financial contracting theory meets the real world an empirical analysis of venture capital contracts we compare the characteristics of real world financial contracts to their counterparts in financial contracting theory we do so by studying the actual contracts between venture capitalists vcs and entrepreneurs the distinguishing characteristic of vc financings is that they allow vcs to separately allocate cash flow rights board rights voting rights liquidation rights and other control rights we describe and measure these rights we then interpret our results in relation to existing financial contracting theories we also describe the interrelation and the evolution across financing rounds of the different rights query 1 query 2

financial supervision regimes and bank efficiency international evidence abstract there exists a lively debate as for the appropriate architecture of the financial supervision regime with a long list of theoretical advantages and disadvantages associated with each one of its key dimensions the present study investigates whether and how bank profit efficiency is influenced by the central bank s involvement in financial supervision the unification of financial authorities and the independence of the central bank the results show that efficiency decreases as the number of the financial sectors that are supervised by the central bank increases additionally banks operating in countries with greater unification of supervisory authorities are less profit efficient finally central bank independence has a negative impact on bank profit efficiency

the two freedoms economic growth and development an empirical study log linear methods are applied to categorical data containing economic freedom political freedom the level of income and the rate of economic growth for a panel of about 100 countries from 1975 to 1992 the main results are given economic freedom the rate of economic growth is independent of political freedom and the level of income given the level of income political freedom is independent of economic freedom and the growth rate the analysis suggests the fundamental effects of economic freedom in fostering economic growth and a high level of income as the condition of a high degree of political freedom

determinants of banks nerlovian economic efficiency a dea bootstrap approach this study aims to evaluate the nerlovian economic efficiency of taiwanese commercial banks and its determinants by assuming the presence of an imperfectly competitive market using a two stage esti

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

freedom and international migration economic and political freedoms are regressed on a bilateral cross section of international migrant stocks using ordinary least squares and tobit techniques a positive relationship between these variables is found economic freedom is statistically significant even when controlling for income per capita and political freedom in addition the impact of these freedoms on migration flows into oecd countries between 2001 and 2006 using fixed effects estimations is analyzed the panel data analysis mostly corroborates the cross sectional analysis the notable exception is that political freedom appears to have had a negative impact on migration flows during this period

venture capital investment cycles the impact of public markets abstract it is well documented that the venture capital industry is highly volatile and that much of this volatility is associated with shifting valuations and activity in public equity markets this paper examines how changes in public market signals affected venture capital investing between 1975 and 1998 we find that venture capitalists with the most industry experience increase their investments the most when public market signals become more favorable their reaction to an increase is greater than the reaction of venture capital organizations with relatively little industry experience and those with considerable experience but in other industries the increase in investment rates does not affect the success of these transactions adversely to a significant extent these findings are consistent with the view that venture capitalists rationally respond to attractive investment opportunities signaled by public market shifts

a study of bank efficiency taking into account risk preferences abstract i use the stochastic cost frontier approach to investigate efficiency of banks operating in the third federal reserve district accounting for the quality and riskiness of bank output in addition to the mean and mode of the conditional distribution of the one sided error term i calculate confidence intervals for the inefficiency measures based on the conditional distribution the results indicate that third district banks are operating at cost efficient output levels and product mixes but are not efficiently using their inputs the second part of the article relates the inefficiency measures to several correlates

a multidimensional approach to measuring bank branch efficiency abstract bank branch efficiency measurements range from simple ratio and standard regression analyses to more complex frontier approaches each with specific strengths and weaknesses however in isolation the indexes that these approaches generate fail to capture the multidimensional nature of bank branch efficiency this paper develops a three step procedure that enables combining the strengths of the existing approaches we begin by taking the widest number of efficiency indexes proposed in literature step 1 reduce the redundant information through a collinearity analysis step 2 and categorize bank branches into efficiency classes through a clustering procedure step 3 we test our approach on 23 branches of an italian regional bank the results show that this three step approach is able to provide a multidimensional view of efficiency based on indexes employing a wide range of theoretical and methodological approaches with different ways of conceiving intermediation vs production and measuring stock vs flow or physical measures bank outputs and inputs different definitions of efficiency technical and cost efficiency and different measurement approaches ratios standard regression analysis and frontier functions the resulting efficiency ranking is consistent with those that univariate indexes generate and provides a balanced evaluation of branch efficiency when such indexes produce contradictory indications

