Showing papers on "Physical capital published in 2009"

Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education

Abstract: "Human Capital" is Becker's study of how investment in an individual's education and training is similar to business investments in equipment. Becker looks at the effects of investment in education on earnings and employment, and shows how his theory measures the incentive for such investment, as well as the costs and returns from college and high school education. Another part of the study explores the relation between age and earnings. This edition includes four new chapters, covering recent ideas about human capital, fertility and economic growth, the division of labour, economic considerations within the family, and inequality in earnings.

Evaluating the impacts of human capital stocks and accumulation on economic growth: some new evidence.

Abstract: Various hypotheses have been put forward in recent years concerning the contribution of human capital to economic growth. This paper argues that school enrolment rates — by far the most commonly used human capital measure in growth regressions attempting to test these hypotheses — conflate human capital stock and accumulation effects and lead to misinterpretations of the role of labour force growth. An alternative educationrelated human capital measure is constructed which is capable of distinguishing between stocks and flows. Applying this measure to samples of developed and less developed countries during the 1960–85 period suggests not only that there are important growth effects associated both with ‘initial’ stocks of, and subsequent growth in, human capital, but also that this new measure out-performs the simple school enrolment rates used in previous analyses.

The Determinants of Bank Capital Structure

Abstract: This paper documents that standard cross-sectional determinants of firm leverage also apply to the capital structure of large banks in the United States and Europe. We find a remarkable consistency in sign, significance and economic magnitude. Like non-financial firms, banks appear to have stable capital structures at levels that are specific to each individual bank. The results suggest that capital requirements may only be of second-order importance for banks' capital structures and confirm the robustness of current corporate finance findings in a holdout sample of banks.

Human Capital, the Structure of Production and Growth

Abstract: We document that countries with higher initial education levels experienced faster value-added and employment growth in schooling-intensive industries in the 1980s and 1990s. This effect is robust to controls for other determinants of international specialization and becomes stronger when we focus on economies open to international trade. Our finding is consistent with schooling fostering the adoption of new technologies if such technologies are skilled-labor augmenting, as was the case in the 1980s and the 1990s. In line with international specialization theory, we also find that countries where education levels increased rapidly experienced stronger shifts in production toward schooling-intensive industries.

Are the determinants of capital structure country or firm specific

Abstract: In this paper we investigate the capital structure determinants of Greek, French, Italian, and Portuguese small and medium-sized enterprises (SMEs). We compare the capital structures of SMEs across countries and differences in country characteristics, asset structure, size, profitability, risk, and growth and how these may impact capital structure choices. The results show that SMEs in these countries determine their capital structure in similar ways. We attribute these similarities to the country institutional and financial characteristics and the commonality of their civil law systems. However, structural differences arise due to firm specific effects. We find that size is positively related to leverage while the relationship between leverage and asset structure, profitability and risk is negative. Growth is not a statistically significant determinant of leverage for any of the four countries. Our main conclusion is that firm-specific rather than country facts explain differences in capital structure choices of SMEs.

Family Capital of Family Firms: Bridging Human, Social, and Financial Capital

Abstract: The purpose was to present a family capital typology based on Sustainable Family Business Theory II and to document its relative contribution to short-term firm achievements and long-term sustainab...

Smart cities in Europe

Abstract: Urban performance currently depends not only on the city’s endowment of hard infrastructure (‘physical capital’), but also, and increasingly so, on the availability and quality of knowledge communication and social infrastructure (‘human and social capital’). The latter form of capital is decisive for urban competitiveness. Against this background, the concept of the ‘smart city’ has recently been introduced as a strategic device to encompass modern urban production factors in a common framework and, in particular, to highlight the importance of Information and Communication Technologies (ICTs) in the last 20 years for enhancing the competitive profile of a city. The present paper aims to shed light on the often elusive definition of the concept of the ‘smart city’. We provide a focussed and operational definition of this construct and present consistent evidence on the geography of smart cities in the EU27. Our statistical and graphical analyses exploit in depth, for the first time to our knowledge, the most recent version of the Urban Audit data set in order to analyse the factors determining the performance of smart cities. We find that the presence of a creative class, the quality of and dedicated attention to the urban environment, the level of education, multimodal accessibility, and the use of ICTs for public administration are all positively correlated with urban wealth. This result prompts the formulation of a new strategic agenda for smart cities in Europe, in order to achieve sustainable urban development and a better urban landscape.

