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This paper represents a contribution to the still meager literature on the impact of prudential regulation bank behavior in Tunisia. It aims to examine the effect of the capital requirements on bank credits during the period from 1999 through 2010 and to assess the effectiveness of the banking supervision policy in containing banking system’s risk. For this purpose a dynamic model is built and then an empirical regression is estimated. The results shows that regulatory capital framework has been binding bank lending in Tunisia during the period of study; well-capitalized banks have lent more than less-capitalized ones. Despite the apparent stringency of the bank regulator in Tunisia, banking supervision has been weakly effective in restraining banks’ overall risk. Further strengthening of the banking supervision policy is still needed on the part of the central bank of Tunisia; i.e., the bank regulator.

In this study, we address a major problem in the measurement of firm performance and the regulation of natural monopolies, namely the intertemporal character of long-term investment decisions. In specific, we focus on the impact of adjustment costs of investments on estimates of firms' technical and cost inefficiency. We apply nonparametric dynamic data envelopment analysis to investigate the dynamic inefficiency of electricity distribution and transmission companies in the US during the years 2004 to 2011 and compare our results with their static counterparts. Our empirical findings reveal that ignoring long-term investments and their corresponding adjustment costs does significantly distort both firm-specific and industrial inefficiency estimates and may thus create misleading incentives for the regulated firms to cut investments.

When China's accession to the WTO exposed European firms to import competition, they responded by increasing their investment in innovation. This response was stronger in industries and firms where factors of production were less mobile. Motivated by this evidence, we incorporate "trapped factors" at the micro level into a general equilibrium model of product-cycle trade and growth. In a calibrated version of the model that starts with a baseline growth rate of 2%, trade integration between the OECD and low-wage countries can increase the steady-state growth rate to 2.4% per year. Factors that are trapped at a firm by an unexpected change in trade policy do not change this long-run growth rate, but in the medium run, they could have a noticeable effect on aggregate growth. Simulations of the model show that in the first decade after liberalization, growth jumps to 2.7% per year and that trapped factors account for almost all of the 0.3% = 2.7% − 2.4% increase above the steady state growth rate.

The paper considers some of the problems associated with the indirectly measured components of financial service outputs in the System of National Accounts (SNA), termed FISIM (Financial Intermediation Services Indirectly Measured). The paper considers how to integrate financial transactions into the balance sheet and production accounts of a firm; i.e., the paper looks at FISIM more broadly. In order to minimize the role of imputations, the paper considers a firm that raises capital at the beginning of the accounting period, engages in some form of productive activity during the period and then distributes the initial capital and any profits back to the capitalists who financed the firm.

We analyse in a theoretical framework the link between real-time and day-ahead market performance in a hydro-based and imperfectly competitive wholesale electricity market. Theoretical predictions of the model are tested on data from the Nordic power exchange, Nord Pool Spot (NPS).We reject the hypothesis that prices at NPS were at their competitive levels throughout the period under examination. The empirical approach uses equilibrium prices and quantities and does not rely on bid data nor on estimation of demand or marginal cost functions.

This paper analyzes innovation races in a moral hazard setting. I develop a model where two competing entrepreneurs, financed by a single venture capitalist, work independently on the same project. The venture capitalist cannot observe the allocation of funds she provides, which creates a moral hazard problem. I identify properties of the optimal financing contract and compare them to two benchmarks: single entrepreneur and first best. In particular, if the entrepreneurs differ in their skills, the relevant question is whether it is profitable to employ the less skilled entrepreneur in addition to the more skilled one. I show that if the entrepreneurs do not differ in their skills too much, financing both of them indeed helps to alleviate the moral hazard problem. Moreover, it might be profitable to finance the less skilled entrepreneur, in addition more skilled one, even in cases where the former would not be employed in the first best.

The effect of uncertainty on investment is widely considered to have a negative sign in the real option literature. Contrary to prediction of conventional real option theory, there are studies pioneered by Sarkar (2000) and Gryglewicz et al. (2008) with the argument that this negative relationship is not always correct. Such result is exceptional, since they show that uncertainty may accelerate irreversible investment without building on the convexity of the marginal product of capital in the real option framework. Major contribution of this paper, by applying the Gryglewicz et al. (2008) approach, is to show numerically that the uncertainty-investment relationship in Turkish electricity plant investment is non-monotonic and U-shaped. We also numerically compare those two studies and investigate whether certain conditions in Sarkar (2000) are associated with the parameter support by Gryglewicz et al. (2008) or not. Finally, we numerically demonstrate partial effect of the interest rate changes on optimal investment trigger based on Gryglewicz et al. (2008) framework.

