the micro origins of business cycles evidence from german metropolitan areas how large is volatility due to large firms we answer this question through both reduced form analysis and a calibration exercise first we exploit time and spatial variation across german cities

adam smith or machiavelli political incentives for contracting out local public services why do some local governments deliver public services directly while others rely on providers from the private sector previous literature on local contracting out and on the privatization of state owned enterprises have offered two competing interpretations on why center right governments rely more on private providers some maintain that center right politicians contract out more because like adam smith they believe in market competition others claim that center right politicians use privatization in a machiavellian fashion it is used as a strategy to retain power by purchasing the electoral support of certain constituencies using a unique dataset which includes the political attitudes of over 8 000 swedish local politicians from 290 municipalities for a period of 10 years this paper tests these ideological predictions together with additional political economy factors which have been overlooked in previous studies such as the number of veto players results first indicate support for the machiavellian interpretation as contracting out increases with electoral competition second irrespective of ideological concerns municipalities with more veto players in the coalition government contract out fewer services

privatisation around the world evidence from panel data this paper presents new evidence about privatisation processes and their determinants from a panel of 34 countries over the 1977 99 period the empirical analysis shows that privatisation takes place typically in wealthy and democratic countries endowed with deep and liquid stock markets and is affected by the governing political majority and public sector budget constraints but the extent of privatisation in terms of revenues and stakes sold appears more limited in civil law countries where shareholders are poorly protected banks powerful and capital markets less developed

political and economic determinants of the likelihood of privatizing argentine public banks abstract this paper discusses the political economy of bank privatization in argentina following institutional changes related to the implementation of the convertibility plan and to the tequila crisis the empirical results strongly support the hypothesis that political incentives affect the likelihood of privatization we find 1 poorly performing banks were more likely to be privatized 2 overstaffing tended to reduce the probability of privatization 3 large banks were less likely to be privatized and 4 higher levels of provincial unemployment and higher shares of public employees reduced the probability of privatization although the hypotheses were tested for a specific industry in a specific country which makes it possible to control for enterprise performance and institutional characteristics it seems reasonable that similar results might hold in other industries and countries

privatization public offerings and political objectives this paper empirically analyses the political and economic objectives underlying privatization on the stock market particularly the factors of sips underpricing are explained and the study analyses whether the change of political parties in government play a role on the issue the paper has two main findings first larger initial returns occurred in the early stages of privatization second the change of government from left wing to right wing did not lead to significantly higher levels of underpricing the results show that governments are quite pragmatic with respect to underpricing maximizing proceeds from sips shows to be more important than ideological differences between parties in government

political pluralism public policies and organizational choices banking branch expansion in india 1948 2003 data on the expansion of 94 commercial banks in india from 1948 to 2003 were analyzed to test the proposition that political pluralism wherein competing parties control the state and national governments of a nation can promote business expansion the results confirm that such political pluralism reduces the power of either government to constrain business decision making but that pluralism might at times lead to unhealthy competition between parties harming local expansion opportunities the data show that in india banks selectively exploit political pluralism to guide their expansion decisions

residual state ownership policy stability and financial performance following strategic decisions by privatizing telecoms we question previous research assuming that privatizing firm performance generally benefits from decreasing state ownership and the passage of time both of which purportedly align principal agent incentives promoting organizational decision making that increases shareholder value when state ownership shifts from majority and controlling to minority and non controlling the performance impact may be positive in the short run particularly where there is instability in the local investment policy environment consistent with this proposition we develop and test hypotheses derived from a minority and non controlling or residual state ownership framework grounded in credible privatization and institutional theory we propose that 1 residual state ownership positively affects shareholder returns after strategic decisions by privatizing firms because it signals state support for managerial initiatives 2 the passage of time since initial privatization negatively affects shareholder returns after strategic decisions by privatizing firms because initial undertakings in support of the privatizing firm are reversed and 3 home country investment policy stability moderates these two effects greater stability obviates the need for residual state ownership and slows policy reversals over time we find empirical support for our residual state ownership framework in event study analyses of cumulative abnormal returns cars associated with 196 major investments announced from 1986 to 2001 by 15 privatizing telecoms from around the world cars are positive at 5 25 state ownership levels but turn negative at higher state ownership levels cars turn sharply negative within 1 2 years from initial privatization dates increasing policy stability diminishes positive ownership and negative time effects on cars results confirm the potential supporting role that residual state ownership can play in enhancing strategic decision making and financial performance by privatizing firms particularly where there is instability in the home country investment policy environment

determinants of privatization prices generating government revenue is a common objective in privatization this paper asks what determines privatization prices using firm level data for all 236 mexican companies privatized between 1983 and 1992 there are three main reasons why net prices auction prices net of the cost of prior restructuring measures are low averaging 54 cents per dollar of assets first privatization prices are very sensitive to the level of competition in the auction and restrictions often limited participation second the privatization process took too long and lengthier privatizations are associated with lower premiums third firm prior restructuring measures absorbed an average of 33 percent of the auction price most restructuring measures do not increase price and delay privatization further net prices would have increased by 71 cents per dollar of assets if the government had emphasized speed succeeding in divesting assets in one year less than the average and firing the ceo were the only restructuring step taken

finance and politics the wealth effects of special interest group influence during the nationalisation and privatisation of conrail conrail nationalised in 1976 and privatised in 1987 was the most significant nationalisation and privatisation by the us government in recent years it was created from six bankrupt railroads under the pressure of interest groups formed by customers existing claimants employees and related companies we document the gains and losses to these special interest groups at key points in the nationalised and privatised time periods over this period the us government had outlays of 6 59 billion and cash inflow of 6 15 billion and internal return of 6 4 the paper provides evidence that a state owned firm with good governance could deliver superior performance

micro and macro elasticities in a life cycle model with taxes we build a life cycle model of labor supply that incorporates changes along both the intensive and extensive margin and use it to assess the consequences of changes in tax and transfer policies on equilibrium hours of work we find that changes in taxes have large aggregate effects on hours of work moreover we find that there is no inconsistency between this result and the empirical finding of small labor elasticities for prime age workers in our model micro and macro elasticities are effectively unrelated our model is also consistent with other cross country patterns

breakthroughs deadlines and self reported progress contracting for multistage projects we study the optimal incentive schemes for multistage projects staged financing pervasive in both venture capital and research grants arises as a feature of the optimal contract the nature of progress plays an important role when progress is tangible incentives are provided through a series of deadlines and a reward scheme that decreases over time early progress in one stage gives the agent more time and funding to complete the next one when progress is intangible unverifiable progress reports are used despite the fact that the information in the report has no social value the optimal contract involves a soft deadline wherein the principal guarantees funding up to a certain date if the agent reports progress at that date then the principal gives him a relatively short deadline to complete the project if not then a probationary phase begins in which the project is terminated at a constant rate until progress is reported we explore the implications for welfare and optimal project design