Human capital development and its impact on firm performance: Evidence from developmental economics

Abstract: Human capital is getting wider attention with increasing globalization and also the saturation of the job market due to the recent downturn in the various economies of the world. Developed and developing countries put emphases on a more human capital development towards accelerating the economic growth by devoting necessary time and efforts. Thus human capital development is one of the fundamental solutions to enter the international arena. Specifically, firms must invest necessary resources in developing human capital which tend to have a great impact on performance. This paper examines the extent to which human capitals have direct impacts on firm performance from various critical perspectives. Firm performance is viewed in terms of financial and non-financial performance. Finally, this paper develops a model that explains the relationship between human capital and firm performance.

Trade and Capital Flows: A Financial Frictions Perspective

Abstract: The classical Heckscher-Ohlin-Mundell paradigm states that trade and capital mobility are substitutes, in the sense that trade integration reduces the incentives for capital to ‡ow to capital-scarce countries. In this paper we show that in a world with heterogeneous …nancial development, the classic conclusion does not hold. In particular, in less …nancially developed economies (South), trade and capital mobility are complements. Within a dynamic framework, the complementarity carries over to (…nancial) capital ‡ows. This interaction implies that deepening trade integration in South raises net capital in‡ows (or reduces net capital out‡ows). It also implies that, at the global level, protectionism may back…re if the goal is to rebalance capital ‡ows, when these are already heading from South to North. Our perspective also has

Testing Theories of Capital Structure and Estimating the Speed of Adjustment

Abstract: This paper examines time series patterns of external financing decisions and shows that publicly traded U.S. firms fund a much larger proportion of their financing deficit with external equity when the cost of equity capital is low. The historical values of the cost of equity capital have long-lasting effects on firms' capital structures through their influence on firms' historical financing decisions. We also introduce a new econometric technique to deal with biases in estimates of the speed of adjustment towards target leverage. We find that firms adjust toward target leverage at a moderate speed, with a half-life of 3.7 years for book leverage, even after controlling for the traditional determinants of capital structure and firm fixed effects.

Impact of intellectual capital on organisational performance: An empirical study of companies in the Hang Seng Index (Part 1)

Abstract: Purpose – The purpose of this paper, which is written in two parts, is to investigate empirically if intellectual capital (IC) has an impact on the financial aspects of organisational performance as well as attempting to identify the IC components that may be the drivers for the leading financial indicators of listed companies. The study sought evidence from the companies of the Hong Kong Stock Exchange. Design/methodology/approach – Using data of all the constituent companies of the Hang Seng Index of the Hong Kong Stock Exchange from 2001 to 2005 and the VAIC™ methodology used in the measurement of IC by Pulic, regression models were constructed to examine the relationships between IC and the selected financial performance measures of these companies. The research hypotheses and research method are detailed in Part 1 of the paper. In this paper – Part 2, the results and findings of the investigation are analysed and discussed. Findings – The results of the analysis revealed no conclusive evidence to support a definitive association between IC, as measured by VAIC™, and the four measures of financial performance in the sample companies surveyed in Hong Kong. At best, only a moderate association was recorded between IC and the profitability measures. The study further revealed that physical capital is highly regarded by the companies surveyed for enhancing market valuation, productivity and profitability. Research limitations/implications – Evidence from Hong Kong shows that there is an overall lack of association between IC and financial performance, which contradicts some prior studies conducted overseas. This may suggest that Hong Kong may be lagging behind, for example, some Asian competitors such as Taiwan and Singapore in IC development. In addition, the empirical results suggest that physical capital continues to play a prominent role in the territory, which may be an indication of Hong Kong's ongoing reliance on “tangibles” as the strategic asset to generate corporate performance. These findings may, however, illustrate that the association between IC and financial indicators such as market valuation may not be a universal and uniform one. Rather, the association may vary from market to market, probably depending on the level of IC awareness in the investors. Originality/value – It is believed that this is the first study conducted in Hong Kong involving the use of VAIC™ for the measurement of IC. It not only contributes to the knowledge of IC research, but adds to the existing literature of the progress of IC development in relation to financial performance in companies internationally.

Net Operating Working Capital Behavior: A First Look

Abstract: Net operating working capital captures multiple dimensions of firms’ adjustments to operating and financial conditions. Sales growth, uncertainty of sales, costly external financing, and financial distress encourage firms to pursue more aggressive working capital strategies. Firms with greater internal financing capacity and superior capital market access employ more conservative working capital policies. Results are robust to unobserved heterogeneity and industry effects. The evidence suggests that operating and financing conditions should be considered when evaluating working capital behavior, not just industry averages. Additionally, industry concentration magnifies the effect of sales growth.

