The effect of superiors' exogenous constraints on budget negotiations

In a world characterized by increasing pressure from financial and product markets, the question of how exogenous constraints affect internal coordination and control processes has become increasingly important. This experiment investigates how two exogenous constraints that superiors can face in budget negotiation settings, increased opportunity costs and financial pressure to meet unit targets, affect budget negotiations and subordinate effort. The results show that both constraints induce more cooperation, but in different ways. Financial pressure on the superior leads to more cooperative negotiation behavior by superiors and subordinates than increased opportunity costs. Specifically, subordinates do not take advantage of the superior's increased financial pressure to enforce lower budgets. After negotiation, both constraints strongly mitigate the negative effects of superior budget imposition on subordinate effort because exogenous constraints eliminate the effect of procedural fairness considerations on subordinate effort.

Asset Pricing with Heterogeneous Agents, Incomplete Markets and Trading Constraints

The consumption capital asset pricing model is the standard economic model used to capture stock market behavior. However, empirical tests have pointed out to its inability to account quantitatively for the high average rate of return and volatility of stocks over time for plausible parameter values. Recent research has suggested that the consumption of stockholders is more strongly correlated with the performance of the stock market than the consumption of non-stockholders. We model two types of agents, non-stockholders with standard preferences and stock holders with preferences that incorporate elements of the prospect theory developed by Kahneman and Tversky (1979). In addition to consumption, stockholders consider fluctuations in their financial wealth explicitly when making decisions. Data from the Panel Study of Income Dynamics are used to calibrate the labor income processes of the two types of agents. Each agent faces idiosyncratic shocks to his labor income as well as aggregate shocks to the per-share dividend but markets are incomplete and agents cannot hedge consumption risks completely. In addition, consumers face both borrowing and short-sale constraints. Our results show that in equilibrium, agents hold different portfolios. Our model is able to generate a time-varying risk premium of about 5.5% while maintaining a low risk free rate, thus suggesting a plausible explanation for the equity premium puzzle reported by Mehra and Prescott (1985).

Financial performance drivers and strategic control: The case of cancer treatment centers

Strategic control is defined as the use of qualitative and quantitative tools for the evaluation of strategic organizational performance. Most research in strategic planning has focused on strategy formulation and implementation, but little work has been done on strategic performance evaluation particularly in the area of cancer research. The objective of this study was to identify strategic control approaches and financial performance metrics used by major cancer centers in the country as an initial step in expanding the theory and practice behind strategic organizational performance. Focusing on hospitals which share similar mandate and resource constraints was expected to improve measurement precision. The results indicate that most cancer centers use a wide selection of evaluation tools, but sophisticated analytical approaches were less common. In addition, there was evidence that high-performing centers tend to invest a larger degree of resources in the area of strategic performance analysis than centers showing lower financial results. The conclusions point to the need for incorporating higher degree of analytical power in order to improve the tracking of strategic performance. This study is one of the first to concentrate in the area of strategic control.^

Financial Aspects of Transactions with FDI: Trade Credit Provision by SMEs in China

This paper will document financial aspects of transactions, and trade credit supply behavior with FDI among small and medium-sized enterprises(SMEs) based on two original surveys, conducted in four cities in China in 2003. The survey was designed to capture the nature of inter-firm transactions, trade credit and other financial conditions. Literature on FDI mainly refers to technology transfer, employment or investment. This paper focuses on the role and significance of FDI in the supply of trade credit due to its trade credit enforcement technology. Yanagawa, Ito and Watanabe [2006] developed a model which indicates that when a seller has higher enforcement technology or a buyer has richer liquidity, both trade credit and transaction volume will be increased. In this paper, we confirmed that FDI and G contributed to the provision of trade credit and had a positive external effect on trade credit enforcement towards China’s economy. (1) Sales towards FDI customers have the power to increase the trade credit ratio,even when controlling other factors such as choice of payment instrument, competitiveness, and expost default management. This implies that FDI does provide trade credit, not only because it has superior liquidity, but because it is also superior in terms of enforcement of trade credit repayment.(2) Cash constraints of the buyer influence the decisions concerning trade credit provided by the seller, as a model in Yanagawa, et al. [2006] predicted, and this implies that strategic default is a serious concern among SMEs in China. (3) Spillover effect exists in payment enforcement technology in transactions with FDI customers.

The European Citizens‘ Initiative – Chances, Constraints and Limits. IHS Political Science Series No. 134, April 2013

In order to celebrate the 20th anniversary of the establishment of European Union citizenship under the Maastricht Treaty in 1993, the year 2013 has been designated by the European Commission as the ‘European Year of Citizens’. The European Citizen’s Initiative (ECI) – labelled by the Commission as a ‘direct gateway through which citizens can make their voices heard in Brussels’ - may emerge in the European awareness as a new appealing platform for policy-shaping and communication. The ECI, through its transnational vox civilis character, figures among the most important novelties in the Lisbon Treaty and in the long run may facilitate and accelerate the bottom-up building of a European demos. The question is, however, whether the mechanism of pan-European signature collection is strong enough to face the democratic challenges present in the EU, especially during the ongoing financial crisis.