confidence building and politics in privatization some evidence from spain abstract this paper analyzes privatization on the stock market and has two main findings first sips underpricing is consistent with the confidence building hypothesis derived from political risk under asymmetric information larger initial returns occurred in the early stages of privatization which is consistent with the hypothesis that governments use underpricing to be credible privatizators second evidence gives support to the hypothesis that explicit political motives influence the design of privatization which is affected by the political majority

toward resource independence why state owned entities become multinationals an empirical study of india s public r d laboratories in this paper we build on the standard resource dependence theory rdt and its departure suggested by vernon to offer a novel explanation for why state owned entities soes might seek a global footprint and global cash flows to achieve resource independence from other state actors in the context of soes the power use hypothesis of standard rdt can be used to analyze the dependence of soes on other state actors such as government ministries and government agencies that have ownership and control rights in the soe building on vernon we argue that the soe can break free from this power imbalance and establish resource independence from other state actors by becoming a multinational firm and or by generating global cash flows we leverage a natural experiment in india and outline both quantitative and qualitative evidence from 42 indian state owned laboratories to support this argument

the government as a shareholder a case from the united states we study a sample of u s corporations in which the federal government held 35 100 percent of the outstanding common stock for between 1 and 23 years during and following world war ii we find that although the firms experienced abnormally high turnover among corporate board members the tenure of senior management was relatively stable moreover the performance of the government owned companies was not significantly different than that of private sector firms in the same industry hence the interim government custodianship of the firms in our case does not have the effects normally attributed to government ownership

large firm dynamics and the business cycle do large firm dynamics drive the business cycle we answer this question by developing a quantitative theory of aggregate fluctuations caused by firm level disturbances alone we show that a standard heterogeneous firm dynamics setup already contains in it a theory of the business cycle without appealing to aggregate shocks we offer an analytical characterization of the law of motion of the aggregate state in this class of models the firm size distribution and show that aggregate output and productivity dynamics display i persistence ii volatility and iii time varying second moments we explore the key role of moments of the firm size distribution and in particular the role of large firm dynamics in shaping aggregate fluctuations theoretically quantitatively and in the data

the relationship between firm growth size and age estimates for 100 manufacturing industries this study uses a sample of all firms operating in 100 manufacturing industries to examine some aspects of firm dynamics it finds that firm growth the variability of firm growth and the probability that a firm will fail decrease with firm age it also finds that firm growth decreases at a diminishing rate with firm size even after controlling for the exit of slow growing firms from the sample gibrat s law therefore fails although the severity of the failure decreases with firm size copyright 1987 by blackwell publishing ltd

the great diversification and its undoing we investigate the hypothesis that macroeconomic fluctuations are primitively the results of many microeconomic shocks we define fundamental volatility as the volatility that would arise from an economy made entirely of idiosyncratic sectoral or firm level shocks fundamental volatility accounts for the swings in macroeconomic volatility in the major world economies in the past half century it accounts for the great moderation and its undoing the initial great moderation is due to a decreasing share of manufacturing between 1975 and 1985 the recent rise of macroeconomic volatility is chiefly due to the growth of the financial sector jel e23 e32 e44 this article explores the hypothesis that changes in the microeconomic composition of the economy during the postwar period can account for the great moderation and its unraveling both in the united states and in the other major world economies we call fundamental volatility the volatility that would be derived only from microeconomic shocks if aggregate shocks come in large part from microeconomic shocks augmented by amplification mechanisms then aggregate volatility should track fundamental volatility to operationalize this idea the key quantity we consider which constitutes one departure from other studies is the following definition of fundamental volatility

the logit equilibrium a perspective on intuitive behavioural anomalies costs associated with deviations from the nash equilibrium these payoff asymmetry effects are incorporated in an approach that introduces noisy behavior via a logit probabilistic choice function in the resulting logit equilibrium behavior is characterized by a probability distribution that satisfies a rational expectations consistency condition the beliefs that determine players expected payoffs match the decision distributions that arise from applying the logit rule to those expected payoffs we prove existence of a unique symmetric logit equilibrium and derive comparative statics results the paper provides a unified perspective on many recent laboratory studies of games in which nash equilibrium predictions are inconsistent with both intuition and experimental evidence

share issue privatizations as financial means to political and economic ends abstract this study examines how political and economic factors affect the offer price share allocation and other terms governments choose when they privatize state owned enterprises via a public share offering using a 59 country sample of 630 share issue privatizations sips with total proceeds of over 446 billion during the period 1977 1997 we find that governments consistently underprice sip offers tilt their share allocation patterns to favour domestic investors impose control restrictions on privatized firms and typically use fixed price offers rather than book building or competitive tender offers all to further political and economic policy objectives

the financial and operating performance of newly privatized firms an international empirical analysis this study compares the pre and postprivatization financial and operating performance of 61 companies from 18 countries and 32 industries that experience full or partial privatization through public share offerings during the period 1961 to 1990 our results document strong performance improvements achieved surprisingly without sacrificing employment security specifically after being privatized firms increase real sales become more profitable increase their capital investment spending improve their operating efficiency and increase their work forces furthermore these companies significantly lower their debt levels and increase dividend payout finally we document significant changes in the size and composition of corporate boards of directors after privatization the last fifteen years have witnessed a significant global shift away from state socialism towards entrepreneurial capitalism one of the most important and visible aspects of this trend has been the enthusiasm with which governments of all political persuasions have sold their state owned enterprises soes to private investors in hopes that the generally unsatisfactory economic performance of these firms can be improved by the discipline of private ownership this denationalization process given its current title of privatization by the conservative government of margaret thatcher in

robust comparative statics in large dynamic economies we consider infinite horizon economies populated by a continuum of agents subject to idiosyncratic shocks this framework contains models of saving and capital accumulation with incomplete markets in the spirit of works by bewley aiyagari and huggett models of entry exit and industry dynamics in the spirit of hopenhayn s work and dynamic models of occupational choice and search models as special cases robust and easy to apply comparative statics results are established with respect to exogenous parameters as well as various kinds of changes in the markov processes governing the law of motion of the idiosyncratic shocks

