are firms successful at selective hedging we analyze the corporate risk management policies of 44 companies in the gold mining industry firms tend to decrease hedging as prices move against them behavior contrary to that predicted by risk management theory these results along with new survey evidence suggest that firms attempt to time market prices so called selective hedging although estimates show a statistically significant ability of producers to favorably adjust hedge ratios this can be attributed to sample specific negative autocorrelation in gold prices economic gains to selective hedging are small and no evidence suggests that selective hedging leads to superior operating or financial performance

combined use of foreign debt and currency derivatives under the threat of currency crises the case of latin american firms abstract we investigate the determinants of firms use of foreign currency derivatives in emerging markets exposed to currency crises we develop a model where a firm with international orientation chooses its optimal foreign debt and hedging ratio in the context of highly volatile exchange rate periods in five latin american countries we calibrate the model on adrs we find theoretical and empirical evidence that country specific factors i e aggregate exposure of a country to a crisis explain significantly part of our firms foreign debt and hedging policy as opposed to literature on firms in developed markets we claim that derivative markets have been effective tools for firms in these countries at least in the post crisis era

investment uncertainty and liquidity we analyze the dynamic investment decision of a firm subject to an endogenous financing constraint the threat of future funding shortfalls lowers the value of the firm s timing options and encourages acceleration of investment beyond the first best optimal level as well as highlighting another way by which capital market frictions can distort investment behavior this result implies that 1 the sensitivity of investment to cash flow can be greatest for high liquidity firms and 2 greater uncertainty has an ambiguous effect on investment

evidence on corporate hedging policy this paper provides empirical evidence on the determinants of corporate hedging decisions the paper examines the evidence in light of currently mandated financial reporting require ments and in particular the constraints placed on anticipatory hedging data on hedging are obtained from 1992 annual reports for a sample of 3 022 firms out of the 771 firms classified as hedgers 543 firms disclose information in their annual reports on their hedging activities the remaining 228 firms report use of derivatives but no information on hedging activities based on the evidence i draw the following conclusions with respect to the models of hedging evidence is inconsistent with financial distress cost models evidence is mixed with respect to contracting cost capital market imperfections and tax based models and evidence uniformly supports the hypothesis that hedging activities exhibit economies of scale

cross hedging minimum return guarantees basis and liquidity risks we reveal pitfalls in the hedging of insurance contracts with a minimum return guarantee on the underlying investment e g an external mutual fund we analyze basis risk entailed by hedging the guarantee with a dynamic portfolio of proxy assets for the funds we also take account of liquidity risk which arises since the insurer may need to advance funds for performing the hedge based on a least squares monte carlo simulation we study the economic implications of basis and liquidity risks we demonstrate that both risks may be surprisingly high and show how the design of the contract and the hedging strategy may help to alleviate them

competitive nonlinear tariffs abstract this paper generalizes the study of nonlinear tariffs i e those depending nonlinearly on the quantity purchased to the case of a symmetric oligopoly competitive equilibria and the corresponding tariffs are analyzed in a cournot framework various equilibria are obtained which depend both upon the number of competing suppliers and the choice of market parameters used to characterize the competitors strategies buyers are classified by type each selecting an optimal consumption level in response to the prevailing tariff the phenomena of buyer self selection found in monopoly nonlinear pricing and the scaling of equilibrium demand elasticity found in cournot models both appear in the results

hedging and liquidity this article develops a model for evaluating alternative hedging strategies for financially constrained firms a key advantage of the model is the ability to capture the intertemporal effects of hedging on the firm s financial situation we characterize the optimal hedge a wide range of alternative hedging strategies can be specified and the model allows us to determine in each case if the hedging strategy raises or lowers firm value and by how much we show that hedging firm value hedging cash flow from operations and hedging sales revenue are not optimal the article highlights the fact that every hedging strategy comes packaged with a borrowing strategy which requires careful consideration futures markets often provide the most liquid and convenient instruments for managing risk however because futures contracts are marked to market it is often impossible to simultaneously hedge cash flows and values for example a futures contract that locked in the value of gold that a corporation planned to extract in one year would generate an uncertain cash flow pattern over the year this article examines how liquidity and cash flow timing problems associated with different hedging strategies can affect a firm s value in our model the objective for hedging is to increase the firm s financial flexibility an optimal hedge maximizes the firm s liquidityslack in the form of excess cash or unused debt capacitywhen liquidity is most valuable this lowers the danger of costly financial distress reduces the effective cost of external financial constraints and makes value maximizing investments affordable a firm with no financial constraints does not gain from hedging and the higher the firm s financial constraints the greater the potential value of hedging the value of hedging depends critically on the design of the hedging strategy we show that the optimal hedge minimizes the variability in the marginal value of the firm s cash balances such a hedge efficiently redistributes cash balances across different states and periods taking cash from those states for which the marginal cost of the financial constraint is low and giving cash to those states for which the marginal