data envelopment analysis truncated regression and double bootstrap for panel data with application to chinese banking we investigate the impact of earning asset diversification on chinese bank efficiency from 2006 to 2011 we do this by adapting the current two stage data envelopment analysis approach to a panel data setting so that we can account for technology change over time our monte carlo experiments illustrate the advantages and disadvantages of the proposed new algorithm over the conventional approach when applied to chinese banking data the regression results reveal that increasing the asset share of other earning assets including securities and derivatives is positively associated with bank efficiency decreasing the share of nonearning assets in total assets or increasing total equity has a similar impact our results also suggest that financial reforms currently being undertaken in china including removing the regulatory requirement concerning the ratio of loans to deposits a draft amendment to the existing commercial banking law and interest rate liberalization a proposed draft amendment are likely to have a positive effect on bank efficiency in china

on non uniqueness in rational expectations models an attempt at perspective abstract many macroeconomic models involving rational expectations give rise to an infinity of solution paths even when the models are linear in all variables some writers have suggested that this non uniqueness constitutes a serious weakness for the rational expectations hypothesis one purpose of the present paper is to argue that the non uniqueness in question is not properly attributable to the rationality hypothesis but instead is a general feature of dynamic models involving expectations it is also argued that there typically exists in a very wide class of linear rational expectations models a single solution that excludes bubble or bootstrap effects one that occur only because they are arbitrarily expected to occur a systematic procedure for obtaining solutions free from such effects is introduced and discussed in addition this procedure is used to interpret and reconsider several prominent examples with solution multiplicities including ones developed by fischer black and john b taylor

stage financing and the role of convertible securities venture capital financing is characterized by extensive use of convertible securities and stage financing in a model where a venture capitalist provides staged financing for a project we illustrate an advantage of convertible debt or warrants over a mixture of debt and equity essentially when the venture capitalist retains the option to abandon the project the entrepreneur has an incentive to engage in window dressing and bias positively the short term performance of the project reducing the probability that it will be liquidated an appropriately designed convertible security prevents such behaviour because window dressing also increases the probability that the venture capitalist will exercise the conversion option becoming the owner of a substantial fraction of the project s equity

staged financing an agency perspective this paper investigates the structure of outside investment in a profitable entrepreneurial venture though efficient financing the venture up front may be infeasible because the entrepreneur cannot commit to not renegotiate down the outside investor s claim once she s sunk her investment staging the investment over time helps to mitigate this commitment problem the early rounds of investment create collateral that support the later rounds we characterize the optimal staged investment path and show how it is affected by various features of the venture the predictions of the model are consistent with observations on staged financing in venture capital

contracts and exits in venture capital finance using a sample of european venture capital vc investments i study the relation between vc contracts and exits the data indicate that ex ante stronger vc control rights increase the likelihood that an entrepreneurial firm will exit by an acquisition rather than through a write off or an ipo my findings are robust to controls for a variety of factors including endogeneity and cases in which the vc preplans the exit at the time of contract choice my findings are consistent with control based theories of financial contracting such as aghion and bolton 1992

financial freedom and bank efficiency evidence from the european union this paper investigates the dynamics between the financial freedom counterparts of the economic freedom index drawn from the heritage foundation database and bank efficiency levels we rely on a large sample of commercial banks operating in the 27 european union member states over the 2000s after estimating bank specific efficiency scores using data envelopment analysis dea we develop a truncated regression model combined with bootstrapped confidence intervals to test our main hypotheses results suggest that the higher the degree of an economy s financial freedom the higher the benefits for banks in terms of cost advantages and overall efficiency our results also show that the effects of financial freedom on bank efficiency tend to be more pronounced in countries with freer political systems in which governments formulate and implement sound policies and higher quality governance

desirability of nominal gdp targeting under adaptive learning nominal gdp targeting has been advocated by a number of authors since it produces relative stability of inflation and output however all of the papers assume rational expectations on the part of private agents in this paper i provide an analysis of this assumption i use stability under recursive learning as a criterion for evaluating nominal gdp targeting in the context of a model with explicit micro foundations which is currently the workhorse for the analysis of monetary policy

economic freedom government policy and the trade off between equity and economic growth this study investigates the role that economicfreedom plays in economic growth and in the distribution in marketincome the role of government policy in advancingeconomic progress and in promoting income equality and the effectthat the rate of economic progress has on thedistribution of market income structural and reduced formmodels are estimated that reveal that economic freedompromotes both economic growth and equity and that there is apositive but relatively small trade off between growth andincome inequality

