Testing for inconsistencies in the estimation of UK capital structure determinants

This article analyses the determinants of the capital structure of 1054 UK companies from 1991 to 1997, and the extent to which the influence of these determinants are affected by time-invariant firm-specific heterogeneity. Comparing the results of pooled OLS and fixed effects panel estimation, significant differences in the results are found. While the OLS results are generally consistent with prior literature, the results of our fixed effects panel estimation contradict many of the traditional theories of the determinants of corporate financial structure. This suggests that results of traditional studies may be biased owing to a failure to control for firm-specific, time-invariant heterogeneity. The results of the fixed effects panel estimation find larger companies to have higher levels of both long-term and short-term debt than do smaller firms, profitability to be negatively correlated with the level of gearing, although profitable firms tend to have more short-term bank borrowing than less profitable firms, and tangibility to positively influence the level of short-term bank borrowing, as well as all long-term debt elements. However, the level of growth opportunities appears to have little influence on the level of gearing, other than short-term bank borrowing, where a significant negative relationship is observed

Interview with Joseph Stiglitz: “The cost of keeping the Eurozone together probably exceeds the cost of breaking it up”

Can the euro be saved? In an interview with Artemis Photiadou and EUROPP’s editor Stuart Brown, Nobel Prize-winning economist and bestselling author Joseph Stiglitz discusses the structural problems at the heart of the Eurozone, why an amicable divorce may be preferable to maintaining the single currency, and how European leaders should respond to the UK’s vote to leave the EU

Preface

Preface to "The Welfare State Revisited". The central thesis of the papers in this volume is that Draghi and those who argue similarly are wrong. Now, more than ever, there is a need for a welfare state. A stronger welfare state is part of the answer to Europe's problems, not the cause of them. Those countries in Europe with the strongest welfare states weathered the crisis better and have higher living standards. The development of welfare states is also essential for equitable development in middle- and low-income countries. Furthermore, it is critical to reverse the adverse domestic inequality trends that have been in place throughout the world since the last decades of the twentieth century

Introduction

This is an introduction to "Too Little, Too Late: The Quest to Resolve Sovereign Debt Crisis". Sovereign debt crises are becoming, once again, frequent. In some cases, the costs to the citizens of those countries facing such crises have been enormous. Deficiencies in the mechanisms for resolving such crises cast a pallor over countries that are not yet in a crisis but worry that they might become so; and indeed, the high costs and uncertainties associated with debt restructuring dampen cross-border capital flows and force especially developing countries and emerging markets to pay higher interest rates than might be the case if there were better ways of resolving these debt problems.There have been several important academic studies addressing various aspects of frameworks for sovereign debt restructuring and the advantages and disadvantages of these mechanisms relative to the private contractual approach. In light of the recent events and progress in our understanding of the issues, these studies need to be updated. This book fills in this gap by providing a collection of essays from top academic economists, lawyers, and practitioners in the field, providing guidance on the most critical questions. (Many of these ideas were presented as part of an ongoing series of conferences held at Columbia University on frameworks for sovereign debt restructuring.

Introduction: Time for a Visible Hand: Lessons From the 2008 World Financial Crisis

The world financial meltdown of 2008 has shattered into pieces the sophisticated but conceptually hollow premise on which the framework of self-regulating markets had been built. The dominance of this conceptual apparatus in recent decades has left, as its legacy, the worst global financial crisis since the Great Crash of 1929, the worst recession since the Second World War and a collapse of international trade. As a result, the world is also experiencing a mounting social crisis, reflected in particular in escalating unemployment and underemployment, and significant reductions in the value of pension funds. The developing world, which had been experiencing in recent years one of its best growth records in history, has also been dragged into the crisis

Capital structure and its determinants in the United Kingdom – a decompositional analysis