micro processes of translation in the transfer of practices from mne headquarters to foreign subsidiaries the role of subsidiary translators recent research has increasingly emphasized the micro foundations of knowledge transformation in multi national enterprises mnes although the literature has provided ample evidence of the enablers of and barriers to the translation of practices less is known about the activities and efforts of translators that lead to specific types of translation in the context of the transfer of practices initiated at a mne s headquarters hq to foreign subsidiaries we apply a scandinavian institutionalist approach to examine the translation of corporate social responsibility reporting an hq initiated practice that is transferred to five foreign subsidiaries of a uk based mne our paper builds from a preliminary framework based on extant research to develop an extended framework of the micro processes of translation by theorizing the sequence of the micro processes undertaken by translators identifying the conditions under which they occur and connecting them to the three types of translation we provide a deep understanding of the micro foundations of translation when transferring practices from hq to subsidiaries our paper shows that translation is an evolving phenomenon and illuminates the importance of attending to the social spatial and temporal situatedness of translators it also brings insights into the individual experience of institutional distance and its effects on translation

the valuation of floating rate instruments abstract a framework for valuing floating rate notes is developed to examine the effects of 1 lags in the coupon formula 2 special contractual features and 3 default risk evidence from a sample of floaters indicates they sold at significant discounts while lags in the coupon formulas and other contractual features make these notes more variable they do not account for the magnitude of the discounts we conclude that the fixed default premium in the coupon formula of a typical note is inadequate to compensate for time varying default premiums demanded by investors who treat other corporate short term paper as close substitutes

optimal dynamic trading with leverage constraints we solve for the optimal dynamic trading strategy of an investor who faces a leverage constraint i e a limitation on his ability to borrow for the purpose of investing in a risky asset we assume that the investor has constant relative risk aversion and that the value of the risky asset follows a geometric brownian motion in the absence of the leverage constraint the optimal strategy involves investing a fixed proportion of wealth in the risky asset we prove that in the presence of the leverage constraint the optimal investment also involves investing a fixed proportion of wealth in the risky asset when the leverage constraint is not binding however the two proportions are different reflecting the extent to which the investor alters his strategy even when the leverage constraint is not binding because of the possibility that the leverage constraint will become binding in the future

corporate control and real investment in incomplete markets abstract in the standard real options approach to investment under uncertainty agents formulate optimal policies under the assumptions of risk neutrality or perfect capital markets however in most situations corporate executives face incomplete markets either because they receive compensation packages that restrict their portfolios or because cash flows from the firm s investment opportunities are not spanned by those of existing assets the present paper examines the impact of managerial risk aversion on investment decisions when the manager is exposed to idiosyncratic risk and faces the risk of a control challenge in the paper the investment policy selected by the manager reflects a trade off between his incentives to reduce risk and the need to ensure sufficient efficiency to prevent control challenges the analysis demonstrates that risk aversion induces the manager to speed up investment leading to a significant erosion of the value of the option to wait

a simple model of credit contagion abstract we propose a simple model of credit contagion in which we include macro and microstructural interdependencies among the debtors within a credit portfolio the microstructure captures interdependencies between debtors that go beyond their exposure to common factors e g business or legal interdependencies we show that even for diversified portfolios moderate microstructural interdependencies have a significant impact on the tails of the loss distribution this impact increases dramatically for less diversified microstructures

stochastic capacity investment and flexible vs dedicated technology choice in imperfect capital markets this paper analyzes the impact of endogenous credit terms under capital market imperfections in a capacity investment setting we model a monopolist firm that decides on its technology choice flexible versus dedicated and capacity level under demand uncertainty differing from the majority of the stochastic capacity investment literature we assume that the firm is budget constrained and can relax its budget constraint by borrowing from a creditor the creditor offers technology specific loan contracts to the firm after which the firm makes its technology choice and subsequent decisions capital market imperfections impose financing frictions on the firm our analysis contributes to the capacity investment literature by extending the theory of stochastic capacity investment and flexible versus dedicated technology choice to understand the impact of capital market imperfections and by analyzing the impact of demand uncertainty variability and correlation on the operational decisions and the performance of the firm under different capital market conditions we demonstrate that the endogenous nature of credit terms in imperfect capital markets may modify or reverse conclusions concerning capacity investment and technology choice obtained under the perfect market assumption and we explain why the theory developed in this paper suggests some rules of thumb for the strategic management of the capacity and technology choice in imperfect capital markets this paper was accepted by john birge focused issue editor

a general formula for valuing defaultable securities previous research has shown that under a suitable no jump condition the price of a defaultable security is equal to its risk neutral expected discounted cash flows if a modified discount rate is introduced to account for the possibility of default below we generalize this result by demonstrating that one can always value defaultable claims using expected risk adjusted discounting provided that the expectation is taken under a slightly modified probability measure this new probability measure puts zero probability on paths where default occurs prior to the maturity and is thus only absolutely continuous with respect to the risk neutral probability measure after establishing the general result and discussing its relation with the existing literature we investigate several examples for which the no jump condition fails each example illustrates the power of our general formula by providing simple analytic solutions for the prices of defaultable securities

contagion and risk sharing on the inter bank market abstract increasing inter bank lending has an ambiguous impact on financial stability using a computational model with endogenous bank behavior and interest rates we identify the conditions under which inter bank lending promotes stability through risk sharing or provides a channel through which failures may spread in response to large economy wide shocks more inter bank lending relationships worsen systemic events for smaller shocks the opposite effect is observed as such no inter bank market structure maximizes stability under all conditions in contrast deposit insurance costs are always reduced under greater numbers of inter bank lending relationships a range of regulations are considered to increase system stability

