Investment Valuation with Tax-optimized Financing Decisions and a Tax-optimized Default Alternative

In this paper we evaluate an indivisible investment project that is carried out in a corporation under very simple premises. In particular, we discuss a one-period model with certainty, the pure domestic case and proportional tax rates. Surprisingly, the decision problem turns out to be rather complex if one has to make allowance for different taxation of the corporation and its owner. Altogether there are more than 10 cases that have to be distinguished if the firm's managers want to make a correct decision, depending on the relation of personal and corporate tax rates.

Socialism and intrafirm asset allocation

We rely on a survey of Swiss firms to document deviation from first-best for reasons of internal 'fairness' when allicating resources. This 'socialist' practice is more widespread in smaller than in larger firms. It ignores the reputation and past performance of the managers who apply for dunding, but takes into account their hierarchical position and their past use of resources. Socialism is only partially explained by concerns about empire building and managerial optimism, and it is not meant to benefit shareholders.

Unconventional Monetary Policy and the Great Recession: Estimating the Macroeconomic Effects of a Spread Compression at the Zero Lower Bound

We explore the macroeconomic effects of a compression in the long-term bond yield spread within the context of the Great Recession of 2007–09 via a time-varying parameter structural VAR model. We identify a “pure” spread shock defined as a shock that leaves the policy rate unchanged, which allows us to characterize the macroeconomic consequences of a decline in the yield spread induced by central banks’ asset purchases within an environment in which the policy rate is constrained by the effective zero lower bound. Two key findings stand out. First, compressions in the long-term yield spread exert a powerful effect on both output growth and inflation. Second, conditional on available estimates of the impact of the Federal Reserve’s and the Bank of England’s asset purchase programs on long-term yield spreads, our counterfactual simulations suggest that U.S. and U.K. unconventional monetary policy actions have averted significant risks both of deflation and of output collapses comparable to those that took place during the Great Depression.

Multiasset Derivatives and Joint Distributions of Asset Prices

Several of multiasset derivatives like basket options or options on the weighted maximum of assets exhibit the property that their prices determine uniquely the underlying asset distribution. Related to that the question how to retrieve this distributions from the corresponding derivatives quotes will be discussed. On the contrary, the prices of exchange options do not uniquely determine the underlying distributions of asset prices and the extent of this non-uniqueness can be characterised. The discussion is related to a geometric interpretation of multiasset derivatives as support functions of convex sets. Following this, various symmetry properties for basket, maximum and exchange options are discussed alongside with their geometric interpretations and some decomposition results for more general payoff functions.

Purchase decision-making is modulated by vestibular stimulation

Purchases are driven by consumers’ product preferences and price considerations. Using caloric vestibular stimulation (CVS), we investigated the role of vestibular-affective circuits in purchase decision-making. CVS is an effective noninvasive brain stimulation method, which activates vestibular and overlapping emotional circuits (e.g., the insular cortex and the anterior cingulate cortex (ACC)). Subjects were exposed to CVS and sham stimulation while they performed two purchase decision-making tasks. In Experiment 1 subjects had to decide whether to purchase or not. CVS significantly reduced probability of buying a product. In Experiment 2 subjects had to rate desirability of the products and willingness to pay (WTP) while they were exposed to CVS and sham stimulation. CVS modulated desirability of the products but not WTP. The results suggest that CVS interfered with emotional circuits and thus attenuated the pleasant and rewarding effect of acquisition, which in turn reduced purchase probability. The present findings contribute to the rapidly growing literature on the neural basis of purchase decision-making.

The Impact of Human Asset Specificity on the Sourcing of Application Services

The question concerning the circumstances under which it is advantageous for a company to outsource certain information systems functions has been a controversial issue for the last decade. While opponents emphasize the risks of outsourcing based on the loss of strategic potentials and increased transaction costs, proponents emphasize the strategic benefits of outsourcing and high potentials of cost-savings. This paper brings together both views by examining the conditions under which both the strategic potentials as well as savings in production and transaction costs of developing and maintaining software applications can better be achieved in-house as opposed to by an external vendor. We develop a theoretical framework from three complementary theories and test it empirically based on a mail survey of 139 German companies. The results show that insourcing is more cost efficient and advantageous in creating strategic benefits through IS if the provision of application services requires a high amount of firm specific human assets. These relationships, however, are partially moderated by differences in the trustworthiness and intrinsic motivation of internal versus external IS professionals. Moreover, capital shares with an external vendor can lower the risk of high transaction costs as well the risk of loosing the strategic opportunities of an IS.

Do Information, Price, or Morals Influence Ethical Consumption? A Natural Field Experiment and Customer Survey on the Purchase of Fair Trade Coffee

We address ethical consumption using a natural field experiment on the actual purchase of Fair Trade (FT) coffee in three supermarkets in Germany. Based on a quasi-experimental before-and-after design the effects of three different treatments – information, 20% price reduction, and a moral appeal – are analyzed. Sales data cover actual ethical purchase behavior and avoid problems of social desirability. But they offer only limited insights into the motivations of individual consumers. We therefore complemented the field experiment with a customer survey that allows us to contrast observed (ethical) buying behavior with self-reported FT consumption. Results from the experiment suggest that only the price reduction had the expected positive and statistically significant effect on FT consumption.

Effect of calf purchase and other herd-level risk factors on mortality, unwanted early slaughter, and use of antimicrobial group treatments in Swiss veal calf operations.

The objective of this survey was to determine herd level risk factors for mortality, unwanted early slaughter, and metaphylactic application of antimicrobial group therapy in Swiss veal calves in 2013. A questionnaire regarding farm structure, farm management, mortality and antimicrobial use was sent to all farmers registered in a Swiss label program setting requirements for improved animal welfare and sustainability. Risk factors were determined by multivariable logistic regression. A total of 619 veal producers returned a useable questionnaire (response rate=28.5%), of which 40.9% only fattened their own calves (group O), 56.9% their own calves and additional purchased calves (group O&P), and 2.3% only purchased calves for fattening (group P). A total number of 19,077 calves entered the fattening units in 2013, of which 21.7%, 66.7%, and 11.6% belonged to groups O, O&P, and P, respectively. Mortality was 0% in 322 herds (52.0%), between 0% and 3% in 47 herds (7.6%), and ≥3% in 250 herds (40.4%). Significant risk factors for mortality were purchasing calves, herd size, higher incidence of BRD, and access to an outside pen. Metaphylaxis was used on 13.4% of the farms (7.9% only upon arrival, 4.4% only later in the fattening period, 1.1% upon arrival and later), in 3.2% of the herds of group O, 17.9% of those in group O&P, and 92.9% of those of group P. Application of metaphylaxis upon arrival was positively associated with purchase (OR=8.9) and herd size (OR=1.2 per 10 calves). Metaphylaxis later in the production cycle was positively associated with group size (OR=2.9) and risk of respiratory disease (OR=1.2 per 10% higher risk) and negatively with the use of individual antimicrobial treatment (OR=0.3). In many countries, purchase and a large herd size are inherently connected to veal production. The Swiss situation with large commercial but also smaller herds with little or no purchase of calves made it possible to investigate the effect of these factors on mortality and antimicrobial drug use. The results of this study show that a system where small farms raise the calves from their own herds has a substantial potential to improve animal health and reduce antimicrobial drug use.