Performance Indicators in Agricultural Financial Markets. Factor Markets Working Document No. 43, May 2013

This study attempts to develop performance indicators for the financial markets based on the findings in an earlier Factor Markets Working Paper (No. 33, “Agricultural credit market institutions: A comparison of selected European countries”) and on FADN (Farm Accountancy Data Network) data. Two indicators were developed. One measured the long-term economic sustainability of agricultural firms since the financial characteristics of the firms were perceived as important factors when rejecting a loan applicant. If the indicator works, it should show that a low value in this indicator is related to the performance in the financial markets. The second indicator was the loan-to-value (LTV), or debt-to-asset ratio, the reasoning behind this indicator is that low values can point to credit constraints, and in WP 33 we saw that the interviewed experts expected LTVs to be much higher than what is actually the case. We find that the first indicator can’t be used to measure the performance of the financial institutions, since we can’t show any relationship between the indicator and activities in the financial markets. However, the indicator is valuable for its measurement of the long-term financial sustainability of the agricultural sector, or of the firms. The loan-to-value indicator does imply that most countries would have room to increase the credit.

Mixing the grant cocktail:towards an understanding of the outcomes of financial support to small firms

One of the key policy objectives of government at national and regional level, is to overcome the constraints preventing local industry achieving greater competitiveness in the international market-place. This paper examines the impact of grant assistance to Northern Ireland small firms delivered over the period 1994 ^ 97 by the former Local Enterprise Development Unit through its Growth Business Support Programme (GBSP). Previous work by the authors showed that there was some tentative evidence to suggest a link between employment growth and grant aid provided to very small firms (fewer than 10 employees) assisted under the GBSP. The central objective of the empirical work reported in this paper is to extend the previous analysis by understanding the extent to which the value of financial assistance influences growth (employment, turnover, and productivity measures) and if differential impacts arise depending on the nature and timing (lag structures) of the grant assistance.

Profit sharing, technical efficiency change and finance constraints

This paper analyses the mechanisms through which profit-sharing schemes may induce debt constrained firms to improve technical efficiency over time to guarantee positive profits. This hypothesis is first formalised in a partial equilibrium framework and then is tested on a sample of Italian traditional and cooperative firms. Technical efficiency change indexes are computed by DEA. These are regressed on a measure of finance constraints to analyse their impact on firms’ efficiency growth. The results support the hypothesis that a restriction in the availability of financial resources can affect positively the growth in efficiency in firms with profit-sharing schemes.

The determinants of firms' performance:can finance constraints improve technical efficiency?

This paper analyses the mechanisms through which binding finance constraints can induce debt-constrained firms to improve technical efficiency to guarantee positive profits. This hypothesis is tested on a sample of firms belonging to the Italian manufacturing. Technical efficiency scores are computed by estimating parametric production frontiers using the one stage approach as in Battese and Coelli [Battese, G., Coelli, T., 1995. A model for technical efficiency effects in a stochastic frontier production function for panel data. Empirical Economics 20, 325-332]. The results support the hypothesis that a restriction in the availability of financial resources can affect positively efficiency. © 2004 Elsevier B.V. All rights reserved.

Investment efficiency among a cross-section of UK firms:implications for the debate on financing constraints

In this paper, we address this policy issue using a stylised methodology that relies on estimates of the cash flow sensitivity of firms’ investment, as well as a relatively new methodology that enables us to generate a (0, 1) bounded measure of investment efficiency of firms, i.e., the efficiency with which firms can convert their sales into investment, after controlling for unobserved year- and industry-specific effects. Higher investment efficiency is associated with lower financing constraint. Our results indicate that there is considerable heterogeneity in investment efficiency across firms, during a given year; the range being 0.57-0.82. However, the average investment efficiency measure is similar across years, regions and NACE 2-digit industries. We also do not find discernible patterns in the relationship between investment efficiency and firm size, both before and during the financial crisis. The results suggest that while some firms are clearly less efficient at translating their performance into investment, broad policies targeting firms of a certain size, or those within a particular industry or region, may not successfully address the problem of financing constraint in the United Kingdom. The targeting of firms with financing constraints may have to be considerably more refined, and look at not easily observable factors such as credit history/events and organisational capacity of the firms.

Farewell, welfare state – hello, welfare regions? Chances and constraints of welfare management in the German federal system

The German welfare state is in crisis. Alarming long-term demographic trends, the still not fully digested consequences of German unification and the current economic downturn in much of the Eurozone have combined to create an urgent need for welfare reform. Yet the constitutional arrangements which govern the German political system, and well-entrenched political practice, mean that any such reform process is a daunting challenge. Thus, the welfare crisis is also a crisis of German-style co-operative federalism. Current empirical evidence makes for uncomfortable reading, and triggers debate on the nature of the German federation: have the two constitutional principles of federalism and establishing equal living conditions throughout the federation become mutually exclusive? However, as much of the welfare state is centred on the best utilisation of scarce financial resources, it is debatable to what extent alterations in the functional distribution of welfare responsibilities among the territorial levels of government can be regarded as a solution for the current problems. The article concludes that in the search for long-term sustainability of the welfare state the territorial dimension is likely to remain a secondary issue.