hedging speculation and shareholder value abstract we document that gold mining firms have consistently realized economically significant cash flow gains from their derivatives transactions we conclude that these cash flows have increased shareholder value since there is no evidence of an offsetting adjustment in firms systematic risk this finding contradicts a central assumption in the risk management literature that derivatives transactions have zero net present value and highlights an important motive for firms to use derivatives that the literature has hitherto ignored although we find considerable evidence of selective hedging in our sample the cash flow gains from selective hedging appear to be small at best

repatriating knowledge variables influencing the transfer process because of the strategic importance of organizational learning in a global economy the knowledge that repatriates acquire during international assignments is a valuable resource few multinational enterprises however actively harvest this knowledge and little quantitative empirical research on this topic exists to date we propose an original model and propositions that delineate the facilitative and inhibiting factors affecting repatriate knowledge transfer to work units we conclude with suggestions for future research and practical implications

managerial overconfidence and corporate risk management abstract we examine whether managerial overconfidence can help explain the observed discrepancies between the theory and practice of corporate risk management we use a unique dataset of corporate derivatives positions that enables us to directly observe managerial reactions to their speculative gains and losses from market timing when they use derivatives we find that managers increase their speculative activities using derivatives following speculative cash flow gains while they do not reduce their speculative activities following speculative losses this asymmetric response is consistent with the selective self attribution associated with overconfidence our time series approach to measuring overconfidence complements cross sectional approaches currently used in the literature our results show that managerial overconfidence which has been found to influence a number of corporate decisions also affects corporate risk management decisions

hedging financing and investment decisions theory and empirical tests abstract in this paper we theoretically and empirically examine the interaction between hedging financing and investment decisions a simple equilibrium model with costly financial distress suggests that as firms become more efficient at risky investments vis a vis low risk investments they will borrow less invest more in risky assets and hedge more the model also predicts a positive relationship between hedging and leverage a result consistent with debt capacity arguments we test the model empirically using a simultaneous equations framework to investigate the determinants of firm level hedging financing and investing decisions the results strongly support the hypothesis that the hedging financing and investment decisions are jointly determined in addition we find strong support for the central hypothesis that firms more efficient investing in risky technologies more aggressively hedge and use less debt financing in order to maximize their comparative advantage

from crossing cultures to straddling them an empirical examination of outcomes for multicultural employees international organizations ranging from large mncs to small born global firms are increasingly recognizing that multicultural employees can help them operate across countries and across cultures however multiculturals individuals who identify with and internalize more than one culture are a diverse group and organizations seeking to leverage their potential can benefit from a deeper understanding of the resources they possess and the challenges they face we conducted three studies with a total of 1196 participants to test relationships between multicultural identity patterns and personal social and task outcomes consistent results across studies indicated that individuals with more cultural identities higher identity plurality had more social capital and higher levels of intercultural skills than those with fewer cultural identities while individuals who integrated their cultural identities higher identity integration experienced higher levels of personal well being than those who separated them based on these results we advocate for two directions in future research on multicultural employees moving beyond cognitive mechanisms alone and examining monocultural and multicultural individuals simultaneously along the spectrum of identity plurality

how firms should hedge substantial academic research explains why firms should hedge but little work has addressed how firms should hedge we assume that firms can experience costly states of nature and derive optimal hedging strategies using vanilla derivatives e g forwards and options and custom exotic derivative contracts for a value maximizing firm facing both hedgable price and unhedgable quantity risks customized exotic derivatives are typically better than vanilla contracts when correlations between prices and quantities are large in magnitude and when quantity risks are substantially greater than price risks finally we discuss how our model may be applied in practice copyright 2002 oxford university press

job complexity and learning opportunities a silver lining in the design of global virtual work a vast majority of research on global virtual work focuses on the struggles for workers as they navigate geographic cultural language and time zone differences our research suggests that despite these struggles global virtual work may offer significant benefits to workers we interviewed 78 engineers about their experiences of working globally and then surveyed 515 knowledge workers who worked either with globally distributed or exclusively collocated colleagues global virtual work was associated with workers positive appraisal of the work s complexity and learning potential which in turn improved innovation satisfaction and engagement these effects however relied on workers off job recovery between workdays

cultural and language skills as resources for boundary spanning within the mnc we examine the role of cultural and language skills as resources for individuals boundary spanning ability in multinational corporations our combined qualitative and quantitative analysis shows that cultural and language skills influence the extent to which individual boundary spanners perform four functions exchanging linking facilitating and intervening boundary spanners with both cultural and language skills perform more functions than those with only cultural skills and language skills are critical for performing the most demanding functions key boundary spanners have properties that potentially make them not only valuable organizational human capital but also rare and difficult to imitate theoretical and practical implications are discussed

cyclical correlations credit contagion and portfolio losses abstract we model aggregate credit losses on large portfolios of financial positions contracted with firms subject to both cyclical default correlation and direct default contagion processes cyclical correlation is due to the dependence of firms on common economic factors contagion is associated with the local interaction of firms with their business partners we provide an explicit normal approximation of the distribution of portfolio losses we quantify the relation between the variability of global economic fundamentals strength of local firm interaction and the fluctuation of losses we find that cyclical oscillations in fundamentals dominate average losses while local interaction causes additional fluctuations of losses around their average the strength of the contagion induced loss variability depends on the complexity of the business partner network

