Showing papers by "Stockholm School of Economics published in 2005"

Cost of disorders of the brain in Europe.

Abstract: Patrik Andlin-Sobocki, Bengt Jonsson, Hans-Ulrich Wittchen and Jes Olesen Stockholm Health Economics, Stockholm, Sweden and Department of Learning, Informatics, Management and Ethics, Karolinska Institutet, Stockholm, Sweden; Center for Health Economics, Stockholm School of Economics, Stockholm, Sweden; Institute of Clinical Psychology and Psychotherapy, Technische Universitat Dresden, Dresden, Germany; Department of Neurology, Glostrup Hospital, University of Copenhagen, Copenhagen, Denmark

Assessment of fracture risk.

Abstract: The diagnosis of osteoporosis is based on the measurement of bone mineral density (BMD). There are a number of clinical risk factors that provide information on fracture risk over and above that given by BMD. The assessment of fracture risk thus needs to be distinguished from diagnosis to take account of the independent value of the clinical risk factors. These include age, a prior fragility fracture, a parental history of hip fracture, smoking, use of systemic corticosteroids, excess alcohol intake and rheumatoid arthritis. The independent contribution of these risk factors can be integrated by the calculation of fracture probability with or without the use of BMD. Treatment can then be offered to those identified to have a fracture probability greater than an intervention threshold.

Powerful CEOs and Their Impact on Corporate Performance

Abstract: Executives can only impact firm outcomes if they have influence over crucial decisions. On the basis of this idea, we develop and test the hypothesis that firms whose CEOs have more decision-making power should experience more variability in performance. Focusing primarily on the power the CEO has over the board and other top executives as a consequence of his formal position and titles, status as a founder, and status as the board’s sole insider, we find that stock returns are more variable for firms run by powerful CEOs. Our findings suggest that the interaction between executive characteristics and organizational variables has important consequences for firm performance.

Multiple Large Shareholders and Firm Value

Abstract: This paper investigates the effects of having multiple large shareholders on the valuation of firms. Using data on Finnish listed firms, we show, consistent with our model, that a more equal distribution of votes among large blockholders has a positive effect on firm value. This result is particularly strong in family-controlled firms suggesting that families (which typically have managerial or board representation) are more prone to private benefit extraction if they are not monitored by another strong blockholder. We also show that the relation between multiple blockholders and firm value is significantly affected by the identity of these blockholders.

Is There Really a Foreign Ownership Wage Premium? Evidence from Matched Employer-Employee Data

Abstract: Numerous studies on firm-level data have reported higher average wages in foreign-owned firms than in domestically-owned firms. This, however, does not necessarily imply that the individual worker’s wage increase with foreign ownership. Using detailed matched employer-employee data on the entire Swedish private sector, we examine the effect of foreign ownership on individual wages, controlling for individual and firm heterogeneity as well as for possible selection bias in foreign acquisitions. We distinguish between foreign greenfields and takeovers and compare foreign owned firms with both domestic multinationals and local firms. Our results show a considerably smaller wage premium in foreign owned firms than what has been found in studies conducted at a more aggregate level. Moreover, foreign takeovers of Swedish firms tend to have no or even a negative effect on wages.

Corporate Performance, Board Structure and its Determinants in the Banking Industry

Abstract: We examine the relation between board structure (size and composition) and firm performance using a sample of banking firms during 1959-1999. Contrary to the evidence for non-financial firms, we find that banking firms with larger boards do not underperform their peers in terms of Tobin's Q. We argue that M&A activity and features of the bank holding company organizational form may make a larger board more desirable for these firms and document that board size is significantly related to characteristics of our sample firms' structures. Even after accounting for these potential sources of endogeneity, we do not find a negative relationship between board size and Tobin's Q. Our findings suggest that constraints on board size in the banking industry may be counter-productive.

A note on Wick products and the fractional Black-Scholes model

Abstract: In some recent papers (Elliott and van der Hoek 2003; Hu and Oksendal 2003) a fractional Black-Scholes model has been proposed as an improvement of the classical Black-Scholes model (see also Benth 2003; Biagini et al. 2002; Biagini and Oksendal 2004). Common to these fractional Black-Scholes models is that the driving Brownian motion is replaced by a fractional Brownian motion and that the Ito integral is replaced by the Wick integral, and proofs have been presented that these fractional Black-Scholes models are free of arbitrage. These results on absence of arbitrage complelety contradict a number of earlier results in the literature which prove that the fractional Black-Scholes model (and related models) will in fact admit arbitrage. The objective of the present paper is to resolve this contradiction by pointing out that the definition of the self-financing trading strategies and/or the definition of the value of a portfolio used in the above papers does not have a reasonable economic interpretation, and thus that the results in these papers are not economically meaningful. In particular we show that in the framework of Elliott and van der Hoek 2003, a naive buy-and-hold strategy does not in general qualify as “self-financing”. We also show that in Hu and Oksendal 2003, a portfolio consisting of a positive number of shares of a stock with a positive price may, with positive probability, have a negative “value”.