Hedging under liquidity constraints

Although risk management can be justified by financial distress, the theoretical models usually contain hedging instruments free of funding risk. In practice, management of the counterparty risk in derivative transactions is of enhanced importance, consequently not only is trading on exchanges subject to the presence of a margin account, but also in bilateral (OTC) agreements parties will require margins or collateral from their partners in order to hedge the mark-tomarket loss of the transaction. The aim of this paper is to present and compare two models where the financing need of the hedging instrument also appears, influencing the hedging strategy and the optimal hedging ratio. Both models contain the same source of risk and optimisation criterion, but the liquidity risk is modelled in different ways. In the first model, there is no additional financing resource that can be used to finance the margin account in case of a margin call, which entails the risk of liquidation of the hedging position. In the second model, the financing is available but a given credit spread is to be paid for this, so hedging can become costly.

Student Financial Aid:The Roles of Loans and Grants (Working Paper 37)

This paper addresses the roles of loans and grants as forms of student financial aid. It begins with a simple choice model where individuals decide to pursue post-secondary studies if i) the net benefits of doing so are positive and ii) no financing or liquidity constraints stand in their way. The effects of loans and grants on these two elements of the schooling decision are then discussed. It is argued that based on equity, efficiency, and fiscal considerations, loans are generally best suited for helping those who want to go but face financing constraints, whereas grants are more appropriate for increasing the incentives for individuals from disadvantaged backgrounds to further their studies. Loan subsidies, which make loans part-loan and part-grant, are also discussed, including how they might be used to address “debt aversion”. Given that subsidised loans have a grant (subsidy) element, while grants help overcome the credit constraints upon which loans are targeted, the paper then attempts to establish some general rules for providing loans, for subsidising the loans awarded, and for giving “pure” grants. It concludes with an application of these principles in the form of a recent proposal for reforming the student financial system in Canada. *

The Development of Public Finances and Role of Fiscal Constraints in a Monetary Union: Example eurozone

This thesis is about the development of public debt and deficit in the eurozone, which has been in the center of attention for much of the new millennium. The debt-to-GDP and deficit-to-GDP ratios have changed significantly during the period of the European monetary integration, with sharp increases in the levels since the beginning of the financial crisis. We view the levels both before and after the establishment of the European Central Bank. The subject is complemented by a study of the restrictions on fiscal policy in the eurozone. The thesis begins with a review of the most central agreements in the Economic and Monetary Union, namely the Maastricht Treaty, the Stability and Growth Pact and the Fiscal Compact. We study the instructions and requirements provided by these contracts, with the emphasis being on the debt and deficit values. Furthermore, we view two theories that aim to provide us with information, whether the fiscal restrictions are useful or not. The second and empirical part consists of review on the debt and deficit levels in practice. We take a close look on the values for each of the currency union members. The third and last part summarizes the findings, and analyzes the reasons behind the changes. The result of the thesis is, that even though the levels of public debt and deficit have worsened since the beginning of the financial crisis, tight rules on fiscal policy might not be the best possible solution. Private sector has played a crucial part in the increase of the debt levels, and tight rules have their impact on the long awaited economic growth in the eurozone. It is obvious, though, that some form of fiscal guidelines with scientific ground are needed in order to avoid excessive and harmful debt and deficit levels. The main task is to make these guidelines a more essential part of the fiscal policy in each of the member countries.

New constraints on the chemical evolution of the solar neighbourhood and Galactic disc(s) Improved astrophysical parameters for the Geneva-Copenhagen Survey

We present a re-analysis of the Geneva-Copenhagen survey, which benefits from the infrared flux method to improve the accuracy of the derived stellar effective temperatures and uses the latter to build a consistent and improved metallicity scale. Metallicities are calibrated on high-resolution spectroscopy and checked against four open clusters and a moving group, showing excellent consistency. The new temperature and metallicity scales provide a better match to theoretical isochrones, which are used for a Bayesian analysis of stellar ages. With respect to previous analyses, our stars are on average 100 K hotter and 0.1 dex more metal rich, which shift the peak of the metallicity distribution function around the solar value. From Stromgren photometry we are able to derive for the first time a proxy for [alpha/Fe] abundances, which enables us to perform a tentative dissection of the chemical thin and thick disc. We find evidence for the latter being composed of an old, mildly but systematically alpha-enhanced population that extends to super solar metallicities, in agreement with spectroscopic studies. Our revision offers the largest existing kinematically unbiased sample of the solar neighbourhood that contains full information on kinematics, metallicities, and ages and thus provides better constraints on the physical processes relevant in the build-up of the Milky Way disc, enabling a better understanding of the Sun in a Galactic context.