Determinants of Privatization Prices

Generating government revenue is a common objective in privatization. This paper asks: what determines privatization prices? Pursuing this query helps resolve the current controversies about the bearing of speed and the role for government actions prior to privatization. The data, gathered from primary sources, encompass 361 privatized Mexican companies in 49 four-digit industry codes. The determinants of auction privatization prices are divided into three groups: (1) company performance and industry parameters; (2) the auction process and its requirements; and (3) the prior restructuring actions taken by the government. Controlling for company and industry effects reveals the significant impact of the costs and characteristics of the labor force. Minority control packages carry large discounts. Auction requirements that allow foreign investors result in higher sale premia, while restrictions constraining participation or payment forms reduce net prices. The speed of privatization substantially influences net prices: the longer it takes to put the company on the block, the more severe the deterioration in performance, and the lower the premium obtained. Pre-sale reductions in labor force, and particularly the firing of CEOs, lead to significantly higher premiums. Debt absorption, investment, and performance improvement programs do not increase the net price, while de-investment measures prove more beneficial. Overall, the results show increased premia for government actions that stimulate bidder participation and expedite the privatization process.

From Workers to Owners: Survey Evidence on the Impact of Property Rights Reforms on Small Farmers in Two Regions in Romania

In Romania, the 1991 Land Reform marked the beginning of a series of transformations in the ownership structure and the production system in agriculture. Nevertheless, after recently joining the EU it became evident that the agricultural sector is in need of major improvements in performance. We present preliminary findings from a unique village-level panel data at household level. Preliminary findings suggest that there are wide regional differences in terms of agricultural performance and organizational forms. Also, we find that productivity levels do not differ significantly between farming arrangements, and that labor supply, capital endowment, and contractual arrangements might be more important.http://deepblue.lib.umich.edu/bitstream/2027.42/64427/1/wp905.pd

The use of intellectual capital information by sell-side analysts in company valuation

This paper investigates the role of intellectual capital information (ICI) in sell-side analysts’ fundamental analysis and valuation of companies. Using in-depth semi-structured interviews, it penetrates the black box of analysts’ valuation decision-making by identifying and conceptualising the mechanisms and rationales by which ICI is integrated within their valuation decision processes. We find that capital market participants are not ambivalent to ICI, and ICI is used: (1) to form analysts’ perceptions of the overall quality, strengths and future prospects of companies; (2) in deriving valuation model inputs; (3) in setting price targets and making investment recommendations; and (4) as an important and integral element in analyst–client communications. We show that: there is a ‘pecking order’ of mechanisms for incorporating ICI in valuations, based on quantifiability; IC valuation is grounded in valuation theory; there are designated entry points in the valuation process for ICI; and a number of factors affect analysts’ ICI use in valuation. We also identify a need to redefine ‘value-relevant’ ICI to include non-price-sensitive information; acknowledge the boundedness and contextuality of analysts’ rationality and motives of their ICI use; and the important role of analyst–client meetings for ICI communication

Did the market overreact to the mandatory switch to IFRS in Europe?

Despite studies which indicate that mandatory adoption of International Financial Reporting Standards (IFRS) reduced the cost of capital for adopting firms and improved analysts’ forecasts, the evidence supporting any improvement in accounting quality is mixed. In a European wide country study, we calculate a broadly based measure of earnings management defined as accruals which are unrelated to current activity or past-current-future cash flows. At the individual country level we find that accounting quality improved only in France, Germany and Netherland, which are categories as ‘legal origin countries’. Moreover, based on an equity valuation model adjusted for earnings quality, we find that, in most European countries, the market overreacted to the impact of mandatory IFRS adoption. Further test shows that investors do not seem to understand the exact components of the financial statements that IFRS will have impact on

When Labor Has a Voice in Corporate Governance

Equity ownership gives labor both a fractional stake in the firm's residual cash flows and a voice in corporate governance. Relative to other firms, labor-controlled publicly-traded firms deviate more from value maximization, invest less in long-term assets, take fewer risks, grow more slowly, create fewer new jobs, and exhibit lower labor and total factor productivity. We therefore propose that labor uses its corporate governance voice to maximize the combined value of its contractual and residual claims, and that this often pushes corporate policies away from, rather than towards, shareholder value maximization.

How Are Derivatives Used? Evidence from the Mutual Fund Industry

Approximately 20 percent of the 675 equity mutual funds analyzed in this paper invest in derivatives. We compare the return distributions of equity mutual funds that invest in derivatives to those that do not. We also analyze the use of derivatives to affect intertemporal changes in fund risk. Equity mutual funds that invest in derivatives have similar risk and similar net return performance in those that do not. Change in fund risk is negatively related to past performance, but derivatives allow funds to dampen these changes. We interpret these results as consistent with the hypothesis that managers are slow to respond to unexpected cash flows, and inconsistent with gaming of incentive compensation systems. This paper was presented at the Financial Institutions Center's May 1996 conference on "

Understanding the Relationship between Parental Income and Multiple Child Outcomes: a decomposition analysis

In this paper we explore the association between family income and children’s cognitive ability (IQ and school performance), socio-emotional outcomes (self esteem, locus of control and behavioural problems) and physical health (risk of obesity). We develop a decomposition technique that allows us to compare the relative importance of the adverse family characteristics and home environments of low income children in accounting for different outcomes. Using rich cohort data from the UK we find that poor children are disadvantaged at age 7 to 9 across the full spectrum of outcomes, the gradient being strongest for cognitive outcomes and weakest for physical health. We find that some aspects of environment appear to be associated with the full range of outcomes - for example, maternal smoking and breastfeeding, child nutrition, parental psychological functioning. We also find some some aspects of the environment of higher income households hinder child development. We conclude that many aspects of growing up in poverty are harmful to children’s development, and that narrowly-targeted interventions are unlikely to have a significant impact on intergenerational mobility.Child outcomes, income, pathways, mediating factors

Understanding the relationship between parental income and multiple child outcomes: A decomposition analysis

In this paper we explore the association between family income and children's cognitive ability (IQ and school performance), socio-emotional outcomes (self esteem, locus of control and behavioural problems) and physical health (risk of obesity). We develop a decomposition technique that allows us to compare the relative importance of the adverse family characteristics and home environments of low income children in accounting for different outcomes. Using rich cohort data from the UK we find that poor children are disadvantaged at age 7 to 9 across the full spectrum of outcomes, the gradient being strongest for cognitive outcomes and weakest for physical health. We find that some aspects of environment appear to be associated with the full range of outcomes - for example, maternal smoking and breastfeeding, child nutrition, parental psychological functioning. We also find some some aspects of the environment of higher income households hinder child development. We conclude that many aspects of growing up in poverty are harmful to children's development, and that narrowly-targeted interventions are unlikely to have a significant impact on intergenerational mobility.child outcomes, income, pathways, mediating factors

What are the Enduring Effects of Fertilizer Subsidy Programs on Recipient Farm Households? Evidence from Malawi

Replaced with revised version of paper 08/23/11.fertilizer subsidies, Malawi, Sub-Saharan Africa, endogeneity, panel data, International Development, Political Economy, C23, C26, Q12, Q13, Q18,