Conservation Payments, Liquidity Constraints, and Off-Farm Labor: Impact of the Grain-for-Green Program on Rural Households in China

Abstract: This study evaluates the labor response of rural households participating in the Grain for Green program in China, the largest payments for ecosystem services program in the developing world. Using a panel data set that we designed and implemented, we find that the participating households are increasingly shifting their labor endowment from on-farm work to the off-farm labor market. However, the effects vary depending on the initial level of human and physical capital. The results support the view that one reason why the participants are more likely to find off-farm employment is because the program is relaxing households’ liquidity constraints.

The returns to endogenous human capital in pakistan's rural wage labour market

Abstract: This paper estimates the private returns to human capital in Pakistani rural labour markets. The rich data used permit inclusion of several dimensions of human capital and control for endogeneity resulting from investment in human capital. The results suggest that, without data on determinants of human capital, it would not be possible to disentangle the separate effect of each dimension of human capital on wage differentials nor to distinguish human capital explanations for wage differentials from signalling and credentialist models. With control for endogeneity of human capital and selectivity into wage employment, cognitive achievement, but not schooling attainment separate from cognitive achievement nor long-run health status, affects wage differentials.

Out of Sight, Out of Mind: Migration, Entrepreneurship and Social Capital

Abstract: The aim of this paper is to investigate whether return migrants are more likely to become entrepreneurs than non-migrants We develop a theoretical search model that puts forward the trade off faced by returnees since overseas migration provides an opportunity for human and physical capital accumulation but, at the same time, may lead to a loss of social capital back home We test the predictions of the model using data from Egypt We find that, even after controlling for the endogeneity of the temporary migration decision, an overseas returnee is more likely to become an entrepreneur than a non-migrant Although migrants lose their original social networks whilst overseas, savings and human capital accumulation acquired abroad over-compensate for this loss Our results also suggest that social networks have no significant impact on becoming entrepreneurs for returnees but matter for non-migrants

Social Capital, Human Capital and the Community Mechanism: Toward a Conceptual Framework for Economists

Abstract: For facilitating the development of a consensus on the concept of social capital among economists, this paper proposes its operational definition in a way consistent with the definitions of physical and human capital and discusses the relevance on the use of the metaphor of capital for social capital. Further, the unique characteristics in the production and accumulation of social capital in comparison with physical and human capital are identified in relation with the community which is considered the central mechanism to produce social capital. The merits and drawbacks of the community relative to the market and the state are examined with the aim of identifying the conditions under which social capital can be supplied efficiently in the direction of promoting economic progress.

Environmentally efficient weil-being: Rethinking sustainability as the relationship between human well-being and environmental impacts

Abstract: The question of how to measure sustainability remains vexing. We approach the problem by noting that most theories of environmental impact assume that exploitation of the environment provides benefits to human well-being. However, this assumption has not been subject to much empirical discipline. We propose a model of Efficient Well-Being (EWEB) inspired by the Stochastic Frontier Production Models commonly used in economics. EWEB assesses a nation-state’s efficiency in enhancing human well-being through the use of economic, natural and human resources. This approach shifts attention from the elusive question of whether a nation is sustainable to the more tractable question of how efficient a nation is in producing human well-being. We model human well-being as a function of physical, natural and human capital. In a preliminary test of this approach here we operationalize human well-being as life expectancy, flows of physical capital as gross domestic product per capita, flows of natural capital as the ecological footprint, and human capital as education. Using data from 135 nations, we find that controlling for physical and human capital, exploitation of the environment has no net effect on well-being. This suggests that improvements in well-being may be attainable without adverse effects on the environment. We also find that many nations could substantially improve their efficiency in using human and natural resources to generate well-being.

Indian software and pharmaceutical sector IC and financial performance

Abstract: Purpose – This paper seeks to estimate and analyze the relationship between intellectual capital and corporate conventional financial performance measures of Indian software and pharmaceutical companies for a period of five years from 2002 to 2006.Design/methodology/approach – Annual reports, especially the profit and loss accounts and balance sheets of the selected companies for the relevant years have been used to obtain the data. International literatures on intellectual capital with specific reference to measurement tools and techniques have been reviewed. Value Added Intellectual CoefficientTM (VAIC) method is applied for measuring the value based performance of the companies. Corporate conventional performance financial measures used in this analysis are: profitability; productivity; and market valuation. It is an empirical study using multiple regression analysis for the data analysis. The intellectual capital (human capital and structural capital) and physical capital of the arbitrarily selected c...