culture and international business recent advances and their implications for future research the paper provides a state of the art review of several innovative advances in culture and international business ib to stimulate new avenues for future research we first review the issues surrounding cultural convergence and divergence and the processes underlying cultural changes we then examine novel constructs for characterizing cultures and how to enhance the precision of cultural models by pinpointing when cultural effects are important finally we examine the usefulness of experimental methods which are rarely used by ib researchers implications of these path breaking approaches for future research on culture and ib are discussed

cultural gap bridging in multinational teams multinational teams are an organizational reality but they present several challenges the literature suggests that individuals with multicultural identities are more likely to show behaviors that aim at improving intercultural interactions in multinational teams though scholars have yet to determine the precise nature of these behaviors we address this research gap in a multimethod two study design by identifying five team cultural gap bridging behaviors cgb behaviors facilitating translating integrating mediating and empathetic comforting in study 1 we draw on one qualitative and two quantitative datasets to identify within team cgb behaviors and develop a measure of cgb behaviors in study 2 drawing from two wave survey data we investigate and find support for the direct relationships between cultural identity plurality and cgb behaviors and the indirect relationships via cultural intelligence

leverage constraints and the optimal hedging of stock and bond options this paper considers the problem of a financial institution that needs to hedge a stream of state contingent cash flows while facing borrowing and short sales restrictions the study determines analytically the strategy that minimizes the initial cost of hedging the desired cash flow which is also the upper bound on its market price and shows that the impact of leverage constraints on the cost of hedging call and put options is significant and therefore the biases detected by tests of option pricing models may not represent arbitrage opportunities the paper also shows that with credit limits it is optimal to reduce the rate of trading thus these constraints need to be recognized when estimating the trading volume generated in replicating contingent payoffs such as portfolio insurance

commodity betas with mean reverting output prices abstract this paper provides a theoretical derivation of commodity beta stock price sensitivity to commodity price using a contingent claim model the model incorporates operating leverage financial leverage costly financial distress and mean reverting commodity prices and highlights the important role played by the speed of reversion of the commodity price it is used to identify theoretically the main determinants of commodity beta commodity beta is predicted to be an increasing function of the operating and financial leverage of the firm and a decreasing function of the company s tax rate and the level volatility and speed of reversion of the commodity price empirical tests with a sample of gold mining firms provide support for these predictions particularly the new implications of the model the effect of the commodity price s speed of reversion and the company s tax rate

hedging and competition abstract we consider firms that all else equal wish to minimize variability in their internal capital due to convex costs of raising external funds the firms can hedge the cash flow risk of the project but not that of winning or losing the auction we characterize optimal hedging and bidding strategies in this competition framework we show that access to financial markets makes firms bid more aggressively possibly even above their valuation for the project in addition hedging increases the variance of bids and makes firm values more dispersed further with hedging the covariance of internal capital changes with the risk factor is negative and is more negative the higher the correlation of the hedging instrument with the risk factor

optimal bank capital with costly recapitalization we study optimal bank capital choice as a dynamic trade off between the opportunity cost of equity the loss of franchise value following a regulatory minimum capital violation and the cost of recapitalization we introduce a recapitalization delay that results in a strictly positive probability of capital adequacy violation we calibrate the model to bank accounting return data and evaluate the model s ability to explain observed bank capital ratios differences in return volatility explain a significant fraction of the cross sectional variation in bank capital ratios differences in the level of capital market imperfections across banks constitute a secondary explanation

optimal nonuniform prices we consider optimal nonuniform pricing schedules where the price depends upon the amount purchased such schedules are regularly used by public utilities and other services welfare optimal nonuniform prices are related to the theory of optimal uniform prices developed by ramsey we characterize situations in which upward or downward discontinuities in pricing schedules are optimal our results are applicable to a number of related problems including optimal taxation insurance and incentives economic theory has confined most of its attention to markets with uniform prices in which the price per unit charged is invariant to the level of a customer s purchases this focus is warranted when goods are resellable since any attempt to charge nonuniform prices could be circumvented by reselling amongst customers but when goods are not resellable nonuniform prices are not only possible but common public utilities have declining block pricing with lower unit charges for large levels of consumption many agencies providing services including communications transportation even education use two part pricing with a fixed entry or retainer charge and a further charge per unit consumption nonuniform price schedules can be expected to be ever more common as services become a larger fraction of total output the increasing prevalence of nonuniform pricing policies have made them the focus of recent public and economic attention oi 1971 feldstein 1972 and ng and weisser 1974 have examined optimal two part pricing policies leland and meyer 1976 examine block pricing and show by example that optimal welfare policies may require nonuniform prices if zero profit constraints are binding in this paper we consider arbitrary nonuniform pricing policies using variational techniques two part and block pricing schedules are of course special cases of the environment we consider the work most closely related to our examination is the seminal paper by spence 1978 and subsequent analysis by roberts 1979 spence however does not pay explicit attention to the key role played by constraints on optimal pricing schedules roberts considers upward price discontinuities which lead to bunching of consumers at a given level of consumption but not downward price discontinuities which lead to regions in which no consumer chooses to consume gaps bunching or gaps may appear in the optimal price schedule even when underlying demand and cost functions are smooth and well behaved the prevalence of discontinuous pricing schedules e g the block pricing structures of public utilities argues that these questions are of practical as well as theoretical interest

