An Options-based Approach to Forecast Competing Bids: Evidence for Canadian Takeover Battles
Stefan Eichler, Dominik Maltritz
Applied Economics,
No. 34,
2013
Abstract
During takeover battles, a tender offer provides a call option right to the target’s shareholders: it guarantees the offered price but maintains the chance of a higher offer. We present an options-based approach to estimate the probability and expected value of higher competing takeover bids using target stock price data. Analysing Canadian takeover battles in the period 1997 to 2007 we find that during the 5 trading days prior to the occurrence of an increased takeover bid, the estimated probability of a higher bid exceeds 80% on average and the expected value of a potential competing bid almost matches the realized value.
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Effects of Incorrect Specification on the Finite Sample Properties of Full and Limited Information Estimators in DSGE Models
Sebastian Giesen, Rolf Scheufele
Abstract
In this paper we analyze the small sample properties of full information and limited information estimators in a potentially misspecified DSGE model. Therefore, we conduct a simulation study based on a standard New Keynesian model including price and wage rigidities. We then study the effects of omitted variable problems on the structural parameters estimates of the model. We find that FIML performs superior when the model is correctly specified. In cases where some of the model characteristics are omitted, the performance of FIML is highly unreliable, whereas GMM estimates remain approximately unbiased and significance tests are mostly reliable.
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Money and Inflation: Consequences of the Recent Monetary Policy
Makram El-Shagi, Sebastian Giesen
Journal of Policy Modeling,
No. 4,
2013
Abstract
We use a multivariate state space framework to analyze the short run impact of money on prices in the United States. The key contribution of this approach is that it allows to identify the impact of money growth on inflation without having to model money demand explicitly.
Using our results, that provide evidence for a substantial impact of money on prices in the US, we analyze the consequences of the Fed's response to the financial crisis. Our results indicate a raise of US inflation above 5% for more than a decade. Alternative exit strategies that we simulate cannot fully compensate for the monetary pressure without risking serious repercussions on the real economy. Further simulations of a double dip in the United States indicate that a repetition of the unusually expansive monetary policy – in addition to increased inflation – might cause growth losses exceeding the contemporary easing of the crisis.
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Towards a Theory of Climate Innovation - A Model Framework for Analyzing Drivers and Determinants
Wilfried Ehrenfeld
Journal of Evolutionary Economics,
2013
Abstract
In this article, we describe the results of a multiple case study on the indirect corporate innovation impact of climate change in the Central German chemical industry. We investigate the demands imposed on enterprises in this context as well as the sources, outcomes and determining factors in the innovative process at the corporate level. We argue that climate change drives corporate innovations through various channels. A main finding is that rising energy prices were a key driver for incremental energy efficiency innovations in the enterprises’ production processes. For product innovation, customer requests were a main driver, though often these requests are not directly related to climate issues. The introduction or extension of environmental and energy management systems as well as the certification of these are the most common forms of organizational innovations. For marketing purposes, the topic of climate change was hardly utilized so far. As the most important determinants for corporate climate innovations, corporate structure and flexibility of the product portfolio, political asymmetry regarding environmental regulation and governmental funding were identified.
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Bertrand Competition with an Asymmetric No-discrimination Constraint
Jan Bouckaert, Hans Degryse, Theon van Dijk
Journal of Industrial Economics,
No. 1,
2013
Abstract
Regulators and competition authorities often prevent firms with significant market power, or dominant firms, from practicing price discrimination. The goal of such an asymmetric no-discrimination constraint is to encourage entry and serve consumers' interests. This constraint prohibits the firm with significant market power from practicing both behaviour-based price discrimination within the competitive segment and third-degree price discrimination across the monopolistic and competitive segments. We find that this constraint hinders entry and reduces welfare when the monopolistic segment is small.
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Has the Euro Increased International Price Elasticities?