government ownership and corporate governance evidence from the eu the ongoing global financial crisis has led to the largest increase in state intervention since the great depression direct government ownership in publicly traded corporations has increased dramatically since 2008 how will this increase in public ownership affect the governance of these erstwhile private companies we examine the impact of government ownership on corporate governance using a sample of firms from the european union a region that is relatively familiar with active government participation our main finding is that government ownership is associated with lower governance quality we further show that while government intervention is negatively related to governance quality in civil law countries it is positively related to governance quality in common law countries finally we find that the preferential voting rights of golden shares are especially damaging to governance quality

promoting competition in the presence of essential facilities this paper addresses how to use simple access pricing to promote entry in the presence of spillovers and essential facilities an inherent dilemma is that the greater the spillover the greater is the benefit of attracting good entrants but the harder it is to exclude low quality entrants because they can free ride on the quality of good entrants we show that the inability to discriminate between entrants has the effect of discouraging access prices that enable the low quality entrant to enter generates a time consistency problem and provides incentives for good quality entrants to limit their competitiveness

homogeneity bias in models of discrete choice with bounded rationality abstract quantal response equilibrium captures bounded rationality in a strategic game by adopting a stochastic model of discrete choice along with the traditional rational expectation framework we examine the use of a single agent homogeneous parametric quantal response model e g logit response to describe the aggregate behavior of heterogeneous agents sharing the same parametric form for their quantal response functions but having individual rationality parameters in a symmetric population game for any parametric quantal response function arising from a unimodal distribution of exchangeable payoff disturbances we find that a mis specified homogeneous rationality parameter will have downward bias logit response is one such specification this result implies that empirical work that disregards heterogeneity underestimates subjects rationality

cross sectoral variation in the volatility of plant level idiosyncratic shocks we estimate the volatility of plant level idiosyncratic shocks in u s manufacturing we measure the variation in revenue total factor productivity not explained by either industry or economy wide factors or by establishments characteristics we find that idiosyncratic shocks are much larger than aggregate shocks accounting for about 80 of the overall uncertainty faced by plants plants in the most volatile sector are subject to about six times as much idiosyncratic uncertainty as plants in the least volatile we provide evidence suggesting that idiosyncratic risk is higher in industries where the extent of creative destruction is likely to be greater

divide et impera strategic underpricing in privatizations in several recent initial public offerings in privatization casesshares seemed to be severely underpriced in this paper weprovide a political economy explanation for this apparentunderpricing using a variant of grossmann and helpmann s 1996 model of special interest politics we demonstrate thatgovernments may raise their election chances by rationinginvestors because the resulting broader distribution of sharesmakes regulation that is favorable to the privatized firm morepopular somewhat surprisingly even revenues from theprivatization can be increased through rationing the model alsoexplains the common practice of bonus systems designed to preventinvestors from taking profits immediately

noisy directional learning and the logit equilibrium we specify a dynamic model in which agents adjust their decisions toward higher payoffs subject to normal error this process generates a probability distribution of players decisions that evolves over time according to the fokker planck equation the dynamic process is stable for all potential games a class of payoff structures that includes several widely studied games in equilibrium the distributions that determine expected payoffs correspond to the distributions that arise from the logit function applied to those expected payoffs this logit equilibrium forms a stochastic generalization of the nash equilibrium and provides a possible explanation of anomalous laboratory data

heterogeneous quantal response equilibrium and cognitive hierarchies we explore an equilibrium model of games where behavior is given by logit response functions but payoff responsiveness and beliefs about others responsiveness are heterogeneous we study two substantively different ways of extending quantal response equilibrium qre to this setting 1 heterogeneus qre where players share identical correct beliefs about the distribution of payoff responsiveness and 2 truncated qre where players have downward looking beliefs systematically underestimating others responsiveness we show that the cognitive hierarchy model is a special case of truncated qre we conduct experiments designed to differentiate these approaches we find significant evidence of payoff responsive stochastic choice and of heterogeneity and downward looking beliefs in some games

gibrat s law and quantile regressions an application to firm growth abstract the nexus between firm growth size and age in u s manufacturing is examined through the lens of quantile regression models this methodology allows us to overcome serious shortcomings entailed by linear regression models employed by much of the existing literature unveiling a number of important properties size pushes both low and high performing firms towards the median rate of growth while age is never advantageous and more so as firms are relatively small and grow faster these findings support theoretical generalizations of gibrat s law that allow size to affect the variance of the growth process but not its mean cordoba 2008

optimal mortgage design this article studies optimal mortgage design in a continuous time setting with volatile and privately observable income costly foreclosure and a stochastic market interest rate we show that the features of the optimal mortgage are consistent with an option adjustable rate mortgage option arm under the optimal contract the borrower is given discretion of how much to repay until his balance reaches a certain limit the default rates and interest rate payment on the mortgage correlate positively with the market interest rate gains from using the optimal contract relative to simpler mortgages are the biggest for those who face more income variability buy pricey houses given their income level or make little or no down payment our model thus may help to explain a high concentration of option arms among riskier borrowers jel g20 g21 g33

privatization political risk and stock market development in emerging economies this paper investigates whether privatization in emerging economies has a significant indirect effect on local stock market development through the resolution of political risk we argue that a sustained privatization program represents a major political test that gradually resolves uncertainty over political commitment to a market oriented policy as well as to regulatory and private property rights we present evidence suggesting that progress in privatization is indeed correlated with improvements in perceived political risk our analysis further shows that changes in political risk in general tend to have a strong effect on local stock market development and excess returns in emerging economies we conclude that the resolution of political risk resulting from successful privatization has been an important source for the rapid growth of stock markets in emerging economies

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

politicians and the ipo decision the impact of impending political promotions on ipo activity in china abstract this paper shows that incentives created by the impending turnover of local politicians can accelerate the pace of initial public offering ipo activity in certain politicized environments focusing on china we exploit a research setting where politicians are rewarded for capital market development firms rely on political connections for access to capital rent seeking behavior is rampant and the objectives of the state might not be to maximize capital market efficiency we find that the rate of exchange eligible firms engaging in an ipo temporarily increases in advance of impending political promotion events this effect holds for both state owned and non state owned entities for state owned firms the effect is strongest in those provinces where the politicians are more likely to be rewarded for market development activity for non state owned firms the temporary increase in ipo activity appears to be rationally opportunistic in nature with the effect stronger around events more likely to disrupt the firms political connections promotion period ipos underperform non promotion period ipos in terms of both future financial performance and long run stock returns have controlling shareholders who retain a larger fraction of the company and are more likely to divert proceeds away from their intended use after the offering

