Working Papers

Authors: Tim Jenkinson, Alexander Ljungqvist

Aug 1999

This paper uses clinical evidence to show how the German system of corporate control and governance is both more active and more hostile than has previously been suggested. It provides a complete breakdown of ownership and takeover defence patterns in German listed companies and finds highly fragmented (but not dispersed) ownership in non-majority controlled firms. We document how the accumulation of hostile stakes can be used to gain control of target companies given these ownership patterns. The paper also suggests an important role for banks in helping predators accumulate, and avoid the disclosure of, large stakes.

JEL Codes: G32

Keywords: corporate governance, block trades, takeovers, banks, Germany

Reference: 1999-FE-02

Authors: Colin Mayer, Wendy Carlin

Jul 1999

This paper examines the relation between financial, corporate and legal systems, and economic performance in different countries. It reviews international comparisons that undertake detailed analyses of individual, developed countries and studies that use large, cross-country data banks, including developing countries. While the former do not provide evidence of a clear relation between different types of systems and economic performance, the latter report a strong association of financial development with economic growth. A recent theoretical literature offers a way of reconciling these two sets of studies. It points to a relation between financial/ corporate systems and types of activity with some systems favouring high risk, short-term investments and others promoting long-term, relatively low risk investments. These theories also suggest that systems may be related to stages of economic development. The paper summarizes a first empirical study that reports an association between financial/corporate systems, types of activity and stages of economic development. The paper concludes that these relationships have important implications for the design of regulation and legal systems in different countries.

JEL Codes: E2, G3, O4

Keywords: financial systems, corporate control, growth, investment

Reference: 1999-FE-08

Authors: Liam Brunt

Jun 1999

Wheat was the single most important product of the British economy during the Industrial Revolution, being both the largest component of national income and the primary determinant of caloric intake. This paper offers new estimates of annual wheat production during industrialisation. Whereas other researchers infer wheat production indirectly from demand equations, we estimate production directly from output equations. Our estimates are based on a new time series model of wheat yields, encompassing both environmental and technological variables. We trace the impact of war and population growth on wheat yields, mediated through changes in the economic incentives for wheat cultivation. We test the accuracy of our new wheat output series by modelling the market price of wheat in England between 1700 and 1825.

Reference: 029

Individual View

Authors: Matthew Braham

Jun 1999

Volunteering by young adults for working in Third World countries on development projects emerged in Britain the late 1950s. Three decades later, the countrys largest volunteering sending agency, Voluntary Service Overseas, had sent more than 21,000 people abroad. The most common explanation for the emergence and growth of what is a small social movement is the affluence-value change theory, or Post-Materialism, which predicts that variations in the growth of the movement should vary positively with changes in wealth. This paper tests this prediction with a simple econometric model, and finds that this does not appear to be the case.

Reference: 030

Individual View

Lower underpricing amongst venture-backed IPOs has been attributed to a certification role for venture capitalists. We argue that differences in underpricing per se are uninformative and possibly misleading when not controlling for differences in entrepreneurs` incentives to control underpricing. Using 1980s and 1990s data, we show that entrepreneurs’ wealth losses, a more suitable measure than underpricing, are unaffected by the presence of venture backers. Thus, we find no evidence of venture certification as far as IPO pricing is concerned. We also find possible evidence of a conflict of interest between venture backers and entrepreneurs which could explain why more prestigious underwriters in the 1990s are associated with higher underpricing.

JEL Codes: G32

Keywords: initial public offerings, underpricing, intermediation, certification, venture capital

Reference: 1999-FE-04

Authors: Antonia Taddei

Apr 1999

London clubs provided a means of establishing gentlemanly status and of making useful connections. Their number and membership was large. The paper begins with a quantitative overview of gentlemens clubs in London in the late nineteenth century using information contained in contemporary almanacs. The number of clubs and club members were characterised by two periods of intense growth, most significantly during 1860 to 1900, when total membership rose fourfold. This expansion, which exceeded that of the middle-class, was stimulated by the extension of democracy and the general political mobilisation during the Irish crisis in the 1880s. Political clubs became the largest type of club, and their characteristics and importance are examined in detail. A random sample of 200 individuals in Whos Who sheds light on the frequency of club membership among the elite. The growth of clubland was exhausted by the end of the century, in part because clubs devalued their own worth as a signal of gentlemanliness.