What Do Firms Disclose and Why? Enforcing Corporate Governance and Transparency in Central and Eastern Europe

Abstract: While specific corporate governance rules often are controversial, most observers agree on the need to disclose who owns and controls a firm and what governance arrangements are in place. This paper examines such disclosure in a sample of 370 companies listed on stock exchanges in Central and Eastern Europe. The data show widespread non-disclosure of even the most basic elements of corporate governance arrangements, despite existing regulation. The level of disclosure varies substantially across firms, and there is a strong country effect in what companies disclose. Overall, what is disclosed depends on the legal framework and practice in a given country, but it does not correlate with firms' financial performance. On the other hand, financial performance is strongly related with how easily available the information is to the public. In particular, information is more available in larger firms, firms with lower leverage, higher market-to-book ratios, and more concentrated ownership.

Laws for Sale: Evidence from Russia

Abstract: How does regulatory capture affect growth? We construct measures of the political power of firms and regional regulatory capture using microlevel data on the preferential treatment of firms through regional laws and regulations in Russia during the period 1992--2000. Using these measures, we find that: (1) politically powerful firms perform better on average; (2) a high level of regulatory capture hurts the performance of firms that have no political connections and boosts the performance of politically connected firms; (3) capture adversely affects small-business growth and the tax capacity of the state; and (4) there is no evidence that capture affects aggregate growth. "oligarchy ... throws a close network of dependence relationships over all the economic and political institutions of present-day bourgeois society without exception... ." --Vladimir Lenin, "Imperialism: The Highest Stage of Capitalism" (1916) Copyright 2005, Oxford University Press.

Is it Culture or Democracy? The Impact of Democracy, Income, and Culture on Happiness

Abstract: We look at the relation between democracy and perceived subjective well-being, taking also into account the impact of income and culture After briefly reviewing the empirical results for Switzerland, we re-estimate this relationship allowing for the relative income position of individuals and also using a new more recent data from the Swiss Household Panel No robust relationship between the extent of (direct) democracy and happiness can be observed In a second step, we conduct a cross-national analysis, covering 28 countries with data from the 1998 International Social Survey Programme (ISSP) There we observe a robust positive and significant relationship between democracy and happiness

The Bigger the Better? Evidence of the Effect of Government Size on Life Satisfaction Around the World

Abstract: This paper empirically analyzes the question whether government involvement in the economy is conducive or detrimental to life satisfaction in a cross-section of 74 countries. This provides a test of a longstanding dispute between standard neoclassical economic theory, which predicts that government plays an unambiguously positive role for individuals' quality of life, and public choice theory, that was developed to understand why governments often choose excessive involvement and regulation, thereby harming voters' quality of life. Our results show that life satisfaction decreases with higher government spending. This negative impact of the government is stronger in countries with a leftwing median voter. It is alleviated by government effectiveness - but only in countries where the state sector is already small.

Proton therapy of cancer: Potential clinical advantages and cost-effectiveness

Abstract: Proton therapy may offer potential clinical advantages compared with conventional radiation therapy for many cancer patients. Due to the large investment costs for building a proton therapy facility, however, the treatment cost with proton radiation is higher than with conventional radiation. It is therefore important to evaluate whether the medical benefits of proton therapy are large enough to motivate the higher costs. We assessed the cost-effectiveness of proton therapy in the treatment of four different cancers: left-sided breast cancer, prostate cancer, head and neck cancer, and childhood medulloblastoma. A Markov cohort simulation model was created for each cancer type and used to simulate the life of patients treated with radiation. Cost and quality adjusted life years (QALYs) were used as primary outcome measures. The results indicated that proton therapy was cost-effective if appropriate risk groups were chosen. The average cost per QALY gained for the four types of cancer assessed was about pounds 10,130. If the value of a QALY was set to pounds 55,000, the total yearly net benefit of treating 925 cancer patients with the four types of cancer was about pounds 20.8 million. Investment in a proton facility may thus be cost-effective. The results must be interpreted with caution, since there is a lack of data, and consequently large uncertainties in the assumptions used.

