Showing papers in "LSE Research Online Documents on Economics in 2016"

A review of the IFRS adoption literature

Abstract: This paper reviews the literature on the effects of International Financial Reporting Standards (IFRS) adoption. It aims to provide a cohesive picture of empirical archival literature on how IFRS adoption affects: financial reporting quality, capital markets, corporate decision making, stewardship and governance, debt contracting, and auditing. In addition, we also present discussion of studies that focus on specific attributes of IFRS, and also provide detailed discussion of research design choices and empirical issues researchers face when evaluating IFRS adoption effects. We broadly summarize the development of the IFRS literature as follows: The majority of early studies paint IFRS as bringing significant benefits to adopting firms and countries in terms of (i) improved transparency, (ii) lower costs of capital, (iii) improved cross-country investments, (iv) better comparability of financial reports, and (v) increased following by foreign analysts. However, these documented benefits tended to vary significantly across firms and countries. More recent studies now attribute at least some of the earlier documented benefits to factors other than adoption of new accounting standards per se, such as enforcement changes. Other recent studies examining the effects of IFRS on the inclusion of accounting numbers in formal contracts point out that IFRS has lowered the contractibility of accounting numbers. Finally, we observe substantial variation in empirical designs across papers which makes it difficult to reconcile differences in their conclusions.

The consequences of Brexit for UK trade and living standards

Abstract: The economic consequences of leaving the EU will depend on what policies the UK adopts following Brexit. But lower trade due to reduced integration with EU countries is likely to cost the UK economy far more than is gained from lower contributions to the EU budget.

Management as a Technology

Abstract: Are some management practices akin to a technology that can explain company and national productivity, or do they simply reflect contingent management styles? We collect data on core management practices from over 11,000 firms in 34 countries. We find large cross-country differences in the adoption of basic management practices, with the US having the highest size-weighted average management score. We present a formal model of \Management as a Technology", and structurally estimate it using panel data to recover parameters including the depreciation rate and adjustment costs of managerial capital (both found to be larger than for tangible nonmanagerial capital). Our model also predicts (i) a positive effect of management on firm performance; (ii) a positive relationship between product market competition and average management quality (part of which stems from the larger covariance between management with firm size as competition strengthens); and (iii) a rise (fall) in the level (dispersion) of management with firm age. We find strong empirical support for all of these predictions in our data. Finally, building on our model, we find that differences in management practices account for about 30% of cross-country total factor productivity differences.

Climate value at risk of global financial assets

Abstract: Investors and financial regulators are increasingly aware of climate-change risks. So far, most of the attention has fallen on whether controls on carbon emissions will strand the assets of fossil-fuel companies1, 2. However, it is no less important to ask, what might be the impact of climate change itself on asset values? Here we show how a leading integrated assessment model can be used to estimate the impact of twenty-first-century climate change on the present market value of global financial assets. We find that the expected ‘climate value at risk’ (climate VaR) of global financial assets today is 1.8% along a business-as-usual emissions path. Taking a representative estimate of global financial assets, this amounts to US$2.5 trillion. However, much of the risk is in the tail. For example, the 99th percentile climate VaR is 16.9%, or US$24.2 trillion. These estimates would constitute a substantial write-down in the fundamental value of financial assets. Cutting emissions to limit warming to no more than 2 °C reduces the climate VaR by an expected 0.6 percentage points, and the 99th percentile reduction is 7.7 percentage points. Including mitigation costs, the present value of global financial assets is an expected 0.2% higher when warming is limited to no more than 2 °C, compared with business as usual. The 99th percentile is 9.1% higher. Limiting warming to no more than 2 °C makes financial sense to risk-neutral investors—and even more so to the risk averse.

Random rotation ensembles

Abstract: In machine learning, ensemble methods combine the predictions of multiple base learners to construct more accurate aggregate predictions. Established supervised learning algorithms inject randomness into the construction of the individual base learners in an effort to promote diversity within the resulting ensembles. An undesirable side effect of this approach is that it generally also reduces the accuracy of the base learners. In this paper, we introduce a method that is simple to implement yet general and effective in improving ensemble diversity with only modest impact on the accuracy of the individual base learners. By randomly rotating the feature space prior to inducing the base learners, we achieve favorable aggregate predictions on standard data sets compared to state of the art ensemble methods, most notably for tree-based ensembles, which are particularly sensitive to rotation.

