Studies on Binary Time Series Models with Applications to Empirical Macroeconomics and Finance

This thesis studies binary time series models and their applications in empirical macroeconomics and finance. In addition to previously suggested models, new dynamic extensions are proposed to the static probit model commonly used in the previous literature. In particular, we are interested in probit models with an autoregressive model structure. In Chapter 2, the main objective is to compare the predictive performance of the static and dynamic probit models in forecasting the U.S. and German business cycle recession periods. Financial variables, such as interest rates and stock market returns, are used as predictive variables. The empirical results suggest that the recession periods are predictable and dynamic probit models, especially models with the autoregressive structure, outperform the static model. Chapter 3 proposes a Lagrange Multiplier (LM) test for the usefulness of the autoregressive structure of the probit model. The finite sample properties of the LM test are considered with simulation experiments. Results indicate that the two alternative LM test statistics have reasonable size and power in large samples. In small samples, a parametric bootstrap method is suggested to obtain approximately correct size. In Chapter 4, the predictive power of dynamic probit models in predicting the direction of stock market returns are examined. The novel idea is to use recession forecast (see Chapter 2) as a predictor of the stock return sign. The evidence suggests that the signs of the U.S. excess stock returns over the risk-free return are predictable both in and out of sample. The new "error correction" probit model yields the best forecasts and it also outperforms other predictive models, such as ARMAX models, in terms of statistical and economic goodness-of-fit measures. Chapter 5 generalizes the analysis of univariate models considered in Chapters 2 4 to the case of a bivariate model. A new bivariate autoregressive probit model is applied to predict the current state of the U.S. business cycle and growth rate cycle periods. Evidence of predictability of both cycle indicators is obtained and the bivariate model is found to outperform the univariate models in terms of predictive power.

Profitable Customer Management: A Study in Retail Banking

The increasing focus of relationship marketing and customer relationship management (CRM) studies on issues of customer profitability has led to the emergence of an area of research on profitable customer management. Nevertheless, there is a notable lack of empirical research examining the current practices of firms specifically with regard to the profitable management of customer relationships according to the approaches suggested in theory. This thesis fills this research gap by exploring profitable customer management in the retail banking sector. Several topics are covered, including marketing metrics and accountability; challenges in the implementation of profitable customer management approaches in practice; analytic versus heuristic (‘rule of thumb’) decision making; and the modification of costly customer behavior in order to increase customer profitability, customer lifetime value (CLV), and customer equity, i.e. the financial value of the customer base. The thesis critically reviews the concept of customer equity and proposes a Customer Equity Scorecard, providing a starting point for a constructive dialog between marketing and finance concerning the development of appropriate metrics to measure marketing outcomes. Since customer management and measurement issues go hand in hand, profitable customer management is contingent on both marketing management skills and financial measurement skills. A clear gap between marketing theory and practice regarding profitable customer management is also identified. The findings show that key customer management aspects that have been proposed within the literature on profitable customer management for many years, are not being actively applied by the banks included in the research. Instead, several areas of customer management decision making are found to be influenced by heuristics. This dilemma for marketing accountability is addressed by emphasizing that CLV and customer equity, which are aggregate metrics, only provide certain indications regarding the relative value of customers and the approximate value of the customer base (or groups of customers), respectively. The value created by marketing manifests itself in the effect of marketing actions on customer perceptions, behavior, and ultimately the components of CLV, namely revenues, costs, risk, and retention, as well as additional components of customer equity, such as customer acquisition. The thesis also points out that although costs are a crucial component of CLV, they have largely been neglected in prior CRM research. Cost-cutting has often been viewed negatively in customer-focused marketing literature on service quality and customer profitability, but the case studies in this thesis demonstrate that reduced costs do not necessarily have to lead to lower service quality, customer retention, and customer-related revenues. Consequently, this thesis provides an expanded foundation upon which marketers can stake their claim for accountability. By focusing on the range of drivers and all of the components of CLV and customer equity, marketing has the potential to provide specific evidence concerning how various activities have affected the drivers and components of CLV within different groups of customers, and the implications for customer equity on a customer base level.

Does relationship marketing improve customer relationship satisfaction and loyalty?

Purpose - This study investigates the relationship marketing (RM) strategy of a retail bank and examines whether - after its implementation - customer relationships were strengthened through perceived improvements in the banking relationship and consequent loyalty towards the bank. Design/methodology/approach - A survey was conducted on two profitability segments, of which the more profitable segment had been directly exposed to a customer oriented RM strategy, whereas the less profitable segment had been subjected to more sales oriented marketing communications. Findings - No significant differences were found between the segments on customers’ evaluations of the service relationship or their loyalty toward the bank. Furthermore regression analysis revealed that relationship satisfaction was less important as a determinant of loyalty in the more profitable segment. Research limitations/implications - This study was conducted as a case study of one specific branch of a bank group in Finland, which limits the external validity of its results. It was not possible to ascertain if, or to what extent, customers of the more profitable segment had received the intended RM treatment. Other limitations are also discussed. Practical implications - Customer orientation is desirable within retail banking and more studies are needed on the differential drivers of loyalty across customer profitability segments. By identifying the aspects of a banking relationship that are more highly valued among more profitable customers than among less profitable customers, bank managers would be able to more effectively devise appropriate strategies for different segments. Originality/value - The study contributes to the RM literature and marketing of financial services by providing empirical evidence of the effects of RM activities on customer relationship perceptions in different profitability segments.