Oliver Holtemöller, Götz Zeddies
Empirica,
No. 1,
2013
Abstract
The introduction of the Euro has been accompanied by the hope that international competition between EMU member states would increase due to higher price transparency. This paper contributes to the literature by analyzing price elasticities in international trade flows between Germany and France and between Germany and the United Kingdom before and after the introduction of the Euro. Using disaggregated Eurostat trade statistics, we adopt a heterogeneous dynamic panel framework for the estimation of price elasticities. We suggest a Kalman-filter approach to control for unobservable quality changes which otherwise would bias estimates of price elasticities. We divide the complete sample, which ranges from 1995 to 2008, into two sub-samples and show that price elasticities in trade between EMU members did not change substantially after the introduction of the Euro. Hence, we do not find evidence for an increase in international price competition resulting from EMU.
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Vertical Grants and Local Public Efficiency
Ivo Bischoff, Peter Bönisch, Peter Haug, Annette Illy
Abstract
This paper analyses the impact of vertical grants on local public sector efficiency. First, we develop a theoretical model in which the bureaucrat sets the tax price while voters choose the quantity of public services. In this model, grants reduce efficiency if voters do not misinterpret the amount of vertical grants the local bureaucrats receive. If voters suffer from fiscal illusion, i.e. overestimate the amount of grants, our model yields an ambiguous effect of grants on efficiency. Second, we use the model to launch a note of caution concerning the inference that can be drawn from the existing cross-sectional studies in this field: Taking into account vertical financial equalization systems that reduce differences in fiscal capacity, empirical studies based on cross-sectional data may yield a positive relationship between grants and efficiency even when the underlying causal effect is negative. Third, we perform an empirical analysis for the German state of Saxony-Anhalt, which has implemented such a fiscal equalization system. We find a positive relationship between grants and efficiency. Our analysis shows that a careful reassessment of existing empirical evidence with regard to this issue seems necessary.
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The Effects of Building Energy Codes in Rental Housing: The German Experience
Claus Michelsen, Sebastian Rosenschon
Economics Bulletin,
No. 4,
2012
Abstract
This paper investigates the effect of building energy codes on housings' real energy consumption. We argue that building codes should have a twofold effect: lower levels of energy consumption after its implementation and decreasing energy requirements over time, because tighter building codes induce technical progress in the construction sector. We find evidence for both aspects. Based on a large and unique sample of energy certificates from Germany, this study is the first that deals with the empirical effects of energy efficiency standards in apartment/rental housing. Moreover, it is the first, which includes different stages of regulation.
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Efficiency in the UK Commercial Property Market: A Long-run Perspective
Steven Devaney, Oliver Holtemöller, R. Schulz
IWH Discussion Papers,
No. 15,
2012
Abstract
Informationally efficient prices are a necessary requirement for optimal resource allocation in the real estate market. Prices are informationally efficient if they reflect buildings’ benefit to marginal buyers, thereby taking account of all available information on future market development. Prices that do not reflect available information may lead to over- or undersupply if developers react to these inefficient prices. In this study, we examine the efficiency of the UK commercial property market and the interaction between prices, construction costs, and new supply. We collated a unique data set covering the years 1920 onwards, which we employ in our study. First, we assess if real estate prices were in accordance with present values, thereby testing for informational efficiency. By comparing prices and estimated present values, we can measure informational inefficiency. Second, we assess if developers reacted correctly to price signals. Development (or the lack thereof) should be triggered by deviations between present values and cost; if prices do not reflect present values, then they should have no impact on development decisions.
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Competitive Distortions of Bank Bailouts
Michael Koetter, Felix Noth
Abstract
This study investigates if the Troubled Asset Relief Program (TARP) distorted price competition in U.S. banking. Political indicators reveal bailout expectations after 2009, manifested as beliefs about the predicted probability of receiving equity support relative to failing during the TARP disbursement period. In addition, the TARP affected the competitive conduct of unsupported banks after the program stopped in the fourth quarter of 2009. Loan rates were higher, and the risk premium required by depositors was lower for banks with higher bailout expectations. The interest margins of unsupported banks increased in the immediate aftermath of the TARP disbursement but not after 2010. No effects emerged for loan or deposit growth, which suggests that protected banks did not increase their market shares at the expense of less protected banks.
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