From stakeholders analysis to cognitive mapping and Multi Attribute Value Theory: an integrated approach for policy support

Abstract: One of the fundamental features of policy processes in contemporary societies is complexity. It follows from the plurality of points of view actors adopt in their interventions, and from the plurality of criteria upon which they base their decisions. In this context, collaborative multicriteria decision processes seem to be appropriate to address part of the complexity challenge. This study discusses a decision support framework that guides policy makers in their strategic decisions by using a multi-method approach based on the integration of three tools, i.e., (i) stakeholders analysis, to identify the multiple interests involved in the process, (ii) cognitive mapping, to define the shared set of objectives for the analysis, and (iii) Multi Attribute Value Theory, to measure the level of achievement of the previously defined objectives by the policy options under investigation. The integrated decision support framework has been tested on a real world project concerning the location of new parking areas in a UNESCO site in Southern Italy. The purpose of this study was to test the operability of an integrated analytical approach to support policy decisions by investigating the combined and synergistic effect of the three aforementioned tools. The ultimate objective was to propose policy recommendations for a sustainable parking area development strategy in the region under consideration. The obtained results illustrate the importance of integrated approaches for the development of accountable public decision processes and consensus policy alternatives. The proposed integrated methodological framework will, hopefully, stimulate the application of other collaborative decision processes in public policy making.

A banking union of ideas? The impact of ordoliberalism and the vicious circle on the EU banking union

Abstract: The establishment of the EU banking union reveals two major shortcomings of liberal intergovernmentalism. First, it fails to explain the preference formation of the most important actor – the German government. The banking sector was divided between public and private banks, and there is no clear-cut pattern about whose interests the German government promoted. Second, material bargaining power cannot account for German concessions despite favourable power asymmetries. This article seeks to demonstrate how an ideational frame can convincingly fill these gaps. Ordoliberal ideas were constitutive for German preferences. The manipulative use of ideas as strategic resources by the German government’s opponents explains why it made significant concessions. Germany’s government publicly acknowledged that breaking the ‘vicious circle’ between banks and sovereigns was the main objective of the banking union. This became a rhetorical trap used by a coalition of Southern European member states to force the German government to make concessions.

Saying and doing gender: intergenerational transmission of attitudes towards the sexual division of labour

Abstract: The persistence of gender inequalities in the division of paid and unpaid work poses an important question for gender socialization research: what matters most for the intergenerational transmission of gender-role attitudes, parental own attitudes or parental behaviours? Recent explanations in cultural economics suggest that intentional attitudinal transmission is the main driver of cultural reproduction. In line with classical sex-role learning models, we contend, however, that what parents do is at least as important as what parents say for gender-role transmission. Using data for British children aged between 11 and 15 we estimate the independent influence of each of these two socialization channels on children’s attitudes towards the sexual division of labour (ASDL). We show that both parental attitudes and parental behaviours are crucial in the formation of children’s ASDL, and that parental influences are stronger when they operate through same-sex dyads. We also show that mothers’ time out of the labour force is a stronger predictor of children’s ASDL than either mothers’ or fathers’ own attitudes. Finally, analysis of a subset of the children followed into their early adult lives shows that ASDL formed in childhood have significant and lasting consequences for both adults’ gender attitudes and their behaviours.

A doubtful hope: resource affect in a future oil economy

Abstract: In global debates about natural resource extraction, affect has played an increasingly prominent, if somewhat nameless, role. This paper proposes a theorization of resource affect both as an intrinsic element of capitalist dynamics and as an object problematized by corporate, government, and third‐sector practice. Drawing on ethnographic research in Sao Tome and Principe (STP), I explore the affective horizons generated by the prospect of hydrocarbon exploration: a doubtful hope comprised of visions of material betterment, personal and collective transformation, as well as anticipations of failure, friction, and discontent. I also examine the multitude of oil‐related campaigns, activities, and programmes initiated by non‐governmental organizations and global governance institutions in STP, animated by the specific conundrums presented by oil's futurity. In light of this, I argue that what we see emerging is a new resource politics that revolves around not simply the democratic and technical aspects of resource exploitation but increasingly their associated affective dissonances and inconsistencies.