risk aversion indivisible timing options and gambling in this paper we model the behavior of a risk averse agent who seeks to maximize expected utility and who has an indivisible asset and a timing option over when to sell this asset our main contribution is to show that contrary to intuition optimal behavior for such a risk averse agent can include risk increasing gambles for example a manager with a choice over when to disinvest from a project a private homeowner with a property to sell or an employee with a grant of american style stock options may be better off taking positions in other assets with zero sharpe ratio that are uncorrelated with the underlying project house or stock price risk the results have wider implications for the modeling and interpretation of portfolio optimization problems involving american style timing decisions

intertemporal non linear pricing this paper examines the impact of variations in temporal parameters in a non linear pricing model the two period model being analysed allows a rather general characterization of the price functions and of the impact of changes in temporal parameters such as the social rate of time discount the marginal costs in the two periods the interest rate and the growth rates in demand comparative statics results are derived under the assumption that price functions satisfy a strong optimality condition examples are given tarification non lineaire dans un cadre intertemporel dans cet article l auteur analyse l impact des variations dans les parametres temporels d un modele de tarification non lineaire on considere un modele i deux penodes qui permet une caracterisation assez generale des fonctions de prix et des impacts de variations dans les parametres temporels tels que le taux social de preference temporelle les cofuts marginaux dans les deux periodes le taux d interet et les taux de croissance de la demande l auteur derive des resultats de statique comparative en posant comme hypothese que les fonctions de prix satisfont une condition d optimalite forte des exemples sont donnes the present paper deals with the problem of designing price functions that would maximize social welfare under the constraint that firms operating under increasing returns and or large fixed costs break even there is an abundant literature on this general problem it is not my intention here to survey this literature but only to mention a few seminal papers namely ramsey 1927 coase 1946 boiteux 1956 baumol and bradford 1970 guesnerie 1980 and laffont and tirole 1984 the specific purpose of the present i am grateful to maurice marchand to the participants in the economic theory workshop queen s university the ceremade seminar universite de paris ix and the mathematical economics seminar at core universit6 de louvain for their comments the current version was written in the spring of 1985 during my visit to the universite de toulouse and was subsequently revised to meet the very helpful comments of two anonymous referees financial support from sshrc is gratefully acknowledged canadian journal of economics revue canadienne d economique xix no 3 august aofit 1986 printed in canada imprim6 au canada 0008 4085 86 539 555 1 50 canadian economics association this content downloaded from 207 46 13 57 on sat 10 sep 2016 05 43 49 utc all use subject to http about jstor org terms

optimal financial crises empirical evidence suggests that banking panics are related to the business cycle and are not simply the result of sunspots panics occur when depositors perceive that the returns on bank assets are going to be unusually low we develop a simple model of this in this setting bank runs can be first best efficient they allow efficient risk sharing between early and late withdrawing depositors and they allow banks to hold efficient portfolios however if costly runs or markets for risky assets are introduced central bank intervention of the right kind can lead to a pareto improvement in welfare from the earliest times banks have been plagued by the problem of bank runs in which many or all of the bank s depositors attempt to withdraw their funds simultaneously because banks issue liquid liabilities in the form of deposit contracts but invest in illiquid assets in the form of loans they are vulnerable to runs that can lead to closure and liquidation a financial crisis or banking panic occurs when depositors at many or all of the banks in a region or a country attempt to withdraw their funds simultaneously prior to the twentieth century banking panics occurred frequently in europe and the united states panics were generally regarded as a bad thing and the development of central banks to eliminate panics and ensure financial stability has been an important feature of the history of financial systems it has been a long and involved process the first cerntral bank the bank of sweden was established more than 300 years ago the bank of england played an especially important role in the development of effective stabilization policies in the eighteenth and nineteenth centuries by the end of the nineteenth century banking panics had been eliminated in europe the last true panic in england was the overend gurney company crisis of 1866

cultural intelligence a theory based short form measure this article reports the development and validation of a theory based short form measure of cultural intelligence sfcq the sfcq captures the original theoretical intent of a multifaceted culture general form of intelligence that is related to effective intercultural interactions the validity of the scale is established with 3526 participants in five language groups from around the world results provide evidence for construct and criterion related validity of the measure and indicate that cultural intelligence is a single latent factor reflected in three intermediate facets in support of construct validity the measure is modestly related to but distinct from emotional intelligence and personality and correlates positively with several indicators of multicultural experience with regard to criterion related validity it relates as predicted to several dimensions of intercultural effectiveness implications for the measurement and understanding of culture and the influence of culture on management practice are discussed

a one factor model of interest rates and its application to treasury bond options 1990 a one factor model of interest rates and its application to treasury bond options financial analysts journal vol 46 no 1 pp 33 39

pricing foreign currency options under stochastic interest rates abstract in this paper we build a general framework to price contingent claims on foreign currencies using the heath et al 1987 model of the term structure closed form solutions are obtained for european options on currencies and currency futures assuming that the volatility functions determining the term structure are deterministic as such this paper provides an example of a bond price process for both the domestic and foreign economies consistent with grabbe s 1983 formulation of the same problem

term structure movements and pricing interest rate contingent claims this paper derives an arbitrage free interest rate movements model ar model this model takes the complete term structure as given and derives the subsequent stochastic movement of the term structure such that the movement is arbitrage free we then show that the ar model can be used to price interest rate contingent claims relative to the observed complete term structure of interest rates this paper also studies the behavior and the economics of the model our approach can be used to price a broad range of interest rate contingent claims including bond options and callable bonds