This paper explores the role of public debt and fiscal deficits on factor productivity in an economy with credit market frictions and heterogeneous firms. When credit market conditions are sufficiently weak, low interest rates permit the government to run Ponzi schemes so that permanent primary deficits can be sustained. For small enough deficit ratios, the model has two steady states of which one is an unstable bubble and the other one is stable. The stable equilibrium features higher levels of credit and capital, but also a lower interest rate, lower total factor productivity and output. The model is calibrated to the US economy to derive the maximum sustain- able deficit ratio and to examine the dynamic responses to changes in debt policy. A reduction of the primary deficit triggers an expansion of credit and capital, but it also leads to a deterioration of total factor productivity since more low-productivity firms prefer to remain active at the lower equilibrium interest rate.

What determines firm growth over the life-cycle? Exploiting unique firm panel data on internal organization, balance sheets and innovation, representative of the entire Canadian economy, we study recent theories that examine life-cycle patterns for firm growth. These theories include organizational capital accumulation and management practices, financial frictions, learning about demand, and recent endogenous growth models with incumbent innovation. We emphasize the importance of differentiating between pure age effects of these theories and effects on size conditional on age. Our stylized facts highlight both empirical successes and shortcomings of current theory. First, models of organizational capital and innovation are broadly consistent with firm size correlations conditional on age but have difficulties matching the life-cycle dynamics of firm organization and innovation. Second, among theories we analyze, organizational capital and management practices are the most important determinants to explain intensive margin firm growth over the life-cycle. Third, although less important to explain intensive margin firm growth, financial frictions are an important determinant of firm exit, conditional on firm age.

We revisit the sequential search problem by Hey (J Econ Behav Organ 8:137–144, 1987). In a 2 $$\times $$ 2 factorial design, varying fixed and random cost treatments with and without recall, we address open research questions that were originally stated by Hey (1987). Our results provide clear evidence for Hey’s (1987) conjecture that recall negatively affects performance in sequential search. With experience, however, search behavior with and without recall converges toward the optimal reservation rule. We further find that the utilization of optimal reservation rules is independent from the stochastic nature of the search cost.

In recent contributions, von Weizsäcker (2014) and Summers (2014) maintain that mature economies accumulate too much capital. They suggest large and lasting public deficits as a remedy. This study argues that overaccumulation cannot occur in an economy with land. It presents novel data of aggregate land values, analyzes the issue within a stochastic framework and conducts an empirical test of overaccumulation.

This paper explores the role of public debt and fiscal deficits on factor productivity in an economy with credit market frictions and heterogeneous firms. When credit market conditions are sufficiently weak, low interest rates permit the government to run Ponzi schemes so that permanent primary deficits can be sustained. For small enough deficit ratios, the model has two steady states of which one is an unstable bubble and the other one is stable. The stable equilibrium features higher levels of credit and capital, but also a lower interest rate, lower total factor productivity and output. The model is calibrated to the US economy to derive the maximum sustain- able deficit ratio and to examine the dynamic responses to changes in debt policy. A reduction of the primary deficit triggers an expansion of credit and capital, but it also leads to a deterioration of total factor productivity since more low-productivity firms prefer to remain active at the lower equilibrium interest rate.

In this paper, we analyze optimal foreign direct investment of a firm which operates in a duopolistic market. We characterize certain technology spillover threshold and show that for a speed of transfer below this threshold, there is a unique locally asymptotic stable steady state with a positive capital stock in the developing country. Furthermore, this threshold exposes what level of technology should take as foreign direct investment.

International audience; We show that the standard analysis of vertical relationships transposes directly to investment dynamics. Thus, when a firm undertaking a project requires an outside supplier (e.g., an equipment manufacturer) to provide it with a discrete input to serve a growing but uncertain demand, and if the supplier has market power, investment occurs too late from an industry standpoint. The distortion in firm decisions is characterized by a Lerner-type index. Despite the underlying investment option, greater volatility can result in a lower value for both firms. We examine several contractual alternatives to induce efficient timing, a novel vertical restraint being for the upstream to sell a call option on the input. We also extend the model to allow for downstream duopoly. When downstream firms are engaged in a preemption race, the upstream firm sells the input to the first investor at a discount such that the race to preempt exactly offsets the vertical distortion, and this leader invests at the optimal time. These results are illustrated with a case study drawn from the pharmaceutical industry.