economic development legality and the transplant effect abstract we analyze the determinants of effective legal institutions legality using data from 49 countries we show that the way the law was initially transplanted and received is a more important determinant than the supply of law from a particular legal family countries that have developed legal orders internally adapted the transplanted law and or had a population that was already familiar with basic principles of the transplanted law have more effective legality than countries that received foreign law without any similar predispositions the transplanting process has a strong indirect effect on economic development via its impact on legality while the impact of particular legal families is weaker and not robust to alternative legality measures

the institutions of economic freedom and entrepreneurship evidence from panel data this paper provides new evidence on the determinants of entrepreneurship across countries the paper investigates the relationship between the institutional setting in terms of economic freedom and entrepreneurship measured by self employment in a panel data setting covering 23 oecd countries for the period 1972 2002 the measure of economic freedom includes five aspects size of government legal structure and security of property rights access to sound money freedom to trade internationally and the regulation of credit labour and business the empirical findings show that a smaller government sector better legal structure and security of property rights as well as less regulation of credit labour and business tend to increase entrepreneurship

relative undernutrition in puerto rico under alternative food assistance programmes in the early 1980s puerto rico experienced a conversion from the food stamp program fsp to the nutrition assistance program nap and a severe recession to compare relative undernutrition in puerto rico in 1977 and 1984 stochastic dominance methods and statistical inference procedures are applied to nutrient distributions to separate the effect of the recession from the effect of converting food coupons to cash benefits a multiple regression model of nutrient consumption is also estimated in the dominance comparisons every improvement in nutrition status between 1977 and 1984 is statistically significant at the lowest quintile while no case of worsening undernutrition is significant at the lowest quintile the multiple regression model provides some evidence that the conversion from food coupons to cash might have reduced nutrition status in the lowest quintile but a larger proportion of food assistance was allocated to low income households under the nap than under the fsp no evidence of signi

2008 presidential address institutions economic freedom and cross country differences in performance this address describes the history of the economic freedom of the world efw project and the development of the efw index this index is a measure of the extent to which the institutions and policies of various countries are coordinated by personal choice voluntary exchange open markets and clearly defined and enforced property rights the index contains 42 different components and is currently available for 141 countries data for approximately 100 countries are available back to 1980 the efw index incorporates many of the elements that new institutional economists argue are important sources of growth thus it facilitates empirical investigation of the institutional theory of growth and crosscountry comparisons of economic performance in this regard the paper considers 10 propositions that have been addressed with the index and what has been learned from this analysis

income inequality and economic freedom in the u s states this paper examines the impact of economic freedom on income inequality using cross sectional data for u s states while previous research has explored this relationship internationally the results have been conflicting in addition while it seems obvious that the large institutional differences across countries will impact income inequality it isn t so obvious that the smaller variation in policies among u s states can have a measurable impact can improvements in income inequality be used as a justification for marginal pro market policy reforms at the state level or is this argument applicable only to national level institutional reforms

freedom and growth do constitutions matter this paper uses an augmented solow model with cross section data to measure the effect on per capita income of a the entrenchment of various rights in a country s constitution and b the level of economic freedom in a country broadly construed the results suggest that entrenchment per se of any single right seldom has a significant general economic effect while the effect of economic freedom is significant and substantial the paper then considers whether such evidence could support the proposition that constitutions do not matter while it concludes otherwise it does caution against incurring excessive negotiation costs to obtain entrenchment of a comprehensive wish list of rights

economic freedom and equality friends or foes how does economic freedom mainly how property rights are designed and protected relate to income equality whilst this is argued to be theoretically ambiguous the empirical results reveal that there is a positive relationship between changes in economic freedom and equality the more a country increased its economic freedom between 1975 and 1985 the higher the level of equality around 1985 most important in this regard is trade liberalization and financial deregulation also there are signs that the level of economic freedom in 1985 is negatively related to the level of equality around that year plausibly because of less redistribution

political freedom economic freedom and income convergence do stages of economic development matter in the literature theory and empirical evidence on the nexus of political freedom economic freedom and economic growth are mixed in this paper we test the hypothesis that the effect of political freedom on promoting economic growth is realized and detectable at later stages of social and economic development using panel data for a sample of 104 countries between 1970 and 2003 we find strong support for our hypothesis while economic freedom has greater effects on income convergence in the oecd countries political freedom clearly promotes the convergence among those oecd countries