a new index for electricity spot markets abstract different indexes are used in electricity markets worldwide to represent the daily behavior of spot prices however the peculiarities of these markets require a careful choice of the index based on mathematical formulation and its statistical properties choosing a bad index may influence the financial policies of market players since derivative pricing and hedging performance can be deeply affected in this paper with an initial theoretical analysis we intend to show that the most widely used indexes simple arithmetic average and weighted average with current volumes are poor representatives of the spot market we will then perform an analysis of the hedging strategy on a derivative instrument an asian option written on a reference index the resulting simulations applied to omel spain and eex germany are sufficiently clear cut to suggest that the decision to adopt an index to represent properly a market must be taken very carefully finally we will propose a new index fast index and after comparing it with the previous indexes will show that both theoretically and practically this index can be taken as a good electricity market synthetic indicator

collateral free lending with risk contingent credit for agricultural development indemnifying loans against pulse crop price risk in india this article addresses the problem of collateral free lending in the context of agricultural development we investigate a viable alternative to traditional credit products through the development of risk contingent credit for operating loans and farm mortgages and apply the concept to agricultural loans for pulse crops in india risk contingent credit mitigates business and financial risk by reducing debt obligations depending on the embedded commodity options whose payoffs are linked with commodity price fluctuations we analyze daily commodity spot prices for pulse crops in india and show how risk contingent structured financial instruments can be priced in practice

hedging the value of waiting abstract we analyze the optimal hedging policy of a firm that has flexibility in the timing of investment conventional wisdom suggests that hedging adds value by alleviating the under investment problem associated with capital market frictions however our model shows that hedging also adds value by allowing investment to be delayed in circumstances where the same frictions would cause it to commence prematurely thus hedging can have the paradoxical effect of reducing investment we also show that greater timing flexibility increases the optimal quantity of hedging but has a non monotonic effect on the additional value created by hedging these results may help explain the empirical findings that investment rates do not differ between hedgers and non hedgers and that hedging propensities do not depend on standard measures of growth opportunities

credit contagion in a network of firms with spatial interaction this contribution studies the effects of credit contagion on the credit risk of a portfolio of bank loans to this aim we introduce a model that takes into account the counterparty risk in a network of interdependent firms that describes the presence of business relations among different firms the location of the firms is simulated with probabilities computed using an entropy spatial interaction model by means of a wide simulation analysis we investigate the behavior of the model proposed and study the effects of default contagion on the loss distribution of a portfolio of bank loans

risk management in the global economy a review essay abstract this paper provides a review of developments in the area of risk management at both the firm level and the macro economy we review rationales regarding why firms choose to manage risk as well as new developments in measuring and managing risk in a dynamic setting we also consider current risk sharing arrangements in light of the theory regarding optimal risk sharing the paper concludes with some suggestions for additional research that emphasizes the importance of incorporating market incompleteness in an equilibrium setting we also discuss the role of incompleteness at the macro level and speculate on how derivatives markets may influence macro economic stabilization policy

financial constraints competition and hedging in industry equilibrium we analyze the hedging decisions of firms within an equilibrium setting that allows us to examine how a firm s hedging choice depends on the hedging choices of its competitors within this equilibrium some firms hedge while others do not even though all firms are ex ante identical the fraction of firms that hedge depends on industry characteristics such as the number of firms in the industry the elasticity of demand and the convexity of production costs consistent with prior empirical findings the model predicts that there is more heterogeneity in the decision to hedge in the most competitive industries

organizing knowledge processes in the multinational corporation an introduction this introduction discusses the contrast between on the one hand the current popularity of addressing mnc organization in knowledge terms and on the other the lack of adequate understanding of many of the causal mechanisms and contextual factors in relations between knowledge processes and organizational factors a number of the relevant research challenges are identified and it is clarified how the five articles in this focused issue addresses some of these

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

corporate liquidity and capital structure we solve for a firm s optimal cash holding policy within a continuous time contingent claims framework using dividends short term borrowing and equity issues as controls assuming mean reversion of earnings optimal cash is non monotone in business conditions and increasing in the level of long term debt the model matches closely a wide range of empirical benchmarks and predicts cash and leverage dynamics in line with the empirical literature firm value is quite insensitive to changes in the level of long term debt the model has interesting implications for asset substitution hedging and pecking order growth opportunities do not greatly affect cash holding policy

pricing derivatives on financial securities subject to credit risk this article provides a new methodology for pricing and hedging derivative securities involving credit risk two types of credit risks are considered the first is where the asset underlying the derivative security may default the second is where the writer of the derivative security may default we apply the foreign currency analogy of jarrow and turnbull 1991 to decompose the dollar payoff from a risky security into a certain payoff and a spot exchange rate arbitrage free valuation techniques are then employed this methodology can be applied to corporate debt and over the counter derivatives such as swaps and caps the purpose of this article is to provide a new theory for pricing and hedging derivative securities involving credit risk two sources of credit risk are identified and analyzed the first is where the asset underlying the derivative security may default paying off less than promised this is the case for example with imbedded options on corporate debt the second is the credit risk introduced by the writer of the derivative security who may also default examples include over the counter writers of options on eurodollar futures swaps and swaptions for pricing derivative securities involving credit risk there are currently two approaches the first views these derivatives as contingent claims not on the financial securities themselves but as compound options on the assets underlying the financial securities this is the case for example with the pricing of imbedded options on corporate debt see merton 1974 1977 black and cox 1976 ho and singer 1982 chance 1990 and kim ramaswamy and sundaresan 1993 or the pricing of vulnerable options see johnson and stulz 1987 in practice however this valuation methodology is difficult to use first the assets underlying the financial security are often not tradeable and therefore their values are not observable this makes application of the theory and estimation of the relevant parameters problematic second as in the case of corporate debt all of the other liabilities of the firm senior to the corporate debt must first and simultaneously be valued this generates significant computational difficulties as a result this approach has not