anomalous behavior in a traveler s dilemma the notion of a nash equilibrium has joined supply and demand as one of the two or three techniques that economists instinctively try to use first in the analysis of economic interactions moreover the nash equilibrium and closely related game theoretic concepts are being widely applied in other social sciences and even in biology where evolutionary stability often selects a subset of the nash equilibria many people are uneasy about the stark predictions of the nash equilibrium in some contexts where the extreme rationality assumptions seem implausible kaushik basu s 1994 traveler s dilemma is a particularly convincing example of a case where the unrelenting logic of game theory is at odds with intuitive notions about human behavior the story associated with the dilemma is that two travelers purchase identical antiques while on a tropical vacation their luggage is lost on the return trip and the airline asks them to make independent claims for compensation in anticipation of excessive claims the airline representative announces

solving the incomplete markets model with aggregate uncertainty using explicit aggregation we propose a method to solve models with heterogeneous agents and aggregate uncertainty the law of motion describing aggregate behavior is obtained by explicitly aggregating the individual policy rule the algorithm is simpler and faster than existing algorithms that rely on parameterization of the cross sectional distribution and or a computationally intensive simulation step explicit aggregation establishes a link between the individual policy rule and the set of necessary aggregate state variables an insight that can be helpful in determining what state variables to include in other algorithms as well

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

bookbuilding vs fixed price an analysis of competing strategies for marketing ipos we compare two mechanisms for selling ipos the fixed price method and american book building when investors have correlated information and can observe each other s subscription decisions in this environment the fixed price method is a strategy that can create cascading demand alternatively an underwriter building a book aggregates investor information into the offer price we find that bookbuilding generates higher expected proceeds but exposes the issuer to greater uncertainty and that it provides the option to sell additional shares that are not underpriced on the margin

anatomy of initial public offerings of common stock initial public offerings of common stocks ipos are typically underpriced in this paper the author develops and tests the hypothesis that underpricing serves as a form of insurance against legal liability and the associated damages to the reputations of investment bankers the empirical results based on samples of ipos that were brought to the market before and after the securities act of 1933 provide considerable support for the implicit insurance hypothesis specifically gross underpricing and market segmentation between prestigious and fringe investment bankers in originating unseasoned new issues appear to be peculiar to the post 1933 era a number of studies have documented that unseasoned common stocks typically garner large positive abnormal returns during a short period following the initial offering in his recent review of the empirical evidence on the initial returns of common stock offerings smith 36 concluded that the returns from offer price to after market price have exceeded fifteen percent his calculations did not include some of the earlier results obtained by mcdonald and fisher 23 and logue 20 when their samples are combined with those in smith s review the initial returns of unseasoned equity offerings appear even larger over seventeen percent these results imply that underwriters consistently offer the securities at substantial discounts from their values that are set in the after market in other words initial public offerings ipos appear to be underpriced what is even more puzzling is the fact that in some time periods underpricing appears to be systematically larger than in other periods ibbotson and jaffe 15 and ritter 29 have documented that during the postwar era there have been a number of periods in which the initial returns of common stocks have been extremely high ritter for example reported that the average return from the offer price to the first after market price was over forty eight percent for ipos in 1980 and 1981 1 similarly the initial returns of unseasoned issues of common stock brought to the market in 1950 1951 1961 and 1968 were unusually large these periods in which ipos were grossly underpriced are referred to as the hotissue markets why do investment bankers underprice ipos why do issuers

zipf s law for cities an explanation zipf s law is a very tight constraint on the class of admissible models of local growth it says that for most countries the size distribution of cities strikingly fits a power law the number of cities with populations greater than s is proportional to 1 s suppose that at least in the upper tail all cities follow some proportional growth process this appears to be verified empirically this automatically leads their distribution to converge to zipf s law

large risks limited liability and dynamic moral hazard we study a continuous time principal agent model in which a risk neutral agent with limited liability must exert unobservable effort to reduce the likelihood of large but relatively infrequent losses firm size can be decreased at no cost or increased subject to adjustment costs in the optimal contract investment takes place only if a long enough period of time elapses with no losses occurring then if good performance continues the agent is paid as soon as a loss occurs payments to the agent are suspended and so is investment if further losses occur accumulated bad performance leads to downsizing we derive explicit formulae for the dynamics of firm size and its asymptotic growth rate and we provide conditions under which firm size eventually goes to zero or grows without bounds

economic performance through time prize lecture to the memory of alfred nobel december 9 1993 this abstract was borrowed from another version of this item

the financial and operating performance of privatized firms during the 1990s this study compares the pre and postprivatization financial and operating performance of 85 companies from 28 industrialized countries that were privatized through public share offerings for the period from 1990 through 1996 we document significant increases in profitability output operating efficiency and dividend payments and significant decreases in leverage ratios for our full sample of firms after privatization and for most subsamples examined capital expenditures increase significantly in absolute terms but not relative to sales employment declines but insignificantly combined with results from two previous directly comparable studies these findings strongly suggest that privatization yields significant performance improvements during the past two decades the privatization of state owned enterprises has moved from being a radical almost desperate policy initiative of the thatcher government in britain to being an accepted economic policy for governments of all ideological stripes according to gibbon 1998 860 billion has been raised by governments worldwide through privatizations with the bulk of this total coming since 1987 and at least one commentator roche 1996 predicts that no less than 6 trillion will be raised through privatizations over the next two decades in 1997 alone sales of public enterprises totaled a record 161 billion worldwide with more than 110 billion of the total coming during the second half of the year and 1998 s total of almost 140 billion indicates that the pace shows no sign of slackening as we approach a new millennium

the logit response dynamics we develop a characterization of stochastically stable states for the logit response learning dynamics in games with arbitraryspecification of revision opportunities the result allows us to show convergence to the set of nash equilibria in the class of best response potential games and the failure of the dynamics to select potential maximizers beyond the class of exact potential games we also study to which extent equilibrium selection is robust to the specificationof revision opportunities our techniques can be extended and applied to a wide class of learning dynamics in games