We analyse in a theoretical framework the link between real-time and day-ahead market performance in a hydro-based and imperfectly competitive wholesale electricity market. Theoretical predictions of the model are tested on data from the Nordic power exchange, Nord Pool Spot (NPS). We reject the hypothesis that prices at NPS were at their competitive levels throughout the period under examination. The empirical approach uses equilibrium prices and quantities and does not rely on bid data nor on estimation of demand or marginal cost functions.

We study an infinite horizon model, where a seller orders his product in batches of fixed size. A sales strategy determines both the order moments and the sales path between these moments. Under some natural conditions on the sellers revenue function, the strategy that maximizes the sellers time-discounted revenue is determined. The optimal strategy is shown to be unique and is characterized by increasing prices in between order moments. We analyze the sensitivity of this strategy to the main parameters of the model batch size, batch cost, and discount rate. Surprisingly,increasing batch sizes may lead to lower optimal order times.

This paper focuses on the impact of debt on the optimal policy for investment and hiring, in the light of the theory of real options. We consider a stochastic demand for the product sold by the company. We examine in particular the investment and hiring choices when, in case of enhancement levels of investment and employment, the additional cost is funded in whole or through the issuance of a new bond. We deal with this management problem in the Merton (1974)’s framework. We detail and analyze the optimal strategies. We show in particular that, in the presence of growth option, the value of the …rm is the sum of two barrier options, one of "up-and-in call" type, the other of "up-and-out call" type. The barrier corresponds to a threshold of the demand for the product sold by the …rm. The novelty of our approach is based on the combination of the optimization of the …rm management for a given production function with the valuation of its equity and debt as in Merton (1974). Recall that, in such a case, the equity value is a call option with value of the …rm as underlying asset and the amount of the debt to be repaid at maturity as the strike. Our results di¤er quite signi…cantly from those of the standard framework introduced by Tserlukevich (2008).

The paper proves the existence of equilibrium in nonrenewable resource markets when extraction costs are non-convex and resource storage is possible.Inventories atten the consumption path and eliminate price jumps at the end of the extraction period. Market equilibrium becomes then possible,contradicting previous claims from Eswaran, Lewis and Heaps (1983). We distinguish between two types of solutions, one with immediate and one with delayed build-up of inventories. For both cases we do not only characterize potential optimal paths but also show that equilibria actually exist under fairly general conditions. It is found that optimum resource extraction involves increasing quantities over a period of time. What is generally interpreted as an indicator of increasing resource abundance is thus perfectly compatible with constant resource stocks.

We test whether financial fluctuations affect firmsÕ decisions through their impact on banksÕ cost of funding. We exploit two shocks to Italian banksÕ CDS spreads and equity valuations: the 2007Ð 2009 financial crisis and the 2010Ð2012 sovereign debt crisis. Using newly available data linking over 3,000, mostly privately held, non-financial firms to their bank(s), we find that increases in banksÕ CDS spreads, and decreases in their equity valuations, lead younger and smaller firms to cut investment, employment, and borrowing. We conclude that financial market fluctuations affect even private firms through their banksÕ cost of funding.

In the literature investigating the impact of uncertainty on short-run and long-run investment, most authors have used a log linear profit function. This functional form has been generally considered a reasonable approximation for a more general one and has the advantage of providing closed form solutions for both short-run investment rule and long-run rate of capital accumulation. In this paper, we consider the profit function for the case of a monopolistic firm facing a linear demand function with additive shocks. Under this assumption, analytical solutions, for both short-run investment rule and long-run rate of capital accumulation, are not available. We then 1) propose an analytical approximation of the short-run investment rule and 2) show how such approximation can be used in order to derive the corresponding i) steady-state distribution of the optimal stock of capital and ii) the long-run average rate of capital accumulation. Finally, we compare the long-run rates of capital accumulation calculated under both profit function specifications. We find that, within a plausible range of parameter values, the two rates are significantly different. Hence, we conclude that the choice of a log linear functional form has a non-trivial impact on the magnitude of the long run rate of capital accumulation.