unraveling the effects of cultural diversity in teams a meta analysis of research on multicultural work groups previous research on the role of cultural diversity in teams is equivocal suggesting that cultural diversity s effect on teams is mediated by specific team processes and moderated by contextual variables to reconcile conflicting perspectives and past results we propose that cultural diversity affects teams through process losses and gains associated with increased divergence and decreased convergence we examine whether the level surface level vs deep level and type cross national vs intra national of cultural diversity affect these processes differently we hypothesize that task complexity and structural aspects of the team such as team size team tenure and team dispersion moderate the effects of cultural diversity on teams we test the hypotheses with a meta analysis of 108 empirical studies on processes and performance in 10 632 teams results suggest that cultural diversity leads to process losses through task conflict and decreased social integration but to process gains through increased creativity and satisfaction the effects are almost identical for both levels and types of cultural diversity moderator analyses reveal that the effects of cultural diversity vary depending on contextual influences as well as on research design and sample characteristics we propose an agenda for future research and identify implications for managers

security pricing and deviations from the absolute priority rule in bankruptcy proceedings claims ultimately awarded to shareholders of firms in reorganization were examined for a sample of 30 filings under the 1978 bankruptcy reform act we measured the amount paid to shareholders in excess of that which they would have received under the absolute priority rule and found that this amount represents on average 7 6 of the total awarded to all claimants evidence is also reported that common share values reflect a significant proportion of value ultimately received in violation of absolute priority suggesting that deviations from the rule were expected by the equity markets the absolute priority rule hereafter apr states that a bankrupt firm s value is to be distributed to suppliers of capital such that senior creditors are fully satisfied before any distributions are made to junior creditors and junior creditors are paid in full before common shareholders bankruptcy reorganization proceedings however are leaving shareholders and junior creditors with valuable assets even when senior claimants receive only partial settlements as barrett and sullivan 1988 noted traditionally shareholders have been last in line their claims on a troubled company s assets have had the lowest priority and their impact on the course of bankruptcy code proceedings generally has been next to nil but lately the balance of power has been shifting warner 1977 provided one of the early discussions of the implications of deviations from the apr baldwin and mason 1983 pp 510 511 examined the resolution of claims in the massey ferguson reorganization and provided no support for the hypothesis that the market believes absolute priority rules will be enforced if the firm defaults on its financial obligations franks and torous 1989 analyzed a sample of bankruptcies that occurred during the period 1970 through 1984 and found that 21 of 27 sample cases exhibited departures from the apr more recently weiss 1990 examined 37 firms that filed for bankruptcy between 1980 and 1986 and reported that 27 of the cases involved apr violations

corporate risk management integrating liquidity hedging and operating policies we analyze the value created by a dynamic integrated risk management strategy involving liquidity management derivatives hedging and operating flexibility in the presence of several frictions we show that liquidity serves a critical and distinct role in risk management justifying high levels of cash we find that the marginal value associated with derivatives hedging is likely to be low though we explain why some empirical studies find a higher value we explore the complex interactions between operating flexibility and financial risk management finding that substitution effects are nonmonotonic and are affected by operating leverage the nature of operating flexibility and the effectiveness of the hedging instrument this paper was accepted by jerome detemple finance

corporate policies with permanent and transitory shocks we model the financing cash holdings and hedging policies of a firm facing financing frictions and subject to permanent and transitory cash flow shocks the permanent and transitory shocks generate distinct sometimes opposite effects on corporate policies we use the model to develop a rich set of empirical predictions in our model correlated permanent and transitory shocks imply less risk lower cash savings and a drop in the value of credit lines the composition of cash flow shocks affects the cash flow sensitivity of cash which can be positive or negative optimal hedging of permanent and transitory shocks may involve opposite positions

international knowledge brokerage and returnees entrepreneurial decisions based on the knowledge brokerage literature and the international entrepreneurship literature we investigate whether returnees international knowledge transfer affects their entrepreneurial decisions and the extent to which this relationship is contingent on perceived supportive policies for returnee entrepreneurship and returnees difficulties with cross cultural readjustment in their home countries analyzing first hand survey data we find a positive relationship between international knowledge transfer and returnees decisions to become entrepreneurs this positive relationship is strengthened by the perception of the home country s supportive policies for returnee entrepreneurship but is weakened by returnees perceived difficulties in readjusting to the local norms and culture in their home countries