The ECB's monetary dialogue with the European Parliament:efficiency and accountability during the Euro crisis?

Abstract: The monetary dialogue between the European Parliament and the ECB is a key component for the democratic accountability of the independent central bank. We provide new evidence for the efficiency of the dialogue and present the results of a survey conducted among the members of the parliament’s ECON committee. We find that while the monetary dialogue may have had little or even negative impact on financial markets, it plays a significant role in informing and involving members of parliament and their constituencies. Amidst an intensifying debate about the transparency of the ECB, these findings shed new light on the current state of affairs of ECB accountability and its alleged need for enhancement.

Skewed task conflicts in teams: what happens when a few members see more conflict than the rest?

Abstract: Task conflict has been the subject of a long-standing debate in the literature—when does task conflict help or hurt team performance? We propose that this debate can be resolved by taking a more precise view of how task conflicts are perceived in teams. Specifically, we propose that in teams, when a few team members perceive a high level of task disagreement while a majority of others perceive low levels of task disagreement—that is, there is positively skewed task conflict, task conflict is most likely to live up to its purported benefits for team performance. In our first study of student teams engaged in a business decision game, we find support for the positive relationship between skewed task conflict and team performance. In our second field study of teams in a financial corporation, we find that the relationship between positively skewed task conflict and supervisor ratings of team performance is mediated by reflective communication within the team.

The impact of broadband and other infrastructure on the location of new business establishments

Abstract: Can improving local infrastructure in underdeveloped areas encourage entrepreneurial activity? If so, which infrastructures and by how much? This paper analyses the impact on new business establishments of broadband infrastructure, motorways, airports and railways and a range of other local characteristics such as availability of human capital and access to third level educational facilities. The sample period spans the introduction and recent history of broadband in Ireland, and during this period 86% of the current motorway network was constructed. Human capital, measured as the percentage of the population with a third level qualification and proximity to a third level institution prove to be important determinants of new firm establishments. Availability of broadband infrastructure is significant, but its effects may be mediated by the presence of sufficiently high educational attainment in the area. Transport infrastructure access is significant for some sectors. For all sectoral groupings examined, firm establishments seem to favour a more diverse local sectoral mix rather than a concentrated one.

How economic, humanitarian, and religious concerns shape European attitudes toward asylum seekers

Abstract: What types of asylum seekers are Europeans willing to accept? We conducted a conjoint experiment asking 18,000 eligible voters in 15 European countries to evaluate 180,000 profiles of asylum seekers that randomly varied on nine attributes. Asylum seekers who have higher employability, have more consistent asylum testimonies and severe vulnerabilities, and are Christian rather than Muslim received the greatest public support. These results suggest that public preferences over asylum seekers are shaped by sociotropic evaluations of their potential economic contributions, humanitarian concerns about the deservingness of their claims, and anti-Muslim bias. These preferences are similar across respondents of different age, education, income, and political ideology, as well as across the surveyed countries. This public consensus on what types of asylum seekers to accept has important implications for theory and policy.

The governance of blockchain financial networks

Abstract: Since the emergence of the virtual currency Bitcoin in 2009, a new, Internet-based way of recording entitlements and enforcing rights has increasingly captured the interest of businesses and governments. The technology is commonly called ‘blockchain’ and is often associated with a closely related phenomenon, the ‘smart contract’. The market is now exploring ways of using these concepts for financial assets, such as securities, legal tender and derivative contracts. This article develops a conceptual framework for the governance of blockchain-based networks in financial markets. It constructs a vision of how financial regulation and private law should set the boundaries of this new technology in order to protect market participants and societies at large, while at the same time allowing for the necessary room for innovation.