Total Factor Productivity, Intangible Assets and Spatial Dependence in the European Regions

Abstract: In the last decade there has been an upsurge of studies on international comparisons of Total Factor Productivity (TFP). The empirical evidence suggests that countries and regions differ not only in traditional factor endowments (labour and physical capital) but mainly in productivity and technology. Therefore, a crucial issue is the analysis of the determinants of such differences in the efficiency levels across economies.In this paper we try to assess these issues by pursuing a twofold aim. First, we derive a regression based measure of regional TFP, which has the nice advantage of not imposing a priori restrictions on the inputs elasticities; this is done by estimating a spatial Cobb-Douglas production function relationship for 199 European regions over the period 1985-2006. Secondly, we investigate the determinants of the TFP levels by analyzing the role played by intangible factors: human capital, social capital and technological capital. The estimations are carried out by applying the spatial 2SLS method and the SHAC estimator to account for both heteroskedasticity and spatial autocorrelation. It turns out that a large part of TFP differences across the European regions are explained by the disparities in the endowments of these intangible assets. This outcome indicates the importance of policy strategies which aim at increasing the level of knowledge and social capital as stressed by the Lisbon agenda.

Working Capital Requirements and the Determining Factors in Pakistan

Abstract: Literature on corporate finance has traditionally focused on the study of long-term financial decisions. Researchers have examined, in particular, the investment decisions, capital structure, dividends or company valuation decisions, among other topics. However, short-term assets and liabilities are important components of total assets and need to be carefully analyzed. Management of these short-term assets and liabilities warrants a careful investigation because working capital management plays an important role in a firm’s profitability as well as its value (Smith, 1980). The optimum level of working capital is determined, to a large extent, by the methods adopted by the management. Continuous monitoring is required to maintain optimum levels of various components of working capital, such as cash receivables, inventory and payables. In line with the studies of Afza and Nazir (2007 and 2008), the present study examines the factors that determine the working capital requirements of the firms. For this purpose, a study of 132 manufacturing firms from 14 industrial groups that were listed on Karachi Stock Exchange (KSE) between the period 2004-2007 was undertaken. While the working capital requirement was used as the dependent variable, various financial and economical factors, such as operating cycle of the firm, level of economic activity, leverage, growth of the firm, operating cash flows, firm size, industry, return on assets and Tobin’s q, were used as the determining factors of working capital management. Regression analysis was carried out on the panel data for 132 non-financial firms over a period of nine years. Finally, the study suggests some policy implications for the managers and investors of Pakistani markets.

The World Price of Home Bias

Abstract: Theoretical arguments suggest that as the degree of a country's home bias increases, the global risk sharing between domestic and foreign investors will reduce and thereby increase the country's cost of capital. Consistent with this prediction, we find international differences in the cost of capital to be strongly and positively related to varying degrees of home bias for 38 markets. This finding is robust to different cost of capital proxies, different control variables, alternative home-bias measures, international tradability of stocks, and alternative specifications. Therefore, the overall evidence implies that countries may enjoy a significantly lower cost of capital by reducing the extent of their home bias and hence increasing global risk sharing.

Bank regulation, capital and credit supply: Measuring the impact of Prudential Standards

Abstract: The existence of a “bank capital channel”, where shocks to a bank’s capital affect the level and composition of its assets, implies that changes in bank capital regulation have implications for macroeconomic outcomes, since profit-maximising banks may respond by altering credit supply or making other changes to their asset mix. The existence of such a channel requires (i) that banks do not have excess capital with which to insulate credit supply from regulatory changes, (ii) raising capital is costly for banks, and (iii) firms and consumers in the economy are to some extent dependent on banks for credit. This study investigates evidence on the existence of a bank capital channel in the UK lending market. We estimate a long-run internal target risk-weighted capital ratio for each bank in the UK which is found to be a function of the capital requirements set for individual banks by the FSA and the Bank of England as the previous supervisor (Although within the FSA’s regulatory capital framework the FSA’s view of the capital that an individual bank should hold is given to the firm through individual capital guidance, for reasons of simplicity/consistency this paper refers throughout to “capital requirements”). We further find that in the period 1996-2007, banks with surpluses (deficits) of capital relative to this target tend to have higher (lower) growth in credit and other on- and off-balance sheet asset measures, and lower (higher) growth in regulatory capital and tier 1 capital. These findings have important implications for the assessment of changes to the design and calibration of capital requirements, since while tighter standards may produce significant benefits such as greater financial stability and a lower probability of crisis events, our results suggest that they may also have costs in terms of reduced loan supply. We find that a single percentage point increase in 2002 would have reduced lending by 1.2% and total risk weighted assets by 2.4% after four years. We also simulate the impact of a countercyclical capital requirement imposing three one-point rises in capital requirements in 1997, 2001 and 2003. By the end of 2007, these might have reduced the stock of lending by 5.2% and total risk-weighted assets by 10.2%.

