Sunk Costs and the Growth and Failure of Small Business

We model the growth and failure of small business in Irish Manufacturing during the period 1973-1994. We estimate the effect of start-up size on the employment growth while controlling for the business cycle, the life cycle and the probability of business survival, amongst other factors. Learning models of firm selection and evolution are accepted in Homogenous Goods but rejected in R&D sectors. Due to high (low) entry and failure costs in R&D (Homogenous Goods) sectors, learning is undertaken ex-ante (ex-post), inducing entry with certainty (uncertainty) concerning ex-post performance, causing Gibrat's law to hold (fail).

Firm Performance and the Political Economy of Corporate Governance: Survey Evidence for Bulgaria, Hungary, Slovakia and Slovenia

Using survey data for 220 traditional manufacturing firms over 7 years of transition and 4 CEE countries, we find firms that produced for the EU market under planning consistently outperform those that produced for the CMEA market. Within the previously CMEA market, the best firms were selected to outside privatisation and outperformed insider/state owned firms. Outside privatisation was resisted in EU oriented firms and ownership was found to have no effect on performance. We argue that insider/state ownership in previously CMEA and EU markets builds up political support for the market system during its initial stages, ensuring its long-term success.http://deepblue.lib.umich.edu/bitstream/2027.42/39722/3/wp338.pd

Individual Pay and Outside Options: Evidence from the Polish Labour Force Survey

Using Polish Labour Force Survey data, we examine whether competition for labour has induced individual pay to depend on outside options, availability and quality of jobs. Exploiting the lack of inter-regional job and worker flows we estimate the elasticity of individual pay, amongst a rich set of individual characteristics, to be approximately -0.1 for local unemployment (job shortages) and + 0.1 for local job reallocation (restructuring). Variations in local labour market conditions explain approximately 50 per cent of the differences in expected individual earnings across regions, while differences in inherited human capital and occupation structures explain the rest.http://deepblue.lib.umich.edu/bitstream/2027.42/39748/3/wp364.pd

Data Uncertainty in Real Estate Forecasting

The rapid expansion of the TMT sector in the late 1990s and more recent growing regulatory and corporate focus on business continuity and security have raised the profile of data centres. Data centres offer a unique blend of occupational, physical and technological characteristics compared to conventional real estate assets. Limited trading and heterogeneity of data centres also causes higher levels of appraisal uncertainty. In practice, the application of conventional discounted cash flow approaches requires information about a wide range of inputs that is difficult to derive from limited market signals or estimate analytically. This paper outlines an approach that uses pricing signals from similar traded cash flows is proposed. Based upon ‘the law of one price’, the method draws upon the premise that two identical future cash flows must have the same value now. Given the difficulties of estimating exit values, an alternative is that the expected cash flows of data centre are analysed over the life cycle of the building, with corporate bond yields used to provide a proxy for the appropriate discount rates for lease income. Since liabilities are quite diverse, a number of proxies are suggested as discount and capitalisation rates including indexed-linked, fixed interest and zero-coupon bonds. Although there are rarely assets that have identical cash flows and some approximation is necessary, the level of appraiser subjectivity is dramatically reduced.

Managerial Skill Acquisition and the Theory of Economic Development

Micro level studies in developing countries suggest managerial skills play a key role in the adoption of modern technologies. The human resources literature suggests that managerial skills are difficult to codify and learn formally, but instead tend to be learned on the job. In this paper we present a model of the interactive process between on-the-job managerial skill acquisition and the adoption of modern technology. The environment considered is one where all learning possibilities are internalized in the market, and where managers are complementary inputs to non-managerial workers. The paper illustrates why some countries may adopt modern technologies while others stay backwards. The paper also explains why managers may not want to migrate from rich countries to poor countries as would be needed to generate income convergence.

Structurally Sound Dynamic Index Futures Hedging

Portfolio managers use index futures for a variety of reasons. Regardless of their motivation, they will keep a close eye on the relation between the futures and their stock portfolio returns. Whenever this relation is perceived to have changed, the manager will decide whether it is worthwhile to rebalance the portfolio mix. Exact measures as to when and how much rebalancing should occur, have not yet been established. This paper proposes a heuristic algorithm to dynamically update hedged portfolios. This dynamic hedging algorithm is based on a Reverse Order Cusumsquare (ROC) testing procedure, proposed by Pesaran and Timmermann (2002), to optimally determine forecast estimation windows. In a comparison with standard alternatives (expanding window, EWLS window and rolling window), we find significant improvements in hedging performance, both in- and out-of-sampreverse order cusum-square test; index futures hedging

On sums of Rudin-Shapiro coefficients II

Let {a(n)} be the Rudin-Shapiro sequence, and let s(n) = ∑a(k) and t(n) = ∑(-1)k a(k). In this paper we show that the sequences {s(n)/√n} and {t(n)/√n} do not have cumulative distribution functions, but do have logarithmic distribution functions (given by a specific Lebesgue integral) at each point of the respective intervals [√3/5, √6] and [0, √3]. The functions a(x) and s(x) are also defined for real x ≥ 0, and the function [s(x) – a(x)]/√x is shown to have a Fourier expansion whose coefficients are related to the poles of the Dirichlet series ∑a(n)/n, where Re τ > ½