What do firms disclose and why? enforcing corporate governance and transparency in central and eastern europe

Abstract: While specific corporate-governance rules are often controversial, most observers agree on the need to disclose who owns and controls a firm and what governance arrangements are in place. This paper examines such disclosure in a sample of 370 companies listed on stock exchanges in Central and Eastern Europe. The data show widespread non-disclosure of even the most basic elements of corporate-governance arrangements, despite existing regulation. The level of disclosure varies substantially across firms, and there is a strong country effect in what companies disclose. Overall, what is disclosed depends on the legal framework and practice in a given country, but it does not correlate with firms' financial performance. On the other hand, financial performance is strongly related with how easily available the information is to the public. In particular, information is more available in larger firms, firms with lower leverage, higher market-to-book ratios, and more concentrated ownership. Copyright 2005, Oxford University Press.

Can Structural Models Price Default Risk? New Evidence from Bond and Credit Derivative Markets

Abstract: Using a set of structural models, we evaluate bond yield spreads and the price of default protection for a sample of US corporations. Theory predicts that if credit risk alone explains these two quantities, their magnitudes should be similar. Our findings concur with previous results that bond yield spreads are underestimated. However, this is not systematically the case for CDS premia, which in our dataset are much lower than bond spreads. Furthermore, our results highlight the strong relationship between bond residuals and nondefault proxies, in particular illiquidity. CDS residuals exhibit no such relations. This suggests that the bond spread underestimation by our structural models may not stem from their inability to properly account for default risk, but rather from the importance of the omitted risk factors.

Location choice and employment decisions: a comparison of German and Swedish multinationals

Abstract: Using data on German and Swedish multinational enterprises (MNEs), this paper analyzes determinants of location choice and the degree of substitutability of labor across locations. Countries with highly skilled labor strongly attract German but not necessarily Swedish MNEs. In MNEs from either country, affiliate employment tends to substitute for employment at the parent firm. At the margin, substitutability is the strongest with respect to affiliate employment in Western Europe. A one percent larger wage gap between Germany and locations in Central and Eastern Europe (CEE) is associated with 760 fewer jobs at German parents and 4,620 more jobs at affiliates in CEE. A one percent larger wage gap between Sweden and CEE is associated with 140 fewer jobs at Swedish parents and 260 more jobs at affiliates in CEE.

Cost‐effectiveness of proton radiation in the treatment of childhood medulloblastoma

Abstract: BACKGROUND Radiation therapy is an important component in the treatment of medulloblastoma; however, in many patients, it is associated with risk of late adverse events Proton radiation therapy has potential to reduce the risk of adverse events compared with conventional radiation, but it is associated with a higher treatment cost The objective of the current study was to assess the cost-effectiveness of proton therapy compared with conventional radiation therapy in the treatment of childhood medulloblastoma METHODS The consequences of radiation therapy were evaluated using a Markov simulation model Children age 5 years with medulloblastoma were followed The patients were at risk of several types of adverse events, including hearing loss, intelligence quotient (IQ) loss, hypothyroidism, growth hormone deficiency (GHD), osteoporosis, cardiac disease, and secondary malignancies The patients also were at risk of death and were divided into risk groups for normal death, death due to tumor recurrence, treatment-related cardiac death, treatment-related subsequent tumor death, or treatment-related other death A review of the literature was conducted to estimate the parameters in the model RESULTS The base-case results showed that proton therapy was associated with €23,600 in cost savings and 068 additional quality-adjusted life-years per patient The analyses showed that reductions in IQ loss and GHD contributed to the greatest part of the cost savings and were the most important parameters for cost-effectiveness CONCLUSIONS The results of the current study indicated that proton radiation therapy can be cost-effective and cost-saving compared with conventional radiation therapy in the treatment of children with medulloblastoma if the appropriate patients are selected for the therapy However, there have been few long-term follow-up studies, and more much information on the long-term consequences of radiation therapy is needed Cancer 2005 © 2005 American Cancer Society

Demand and Distance: Evidence on Cross-Border Shopping

Abstract: While many studies have documented deviations from the Law of One Price in international settings, evidence is scarce on the extent to which consumers take advantage of price differentials and engage in cross border shopping. We use data from 287 Swedish municipalities to estimate how responsive alcohol sales are to foreign prices, and relate the sensitivity to the location's distance to the border. Typical results suggest that the elasticity with respect to the foreign price is around 0.4 in the border region; moving 200 (400) kilometres inland reduces it to 0.2 (0.1). Given that cross-country price differences for alcohol and other products are often caused by taxes, our evidence has implications for the debate on tax competition/harmonization.