does legal enforcement affect financial transactions the contractual channel in private equity analyzing 210 developing country private equity investments we find that transactions vary with nations legal enforcement whether measured directly or through legal origin investments in high enforcement and common law nations often use convertible preferred stock with covenants in low enforcement and civil law nations private equity groups tend to use common stock and debt and rely on equity and board control transactions in high enforcement countries have higher valuations and returns while relying on ownership rather than contractual provisions may help to alleviate legal enforcement problems these results suggest that private solutions are only a partial remedy

highlighting the connection between financial development and consumption of energy in countries with the highest economic freedom abstract this study explores the association that financial development economic freedom and the price of gasoline had with gasoline consumption in 28 countries with the highest economic freedom for the period 1996 2017 the ardl analysis methodology was used to construct a heterogeneous dynamic panel to test the panel data the westerlund panel cointegration test was then performed to determine if the factors were cointegrated finally we used the dumitrescu hurlin panel causality test in order to develop effective policies the results state that both financial development and the price of gasoline play an essential role in reducing the consumption of gasoline additionally economic freedom is closely related to an increase in gasoline consumption by employing the variable of the global financial crisis gfc the robustness test shows the negative and statistically significant effect of the latter on gasoline consumption and confirms the main findings therefore the gfc played a crucial role in changing the economic plans of the countries with high levels of economic freedom this suggests that these countries should reinforce financial development to generate green innovations further important policy implications for the 28 countries with the highest economic freedom are provided at the end of the paper

the social costs of unit banking restrictions abstract many u s commercial banks are prohibited from establishing more than one full service office location in the absence of free entry to the banking industry this constraint may force unit banks to operate with a socially inefficient combination of inputs moreover entry to the industry in unit banking states may be more difficult than in branching states where market entrants need not necessarily acquire a new charter if so existing unit banks could price their output above marginal social cost earning excess profits and imposing allocational inefficiencies this paper demonstrates empirically that unit banking restrictions in the united states impose statistically and economically significant deadweight social costs

regulations market structure institutions and the cost of financial intermediation this paper examines the impact of bank regulations market structure and national institutions on bank net interest margins and overhead costs using data on over 1400 banks across 72 countries while controlling for bankspecific characteristics the data indicate that tighter regulations on bank entry and bank activities boost the cost of financial intermediation inflation also exerts a robust positive impact on bank margins and overhead costs while concentration is positively associated with net interest margins this relationship breaksdownwhencontrolling for regulatory impediments to competition and inflation furthermore bank regulations become insignificant when controlling for national indicators of economic freedom or property rights protection while these institutional indicators robustly explain cross bank net interest margins and overhead expenditures thus bank regulations cannot be viewed in isolation they reflect broad national approaches to private property and competition

economic freedom and unemployment around the world author affiliation horst feldmann department of economics and international development university of bath bath ba2 7ay united kingdom h feldmann bath ac uk1 datathis paper applies the economic freedom of the world efw index that has been developed by a group of north american economists under the auspices of the canadian fraser institute with the aid of a worldwide network of further economists and institutes gwartney and lawson 2005 the index has often been assessed to be a good measure of economic freedom and thus has been widely used in the empirical literature it subdivides economic freedom into five areas i size of government ii legal structure and security of property rights iii access to sound money iv freedom to trade internationally and v regulation of credit labor and business for variable definitions and sources see appendix a the two main authors of the index have explained their concept and measurement of economic freedom in each report e g gwartney and lawson 2005 and elsewhere e g gwartney and lawson 2003 economic freedom is complex and multidimensional a major advantage of the efw index is that it reflects all aspects of economic freedom and adequately groups them into five different areas to provide information on the overall linkage between economic freedom and unemployment we use the efw summary index additionally we use the five area indices this allows us to analyze which economic freedoms have the strongest effects as the correlation matrix indicates there is substantial correlation among several of the area variables appendix b therefore we estimate specifications that include these measures one at a time however the correlation matrix also indicates that the area variables are not highly correlated with each other therefore we also present specifications in which we include them jointly estimating the effects of the area variables both separately and jointly allows us to check the robustness of our results for these variables the efw index not only has the advantage that it covers all aspects of economic freedom and adequately groups them into five different areas it also has the advantage that it is based largely on objective data these data and the ratings derived on the basis thereof may be verified by anybody aspects of economic freedom that cannot be measured objectively mainly in the areas legal structure and property rights and regulations are measured using subjective data from the global competitiveness reports of the world economic forum and the international country risk guides of the prs group the data in the global competitiveness reports are based on annual surveys among approximately 4000 to 5000 senior business executives the data in the international country risk guides are computed from an in house panel of experts of the prs group in both cases the data are compiled professionally for example the selection of respondents for the world economic forum s surveys is largely representative of the structure of each economy and the respondents have excellent knowledge of their country s economy the international country risk guides are based on the assessments of experienced experts 1for each variable included in the efw index a total of 38 the relevant data are translated into ratings with the aid of a formula that is published in the reports of the fraser institute the rating scale ranges from 0 to 10 with 0 representing the lowest and 10 the highest degree of economic freedom the area ratings for each of the five areas are calculated as the arithmetic means of the ratings for their respective components in turn the summary rating is the average of the five area ratings applying the most recent methodology which was further developed over the years the efw index was calculated for every fifth year from 1970 on plus for the years 2001 2002 and 2003