Macroeconomic development and capital structure decisions of firms: Evidence from emerging market economies

Abstract: Purpose – The purpose of this study is to examine the effect of macroeconomic factors on capital structure decisions of emerging firms.Design/methodology/approach – A panel data covering a period from 1990 to 2006 for 34 emerging market countries were analyzed using the seemingly unrelated regression approach to mitigate the effects of multicollinearity and to test for the stability of parameter estimates across the countries.Findings – The results largely suggest that the effect of macroeconomic factors on capital structure varies with capital structure measurement variable in most cases. Bank credit is significant in predicting capital structure choices of firms. The findings of the research also indicate a significantly negative relationship between gross domestic product (GDP) per capita and capital structure choices. Inflation on the other hand positively influences the choice of short‐term debt over equity. Stock market development is however insignificant in predicting capital structure decisions o...

Financial System Architecture and the Co-Evolution of Banks and Capital Markets

Abstract: We study how financial system architecture evolves through the development of banks and financial markets. The predominant existing view is that banks and markets compete, which often contradicts actual patterns of development. We show that banks and markets exhibit three forms of interaction: they compete, they complement each other, and they co-evolve. Co-evolution is generated by two elements missing in previous analyses of financial system architecture: securitization and bank equity capital. As banks evolve via improvements in credit screening, they securitize higher-quality credits in the capital market. This encourages greater investor participation and spurs capital market evolution. And, if capital market evolution is spurred by exogenous shocks that cause more investors to participate, banks find it cheaper to raise equity capital to satisfy endogenously-arising risk-sensitive capital requirements. Banks thus serve previously-unserved high-risk borrowers, stimulating bank evolution. Numerous additional results are drawn out.

Appraisal of Capital Market Efficiency on Economic Growth in Nigeria

Abstract: The paper is an appraisal of the impact of capital market efficiency on economic growth in Nigeria, using time series data on market capitalization, money supply, interest rate, total market transaction and government development stock that ranges between 1961 to 2004. The model specification for the analysis of data is multiple regression and ordinary lest squares estimation techniques. The result of the study shows that the capital market in Nigeria has the potentials of growth inducing, but it has not contributed meaningfully to the economic growth of Nigeria. This is as a result of low market capitalization, low absorptive capitalization, illiquidity, misappropriation of funds among others. The empirical test indicates that, these variables satisfied the economic apriori and are statistically significant except total transactions and money. Thus it was concluded and recommended that, the capital market remain one of the mainstream in every economy that has the power to influence economic growth, hence the organize private sector is encourage to invest in it. This will enable the capital market improve its illiquidity status for economic growth and development. Therefore the government must contribute in order to achieve these objectives through investing government securities in productive sectors and relaxing laws that spell threat to the capital market.

Local Financial Development and Growth

Abstract: Using a unique sample of net domestic product data for districts in India, I investigate the connection between banking sector development, human capital, and economic growth at the sub-national level. Using disaggregate data avoids many of the omitted variable problems that plague cross-country studies of the finance-growth connection and facilitates an instrumentation strategy. The findings show that the growth of many districts in India is financially constrained due to lack of banking sector development, and that the relationship between finance and growth may be non-linear. For the districts in the sample, moving from the 75th percentile of credit/net domestic product to the 25th percentile implies an average loss of 4 percent in growth over the 1990s. This indicates that the gains from increased banking sector outreach may be large. The analysis shows that human capital deepening can reduce the effect of the financial constraint and help decouple growth from financial development. In a district at the 25th literacy percentile, the implied growth loss due to a constrained banking sector is twice as large as in a district at the 75th literacy percentile. Thus, higher levels of human capital may activate alternative growth and production channels that are less finance intensive.