The investment decisions of small-scale farmers in developing countries are conditioned by their financial environment. Binding credit market constraints and incomplete insurance can limit investment in activities with high expected profits. We conducted several experiments in northern Ghana in which farmers were randomly assigned to receive cash grants, grants of or opportunities to purchase rainfall index insurance, or a combination of the two. Demand for index insurance is strong, and insurance leads to significantly larger agricultural investment and riskier production choices in agriculture. The binding constraint to farmer investment is uninsured risk: when provided with insurance against the primary catastrophic risk they face, farmers are able to find resources to increase expenditure on their farms. Demand for insurance in subsequent years is strongly increasing with the farmer’s own receipt of insurance payouts, with the receipt of payouts by others in the farmer’s social network and with recent poor rain in the village. Both investment patterns and the demand for index insurance are consistent with the presence of important basis risk associated with the index insurance, imperfect trust that promised payouts will be delivered and overweighting recent events.

This paper considers the existence and computation of Markov perfect equilibria in games with a "monotone" structure. Specifically, it provides a constructive proof of the existence of Markov perfect equilibria for a class of games in which a) there is a continuum of players, b) each player has the same per period payoff function and c) these per period payoff functions are supermodular in the player's current and past action and have increasing differences in the player's current action and the entire distribution of actions chosen by other players. The Markov perfect equilibria that are analyzed are symmetric, not in the sense that each player adopts the same action in any period, but rather in the sense that each player uses the same policy function. Since agents are typically distributed across many states they will typically take different actions. The formal environment considered has particular application to models of industries (or economies) in which firms face costs of price adjustment. It is in this context that the results are developed.

Maintenance and production interact. The ideal way of accounting for this interaction, when estimating production functions, is by picking the temporal length of observations so that they embed integer multiples of the production—maintenance cycles for all inputs. In contrast to labor and land, the production—maintenance cycles of capital sometimes vary tremendously in temporal length, which can make it impossible to implement the ideal method of accounting for the interaction between maintenance and production. This paper empirically tests four second best methods of accounting for maintenance, when the ideal method is impossible. The output elasticities of all inputs (not just the input undergoing maintenance), which emerge from these tests, vary tremendously. This implies that the way that maintenance is incorporated into the analysis (including the standard approach of ignoring maintenance) drastically affects the profit maximizing combinations of inputs derived from production function estimations.

Several recent studies have shown that uncertainty affects investment decisions. Specifically, demand and/or price uncertainty are found to depress corporate investment in e.g. the United States. This paper investigates whether similar results hold for Belgium and Spain, countries where financial markets are less developped and many firms evidently face financial constraints. Uncertainty of demand, output prices and investment prices are measured by the standard deviation of (pre-)filtered Belgian (1984-1992) and Spanish (1983-1993) panel data, and included as explanatory variables in the investment equations derived from a neo-classical model. The results indicate that investment behaviour towards uncertainty differs significantly between low- and high-leveraged firms in both Belgium and Spain.

This paper presents a vintage-capital model of technology adoption that takes seriously the fact that new inventions are specific to the environment in which they emerge. The key feature of the model is that the firm can invest resources in R&D to adapt externally originated ideas to the environment in which they are used. We show that because of the possibility of investing in R&D, differences between the inventor's and user's environments can explain why some firms invest in old techniques. Several predictions of the model are consistent with observation.

This study investigates firm survival and employment growth of start-ups by unemployed people in East and West Germany as promoted by the Work Support Act (so called bridging allowances). In 1994, the services provided were improved considerably, which led to a sharp increase in the number of start-ups by the unemployed. The empirical analysis is based on a sample of newly founded firms from the ZEW Firm Start-up Panel. The sample contains firms which were founded between 1993 and 1995 and could be observed at least one year after their foundation in 4 regions of East and 11 regions of West Germany. In the econometric analysis, self-selection effects are taken into account by using simultaneous models of start-up promotion and firm development. While firm survival seems to be negatively affected by foundation from unemployment, especially in the East German regions, an influence on employment growth is not evident.