bank supervision and corruption in lending abstract which commercial bank supervisory policies ease or intensify the degree to which bank corruption is an obstacle to firms raising external finance based on new data from more than 2500 firms across 37 countries this paper provides the first empirical assessment of the impact of different bank supervisory policies on firms financing obstacles we find that the traditional approach to bank supervision which involves empowering official supervisory agencies to monitor discipline and influence banks directly does not improve the integrity of bank lending rather we find that a supervisory strategy that focuses on empowering private monitoring of banks by forcing banks to disclose accurate information to the private sector tends to lower the degree to which corruption of bank officials is an obstacle to firms raising external finance in extensions we find that regulations that empower private monitoring exert a particularly beneficial effect on the integrity of bank lending in countries with sound legal institutions

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

private equity returns and disclosure around the world to obtain more funds from the institutional investors private equity pe fund managers may report inflated valuations of private investee companies that are not yet sold however such overvaluations may result in a reputational cost when those investments are realized using evidence from 39 countries we show that there are significant systematic biases in managers reporting of fund performance we find that these biases depend on the accounting and legal environment in a country and on proxies for the degree of information asymmetry between institutional investors and pe fund managers

economic freedom and growth decomposing the effects most studies of the relation between economic freedom andgrowth of gdp have found a positive relation one problem inthis area is the choice of economic freedom measure a singlemeasure does not reflect the complex economic environment anda highly aggregated index makes it difficult to draw policyconclusions in this paper we investigate what specific typesof economic freedom measures that are important for growth the robustness of the results is carefully analysed since thepotential problem with multicollinearity is one of thenegative effects of decomposing an index the results showthat economic freedom does matter for growth this does notmean that increasing economic freedom defined in generalterms is good for economic growth since some of thecategories in the index are insignificant and some of thesignificant variables have negative effects

ipos trade sales and liquidations modelling venture capital exits using survival analysis using a detailed sample made up of more than 20 000 investment rounds we analyze the time to ipo trade sale and liquidation for about 6 000 venture backed firms we model these exit times using competing risks models biotech and internet firms have the fastest ipo exits internet firms are also the fastest to liquidate while biotech firms are however the slowest the conditional probability for ipos are clearly non monotonous with respect to time as time flows venture capital backed firms first exhibit an increased likelihood of exiting to an ipo however after having reached a plateau investments that have not yet exited have fewer and fewer possibilities of ipo exits as time increases the bubble period from 1998 to 2000 was an easy money period where venture capitalists gave much more money to firms many of which did not offer outstanding growth potential as they tended to liquidate much faster than in normal times

institutions freedom and technical efficiency the impact of institutions on economic performance is currently the subject of much research in this study we use panel data to estimate a stochastic production frontier and the sources of inefficiency for a broad set of countries a maximum likelihood procedure is used to estimate the parameters for the stochastic production frontier and the determinants of inefficiency simultaneously our results show that institutions that promote greater economic freedom in turn promote efficiency

monetary policy expectations and commitment commitment in monetary policy leads to equilibria that are superior to those from optimal discretionary policies a number of interest rate reaction functions and instrument rules have been proposed to implement or approximate commitment policy we assess these rules in terms of whether they lead to a rational expectations equilibrium that is both locally determinate and stable under adaptive learning by private agents a reaction function that appropriately depends explicitly on private sector expectations performs particularly well on both counts