the performance of privatized firms in the czech republic abstract with the growing importance of privatizations as a part of government policy most empirical studies of these privatizations conclude that firm performance immediately improves following privatization privatization has been the most important part of the transition from the centrally planned economies of central and eastern europe and has a larger impact on those economies than privatizations in other countries however few studies have looked at the performance of firms following mass privatization this study uses 453 separate firms 101 firms privatized in both waves for a total of 554 observations in the first and second waves of czech voucher privatization using methodology from previous studies we find that while the overall effects from privatization are positive the effects vary by privatization wave size and industry firms privatized in the first wave performed worse decline in performance following privatization than firms privatized in the second wave we also fail to find ownership concentration or debt as an important factor in restructuring the firm i believe that the results are consistent with two hypotheses first economic and political structure surrounding the privatization waves plays an important part in the success of privatization stable environments both political and economic help privatized firms restructure and improve operating performance as well as attract foreign investors and capital even in less developed countries but in transitional economies undergoing mass privatization in rapidly changing and developing economic and political environments hinder firms from restructuring and improving performance following privatization results are also consistent with the hypothesis that firms with a longer preparation period prior to privatization an implicit seasoning improve performance following privatization

the effects of payoff magnitude and heterogeneity on behavior in 2 2 games with unique mixed strategy equilibria the logit version of quantal response equilibrium predicts that equilibrium behavior in games will vary systematically with payoff magnitudes if all other factors are held constant including the nash equilibria of the game we explore this in the context of a set of asymmetric 2x2 games with unique totally mixed strategy equilibria the data provide little support for the payoff magnitude predictions of the logit equilibrium model we extend the theoretical quantal response equilibrium model to allow for heterogeneity and find that the data fit the heterogeneous version of the theory significantly better

a theory of financing constraints and firm dynamics there is widespread evidence supporting the conjecture that borrowing constraints have important implications for firm growth and survival in this paper we model a multiperiod borrowing lending relationship with asymmetric information we show that borrowing constraints emerge as a feature of the optimal long term lending contract and that such constraints relax as the value of the borrower s claim to future cash flows increases we also show that the optimal contract has interesting implications for firm dynamics in agreement with the empirical evidence as age and size increase mean and variance of growth decrease and firm survival increases

partial privatization and firm performance most privatization programs begin with a period of partial privatization in which only non controlling shares of firms are sold on the stock market since management control is not transferred to private owners it is widely contended that partial privatization has little impact this perspective ignores the role that the stock market can play in monitoring and rewarding managerial performance even when the government remains the controlling owner using data on indian state owned enterprises we find that partial privatization has a positive impact on profitability productivity and investment widespread privatization in recent decades has generated a large empirical literature concerning the effect of ownership on firm performance most studies find that privatization has a positive impact on the profitability and efficiency of firms see megginson and netter 2001 for a recent survey 1 the firms in these studies have had a majority of their assets privatized and control rights have been transferred from the government to private owners surprisingly little is known about the effect of partial privatization where the government remains the controlling owner this paper seeks to address this gap in the literature by investigating whether the performance of state owned enterprises in india is affected by the sale of non controlling equity stakes on the stock market

bite me abc s shark tank as a path to entrepreneurship business pitch competitions provide early stage finance and mentoring for entrepreneurs in this paper we analyze data from the most public high stakes pitch competition in the usa abc s shark tank we construct a dataset comprising all entrepreneurs firms that have aired between august 2009 and may 2016 our findings 1 funding on the show seems to relax an internal financial constraint rather than signal the quality of the venture to potential outside investors 2 to the extent that the latter is occurring there is plausible evidence that the signaling effect works in an unexpected direction for women entrepreneurs it may crowd out attention from potential investors 3 while it is fairly clear that this pitch competition is associated with longer run existence of firms it has no significant impacts on innovation 4 there are no consistent differential impacts on racial ethnic minorities these findings complement the literature on the impact of pitch competitions and early access to finance

plant level irreversible investment and equilibrium business cycles this paper evaluates the importance of microeconomic irreversibilities for aggregate dynamics using a real business cycle rbc model characterized by investment irreversibilities at the establishment level the main finding is that investment irreversibilities do not play a significant role in an otherwise standard realbusiness cycle model even though investment irreversibilities are crucial for establishment level dynamics aggregate fluctuations are basically the same under fully flexible or completely irreversible investment jel e22 e32

a theory of privatisation public enterprises around the world have proved to be highly inefficient primarily because they pursue strategies such as excess employment that satisfy the political objectives of politicians who control them privatization of public enterprises can raise the cost to politicians of influencing them since subsidies to private firms necessary to force them to remain inefficient are politically harder to sustain than wasted profits of the state firms in this way privatization leads to efficient restructuring of firms moreover privatization is more effective when combined with a tight monetary policy and when the new owners of firms are profit maximizing investors rather than their employees or even managers copyright 1996 by royal economic society

on efficient distribution with private information this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with many consumers each of whom is subject to private idiosyncratic taste shocks we propose a recursive method for finding feasible allocations that are incentivecompatible and that are pareto optimal within this set the method is applied to several parametric examples we find that in an efficient allocation the degree of inequality continually increases with a diminishing fraction of the population receiving an increasing fraction of the resources we discuss the extent to which these allocations can be decentralized via market arrangements this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with private information the economy we study has a constant endowment flow of a single non storable consumption good which is to be allocated each period among a large number of consumers each period these consumers experience unpredictable idiosyncratic privately observed taste shocks affecting their marginal utility of current consumption efficiency dictates that more resources be allocated to those consumers who in any given period have a high marginal utility of current consumption

abnormal returns of uk privatizations from underpricing to outperformance this paper offers a review and discussion of the evidence concerning the underpricing and long run performance of british pipos privatization initial public offerings between 1977 and 1996 i e from the first privatization under a labour government british petroleum until the last ones by a conservative government railtrack more recent years are excluded because the change of government the introduction of a windfall tax on excess profits of regulated utilities and changes in the regulatory regime mark a totally different landscape compared with the previous twenty years evidence is found that underpricing was not followed by underperformance as is usually observed with ipos but rather strong outperformance this trend is decomposed by subgroups within a 55 observations sample and it is concluded that lax regulation was probably the main driving force of abnormal returns of british pipos

privatization as an agency problem auctions versus private negotiations abstract this paper investigates the design of privatization mechanisms in emerging market economies characterized by political constraints that limit the set of viable privatization options our objective is to explain the striking diversity of mechanisms observed in practice and the frequent use of an apparently sub optimal privatization mechanism private negotiations we develop a simple model in which privatization is to be carried out by a government agent who plays favorites among bidders but is potentially disciplined by losing his private benefits of staying in office if the political environment is such that the privatization agent himself aims at raising the fair value for the company then privatization auctions and private negotiations are equally successful in raising public revenues if however political considerations distort the agent s incentives it may be that a seemingly transparent auction will raise less revenue than opaque private negotiations we also show that information disclosure laws may have negative welfare implications they may help the privatization agent to collude with some of the bidders to the disadvantage of non colluding bidders

