2 period nree model where all traders are risk averse owing to risk premia short termism generates multiple equilibria in particular two distinct patterns arise along the low trading intensity equilibrium short termists anticipate a thinner second period market and owing to risk aversion scale back their trades this reduces both risk sharing and information impounding into prices enforcing a high returns volatility low price informativeness equilibrium along the high trading intensity equilibrium the opposite happens and a low volatility high price informativeness equilibrium arises thus in the presence of short term behavior and traders risk aversion periods of high volatility are a signal of poor price informativeness

the diffusion of regional innovation capabilities evidence from italian patent data quatraro f diffusion of regional innovation capabilities evidence from italian patent data regional studies this paper investigates the diffusion of regional innovation capabilities within the manufacturing sector the competence based theory of the region allows for combining the schumpeterian view upon innovation and business cycles and the growth poles theory innovation capabilities spread within the region after the expansion of the propulsive sector due to learning dynamics adopting a methodology for the analysis of diffusion processes the paper presents empirical evidence on italian regions the results show that in late industrialized regions the diffusion of innovation capabilities is faster than in the early industrialized ones the role of research and development and complementary changes in the economic structure is also investigated quatraro f la diffusion des capacites d innovation regionale des preuves provenant des donnees italiennes sur les brevets regional studies cet article

introduction economic performance and small business this paper introduces the special issue of small business economics on performance the concept of economic performance refers to the degree to which society s resources are being used as efficiently as possible where the field of industrial organization has emphasized the influence of market concentration on economic performance the papers of this special issue zoom in on the link between firm size and economic performance

small firms business dynamics and differential development of economic well being in recent years a growing stream of research has examined the relationships between structural characteristics of regions and their levels of new firm formation this empirical study aims at supplementing such findings with analyses that include other forms of business dynamics and also the possible well being effects of such dynamics from a unique and comprehensive data set that tracks all births deaths expansions and contractions of commercial business establishments in sweden 1985 89 six groups of regions with different patterns of dynamics are extracted by means of cluster analysis the clusters structural characteristics and their development of economic well being are also compared the results suggesta that the patterns of business dynamics are contingent on the structural characteristics of regions b that high formation and turnover of establishments are associated with a relative increase in economic well being andc that small autonomous firms have a vital role in this process

the divergence of liquidity commonality in the cross section of stocks abstract this paper demonstrates that the cross sectional variation of liquidity commonality has increased over the period 1963 2005 the divergence of systematic liquidity can be explained by patterns in institutional ownership over the sample period we document that our findings are associated with similar patterns in systematic risk our analysis also indicates that the ability to diversify systematic risk and aggregate liquidity shocks by holding large cap stocks has declined the evidence suggests that the fragility of the us equity market to unanticipated events has increased over the past few decades

plant size and industry mix effects on uk regional productivity wage costs and operating surplus roper s 1998 plant size and industry mix effects on uk regional productivity wage costs and operating surplus reg studies 32 325 332 the ability of a region to create wealth depends both on the competitiveness of its individual firms and its industrial structure this paper examines the effect of industry mix and plant size structure on the wealth generating capacity of the uk regions from 1980 91 reflecting the findings of similar us studies the analysis suggests that in general uk regions structural disadvantages act to reinforce rather than counter plant level productivity wage cost and operating surplus profitability differentials thus lagging regions face a three fold disadvantage poorly performing plants disadvantageous industry mix and plant size structure this suggests a need for a strategic approach to policy which must aim to counter regions structural disadvantages as well as to improve the competitiveness of existing plants roper s 1998 les effets de la taille des et

corporate takeovers the efficiency arguments in recent years the tender offer takeover has been praised and damned with a ferocity suggesting that the survival of capitalism is at stake the truth as in most disputes with substantial metaphysical content is more prosaic some takeovers enhance economic efficiency some degrade it and the balance of effects though not fully known is most likely a close one in this essay i try to lay bare the debate s foundations and bring it back to earth with an injection of evidence

herding in delegated portfolio management when is comparative performance information desirable abstract we address the issue of investors asset allocation decisions when portfolio management is delegated to an agent contrary to predictions from traditional financial theory it is shown that investors may not induce their manager to allocate funds to the asset with the highest return instead they may herd in their asset allocation decision and induce trade in a particular asset because another manager is trading in it and despite the presence of a more profitable alternative doing so allows investors to write an efficiency improving relative performance contract on the other hand herding leads investors to design wage contracts strategically resulting in more aggressive and thus less profitable trade in equilibrium we show that herding occurs when the cost of information is high information precision is low and when managers are sufficiently risk averse moreover when investors can decide whether or not to disclose information about their manager s performance they will not do so