Prior research on capital structure by Rajan and Zingales (1995) suggests that the level of gearing in UK companies is positively related to size and tangibility, and negatively correlated with profitability and the level of growth opportunities. However, as argued by Harris and Raviv (1991), 'The interpretation of results must be tempered by an awareness of the difficulties involved in measuring both leverage and the explanatory variables of interest'. In this study the focus is on the difficulties of measuring gearing, and the sensitivity of Rajan and Zingales' results to variations in gearing measures are tested. Based on an analysis of the capital structure of 822 UK companies, Rajan and Zingales' results are found to be highly definitional-dependent. The determinants of gearing appear to vary significantly, depending upon which component of debt is being analysed. In particular, significant differences are found in the determinants of long- and short-term forms of debt. Given that trade credit and equivalent, on average, accounts for more than 62% of total debt, the results are particularly sensitive to whether such debt is included in the gearing measure. It is argued, therefore, that analysis of capital structure is incomplete without a detailed examination of all forms of corporate debt

Time walkers and spatial dynamics of ageing information

The distribution of information is essential for living system's ability to coordinate and adapt. Random walkers are often used to model this distribution process and, in doing so, one effectively assumes that information maintains its relevance over time. But the value of information in social and biological systems often decay and must continuously be updated. To capture the spatial dynamics of ageing information, we introduce time walkers. A time walker moves like a random walker, but interacts with traces left by other walkers, some representing older information, some newer. The traces forms a navigable information landscape. We quantify the dynamical properties of time walkers moving on a two-dimensional lattice and the quality of the information landscape generated by their movements. We visualise the self-similar landscape as a river network, and show that searching in this landscape is superior to random searching and scales as the length of loop-erased random walks

Macroeconomic Fluctuations, Inequality, and Human Development

This paper examines the two-way relationship between inequality and economic fluctuations, and the implications for human development. For years, the dominant paradigm in macroeconomics, which assumed that income distribution did not matter, at least for macroeconomic behavior, ignored inequality--both its role in causing crises and the effect of fluctuations in general, and crises in particular, on inequality. But the most recent financial crisis has shown the errors in this thinking, and these views are finally beginning to be questioned. Economists who had looked at the average equity of a homeowner--ignoring the distribution--felt comfortable that the economy could easily withstand a large fall in housing prices. When such a fall occurred, however, it had disastrous effects, because a large fraction of homeowners owed more on their homes than the value of the home, leading to waves of foreclosure and economic stress. Policy-makers and economists alike have begun to take note: inequality can contribute to volatility and the creation of crises, and volatility can contribute to inequality. Here, we explore the variety of channels through which inequality affects fluctuations and fluctuations affect inequality, and explore how some of the changes in our economy may have contributed to increased inequality and volatility both directly and indirectly. After describing the two-way relationship, the paper discusses hysteresis--the fact that the consequences of an economic downturn can be long-lived. Then, it examines how policy can either mitigate or exacerbate the inequality consequences of economic downturns, and shows how well-intentioned policies can sometimes be counterproductive. Finally, it links these issues to human development, especially in developing countries

Crises: Principles and Policies: With an Application to the Eurozone Crisis

Economies around the world have faced repeated crises — more frequently over the past thirty years. The fact that they have become more frequent and pervasive at the same time that we believe we have learned more about the management of the economy and as markets have seemingly improved poses a puzzle: shouldn't rational markets avoid these catastrophes, the costs of which outweigh, by an enormous amount, any benefit that might have accrued to the economy from the actions prior to the crisis that might have contributed to it? This is especially true of the large fraction of crises that can be called “debt crises,” precipitated by a country’s difficulty in repaying what it owes. The benefits of income smoothing (arising from the difference in the marginal utility of income in periods when income is low and when income is high) are overwhelmed by the social and economic costs of the ensuing crisis

Consumer credit information systems: A critical review of the literature. Too little attention paid by lawyers?

This paper reviews the existing literature on consumer credit reporting, the most extensively used instrument to overcome information asymmetry and adverse selection problems in credit markets. Despite the copious literature in economics and some research in regulatory policy, the legal community has paid almost no attention to the legal framework of consumer credit information systems, especially within the context of the European Union. Studies on the topic, however, seem particularly relevant in view of the establishment of a single market for consumer credit. This article ultimately calls for further legal research to address consumer protection concerns and inform future legislation