Reference: 028

Individual View

Authors: Colin Mayer

Feb 1999

Why are there such pronounced differences in patterns of ownership and control of corporations across countries? This paper proposes that these, together with many of the stylized facts of corporate finance, can be explained by private benefits. Private benefits create waste and inefficiency but they can also act as powerful commitment devices that overcome capital market failures. The paper argues that the evolution of institutional arrangements in different countries has been determined by political and regulatory interventions which, in turn, have affected the balance between public and private benefits of control. The paper calls for an evaluation of the relationship between institutional design and corporate activity and for a debate on the public policy choices affecting this design.

Reference: 1999-FE-07

Authors: Clara Raposo

Feb 1999

This paper considers the issue of disclosure of hedging choices. It is shown that disclosure is the preferred choice of both managers and shareholders if it removes completely the informational asymmetry among the manager and the shareholders concerning the business opportunities and risks faced by them; the optimal reward cum insurance contract for the manager can thereby implemented. If the nature of feasible disclosure (that is credible) still leaves some informational asymmetries present, then with the renegotiation of managerial contracts at the interim date, it is possible to have the shareholders preferring nondisclosure, whereas the manager prefers to disclose at the (some) interim state(s), even though he might also prefer to commit to a policy of non-disclosure ex ante. These results are quite new relative to the extant literature on hedge accounting, and take sophisticated account of the impact of optional contracts for managers, and renegotiations of these at the interim (post-disclosure) date.

Reference: 2000-FE-01

In this paper empirical results are presented concerning Resource Margin valuation models previously developed by the author. The research tests the strength of the general linkages between resource margins and valuation measures for a sample of approximately 300 US manufacturing companies between 1983 and 1998. Good explanatory support is found for the use of resource margins. In particular, the resource model developed has greater explanatory power than traditional market-to-book models. In a separate body of analysis, specific time-series valuation models for individual companies are tested, for which the results are poor. For both analyses, supplementary investigations have been carried out into multi-collinearity, and heteroskedasticity for the ordinary least squares models developed. Altogether the results are encouraging, but further work is required to extend the sample of companies, and to develop improved general model specifications to cope with problems of auto-correlation amongst the data for individual companies.

Reference: 2001-FE-17

In this paper a family of clean-surplus models are developed from standard accounting and financial identities. The models rely on the use of non-traditional performance measures of clean surplus in relation to value-added, and growth in value-added, in order to establish market value to value-added ratios. These measures are relevant both to business strategy and to industrial organisation. They provide an explicit and robust means to link strategy formulation to industrial context and valuation, avoiding problematic aspects of traditional economic-value-added (EVA) measures. The time-series behaviour of the ratio of residual surpluses to value-added is modelled as simple ARIMA (1, 0, 0), (0, 0, 1), (0, 1, 1) and (1, 1 0) processes resulting in four families of valuation model. Using data on publicly quoted British companies available from Datastream to test the models, evidence is provided to support the value-relevance of the performance measures. The models suffer from problems of negative value predictions and excess sensitivity. Adjustment of the empirical data to mitigate these effects yields statistically significant results for three of the four specific models developed, suggesting that further testing of the models on other data sets is warranted.

Reference: 1999-FE-05

Authors: Oliver Grant

Dec 1998

The herringbone parlour, a mechanical milking technology, was invented in 1908, but took over 70 years to be adopted by the majority of British farmers. Among the reasons were the need to improve original designs, the need for complementary institutional changes such as management systems, new labour contracts and suitable herd sizes. These determinants are analysed by means comparison of regions in Britain, which also brings out roles for farmer age, capital constraints, resistance to change, and path dependence. A critical factor was the ability of regions which were late adopters to avoid investment in intermediate systems and to leap-frog the leaders. The paper concludes with a theoretical model of the innovation process.

Reference: 027

Individual View

Authors: Avner Offer

Nov 1998

Body weight has risen in defiance of health and appearance norms. The social epidemics of overeating and slimming were driven by market forces and the psychology of eating: restrained eating is easily disinhibited by stress. For men, the rise in body weight was associated with the decline of family eating and exposure to greater food variety. For women, the cult of slimming was associated with mating competition, driven initially by adverse sex ratios. Food abundance made a mockery of the rational consumer. Paradoxically, the costs of abundance fell more heavily on the poor, who have had less access to the resources of self-control.