Chapter 24 CGE Modeling of Environmental Policy and Resource Management

Abstract: Computable general equilibrium (CGE) modeling is an attempt to use general equilibrium theory as a tool for analysis of resource allocation and income distribution issues in market economies. Since the beginning of the 1990s, CGE modeling has been widely used for analysis of environmental policy and natural resource management issues. The purpose of this chapter is to review this branch of CGE modeling. Most existing CGE models are static, but as faster computers and more efficient software have become available, an increasing number of environmental CGE models are dynamic. In addition to the static–dynamic dimension, it is useful to distinguish between single-country, multi-country and global models. Some environmental CGE models are primarily focused on the external effects of production and consumption, while others are designed to elucidate various issues related to the management of natural resources. However, most existing CGE models are focused on externalities, primarily emissions of greenhouse gases. Global “externality” CGE models have been used to estimate the social cost of complying with the Kyoto Protocol, while single-country models, among many other things, have been used for evaluation of the efficiency of emission taxes and other environmental policy instruments. CGE modeling currently is both a field for specialists and an almost standard part of the toolbox of economists concerned with policy-oriented research. A major reason for the widespread use of CGE modeling probably is that a CGE model is an ideal bridge between economic theory and applied policy research. The “bridge” perspective, however, suggests that CGE modeling is a way of using rather than testing economic theory. Yet carefully designed and estimated CGE models have a lot to say about real world economies.

Estimating Structural Bond Pricing Models

Abstract: A difficulty that arises when implementing structural bond pricing models is the estimation of the value and risk of the firm's assets, neither of which is directly observable. We perform a simulation experiment to evaluate a maximum likelihood method applicable to this problem. Contrasting the performance of the maximum likelihood estimators to that of estimators traditionally used in academia and industry, we find strong support for the maximum likelihood approach. In fact, the inefficiency of the traditional estimator may help explain the failure of past attempts to implement structural bond pricing models.

The burden of hospitalised fractures in Sweden

Abstract: The aim of this study was to characterise the hospital burden of fractures in the Swedish population by age and gender. The number of patients and number of fractures were documented according to site of fracture, age, sex and duration of hospital stay for the whole population of Sweden in 1996. Fractures were additionally classified as osteoporotic according to fracture site. In 1996 there were 54,000 admissions for fracture in men and women aged 50 years or more, accounting for 600,000 hospital-bed days. Hip fractures accounted for 63% of admissions for fracture in men and 72% in women, for 69% and 73% of hospital-bed days, respectively. Fractures considered to be osteoporotic accounted for 84% of all hospital-bed days due to fracture in men, and 93% in women. More hospital-bed days were due to osteoporotic fracture than to breast cancer and prostate cancer combined. The number of hospital-bed days due to osteoporotic fracture was between the amount due to ischaemic heart disease and the amount due to stroke.

Is Neoclassical Economics still Entrepreneurless

Abstract: Summary The paper reviews and evaluates some recent contributions on modeling entrepreneurship within a neoclassical framework, analyzing how, and to what extent, the fundamental ingredients suggested in the social science literature were captured. It is shown how these approaches are important in stressing the main elements of a complex picture, without being able to fully describe it. Each modeling attempt focuses only on one specific feature of entrepreneurship, and the entrepreneurial function, broadly perceived, eludes analytical tractability. As a consequence, the models can be useful in analyzing the effect of entrepreneurial behavior at an aggregate level, but not at explaining individual choices. From these observations, it is highlighted how a simplistic interpretation of the existing mainstream approaches incorporating entrepreneurship runs the risk of leading to distortionary policy interventions.

Multivariate Autoregressive Conditional Heteroskedasticity with Smooth Transitions in Conditional Correlations

Abstract: In this paper we propose a new multivariate GARCH model with time-varying conditional correlation structure. The approach adopted here is based on the decomposition of the covariances into correlations and standard deviations. The time-varying conditional correlations change smoothly between two extreme states of constant correlations according to an endogenous or exogenous transition variable. An LM test is derived to test the constancy of correlations and LM and Wald tests to test the hypothesis of partially constant correlations. Analytical expressions for the test statistics and the required derivatives are provided to make computations feasible. An empirical example based on daily return series of five frequently traded stocks in the Standard & Poor 500 stock index completes the paper. The model is estimated for the full five-dimensional system as well as several subsystems and the results discussed in detail.