In an influential paper, David S. Scharfstein and Jeremy C. Stein (1990) modeled sequential investment by agents concerned about their reputation as good forecasters. Consider an agent who acts after observing the behavior of another ex ante identical agent. Scharfstein and Stein argue that reputational herding requires that better agents have more correlated signals conditionally on the state of the world. They claim that without correlation the second agent would have no incentive to attempt to manipulate the market inference about ability by imitating the behavior of the first agent. In this Note we show that in their model, correlation is not necessary for herding, other than in degenerate cases. Our clarification exploits a parallel with statistical herding, introduced by Abhijit V. Banerjee (1992) and Sushil Bikhchandani et al. (1992) (henceforth, BHW). BHW feature investors who maximize expected profits in a common-value environment and have access to conditionally independent private signals of bounded precision, while still observing the behavior of others. Eventually, the evidence accumulated from observing earlier decisions is sufficiently strong to swamp the private information of a single decision maker. Thereafter, everyone rationally copies the prevailing behavior. We notice that payoffs have a common-value nature in both the statistical and the reputational model. The observed behavior of other agents possibly affects the probability belief attached to different states of the world as well as the payoff conditional on each state. Herding arises from the interaction of these two channels affecting the expected payoff, be it physical or reputational. Positive differential conditional correlation of signals in the reputational model is tantamount to the introduction of positive payoff externalities in the statistical model. This reinforces the tendency to herd already present with independence. The fact that differential conditional correlation is not needed for herding is a clear strength of the reputational herding model. It is not necessary to assume common unpredictable components of returns at the individual level in order to rationalize the empirical findings that individual prediction errors of security analysts are correlated. After setting up Scharfstein and Stein’s model in Section I, we summarize their findings in Section II and provide a unified definition of herd behavior in Section III. Section IV contains our critique of their line of argument and clarifies the role of differential conditional correlation. In Section V we propose alternative robust scenarios where herding would indeed be driven by correlation. Section VI concludes.

This paper mathematically treats the following economic problem: A company wants to expand its capacity in investments that are irreversible. The problem is to find the best investment strategy taking the fluctuating market into account. We give some implicit conditions for a solution in the case where the market process is n-dimensional and an explicit solution in the one dimensional case.

A straightforward generalization of the simple net present value rule that correctly predicts when to invest in two classes of projects that can be delayed is derived. The first class consists of projects for which the option to delay derives its value exclusively from uncertainty about interest rates. It is shown that the optimal rule for investing in such projects is to simply multiply the discount rate of the project by the ratio of the mortgage rate to the riskless rate and then use this new rate as the discount rate in a standard net present value analysis. The other class of investment opportunities that is considered is the firm's option to expand. It is shown that it is only optimal for the firm to expand when a particular call option on the firm's stock has no time value. The fact that mortgage bonds (in the form of GNMAs) and stock options are actively traded implies that these rules have potentially important practical and empirical value. Besides their simplicity, the rules have the added advantage that they do not depend on a maintained assumption on the dynamics of interest rates in the economy.

George Bernard Shaw írta egy darabjában, hogy a férfiak és a nők neveltetését a veszekedés közbeni viselkedésük mutatja a legjobban. E fanyar szellemesség parafrázisaként összegezhetjük úgy Laki Mihály könyvének mondanivalóját, hogy a piacgazdasági neveltetés erejét a vállalkozások nem piaci körülmények közötti viselkedése mutatja a legjobban\". E sajátságos viselkedési, sőt túlélési kényszer időszaka azonban meglehetősen hosszúra nyúlt Magyarországon.

We examine a simple theory of altruism in which players' payoffs are linear in their own monetary income and their opponents. The weight on the opponent's income is private information and varies in the population, depending, moreover, on what the opponent's coefficient is believed to be. Using results of ultimatum experiments and the final round of a centipede experiment, we are able to pin down relatively accurately what the distribution of altruism (and spite) in the population is. This distribution is then used with a reasonable degree of success to explain the results of the earlier rounds of centipede and the results of some public goods contribution games. In addition, we show that in a market game where the theory of selfish players does quite well, the theory of altruism makes exactly the same predictions as the theory of selfish players. Journal of Economic Literature Classification Numbers: C70, C72, D90, D92.