Reference: 025

Individual View

Authors: David Stead

Nov 1998

This paper provides a case study of the parliamentary enclosure of Stanton Harcourt, Oxfordshire. A collection of nearly eighty letters reveals the often-acrimonious negotiations over the draft clauses of the enclosure bill, and the extent of the concessions needed to overcome opposition to enclosure. Rents on the manorial lords property in Stanton Harcourt after enclosure are adjusted to obtain the income actually derived from the land. These time-series are compared with three counterfactual paths for income had the land remained open. At best enclosure raised net rents received by an immediate and persistent 7%. At worst income would have been slightly higher had the land remained open. Under the conventional method of project appraisal, for the manorial lord the enclosure was 100% unprofitable in both the short and long run. Perhaps Stanton Harcourt is best seen as an example of enclosure driven by motives other than purely agricultural profits.

Reference: 026

Individual View

Authors: Clara Raposo

Jun 1998

This paper links real investment policy to corporate risk management, endogenizing the costs of external financing. Previous literature finds investment efficiency linked to full hedging. In this model, a firm with proprietary information when deciding its investment in a valuable project, may not choose to fully hedge in equilibrium, and this can improve investment efficiency. The size of the project, the hedged value of cash-earnings, and the timing of information revelation, influence the risk management equilibrium. Results are derived under a constraint of no-distress at the time of the investment decision. When this constraint is relaxed, it results in a bargaining situation between shareholders, the counterparty on the contract utilized to manage risk, and new investors. Depending on the bargaining solution, the firm may still prefer to not hedge, facing distress in some states. When this occurs investment efficiency is enhanced. The sources of external finance are debt and equity. The issue of disclosure regarding risk exposure plays a crucial role.

JEL Codes: D82, D84, G31, G32

Keywords: Corporate risk management, Investment efficiency, Capital budgeting, Asymmetric information

Reference: 2000-FE-02

Authors: Federico Varese, Meir Yaish

May 1998

The rescue of persecuted minorities - such as the Jews in Nazi occupied Europe -is seen in this paper as taking place in a peculiar market. In such a market rescuers face at least two dilemmas. Firstly, they might be willing to help but be uncertain how to go about rescuing. Secondly, they might be unsure over the nature of the request to help. To make a mistake and help wrong person could be very costly.

Reference: 024

Individual View

Authors: Tim Leunig

Feb 1998

It has been argued that the additional cost of transporting ring yarn in the vertically and geographically specialised Lancashire cotton industry was sufficiently high to deter spinners from adopting rings. The absence of a transition to large scale vertically integrated plants is seen as a form of entrepreneurial failure. In this paper we use new evidence to show that the majority of yarn could have been woven within the district in which it was spun, and, further, that in such areas, the average distance between spinners and weavers was a matter of yards. Transport costs were no more important for these firms that for vertically integrated ones. This yields a testable hypothesis: vertically specialised firms located in this areas should have been as read to adopt rings as were integrated firms. We test this proposition and find it to be correct: co-located independent, vertically specialised firms were as likely to adopt rings as were vertically integrated firms. As such the industrys failure to move to large scale vertically integrated production cannot be characterised as a form of entrepreneurial failure.

Reference: 022

Individual View

Authors: Hans-Joachim Voth

Dec 1997

Witnesses accounts are used to analyse changes in working hours between 1750 and 1800. Two findings stand out. The paper demonstrates that the information contained in witnesses accounts allows us to reconstruct historical time-budgets, and provides extensive tests of the new method. It also emerges that the number of annual working hours changed rapidly between the middle and the end of the eighteenth century. Estimates of labour input are presented. These findings have important implications for the issue of total factor productivity during the Industrial Revolution.

Reference: 021

Individual View

Authors: Paul David

Nov 1997

The term path dependence (PD) here refers to a dynamic property of allocative processes, pertaining to non-ergodic stochastic systems -- those whose asymptotic distributions evolve as a function of the history of the process itself. PD is shown to be neither necessary nor sufficient for the existence of market failure, although the two properties may arise from common structural features. A variety of stochastic models are PD and yet exhibit diverse properties in regard to predictability and lock-in. The taxonomy of path dependence propsed by S. J. Liebowitz and S. E. Margolis (1995), along with the latters interpretation of lock-in and accidents of history are shown at best to be of limited usefulness in the study historical phenomena, and misleading as to the possible implications of PF for economic policy analysis.

Reference: 020

Individual View

Authors: Liam Brunt

Oct 1997

We estimate a model of wheat yields for eighteenth century England using village-level data. This is an entirely new approach to quantifying progress during the Agricultural Revolution and enables us to consider both environmental and technological inputs. We find that climate was a crucial factor but soil quality was much less important, thus throwing doubt on traditional explanations for England’s high productivity. Traditional technologies such as drainage were effective in raising yields, but the technological innovations of the eighteenth century were much more effective. We find that turnips and seed drills were by far the most important innovations, contrary to the received wisdom.