credit risk in a network economy we develop a structural model of credit risk in a network economy where any firm can lend to any other firm so that each firm is subject to counterparty risk either from direct borrowers or from remote firms in the network this model takes into account the role of each firm s cash management we show that we can obtain a semiclosed form formula for the price of debt and equity when cash accounts are buffers to bankruptcy risk as in other structural models the strategic bankruptcy decision of shareholders drives credit spreads and differentiates debt from equity cash flow risk also causes credit risk interdependencies between firms our model applies to the case where not only financial flows but also operations are dependent across firms we use queueing theory to obtain our semiclosed form formulae in steady state we perform a simplified implementation of our model to the u s automotive industry and show how we infer the impact on a supplier s credit spreads of revenue changes in a manufacturer or even in a large car dealer we also obtain prices for first to default and second to default basket credit default swaps

counterparty risk and the pricing of defaultable securities motivated by recent financial crises in east asia and the united states where the downfall of a small number of firms had an economy wide impact this paper generalizes existing reduced form models to include default intensities dependent on the default of a counterparty in this model firms have correlated defaults due not only to an exposure to common risk factors but also to firm specific risks that are termed counterparty risks numerical examples illustrate the effect of counterparty risk on the pricing of defaultable bonds and credit derivatives such as default swaps it has been well documented in moody s reports on historical default rates of corporate bond issuers that the number of defaults the number of credit rating downgrades and credit spreads are all strongly correlated with the business cycle this has motivated reduced form models such as duffie and singleton 1999 and lando 1994 1998 which assume that the intensity of default is a stochastic process that derives its randomness from a set of state variables such as the short term interest rate this approach has the convenient features that conditioning on the state variables defaults become independent events and default correlation arises due to the common inf luence of these state variables on the other hand a default intensity that depends linearly on a set of smoothly varying macroeconomic variables is unlikely to account for the clustering of defaults around an economic recession this is evident from a casual inspection of the exhibits in the latest moody s report see keenan 2000 within the usual affine framework one can model the state variables as jump diffusions see duffie pan and single

nationality cultural distance and expatriate status effects on the managerial network in a multinational enterprise we study the role of three characteristics of international managers nationality cultural distance and expatriate status for their network ties a network analysis of cross subsidiary interactions among 457 managers in an mne demonstrates that managers form strong expressive ties with peers with smaller cultural distance and from the same status group however managers form strong instrumental ties with peers who are different on these background characteristics the implications for international management theory and practice are discussed

language policies and practices in wholly owned foreign subsidiaries a recontextualization perspective this study adopts a recontextualization perspective on language policies and practices in wholly owned foreign subsidiaries drawing on a field study of 101 subsidiaries in japan we develop a contingency model that distinguishes between four different types of recontextualization with characteristic language policies and practices developing locally adaptive developing globally integrated established locally adaptive and established globally integrated our analysis shows how each of these four types is accompanied by specific problems and challenges in particular it elucidates five important aspects of language implementation 1 the emergence of language praxis from the interplay of headquarters strategies and local responses 2 the hybridization of language practices 3 the central role of key actors such as subsidiary presidents in recontextualization 4 the pervasive power implications of language policies and practices and 5 the multifaceted implications for strategic human resource management by so doing our analysis opens up new avenues for context specific and practice oriented studies of language in multinational companies

derivative cash flows and corporate investment abstract according to an influential argument corporate hedging supports corporate investment when internal cash flows are volatile and external financing is costly froot scharfstein and stein 1993 despite its vast influence the predictions of this theory have not yet been directly tested using actual derivative cash flows this study uses hand collected data on cash flows from derivative positions in the oil and gas industry between 2000 and 2015 strikingly on average an extra dollar in derivative cash flows translates into one more dollar in capital expenditure during industry recessions the median ratio of derivative cash flows to capital expenditure rises to 20 for hedging firms suggesting that derivatives play a crucial role in sustaining investment when the cost of external financing rises abruptly

on the determinants of corporate hedging finance theory indicates that hedging increases firm value by reducing expected taxes expected costs of financial distress or other agency costs this paper provides evidence on these hypotheses using survey data on firm s use of forwards futures swaps and options combined with computstat data on firm characteristics of 169 firms in the sample 104 firms use hedging instruments in 1986 the data suggest that firms which hedge face more convex tax functions have less coverage of fixed claims are larger have more growth options in their investment opportunity set and employ fewer hedging substitutes

data equivalence in cross cultural international business research assessment and guidelines data equivalence refers to the extent to which the elements of a research design have the same meaning and can be applied in the same way in different cultural contexts failure to establish data equivalence in cross cultural studies may bias empirical results and theoretical inferences although several authors have encouraged researchers to ensure high levels of data equivalence no study has assessed the status of the field in relation to compliance with data equivalence standards accordingly this study examines three aspects of data equivalence construct equivalence measurement equivalence and data collection equivalence within 167 studies that involve cross cultural data published in the journal of international business studies management international review journal of world business strategic management journal and the academy of management journal from 1995 to 2005 the findings indicate that international business researchers report insufficient information in relation to data equivalence issues thus limiting confidence in the findings of many cross cultural studies to enhance future research a guideline for procedures for researchers to follow and report in establishing data equivalence is offered

pricing interest rate derivative securities this article shows that the one state variableinterest rate models of vasicek 1977 and cox ingersoll and ross 1985b can be extended sothat they are consistent with both the current termstructure of interest rates and either the currentvolatilities of all spot interest rates or the currentvolatilities of all forward interest rates theextended vasicek model is shown to be very tracta ble analytically the article compares option pricesobtained using the extended vasicek model withthose obtained using a number of other models