Industrial policy in response to the middle-income trap and the Third Wave of the digital revolution

Abstract: The “middle-income trap” (MIT) is “real enough” for policy makers in developing countries to take it as a serious threat to prospects for achieving “high” average income. Those prospects are further clouded by the major changes occurring as the digital revolution moves from connecting people to the Internet to connecting the Internet to everything else, across many sectors of human life (the Third Wave). Both sets of forces raise the potential advantages of pro-active industrial policy. Yet mainstream economic thinking – and the consensus of international development organizations like the World Bank -- has long tended to disapprove of it, in the spirit of “The best industrial policy is none at all”. In light of the middle-income trap, the Third Wave, and other conditions in the world economy, this essay discusses some of the big issues in the design of industrial policy, on the theme of how to do it well rather than how to do it less.

Using electronic health records to predict costs and outcomes in stable coronary artery disease

Abstract: Objectives To use electronic health records (EHR) to predict lifetime costs and health outcomes of patients with stable coronary artery disease (stable-CAD) stratified by their risk of future cardiovascular events, and to evaluate the cost-effectiveness of treatments targeted at these populations. Methods The analysis was based on 94 966 patients with stable-CAD in England between 2001 and 2010, identified in four prospectively collected, linked EHR sources. Markov modelling was used to estimate lifetime costs and quality-adjusted life years (QALYs) stratified by baseline cardiovascular risk. Results For the lowest risk tenth of patients with stable-CAD, predicted discounted remaining lifetime healthcare costs and QALYs were £62 210 (95% CI £33 724 to £90 043) and 12.0 (95% CI 11.5 to 12.5) years, respectively. For the highest risk tenth of the population, the equivalent costs and QALYs were £35 549 (95% CI £31 679 to £39 615) and 2.9 (95% CI 2.6 to 3.1) years, respectively. A new treatment with a hazard reduction of 20% for myocardial infarction, stroke and cardiovascular disease death and no side-effects would be cost-effective if priced below £72 per year for the lowest risk patients and £646 per year for the highest risk patients. Conclusions Existing EHRs may be used to estimate lifetime healthcare costs and outcomes of patients with stable-CAD. The stable-CAD model developed in this study lends itself to informing decisions about commissioning, pricing and reimbursement. At current prices, to be cost-effective some established as well as future stable-CAD treatments may require stratification by patient risk.

Pathways towards instability in financial networks

Abstract: Following the financial crisis of 2007–2008, a deep analogy between the origins of instability in financial systems and complex ecosystems has been pointed out: in both cases, topological features of network structures influence how easily distress can spread within the system. However, in financial network models, the details of how financial institutions interact typically play a decisive role, and a general understanding of precisely how network topology creates instability remains lacking. Here we show how processes that are widely believed to stabilize the financial system, that is, market integration and diversification, can actually drive it towards instability, as they contribute to create cyclical structures which tend to amplify financial distress, thereby undermining systemic stability and making large crises more likely. This result holds irrespective of the details of how institutions interact, showing that policy-relevant analysis of the factors affecting financial stability can be carried out while abstracting away from such details.

Submergence: precarious politics in Colombia's future port-city

Abstract: This article examines popular politics under conditions of protracted precarity in the rapidly expanding port-city of Buenaventura on Colombia’s Pacific coast. It begins by identifying the intersecting economic, ecological, and political forces contributing to the precarity of life in Buenaventura’s intertidal zone. Focusing on conflicts over land in the waterfront settlements of Bajamar (meaning “low-tide”), it then describes the efforts of Afro-Colombian settlers and activists to defend their territories against threats of violence and displacement. In doing so, they must navigate historical legacies of ethno-racial politics as well as formations of liberal governance and their multicultural and biopolitical logics of vulnerability and protection. The socio-material conditions of the intertidal zone, and in particular the figure of submergence, are used to illuminate the forms of political life in Colombia’s future port-city. The struggles of Afro-Colombians to contest violent dispossession in Buenaventura reflect the racialized politics of precarity under late liberalism.