Building on evidence that (a) productivity growth from learning by doing diminishes as experience accumulates with a technology and (b) learning by doing is largely specific to each production technology, this paper models a firm's decision of when to update its technology. The model implies that technology updates endogenously bring large drops in productivity. The model also implies that technology updates are more likely in a boom than in a recession since a high rate of production enables the firm to learn more quickly about the new technology. The forces in this model may help explain some features of plant and industry level data, such as the procyclicality of investment (including plant investment spikes) and the modest correlation between labor input and productivity. Journal of Economic Literature Classification Numbers: O31, L6, D92.

A tanulmány alapjául szolgáló empirikus felvétel abból indult ki, hogy az átalakuló országokban a beruházási tevékenység változása, a vállalati beruházások növekedése jól jelzi a tömeges stratégiai alkalmazkodás kezdetét. A szerző négy ország (Lengyelország, Csehország és Magyarország, valamint Németország keleti tartományai) 19921995 közötti beruházási tevékenységének statisztikai adatait, valamint a vizsgált országok több mint ezer cége által kitöltött kérdőív eredményeit elemzi. Sem a makrostatisztikai mutatók, sem az empirikus felmérés nem igazolták a hipotézist, hogy 1992 és 1995 között a vállalati modernizációban, a beruházásokban áttörés ment volna végbe., The empirical survey on which the study relies set out from the assumption that the changes in investment activity in the transforming countries, the growth of enterprise investments are good indicators of the beginning of massive strategic adjustment. The author analyses the statistical data on investment activity in four countries (Poland, the Czech Republic, Hungary, and the eastern provinces of Germany), as well as the results of questionnaries filled in by more than a thousand firms in the examined countries. The hypothesis that a break-through had occurred in enterprise modernization and investments between 1992-1995 was not confirmed by either the macrostatistical indicators or the empirical survey.

In this paper the corporate investment decision under financial restrictions is investigated with Belgian firm data from 1984 to 1992. An investment Euler equation is derived from a dynamic optimization model with debt ceilings and an elastic credit supply. The model is estimated by GMM for different firm groups. An important aspect is that the sample is split according to a firm's association with coordination centers. These centers have become the major external funding source of corporate investment in Belgium since 1986. The estimation results show the dependence of corporate investment on financial factors, both for non-coordination center as well as coordination center firms. (C) 1998 Elsevier Science B.V.

Slow money, or patient nurturing capital directly invested locally in small firms in food and basic industries, is a new term but an old notion. It gains revival in times of crisis, especially after the recent financial crisis, as people search for meaning and a way out of the ruinous effects of uncontrolled capitalism. This article traces the roots of the movement to Gandhian thought. It examines the cases of the CIGALES clubs of microangels in France and the more recent case of the slow money alliance to ferret out the basic principles and strategies of these movements and how they are aligned with Gandhian values.

Korean government has invested significant amount of resources through credit guarantee funds to promote SMEs survival, performance and R&D investment. This study attempts to identify determinants of provision of credit guarantees and estimate their effects on firms R&D expenditures. The relationship between duration of credit and firm's survival and performance is also investigated. Account is made for heterogeneity by various characteristics of firms when looking at credit guarantee and in-house R&D investment relationships. This study results in identification of factors that enhances efficiency of funds and their effects on firms' R&D investment behavior. It enables feedback effects on the public funds selection of firms guaranteed. A number of policy measures are proposed to promote a better balance between public and private investments to reduce the risk of business failure.

Identifying the impacts of liquidity shocks on spending decisions is difficult methodologically but important for theory, practice, and policy. Using seven different methods on microenterprise loan applicants, we find striking results. Borrowers report uses of loan proceeds strategically, and more generally their reporting depends on elicitation method. Borrowers also interpret loan use questions differently than the key counterfactual: spending that would not have occurred sans loan. We identify the counterfactual using random assignment of loan approvals and short-run follow-up elicitation of major household and business cash outflows, and estimate that about 100% of loan-financed spending is on business inventory.

This paper studies whether the solvency problems of Spain’s weakest Banks during the Great Recession had real effects. Data from the official credit register of the Bank of Spain indicate that those banks curtailed lending well in advance of their bailout. We show the existence of a credit supply shock, controling for firm fixed effects, and assess its impact by comparing the change in employment between 2006 and 2010 at firms that were clients of weak banks to those at comparable non-client firms. Our estimates imply that around 24% of job losses at firms attached to weak banks in our sample are due to this exposure. This accounts for one-half of downsizing at attached surviving firms and one-fifth of losses due to exposed-firm exits.