bank lending and initial public offerings abstract in this paper we test the hypothesis that banking relations are a signal about firm value we argue that bank processing of asymmetric information and external monitoring of corporate activities reduce the ex ante uncertainty of investors about firm value we demonstrate that the existence of bank debt and or lines of credit lowers the expected initial return associated with initial public offerings the empirical results are robust with respect to the inclusion of variables which reflect other mechanisms that can ameliorate ex ante uncertainty our work adds to the body of evidence that supports the hypothesis that intermediaries provide valuable asset services to corporate borrowers

new evidence on gibrat s law for cities the aim of this work is to test empirically the validity of gibrat s law in the growth of cities using data on the complete distribution of cities without size restrictions or a truncation point in three countries the us spain and italy for the entire 20th century for this we use different techniques first panel data unit root tests tend to confirm the validity of gibrat s law in the upper tail distribution and second we find mixed evidence in favour of gibrat s law in the long term in general size affects the variance of the growth process but not its mean when using nonparametric methods that relate the growth rate to city size moreover the lognormal distribution works as a good description of city size distribution across the whole century when no truncation point is considered

a simple test of baron s model of ipo underpricing abstract this paper tests baron s 1982 model of initial public offering ipo underpricing that model relies on information asymmetries between issuers and underwriters and predicts that offer prices will be lower than would prevail in the absence of asymmetric information we examine the initial public offerings of 38 investment banks that went public in the period 1970 1987 and participated in the distribution of their own securities we find that contrary to the implication of baron s model such self marketed offerings are characterized by statistically significant underpricing comparable to that of other ipos

financial capacity and output fluctuations in an economy with multi period financial relationships this paper motivates a financial propagation mechanism in the context of an intertemporal production economy with asymmetric information and with borrowers and lenders who enter multi period financial relationships a key feature is that aggregate output and borrowers financial capacity the maximum overhang of past debt they may feasibly carry are determined jointly much in the spirit of gurley and shaw 1955 expectations of future economic conditions govern financial capacity which in turn may constrain current production especially in bad times a small but persistent shift in aggregate conditions may have a large impact on financial capacity making the framework capable of motivating large endogenous fluctuations in financial constraints understanding how small disturbances can induce large output fluctuations is an on going quest in macroeconomics this paper develops a simple framework in which shifts in aggregate economic fundamentals are amplified through their impact on financial conditions a distinguishing feature is that output and borrowers financial capacity the maximum overhang of past debt they may feasibly carry are determined jointly much in the spirit of gurley and shaw 1955 expectations of future economic conditions govern financial capacity and financial capacity may constrain current production especially in bad times a number of recent papers have resurrected the view that financial factors may play a part in propagating business fluctuations the underlying theories exploit the idea that with asymmetric information between borrowers and lenders agency costs may drive the price of uncollateralized external funds above the price of internal funds in this kind of setting a borrower s financial position is a key determinant of the terms of credit she faces in the aggregate swings in borrower balance sheets over the cycle amplify fluctuations in investment and output essentially by inducing counter cyclical movements in the required premium for external finance this simple mechanism is broadly consistent with informal descriptions of how financial and real variables interacted in the great depression bernanke 1983 and in the postwar business cycles eckstein and sinai 1986 in addition numerous recent panel data studies beginning with fazzari hubbard and peterson 1988 support the notion of a financial investment accelerator mechanism

political connections and the process of going public evidence from china abstract we examine how political connections impact the process of going public specifically we test how political connections impact the pricing of the newly offered shares the magnitude of underpricing and the fixed cost of going public based on the experience of the newly public firms from chinese security markets and using multiple measures of political connections we find robust evidence that the issuing firms with political connections reap significant preferential benefits in the process of going public to be specific we find that firms irrespective of their ownership status with greater political connections have relatively higher offering price lower underpricing and lower fixed costs during the going public process

optimal lending contracts and firm dynamics we develop a general model of lending in the presence of endogenous borrowing constraints borrowing constraints arise because borrowers face limited liability and debt repayment cannot be perfectly enforced in the model the dynamics of debt are closely linked with the dynamics of borrowing constraints in fact borrowing constraints must satisfy a dynamic consistency requirement the value of outstanding debt restricts current access to short term capital but is itself determined by future access to credit this dynamic consistency is not guaranteed in models of exogenous borrowing constraints where the ability to raise short term capital is limited by some prespecified function of debt we characterize the optimal default free contract which minimizes borrowing constraints at all histories and derive implications for firm growth survival leverage and debt maturity the model is qualitatively consistent with stylized facts on the growth and survival of firms comparative statics with respect to technology and default constraints are derived borrowing constraints are an important determinant of firm growth and survival 1 such constraints may arise in connection to the financing of investment opportunities faced by firms or temporary liquidity needs such as those required to survive a recession this paper develops a theory of endogenous borrowing constraints and studies its implications for firm dynamics in our model debt is constrained by the firm s limited liability and option to default a lending contract specifies an initial loan size future financing and a repayment schedule the choice of these variables in turn determines future growth the firm s future borrowing capacity and its ability and willingness to repay hence borrowing constraints and firm dynamics are jointly determined we study this dynamic design problem our model builds on thomas and worral s 1994 model of foreign direct investment at time zero a risk neutral borrower firm or entrepreneur has a project which requires a fixed initial set up cost every period the project yields revenues that increase with the amount of 1 there is considerable evidence suggesting that financing constraints are important determinants of firm dynamics gertler and gilchrist 1994 argue that liquidity constraints may explain why small manufacturing firms respond more to a tightening of monetary policy than do larger manufacturing firms perez quiros and timmermann 2000 show that in recessions smaller firms are more sensitive to the worsening of credit market conditions as measured by higher interest rates and default premia evans and jovanovic 1989 show that the liquidity constraints are essential in the decision to become an entrepreneur fazzari hubbard and petersen 1988 among others view financial constraints as an explanation for the dynamic behaviour of aggregate investment and cabral and mata 1996 are able to fit reasonably well the size distribution of portuguese manufacturing firms by estimating a simple model of financing constraints for surveys see hubbard 1998 and stein 2003

on the empirical content of quantal response equilibrium the quantal response equilibrium qre notion of mckelvey and palfrey 1995 has recently attracted considerable attention due largely to its widely documented ability to rationalize observed behavior in games played by experimental subjects we show that this ability to t the data as typically measured in this literature is uninformative without ap riori distributional assumptions a qre can match any distribution of behavior by each player in any normal form game we discuss approaches that might be taken to provide valid empirical evaluation of the qre and discuss its potential value as an approximating empirical structure