Reference: 019

Individual View

Authors: Hans-Joachim Voth, Dan H. Andersen

Sep 1997

The paper tests the hypothesis that the consistent neutrality of the Danish Monarchy during the great wars of the eighteenth century may have permanently increased the kingdom’s shipping in the Mediterranean. It does so by using data derived from Algerian Passport Registers for the years 1750-1807. Modern time-series techniques are applied to analyse the relative importance of neutrality and favourable factor endowments. We show that the data lends qualified support to both hypotheses, with two thirds of the rise in Danish shipping attributable to neutrality and the remainder, by implication, to favourable factor endowments.

Reference: 018

Individual View

Authors: Ilana Krausman Ben-Amos

Jun 1997

The English family in the early modern period is viewed in the perspective of reciprocity: an exchange of goods that involves giving and obtaining something in return. Reciprocal interactions between parents and children extended throughout the life course and were not confined to infancy or early childhood. The exchange could be delayed, and its timing and duration varied between social groups and across time. It was unequal: the parental investment was large, and the returns were uncertain and less extensive. The exchanges involved a wide range of material and emotional goods: support, affection, prestige, reputation. Reciprocity was not simply granted, but rather it was negotiated and induced with gifts and in other less tangible ways.

Reference: 017

Individual View

Authors: Ed Butchart

May 1997

Britain already had a serious unemployment problem in the 1920s, but the situation worsened markedly after 1929. We investigate the cause of the higher rates of unemployment experienced throughout the 1930s. The most obvious explanation, that aggregate demand was weaker in the aftermath of the Great Depression, does not stand up to close scrutiny. An alternative explanation is that the emergence of long-term unemployment generated hysteresis effects which enervated the market-clearing mechanism. Although we find that the duration composition of unemployment statistically significantly influenced wage determination we note that real wage growth between 1932-39 was modest. It was not the case that the fruits of economic recovery fed through to wages at the expense of jobs. Instead, we highlight important movements in the labour participation rate over the course of the interwar period. The participation rate declined sharply in the early 1920s, but subsequently recovered. The non-employment rate - the fraction of those of working age who are not in work - consequently paints a different picture of the interwar period than the unemployment rate. In particular, the 1930s do not emerge as having had a more serious problem of joblessness than the 1920s. Hence we tentatively conclude that unemployment was higher during the 1930s largely because the unemployment rate was becoming a more accurate measure of joblessness.

Reference: 016

Individual View

Authors: Tom Nicholas

Apr 1997

This paper compares the value of landed and non-landed wealth held by a group of nineteenth century British businessmen. Landed wealth is estimated from the data in John Batemans Great Landowners of Britain and Ireland. Non-landed wealth is documented in probate records. Quantitative evidence shows that businessmen who owned land in the late nineteenth century did not retain a large proportion of their wealth in landed assets. In that sense they were rich because of the personal wealth and not because they were landowners.

Reference: 015

Individual View

Authors: Cristiano Andrea Ristuccia

Mar 1997

This article assesses the hypothesis that in 1935 - 1936 the implementation of sanctions on the export of coal and oil products to Italy by the League of Nations would have forced Italy to abandon her imperialistic war against Ethiopia. In particular, the article focuses on the claim that Britain and France, the League’s leaders, could have halted the Italian invasion of Ethiopia by means of coal and oil sanctions, and without the help of the United States, or recourse to stronger means such as a military blockade. An analysis of the data on coal consumption in the industrial census of 1937 - 1938 shows that the Italian industry would have survived a League embargo on coal, provided that Germany continued her supply to Italy. The counterfactual proves that the effect of an oil embargo was entirely dependent on the attitude of the United States towards the Leagues action. Given that this attitude was by no means clear, a solitary attempt at such an embargo by the League would have failed.

Reference: 014

Individual View

Authors: David M. Engstrom

Feb 1997

Ethnic residential segregation is usually investigated using a constrained-choice approach. This study explains the variation in post-war Afro-Caribbean segregation in fifteen British cities by means of historical patterns of economic opportunity. Its dependent variable is newly available census data on residential segregation. It finds that the observed variation in segregation levels cannot be explained in terms of council housing policies or the passage of civil rights legislation from the mid-1960s, but rather by the interaction of New Commonwealth immigration and local labour and housing market conditions during the critical period 1951-1966.

Reference: 012

Individual View

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