Understanding Customer Loyalty and Disloyalty The Effect of Loyalty-Supporting and -Repressing Factors (first edition sold out, 'print on demand' 60 €)

Customer loyalty has been a central topic of both marketing theory and practice for several decades. Customer disloyalty, or relationship ending, has received much less attention. Despite the close relation between customer loyalty and disloyalty, they have rarely been addressed in the same study. The thesis bridges this gap by focusing on both loyal and disloyal customers and the factors characterising them. Based on a qualitative study of loyal and disloyal bank customers in the Finnish retail banking market, both factors that are common to the groups and factors that differentiate between them are identified. A conceptual framework of factors that affect customer loyalty or disloyalty is developed and used to analyse the empirical data. According to the framework, customers’ loyalty status (behavioural and attitudinal loyalty) is influenced by positive, loyalty-supporting, and negative, loyalty-repressing factors. Loyalty-supporting factors either promote customer dedication, making the customer want to remain loyal, or act as constraints, hindering the customer from switching. Among the loyalty-repressing factors it is especially important to identify those that act as triggers of disloyal behaviour, making customers switch service providers. The framework further suggests that by identifying the sources of loyalty-supporting and -repressing factors (the environment, the provider, the customer, the provider-customer interaction, or the core service) one can determine which factors are within the control of the service provider. Attitudinal loyalty is approached through a customer’s “feeling of loyalty”, as described by customers both orally and graphically. By combining the graphs with behavioural loyalty, seven customer groups are identified: Stable Loyals, Rescued Loyals, Loyals at Risk, Positive Disloyals, Healing Disloyals, Fading Disloyals, and Abrupt Disloyals. The framework and models of the thesis can be used to analyse factors that affect customer loyalty and disloyalty in different service contexts. Since the empirical study was carried out in a retail bank setting, the thesis has managerial relevance especially for banks. Christina Nordman is associated with CERS, Center for Relationship Marketing and Service Management at the Swedish School of Economics and Business Administration. The doctoral thesis is part of the Göran Collert Research Project in Customer Relationships and Retail Banking and has been funded by The Göran Collert Foundation.

Supistamista, rationalisointia vai kehittämistä? : Valtiovarainministeriön järjestelyosaston järjestämän henkilöstökoulutus- ja tutkimustoiminnan rakentuminen osaksi valtionhallintoa vuosina 1943-1971

The study examines the personnel training and research activities carried out by the Organization and Methods Division of the Ministry of Finance and their becoming a part and parcel of the state administration in 1943-1971. The study is a combination of institutional and ideological historical research in recent history on adult education, using a constructionist approach. Material salient to the study comes from the files of the Organization and Methods Division in the National Archives, parliamentary documents, committee reports, and the magazines. The concentrated training and research activities arranged by the Organization and Methods Division, became a part and parcel of the state administration in the midst of controversial challenges and opportunities. They served to solve social problems which beset the state administration as well as contextual challenges besetting rationalization measures, and organizational challenges. The activities were also affected by a dependence on decision-makers, administrative units, and civil servants organizations, by different views on rationalization and the holistic nature of reforms, as well as by the formal theories that served as resources. It chose long-term projects which extended to the political decision-makers and administrative units turf, and which were intended to reform the structures of the state administration and to rationalize the practices of the administrative units. The crucial questions emerged in opposite pairs (a constitutional state vs. the ideology of an administratively governed state, a system of national boards vs. a system of government through ministries, efficiency of work vs. pleasantness of work, centralized vs. decentralized rationalization activities) which were not solvable problems but impossible questions with no ultimate answers. The aim and intent of the rationalization of the state administration (the reform of the central, provincial, and local governments) was to facilitate integrated management and to render a greater amount of work by approaching management procedures scientifically and by clarifying administrative instances and their respon-sibilities in regards to each other. The means resorted to were organizational studies and committee work. In the rationalization of office work and finance control, the idea was to effect savings in administrative costs and to pare down those costs as well as to rationalize and heighten those functions by developing the institution of work study practitioners in order to coordinate employer and employee relationships and benefits (the training of work study practitioners, work study, and a two-tier work study practitioner organization). A major part of the training meant teaching and implementing leadership skills in practice, which, in turn, meant that the learning environment was the genuine work community and efforts to change it. In office rationalization, the solution to regulate the relations between the employer and the employees was the co-existence of the technical and biological rationalization and the human resource administration and the accounting and planning systems at the turn of the 1960s and 1970s. The former were based on the school of scientific management and human relations, the latter on system thinking, which was a combination of the former two. In the rationalization of the state administration, efforts were made to find solutions to stabilize management ideologies and to arrange the relationships of administrative systems in administrative science - among other things, in the Hoover Committee and the Simon decision making theory, and, in the 1960s, in system thinking. Despite the development-related vocabulary, the practical work was advanced rationalization. It was said that the practical activities of both the state administration and the administrative units depended on professional managers who saw to production results and human relations. The pedagogic experts hired to develop training came up with a training system, based on the training-technological model where the training was made a function of its own. The State Training Center was established and the training office of the Organization and Methods Division became the leader and coordinator of personnel training.