optimal long term financial contracting we develop an agency model of financial contracting we derive long term debt a line of credit and equity as optimal securities capturing the debt coupon and maturity the interest rate and limits on the credit line inside versus outside equity dividend policy and capital structure dynamics the optimal debt equity ratio is history dependent but debt and credit line terms are independent of the amount financed and in some cases the severity of the agency problem in our model the agent can divert cash flows we also consider settings in which the agent undertakes hidden effort or can control cash flow risk

outside opportunities and termination abstract we study a dynamic principal agent relationship where a stochastic outside opportunity offer arises each period for the risk averse agent termination is costly but it allows the agent to pursue the available outside opportunity and the principal to return to an external market to hire a new agent the principal acts strategically with respect to the agent s outside offers and we show that it is optimal to terminate the current relationship if and only if the agent s outside offer is above a cutoff level the optimal contract generates both voluntary and involuntary terminations severance compensation arises endogenously and we show that it may be paid only in involuntary terminations conditional on termination the size of the optimal severance compensation depends positively on the agent s current compensation but negatively on his outside offer the optimal contract dictates an inverted u relationship between compensation and the probability of termination

do privatized banks in middle and low income countries perform better than rival banks an intra industry analysis of bank privatization abstract this paper presents a comprehensive analysis of the pre and post privatization operating performance and stock market performance of privatized banks and their rivals in middle and low income countries first we find that privatization announcements elicit negative abnormal returns for rival banks the effects are more pronounced for subsequent tranche sales where the proportion of government ownership in the privatized bank is reduced second we observe that the privatized banks underperformed the benchmark index in the long run investors who bought shares of the privatized banks on the first day of trading and held them for 5 years instead of investing in the market index lost 24 of their wealth the underperformance is consistent with the negative long run returns that have been documented for initial public offerings third we document marginal improvements in the post privatization operating performance of the privatized banks though the privatized banks in middle and low income countries are better capitalized than rival banks they carry higher problem loans and are overstaffed relative to other private banks in the post privatization period since most of the sample firms are partially privatized we submit that perhaps the continued government ownership of the privatized banks might have hindered managers ability to restructure the firms

probabilistic choice and procedurally bounded rationality abstract we derive a family of probabilistic choice models including the multinomial logit model from a microeconomic model in which the decision maker has to make some effort in order to implement any desired outcome the disutility of this effort enters the decision maker s goal function in an additively separable way a particular disutility function yielding the multinomial logit as a special case is characterized axiomatically the present approach naturally leads to a normalization of the achieved utility with respect to the number of alternatives the approach also applies to continuum choice sets in euclidean spaces and provides a microeconomic foundation for logit type quantal response models in game theory

the contribution of large and small employers to job creation in times of high and low unemployment we document a negative correlation at business cycle frequencies between the net job creation rate of large employers and the level of aggregate unemployment that is much stronger than for small employers the differential growth rate of employment between initially large and small employers has an unconditional correlation of 0 5 with the unemployment rate and varies by about 5 percent over the business cycle we exploit several datasets from the united states denmark and france both repeated cross sections and job flows with employer longitudinal information spanning the last four decades and several business cycles we discuss implications for theories of factor demand jel d22 e23 e32 j23 l25

intertemporal distortions in the second best we consider a very general class of public nance problems that encompasses ramsey models of optimal taxation as well as economies with limited commitment private information and political economy frictions we identify a su cient condition to rule out permanent intertemporal distortions at the optimum if there exists an admissible allocation that converges to the rst best steady state then all intertemporal distortions are temporary in the second best we analyze a series of applications to illustrate the signi cance of this result

public offerings of state owned and privately owned enterprises an international comparison we compare initial offer prices in privatizations to initial prices in public offerings of private companies the evidence indicates that government officials in the united kingdom underprice ipos significantly more than their private company counterparts in canada and malaysia however the opposite is true there does not appear to be a general tendency for privatizations to be underpriced to a greater degree than private company ipos we provide additional evidence on the determinants of privatization initial returns our findings indicate that initial returns are significantly higher in relatively primitive capital markets and for privatized companies in regulated industries

the financial and operating performance of newly privatized firms evidence from developing countries this paper examines the change in the financial and operating performance of 79 companies from 21 developing countries that experienced full or partial privatization during the period from 1980 to 1992 we use accounting performance measures adjusted for market effects in addition to unadjusted accounting performance measures both unadjusted and market adjusted results show significant increases in profitability operating efficiency capital investment spending output employment level and dividends we also find a decline in leverage following privatization but this change is significant only for unadjusted leverage ratios our results are generally robust when we partition our data into various subsamples

gender segmentation at work in china s privatized rural industry some evidence from shandong and jiangsu abstract in this paper we argue that labor segmentation exists along gender lines in the newly privatized township and village enterprises in rural china the results based upon surveys of workers enterprise managers and local officials indicate that women are segregated into production type jobs in certain industries have less control over their work do not receive a return to experience and are adversely affected by wage discrimination there is a clear gender bias in favor of men in share holding a new and important form of workplace benefit that confers wealth and affects control within the workplace and thus privatization has contributed to gender segmentation the results support the general argument that the process of economic transition is not gender neutral

venture capitalist certification in initial public offerings this paper provides support for the certification role of venture capitalists in initial public offerings consistent with the certification hypothesis a comparison of venture capital backed ipos with a control sample of nonventure capital backed ipos from 1983 through 1987 matched as closely as possible by industry and offering size indicates that venture capital backing results in significantly lower initial returns and gross spreads in effect the presence of venture capitalists in the issuing firms serves to lower the total costs of going public and to maximize the net proceeds to the offering firm in addition we document that venture capitalists retain a significant portion of their holdings in the firm after the ipo the ability of third party specialists to certify the value of securities issued by relatively unknown firms in capital markets that are characterized by asymmetric information between corporate insiders and public investors has attracted much academic interest in recent years several authors including james 1990 blackwell marr and spivey 1990 and barry muscarella peavy and vetsuypens 1991 have developed and tested models based at least in part on the formal certification hypothesis presented in booth and smith 1986 a related body of work represented by deangelo 1981 beatty and ritter 1986 titman and trueman 1986 johnson and miller 1988 carter 1990 simon 1990 and carter and manaster 1990 has examined how investment bankers and auditors help resolve the asymmetric information inherent in the initial public offering ipo process in this paper we examine whether the presence of venture capitalists as investors in a firm going public can certify that the offering price of the issue reflects all available and relevant inside information we hypothesize that venture capitalists can perform this function that it will be an economically