prospect theory and liquidation decisions we solve a liquidation problem for an agent with preferences consistent with the prospect theory of kahneman and tversky econometrica 47 1979 263 291 we find that the agent is willing to hold a risky project with a relatively inferior sharpe ratio if the project is currently making losses and intends to liquidate it when it breaks even on the other hand the agent may liquidate a project with a relatively superior sharpe ratio if its current profits rise or drop to the break even point our results capture the spirit of the disposition effect and the break even effect documented in empirical and experimental studies

global income inequality this paper presents a non technical summary of the current state of debate on the measurement and implications of global inequality inequality between citizens of the world it discusses the relationship between globalization and global inequality it shows why global inequality matters and proposes a scheme for global redistribution

disclosure decisions by firms and the competition for price efficiency this paper develops a model of the relationship between investment decisions by firms and the efficiency of the market prices of their securities it is shown that more efficient security prices can lead to more efficient investment decisions this provides firms with the incentive to increase price efficiency by voluntarily disclosing information about the firm disclosure decisions are studied it is shown that firms may expend more resources on disclosure than is socially optimal this is in contrast to the concern implicit in mandatory disclosure rules that firms will expend too few resources on disclosure this paper develops a model of the relationship between firms investment decisions and the efficiency of the market prices of their securities it is shown that more efficient security prices can lead to more efficient investment decisions this provides firms with the incentive to increase price efficiency by voluntarily disclosing information about the firm disclosure decisions are studied the costs of disclosure are twofold first there are costs of producing and disseminating the information included here are opportunity costs of firms employees auditing and legal expenses costs of printing and distribution and costs associated with the release of any proprietary information second there are traders costs of assimilating the information for instance while it is not very costly to obtain a firm s 8 k and 10 k once produced it is quite costly to understand the implications of their contents while the former costs have been recognized in the literature on disclosure the latter costs have not that is while traders are sometimes viewed as having access to some costly information the information contained in firms disclosures is typically taken to be costlessly observed by all see for instance diamond 1985 and dye 1987 1 taking traders costs of learning the information content of firms disclosures into account leads to new conclusions regarding incentives to expend resources on disclosure in particular it is shown that firms may spend more on disclosure than is socially optimal this overdisclosure results from firms competing for the attention of traders this is an interesting result given the public policy concern that firms on their own will spend less on disclosure than is socially optimal

efficiency and profitability an inverse relationship according to the size of austrian firm this paper tries to shed some light on the austrian situation of the efficiency of firms according to their size class for total austria we find that large firms seem to be more efficient with respect to value added per employee but small firms are more efficient with respect to the gross residual quota and to profitability value added wages value added on the other side a similar analysis for upper austria does not show this result here firms with the size of 500 employees or more seem to be the most efficient with respect to efficiency and profitability and only the employment cost efficiency criteria reveals the picture the smaller the firm the more cost effective it seems to be hence the result obtained from most studies in europe that at least the biggest firms are not the most efficient can only be confirmed to a limited extent for upper austria

evidence of creative destruction in the u s economy schumpeter discusses the importance of innovation and new firm entry in a capitalistic economy as a means to creatively destruct oligopolies and generate new economic wealth he warns of rd schumpeter feared the obsolescence of entrepreneurship would result in an increasing concentration of wealth among large corporations and toward socialism

inequality in a global perspective the basic story of global inequality in the last three decades has been an overall decline but one which is composed of quite intricate patterns there has been a decline in between country inequality as china and india have grown relative to the us and other rich countries this has been accompanied by an increase in within country inequality but this is itself composed of rising inequality in some countries such as china india and the us and declining inequality in other countries including large economies in latin america section ii of the paper reviews these patterns highlighting country diversity to make the central point that policy matters section iii addresses a normative question what relative weight should be given to within country and between country inequality in making an overall global assessment this section brings on board recent philosophical discourse including on inequality of opportunity in a global frame section iv returns to the policy matters theme and takes up global constraints on national redistribution policy in a globalized world for example a race to the bottom on taxation to attract and keep capital and talent and possible global institutional responses to alleviate these constraints

assessing the impact of oil prices on firms of different sizes its tough being in the middle recent empirical research has found evidence of a relationship between oil price movements and stock prices most published research investigates the relationship between oil price movements and stock prices using either economy wide measures of stock prices or industry sector measures of stock prices an important question that has largely gone unanswered relates to the relationship between oil prices and stock prices when the size of firms is allowed to vary relative to large firms do oil price movements have larger or smaller impacts on the stock prices of small or medium sized firms the answer to this question could have important policy implications that affect economic growth and prosperity in this paper a panel of firms is followed over a 17 year period to investigate the relationship between oil price movements firm size and stock prices evidence is found that shows the relationship between oil price movements and stock prices does vary with firm size and the relationship is strongest for medium sized firms