In this paper, we analyze the determinants of corporate saving in the form of changes in the stock of cash for 11 Asian economies using firm-level data from the Oriana Database for the 2002–2011 period. We find some evidence that cash flow has a positive impact on the change in the stock of cash, which suggests that Asian firms are borrowing constrained and that they save more when their cash flow increases so that they will be able to finance future investments. Moreover, we find in the developed economy sample that, as expected, cash flow has a positive impact on the change in the stock of cash only in the case of the smallest firms, which are more likely to be borrowing constrained, and find in the developing economy sample that, as expected, the positive impact of cash flow on the change in the stock of cash declines with firm size. In addition, we find that the cash flow sensitivity of cash declined after the global financial crisis. Finally, we find some evidence that Tobin’s q has a positive impact on the change in the stock of cash.

We study the relation between firm growth and managerial incentive provision under moral hazard when a long-lived firm is operated by a sequence of managers. In our model, firms replace their managers not only upon poor performance to provide incentives, but also when outside managers are at a comparative advantage to lead the firm through a new growth phase. We show how the optimal contract can be implemented with a system of deferred compensation credit and bonuses, along with dismissal and severance policies. Firms with better investment prospects have higher managerial turnover and rely on more front-loaded compensation schemes. Growth-induced turnover can result in positive severance if the principal needs to incentivize the manager to truthfully report the arrival of a growth opportunity. Realized firm growth depends jointly on the exogenous arrival of growth opportunities and the severity of the moral hazard problem. We also find a new component of agency costs due to the spillover effect of the tenure of the incumbent manager onto the present value of future managers’ compensation.

Many studies have been conducted to analyze the effect of stricter Employment Protection Legislation (EPL). However, almost all of them has focused on an ex-post impact; leaving aside a second but equally important channel: expectations. This paper aims to analyze the role of expectations on peruvian formal and informal labor market; using news as our identification variable. We use the monthly number of news related to the approval of the General Labor Law (GLL), a proposal entailing future stronger labor rigidities, from January 2001 to May 2012. Using the Permanent Employment Survey (EPE), we find a negative relation between expectations towards a stricter labor market and both employment and average income. News mainly affect formal occupied EAP, arousing a substitution effect from formal to informal employment. We also discover that the effect of expectations differs in periods with higher versus lower GDP growth. Finally, we find some evidence supporting news having a cumulative effect: the larger the previous stock of news, the weaker the effect.

A sharp decline in inventory investment was an important contributor to the economic slowdown in Australia in 2008/09. I identify the extent to which this was due to a tightening in short-term credit constraints. In an experimental design setting, I identify the causal effect of short-term credit constraints on inventory investment by exploiting variation in the debt maturity structure of Australian companies just prior to the global financial crisis. I show that the companies that were forced to refinance or repay a relatively large share of debt in 2008/09 reduced inventory investment by significantly more than companies that were due to refinance or repay their debt at some other time. A case study on the Australian motor vehicle industry supports the hypothesis that a decline in the availability of short-term credit significantly hampered corporate investment in inventories in 2008/09.

This paper develops a model of investment decisions in which uncertainty about a one-time change in tax policy induces the firm to temporarily stop investing—to adopt a wait-and-see policy. After the uncertainty is resolved, the firm exploits the tabled projects, generating a temporary investment boom.

This paper investigates if firms’ size and age, and dividend payment can work as good proxies of financial constraints faced by firms. The motivation is that, these proxies have been used by several authors to sort and distinguish firms according to a level of financial distress. To conduct our empirical tests, we make use of two different approaches in order to obtain robust results—first, we estimate the sensitivity of investment to cash-flow, then we employ the sensitivity of cash stocks to cash-flow. Our results, while supporting previous literature on the inverse relationship between size, dividend policy and financial constraints, they cast some doubts on previously devised relationships between age and the level of constraints. Additionally, our results suggest that, contrary to what is commonly accepted, the relationship between size and financial constraints seems to be in general U-shaped.