The diffusion of knowledge via managers’ mobility

Abstract: Better managers and managerial practices lead to better firm performance. Yet, little is known about what happens when managers move across firms. Does a firm hiring a good manager improve its performance? If yes is there some valuable knowledge the manager has acquired and successfully diffused to the new firm? In order to answer these questions, we use information related to specific activities the manager was involved in when working for previous firms. More specifically, we use information on whether the manager has worked in the past for firms exporting to a specific destination country or a specific product. Our data is rich enough to allow controlling for both manager and firm unobservables and wash out any time-invariant ability of the manager as well as overall firm performance. We find that the export experience gained by managers in previous firms leads their current firm towards higher export performance, and commands a sizable wage premium for the manager. We use several strategies to deal with endogeneity including an exogenous event study: the sudden end of the Angolan civil war in 2002. We further refine our analysis by looking at different types of managers (general, production, financial and sales) and show how specific export experience interacts with the degree of product differentiation and/or the financial vulnerability of a firm’s products as well as with rising import competition from China.

Turning against the union? The impact of the crisis on the Eurosceptic vote in the 2014 European Parliament elections

Abstract: The 2014 European Parliament elections were held against the backdrop of the worst economic crisis in post-war Europe The elections saw an unprecedented surge in support for Eurosceptic parties This raises the question of whether the crisis, and the EU's response to it, can explain the rise of Eurosceptic parties Our analysis of the 2014 European Election Study demonstrates that the degree to which individuals were adversely affected by the crisis and their discontent with the EU's handling of the crisis are major factors in explaining defection from mainstream pro-European to Eurosceptic parties in these elections This suggests that far from being second-order national elections concerned only with domestic politics, European issues had a significant impact on vote choices

Asymmetric persistence and the market pricing of accruals and cash flows

Abstract: We investigate whether stock prices reflect the asymmetric persistence of accruals and cash flows resulting from conditional conservatism. Using the Mishkin (1983) test (MT), we provide further evidence on the earnings fixation explanation for the accrual anomaly. We also apply panel estimation techniques that significantly affect market efficiency inferences. Our results suggest that over our sample period (1) investors seem to partially anticipate asymmetric persistence in accruals and cash flows; (2) the accrual anomaly originates in the mispricing of accruals in years of economic gains, even though the differential persistence between accruals and cash flows is greatest in years of economic losses; (3) investors respond differently to accrual and cash flow surprises and therefore they do not naively fixate on earnings surprises; and (4) after clustering standard errors in the MT by firm and year dimensions, there is no longer evidence of cash flow mispricing, while the statistical significance of accrual mispricing falls. All our findings contradict the earnings fixation explanation for the accrual anomaly. Our study has implications for understanding the accrual anomaly in relation to accrual dynamics, as well as for researchers interested in using the MT framework to test the rationality of investor expectations more generally.

Evidence on Financing and Budgeting Mechanisms to Support Intersectoral Actions Between Health, Education, Social Welfare and Labour Sectors

Abstract: Intersectoral collaboration between the health and the social welfare, education or labour sectors can help to influence the social determinants of health. Funding such collaboration can be difficult as these sectors may be subject to very different regulatory structures, incentives and goals. This review found 51 documents on the use of various financial mechanisms to facilitate intersectoral collaboration for health promotion, involving at least two of these sectors. A systematic search of the evidence identified the approaches used, including: discretionary earmarked funding, recurring delegated financing allocated to independent bodies and mechanisms for joint budgeting between two or more sectors. Many of these examples are implemented at a regional or local, rather than national, level and factors that influence their success include organizational structures, management, culture and trust. Potential facilitators include regulatory and legislative frameworks providing incentives, clear accountability for actions and the identification of specific benefits to all participating sectors.

Educational strategies to enhance reflexivity among clinicians and health professional students: a scoping study

Abstract: Reflexivity involves the ability to understand how one's social locations and experiences of advantage or disadvantage have shaped the way one understands the world. The capacity for reflexivity is crucial because it informs clinical decisions, which can lead to improvements in service delivery and patient outcomes. In this article, we present a scoping study that explored educational strategies designed to enhance reflexivity among clinicians and/or health profession students. We reviewed articles and grey literature that address the question: What is known about strategies for enhancing reflexivity among clinicians and students in health professional training programs? We searched multiple databases using keywords including: reflexivity, reflective, allied health professionals, pedagogy, learning, and education. The search strategy was iterative and involved three reviews. Each abstract was independently reviewed by two team members. Sixty-eight texts met the inclusion criteria. There was great diversity among the educational strategies and among health professions. Commonalities across strategies were identified related to reflective writing, experiential learning, classroom-based activities, continuing education, and online learning. We also summarize the 19 texts that evaluated educational strategies to enhance reflexivity. Further research and education is urgently needed for more equitable and socially-just health care.