multimarket trading and market liquidity when a security trades at multiple locations simultaneously an informed trader has several avenues in which to exploit his private information the greater the proportion of liquidity trading by large traders who can split their trades across markets the larger is the correlation between volume in different markets and the smaller is the informativeness of prices we show that one of the markets emerges as the dominant location for trading in that security when informed traders can use their information for more than one trading period the timely release of price information by market makers at one location adversely affects the profits informed traders expect to make subsequently at other locations market makers competing to offer the lowest cost of trading at their location consequently deter informed trading be voluntarily making the price information public and by cracking down on insider trading article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

institutional investment mergers and the market for corporate control the increasing importance of institutional investors as shareholders in individual companies has led to an important debate on their impact on corporate performance in this paper we focus on their role in the market for corporate control this has so far been the subject of very little systematic investigation despite its theoretical and practical significance we consider the impact of financial institutions using two u k merger samples and employing both univariate and multivariate techniques of analysis in the first sample drawn from the low merger period 1981 1983 pre and post merger differences are found between merging companies with and without a significant institutional presence however in the takeover boom year of 1986 from which the second sample is drawn all such distinctions become blurred

informed speculation with imperfect competition competitive rational expectations models have the unsatisfactory property dubbed the schizophrenia problem by hellwig that each trader takes the equilibrium price as given despite the fact that he influences that price an examination of information aggregation in a non competitive rational expectations model using a nash equilibrium in demand functions shows that the schizophrenia problem is avoided by having each trader take into account the effect his demand has on the equilibrium price given a distribution of private information across traders prices reveal less information than in the competition equilibrium and prices no longer become fully informative in the limit as noise trading vanishes or as traders become risk neutral with small traders the model may become one of monopolistic competition not perfect competition in contrast to the competitive model a reasonable model of endogenous acquisition of costly private information is obtained even when traders are risk neutral

firm dynamics and industrialization in the chinese economy in transition implications for small business policy abstract this article first presents a review of the development of different types of domestic enterprises state owned enterprise soes collectiveowned enterprises coes and other enterprises oes which include mainly private enterprises compared with other transition economies coes are actually an important source of china s rapid economic growth they are vaguely defined cooperative without a well defined ownership structure there is no equivalent organizational structure similar to coes in western economies the purpose of this article is to study the empirical relationship between the size of domestic enterprises including state owned enterprises collective owned enterprises and other enterprises and their firm dynamics growth by investigating whether they grow according to gibrat s law the majority of coes and oes were formed after the economic reform the rapid growth of these non state enterprises especially coes is actually the driving force behind the rapid development of the industrial sector our empirical results suggest that gibrat s law does not hold for all types of enterprises the rejection is especially strong for coes moreover small enterprises are growing faster than their larger counterparts in terms of employment and output this conclusion leads to at least three implications 1 there has been little research into the dynamics of soes and coes in an economy in transition our results not only help stimulate further research in this area but also provide information for designing policies to speed up the economic reforms 2 until now the chinese government has not had a comprehensive small business policy given our empirical results there is an implication for government policy prescription to achieve china s development targets of rapid industrialization and lower unemployment or underemployment the chinese economy can reap more dynamic benefits by breaking up a giant and inefficient enterprise especially inefficient soe into a number of smaller enterprises in addition more small enterprises also improve competition in the marketplace and force other inefficient soes to improve their performance further research should be undertaken to examine the viability of this policy 3 because coes are the majority of small manufacturing enterprises the rapid growth of coes after their formation that are simply the opposite of the type of private organizations the center of the central and east european reforms is rather surprising to academics although some hypotheses like cooperative culture and moral framework for rights are put forward to explain their superior performance the validity of such hypotheses has not been empirically tested yet this is a fruitful area for further research

market microstructure effects of government intervention in the foreign exchange market as asymmetric information model of the bid ask spread is developed for a foreign exchange market subject to occasional government interventions traditional tests of the unbiasedness of the forward rate as a predictor of the future spot rate are shown to be inconsistent when the rates are measured as the average of their respective bid and ask quotes larger bid ask spreads on fridays are documented reliable evidence of asymmetric bid ask spreads for all days of the week albeit more pronounced on fridays are presented the null hypothesis that the forward rate is an unbiased predictor of the future spot rate continues to be rejected the regression slope coefficients increase toward unity however indicating a less variable risk premium

information aggregation in a noisy rational expectations economy abstract this paper analyzes a general equilibrium model of a competitive security market in which traders possess independent pieces of information about the return of a risky asset each trader conditions his estimate of the return both on his own private source of information and price which in equilibrium serves as a noisy aggregator of the total information observed by all traders a closed form characterization of the rational expectations equilibrium is presented a counter example to the existence of fully revealing equilibrium is developed