idiosyncratic shocks and the role of nonconvexities in plant and aggregate investment dynamics we examine a model of lumpy investment wherein establishments face persistent shocks to common and plant specific productivity and nonconvex adjustment costs lead them to pursue generalized s s investment rules we allow persistent heterogeneity in both capital and total factor productivity alongside low level investments exempt from adjustment costs to develop the first model consistent with available evidence on establishment level investment rates reassessing the implications of lumpy investment for aggregate dynamics in this setting we find that they remain substantial when factor supply considerations are ignored but are quantitatively irrelevant in general equilibrium the substantial implications of general equilibrium extend beyond the dynamics of aggregate series while the presence of idiosyncratic shocks makes the time averaged distribution of plant level investment rates largely invariant to market clearing movements in real wages and interest rates we show that the dynamics of plants investments differ sharply in their presence thus model based estimations of capital adjustment costs involving panel data may be quite sensitive to the assumption about equilibrium our analysis also offers new insights about how nonconvex adjustment costs influence investment at the plant when establishments face large and weakly persistent idiosyncratic productivity shocks consistent with existing estimates we find that nonconvex costs do not cause lumpy investments but act to eliminate them

the costs of going public abstract this paper presents evidence regarding the two quantifiable components of the costs of going public direct expenses and underpricing together these costs average 21 22 of the realized market value of the securities issued for firm commitment offers and 31 87 for best efforts offers for a given size offer the direct expenses are of the same order of magnitude for both contract types but the underpricing is greater for best efforts offers an explanation of why some firms choose to use best efforts offers in spite of their apparent higher total costs is given

corporate governance and equity prices evidence from the czech and slovak republics the 1992 czechoslavakia mass privatization program involving about 1 500 eneterprises and implemented through a voucher scheme with competitive bidding was a bold step in changing the ownership and governance of a large part of the economy it represents a clear test case of one approach and other countries may benefit from its lessons at the time much skepticisism was voiced about mass privatization it would lead to diffuse ownership and no effective corporate governance would result but innovative forces led to the emergence of investment funds that collected much of the individuals voucher points leading to a much more concentrated ownership structure it has been expected that this concentrated ownership would lead to improved corporate governance but the jury is still out so far only limited and largely anecdotal evidence is available on the impact investment funds have on the way firms are being managed too little time has passed and too many shocks have occurred for example the split of the czech and slovak republics to expect to find discernible changes in corporate governance on measures of actual firm performance an alternative approach is to investigate whether firms that ended up with more concentrated ownership and possibly improved governance sell for higher prices either in the last voucher round or in the secondary market since then in a forward looking financial market one can expect prices to incorporate the effects of better ownership on future firm performance and associated dividends to shareholders put differently one would expect that two firms with different shareholding structures but otherwise identical would trade at different prices with the firm with a more concentrated ownership and presumably better corporate governance trading at a higher price on a cross sectional basis ownership structure may thus be significant in explaining relative share prices the author explores this line of reasoning controlling for a number of firm and sector specific variables he finds 1 majority ownership by a domestic or foreign investor has a positive influence on firm prices 2 firms with many small owners have lower prices 3 ownership by many small scale investors makes it easier for any single investor to establish effective control but such control does not necessarily translate into higher prices the author also provides two possible explanations of why higher prices appear to be associated only with majority ownership by a single investor he finds 1 the corporate legal framework and the difficulty in collecting proxy votes in the czech and slovak republics may prevent a small investor from making the necessary changes in the way firms are managed thus keeping prices low and 2 commercial banks are both managers of invesment funds and creditors of individual firms funds managers may face conflicts of interest and not be interested in increasing the value of equity alone but also the value of credits this could explain why prices are relatively lower for those firms in which investment funds have effective control

a generalized gibrat s law many economic and non economic variables such as income wealth firm size or city size often distribute pareto in the upper tail it is well established that gibrat s law can explain this phenomenon but gibrat s law often does not hold this note characterizes a class of processes one that includes gibrat s law as a special case that can explain pareto distributions of particular importance is a parsimonious generalization of gibrat s law that allows size to affect the variance of the growth process but not its mean this note also shows that under plausible conditions zipf s law is equivalent to gibrat s law

how sensitive is investment to cash flow when financing is frictionless i analyze the sensitivity of a rm s investment to its own cash ow in the benchmarkcase where nancing is frictionless this sensitivity has been proposed as a measure of nancing constraints in earlier studies i nd that the investment cash ow sensitivities that obtain in the frictionless benchmarkare very similar both in magnitude and in patterns they exhibit to those observed in the data in particular the sensitivity is higher for rms with high growth rates and low dividend payout ratios tobin s q is shown to be a more noisy measure of near term investment plans for these rms does a high sensitivityof a rm s investment to its own cash ow indicate that the rm is nancially constrained a large body of research starting with fazzari hubbard and petersen 1988 hereafter fhp suggests that rms facing nancing constraints should exhibit high investment cash ow sensitivities re ecting the wedge between the costs of external and internal funds empirical ndings seem to give support to this hypothesis since rms classi ed as constrained on a priori criteria such as size dividend payout or leverage do have higher cash ow sensitivities even after controlling for their investment opportunities by conditioning on tobin s q however the reliability of these results critically depends on whether q is a proper control for the investment opportunity set if q performs worse for certain classes of rms higher sensitivities may obtain for these rms simply because cash ow re ects information about investment opportunities this critique is not new in his discussion of fhp poterba 1988 was the rst to point out that measurement error in q may cloud the empirical results similar concerns have been raised in subsequent studies as well while the qualitative point is well known its quantitative impact on the investment cash ow sensitivity has not been analyzed can the linkbetween cash ow and the investment opportunity set account for the observed magnitudes of the sensitivity or are these magnitudes too large to be explained without nancing frictions

are land reforms granting complete property rights politically risky electoral outcomes of mexico s certification program abstract what is the impact on voting behavior of strengthening property rights over agricultural land to answer this question we use the 14 year nationwide rollout of mexico s land certification program procede and match affected communities ejidos before and after the change in property rights with voting outcomes in corresponding electoral sections across six federal election cycles we find that in accordance with the investor class theory granting complete property rights induced a conservative shift toward the pro market party equal to 6 8 percent of its average share of votes over the period this shift was strongest where vested interests created larger expected benefits from market oriented policies as opposed to public transfer policies we also find that beneficiaries failed to reciprocate through votes for the benefactor party we conclude that in the mexican experience engaging in a land reform that strengthened individual property rights over agricultural land was politically advantageous for the right wing party