International audience; For carbon-intensive, internationally-traded industrial goods, a unilateral increase in the domestic CO2 price may result in the reduction of the domestic production but an increase of imports. In such sectors as electricity, cement and steel, the trade flows result more from short-term regional disequilibria between supply and demand than from international competition. This paper formalizes this empirical observation and characterizes its impact on carbon leakage. Domestic firms invest in domestic plants under uncertain domestic demand conditions; then, as uncertainty unfolds, they may supply the domestic market from their domestic plants or from imports. We prove that there would be no leakage in the short term (without capacity adjustment) but that there would be in the long term (with capacity adjustment). Furthermore the larger the uncertainty, the larger the leakage. We also characterize the impact of uncertainty on the (short and long term) pass-through rates of the carbon price. In the concluding section we discuss the implications of these results for the evaluation of climate policies.

This paper develops a model to study the aggregate effects of labor market frictions in a small open economy where firms grow slowly and make fixed export investments. The model features interactions between dynamic investments in exporting and search frictions with job-to- job mobility. A calibration to Argentina's economy matching data on firm growth, worker transitions between firms, and export dynamics suggests that the gains from lowering frictions in job-to-job transitions are considerable, and may outweigh those from lowering frictions in hiring from unemployment.

A growing body of evidence suggests that uncertainty is counter cyclical, rising sharply in recessions and falling in booms. But what is the causal relationship between uncertainty and growth? To identify this we construct cross country panel data on stock market levels and volatility as proxies for the first and second moments of business conditions. We then use natural disasters, terrorist attacks and unexpected political shocks as instruments for our stock market proxies of first and second moment shocks. We find that both the first and second moments are highly significant in explaining GDP growth, with second moment shocks accounting for at least a half of the variation in growth. Variations in higher moments of stock market returns appear to have little impact on growth.

In this paper we test whether policies that induce tangible asset growth among domestic companies are effective in increasing their entry into export markets. We solve the endogeneity problem inherent to the empirical investigation of the growth-export relationship by adopting an instrumental variable (IV) strategy that exploits an exogenous policy variation in corporate tax (CT) rate as an instrument for firm growth. A reduction of the CT rate in France is found increasing firm size and promoting through this channel export entry. Our result is robust to two alternative identification strategies: first we compare firms that enjoyed CT reduction against those that did not benefit from it, then we exploit the differential impact of statutory rate reduction on the firm-level effective marginal and average rates of taxation (EMTR and EATR) within the group of firms eligible for tax reduction. We conclude that the fiscal lever has a direct impact on firm size and an indirect impact on export participation.

In this paper we attempt to investigate the importance of certain external factors on the investment decision among Polish companies. With the use of data from the tailored made Survey on Receivables we examine factors influencing investment decisions of companies in Poland, assess the relation between the branch and company size and importance of the factors and finally we determine the relative influence of these factors on the actual investment reductions. The results showed that first, although the problem of payment delays is the most important single reason determining the investment decisions of Polish companies, its importance decreases when analyzed simultaneously with other reasons. Second, there are two driving forces determining the investment decisions of Polish companies, namely macroeconomic factors and law-related factors with the relative importance of the former lower than the latter. Third, there is a positive association between the importance attached to factors influencing investment decisions associated with either macroeconomic or legal environment and the investment reductions, meaning that companies facing higher investment reductions are also more prone to notice and value the factors influencing these decisions., JRC.DDG.01-Econometrics and applied statistics

This paper investigates the financial determinants of research and development (R&D) investment in Asia, where innovation is naturally seen as the key driver of future (high) economic growth. We sample listed nonfinancial firms from eight economies in region (the People’s Republic of China; Hong Kong, China; India; Indonesia; the Republic of Korea; Malaysia; the Philippines; and Singapore) for the period 2002–2011 using the Oriana database. Panel data regressions show sensitivity of R&D investment to changes in cash flow, indicating reliance on internal financing of R&D and financially constrained firms, and a greater role of debt, rather than equity, as a source of external financing. In terms of alternative uses of funds, dividend payments by firms seem to divert from their spending on R&D, but investments in financial assets do not. In terms of ownership structure, empirical results show that both higher domestic ownership concentration and higher foreign ownership tend to lower cash flow sensitivity of R&D investment, suggesting more stable funding of innovation. Overall, there does not seem to be an extreme preference of firm shareholders for short-term returns at the expense of long-term productivity. However, there is clearly a gain for firms as well as economies they are in with better access to external financing of R&D.