The ‘power of process:’ how negotiation management influences multilateral cooperation

Abstract: The management of a multilateral negotiation has frequently played a crucial role in developing global regimes but is often ignored in International Relations theory. The long-awaited UN climate summit in Copenhagen, for example, broke down in 2009 but negotiations reached agreement one year later in Cancun. This article argues that power and interests remained largely constant between Copenhagen and Cancun, and that the significantly altered negotiation management by the host government and the UN explains much of the difference. I develop an analytical framework to address whether and how the management of a multilateral negotiation by the organizers increases or decreases the probability of agreement. The empirical focus lies on the Danish and Mexican Presidencies of climate negotiations with extensive evidence from participant observation and 55 interviews with senior negotiators, high-level UN officials, and lead organizers. The argument adds to the scholarship on regime development by complementing structural with process analysis.

Shocking intellectual austerity: the role of ideas in the demise of the gold standard in Britain

Abstract: Britain's 1931 suspension of the gold standard remains one of the most shocking policy shifts of the past century. Conventional explanations focus on changing international conditions alongside the rise of social democracy: when Britons refused to shoulder the increasing costs of defending the exchange rate, the Bank of England was “forced” to abandon the gold standard. This article refocuses attention on policy-makers’ causal ideas at critical moments. Drawing on numerous primary sources held in several archives, it reveals a cleavage within the Bank over the appropriate response to the flight from sterling. Following the nervous collapse of the Bank's governor, the deputy governor shifted the Bank's strategy from making defensive rate hikes to pursuing fiscal austerity. He then “temporarily” suspended gold convertibility in a gambit to forestall the election he (incorrectly) assumed would unseat the gold standard's supporters in Parliament. When the unintended experiment with a managed float proved successful, Keynes was able to persuade policy-makers to embrace the new exchange rate regime.

A Comparison of Subjective Experiences and Responses to Austerity of UK and Greek Youth

Abstract: Following previous research carried out by Chalari (2014; 2015), this qualitative study explores the ways in which the younger generation in Greece and UK has been affected by austerity policy measures. These two countries have been at the forefront of intense social, political and economic transformations that have impacted particularly on young people’s current and future lives. This study aims to explore similarities and differences in young people’s subjective experiences and responses, as from this it may be possible to discern whether there is a general, long-term negative effect of austerity across Europe. The data shows that there are some similarities in the two cohorts’ subjective experiences and responses, but perhaps more interestingly some significant differences. The study discusses what the implications of these differences might be for young people and society in these countries, in terms of their impact on the abilities of the younger generation, in a way that has the potential to destabilize their personal and professional lives now and in the future.

Whither central banking

Abstract: The history of central banking can be divided into periods of consensus about the roles and function of central banks, interspersed with periods of uncertainty, often following a crisis, in which central banks are searching for a new consensus.

Overcoming net-centricity in the study of alternative and community media

Abstract: It is timely to start a journal that focuses on alternative and community media as distinct phenomena to research and theorise. Over the last two decades, the study of alternative – that is, non-mainstream – media and bottom-up, community, participatory or movement media has increased steadily and matured into a strong, highly relevant and very important sub-field within media and communication studies, but also within social movement studies. [...]

From complementary currency to institution: A micro-macro study of the Sardex mutual credit system

Abstract: The remarkable growth of Sardex as a local currency throughout the island of Sardinia over the past 5 years motivated an in-depth look at its starting assurnptions, design and operational principles, and local context. The paper looks at Sardex as a social innovation start-up, a complementary currency, a mutual credit system, and a socio-economic «circuit». The analysis relies on interviews of circuit members and its founders. The main findings are that trust was and continues to be fundamentally important for the creation and operation of the mutual credit systern, and that Sardex encompasses both economic and social value(s) in a process of re-embedding of the economy. Sardex configured itself as a crucial mediator of economic exchanges and became a valuable actor acting as an institution at the regional level. These properties make it an ideal space for experimentation in socio-economic innovation that can be characterized as a «Iaboratory for multi-Ievel governance.