Utilising self-report data to measure racial discrimination in the labour market

Although economists have developed a series of approaches to modelling the existence of labour market discrimination, rarely is this topic examined by analysing self-report survey data. After reviewing theories and empirical models of labour market discrimination, we examine self-reported experience of discrimination at different stages in the labour market, among three racial groups utilising U.S. data from the 2001-2003 National Survey of American Life. Our findings indicate that African Americans and Caribbean blacks consistently report more experience of discrimination in the labour market than their non-Hispanic white counterparts. At different stages of the labour market, including hiring, termination and promotion, these groups are more likely to report discrimination than non-Hispanic whites. After controlling for social desirability bias and several human capital and socio-demographic covariates, the results remain robust for African Americans. However, the findings for Caribbean blacks were no longer significant after adjusting for social desirability bias. Although self-report data is rarely utilised to assess racial discrimination in labour economics, our study confirms the utility of this approach as demonstrated in similar research from other disciplines. Our results indicate that after adjusting for relevant confounders self-report survey data is a viable approach to estimating racial discrimination in the labour market. Implications of the study and directions for future research are provided.

The home-market effect and bilateral trade patterns: a reexamination of the evidence

This paper finds that the evidence for the home market effect (HME) found by Hanson and Xiang (AER, 2004) is sensitive to the way the dependent and the independent variables are constructed. Second, we also find that the HME evidence goes away when we estimate their difference-in-difference gravity model on a truncated sample of positive trade flows. With Eaton–Tamura–Tobit, Heckman, and Helpman–Melitz–Rubinstein estimation of the gravity equation using Hanson and Xiang's data, we are unable to find any evidence for the HME. Finally, the HME evidence is also absent for a sample of Canadian provinces' exports to U.S. states. All of our results, taken together, do not reject the existence of the HME in general but rather suggest that the HME results found by Hanson and Xiang may not be robust.

The efficient market hypothesis and corporate event waves: part 1

Efficient markets are commonly defined as ones that do not allow investors to earn above-average returns without accepting above-average risk. In a traditional framework, where investors are rational and there are no frictions, the efficient market hypothesis (EMH) states that a security's price reflects its fundamental value, which is the sum of its discounted expected future cash flows. Put simply, under the EMH, securities are "rightly priced." Through this study, the author finds that while the EMH has been widely accepted for decades among academics, practitioners and regulators still appear to be unconvinced. From a behavioral perspective, the author shows that human psychology and sentiment factors can account for some discrepancies in financial markets. He also finds evidence of limited arbitrage being risky and costly and, hence, impeding the ability of investors to take advantage of profitable opportunities. This study provides an extensive analysis of the critical discussions surrounding the EMH and deepens and strengthens the understanding of the EMH, as well as the arguments for and against.

The efficient market hypothesis and corporate event waves: part II

This article is the second of a two-part series on the efficient market hypothesis corporate event waves. The ideas of market efficiency, or rational theory, and the behavioral hypothesis have been extensively used to explain the modern phenomena of corporate event waves. Some studies investigate the patterns of corporate events from a behavioral finance perspective and suggest that corporate announcement waves are driven by investor sentiment. Baker and Wurgler examine equity market timing as an aspect of real corporate financial policy. Sentiment can also explain IPO waves. Post-announcement returns and IPO volume are positively correlated to firms' capital demands and the level of investor optimism. Helwge and Liang examine the IPO cycles from hot to cold markets from 1975 to 2000. Corporate e vent wave scan also be explained by the neoclassical efficiency hypothesis, proposing that business cycle fluctuations and economic conditions drive firms' decisions on financing transactions.

Is the efficient market hypothesis day-of-the-week dependent? Evidence from the banking sector

In this article, we propose a new hypothesis: that the efficient market hypothesis is day-of-the-week-dependent. We apply the test to firms belonging to the banking sector and listed on the NYSE. We find significant evidence that the efficient market hypothesis is day-of-the-week-dependent. Overall, for only 62% of firms, the unit root null hypothesis is rejected on all the five trading days. We also discover that when investors do not account for unit root properties in devising trading strategies, they obtain spurious profits.

Does political capital create value in the IPO market? Evidence from China

This study examines the value of political capital in the Chinese IPO market. We find a positive relationship between a politically connected executive and the probability of IPO approval of entrepreneurial firms. We further identify that shareholders value those connections and give a market premium to connected firms after the firms go public. We provide evidence that other types of political capital gained through external sources, such as politically connected sponsors and PE investors, also bring benefits to the firms in their IPO approval, and these connections substitute for the effect of the executive's political connections on IPO approval. We argue that in emerging markets where government intervention is still prevalent, political capital does create value and entrepreneurial firms usually build political capital to facilitate their access to the IPO market, although other types of political capital do not bring further benefits into the post-IPO market.

Predicting future earnings growth: a test of the dividend payout ratio in the Australian market

This paper examines the use of the payout ratio as a predictor of a firm’s future earnings growth. Recent evidence rejects the hypothesis that firm which retain a large portion of their earnings have strong future earnings growth. Higher dividend payout ratios instead correspond to higher future earnings growth. Examining both listed and delisted firms on the Australian stock exchange over the period 1989 to 2008, we provide further evidence that the dividend payout ratio is positively linked to future earnings growth. The results hold over both one, three and five year periods. Furthermore, our results rejected claims that such a relationship was caused by simple mean reversion in earnings. We find no evidence to support the cash flow signaling and free cash flow hypotheses as an explanation for this relationship.

Perks and the informativeness of stock prices in the Chinese market

While the literature shows that perks can affect firm values positively or negatively, we argue that firms with higher perks are more likely to be associated with a lower quality of financial reporting, which, in turn, can affect the informativeness of stock prices. Based on hand-collected data on perks from Chinese listed firms, we find that firms with lower perks are associated with higher informativeness of stock prices (or lower R-square). Moreover, the positive association between perks and R-square is shown to be weaker for firms with higher financial reporting quality through audit and earnings quality measures.

Stock market liquidity and firm value : an empirical examination of the Australian market

We document a positive relation between stock liquidity and firm value. We examine the mechanism through which stock market liquidity enhances firm value by dividing firm value, as measured by Tobin’s Q, into three components, namely, operating income to price, leverage, and operating income to assets. Using the switch to broker anonymity as an exogenous shock to market liquidity, we show that the increase in liquidity around the shock leads to an increase in firm value. Our results suggest that higher firm value for more liquid stocks seems to stem from enhanced stock prices rather than from better operating performance.

Book review : the red market : on the trail of the world’s organ brokers, bone thieves, blood farmers, and child traffickers

Book review of The Red Market: On the Trail of the World's Organ Brokers, Bone Thieves, Blood Farmers, and Child Traffickers. Scott Carney, 2011, William Morrow (New York, 978-0-06-193646-3, 272 pp.)