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The real rate of return to capital plays a vital part in the economy in evaluating the contribution of capital investment to the economic growth. As it is also a key variable in estimating the economic opportunity cost of capital for use as the economic discount rate in investment decision-making. The objective of this study is to estimate the economic real rates of return to reproducible and remunerative capital of the EAC economies. The results indicate that the real rates of return to reproducible capital over the period 1999–2016 have averaged 10.70% in Kenya and Rwanda, while it averaged 12.05% and 9.86% in Tanzania and Uganda, respectively. With regard to the marginal rates of return to remunerative capital, the results suggest that EAC countries have averaged 16.28%, 16.21%, 15.07% and 14.49% in Tanzania, Rwanda, Kenya and Uganda, respectively, over the same period. [ABSTRACT FROM AUTHOR]

The Engineering Economist is a journal that focuses on data-driven engineering economic models to support capital investment decisions in uncertain economic conditions. The latest issue features articles on various topics. The first article introduces a project valuation framework that incorporates Economic Value Added (EVA) and Market Value Added (MVA) analysis into a binomial tree option pricing model. The second article merges earlier work on valuation and growth expectations with the Average Internal Rate of Return (AIRR) models, simplifying calculations for expected competitive advantage and growth rates. The third article utilizes real options analysis to assess uncertainty in the copper concentrate trading business. The journal publishes original research, case studies, surveys, and reviews related to capital investment problems. [Extracted from the article]

Does the rate of return from the Chinese real estate industry correlate with the intensity of competition among real estate firms? If China’s equity market performs efficiently, the rates of return of real estate firms should vary indirectly with their level of monopoly power. Greater monopoly power reduces earnings risk and leads to lower costs of capital. The authors analyze empirical evidence and indicate no relationship exists between returns and competition. Speculation may induce stock prices to deviate from normal values. Because normal values assume no speculation, Chinese markets are not likely to be economically efficient. [ABSTRACT FROM PUBLISHER]

The last 30 years have witnessed a dramatic change in the distribution of income, with the wage share falling in all major industrialized countries. Main-stream analyses, including New Keynesian ones, which retain the notion of factor substitution leading to a “factor intensity” inversely related to its rate of return, have encountered some difficulties in the interpretation of this change. Nonmainstream approaches present an advantage in the explanation of the phenomenon, consisting in the fact that they entail no a priori connections between the changes in distribution and the changes factor proportions. Hence if a change in institutions or in the bargaining strength of the parties affects distribution, income shares may vary significantly (i.e., changes in wages need not be accompanied by changes in labor to output ratio in the opposite direction as in mainstream analyses). Yet empirical observation may question also some of the analyses that have been advanced outside the mainstream. The article will explore the ways in which nonmainstream approaches have interpreted the described changes in distribution, and assess them from an analytical viewpoint and with reference to U.S. data. The purpose is that of pointing at some open questions and problems. [ABSTRACT FROM AUTHOR]

A pure investment is defined here as any transaction where the invested capital is nonnegative at all times during the life of the transaction. This article proves that any transaction whose first non-zero term is negative can be uniquely partitioned into pure investments with strictly decreasing internal rates of return (IRRs). The IRRs of the partitioning transactions put bounds on the IRRs of the original transaction. The partitioning theorem gives a simple characterisation of Arrow/Levhari's results on the optimal truncation of a transaction. The partitioning theorem also has applications to the problem of the optimal time for an investor to sell the remaining terms in a transaction. [ABSTRACT FROM AUTHOR]

This study estimates the rates of return of non-contributory social transfer programmes in Cambodia using household-level data and going beyond standard cost–efficiency analyses by developing a dynamic microsimulation model. It shows that social protection promotes equitable economic growth by enhancing human capital and fostering economic performance at the micro level. A positive rate of return is achieved after 12 periods and can reach between 12 per cent and 15 per cent after 20 periods. This study shows that microsimulation models can be extended in order to analyse the long-term economic returns on social protection. [ABSTRACT FROM PUBLISHER]

Firms that invest into positive net present value projects should outperform firms that do not invest. Surprisingly, several studies on United States data have found a negative relationship between capital investment and subsequent shareholder return. There are conflicting explanations for this negative relationship. The present study also confirmed a significant negative relationship between capital investment and subsequent shareholder returns in the South African developing market conditions. Over the period from 1992 to 2017, shares on the Johannesburg Stock Exchange with lower investment rates consistently outperformed shares with higher investment rates, exhibiting similar behaviour to the US. We find that the negative investment return is significantly associated to the firm’s book-to-market value consistent to the rational-based q-theory of investment with real options explanation. [ABSTRACT FROM AUTHOR]

The analysis of the determinants of differences in wages across workers has traditionally relied on the estimation of average earnings functions. In this article, we propose a new theoretical model where it is the workers who decide the amount they wish to invest in human capital, taking into account the costs of acquiring those skills, for the purpose of maximizing earnings. In this model, both human capital and marginal productivity are likely to be influenced by the individual’s (unobserved) characteristics such as ability or motivation, potentially giving rise to endogeneity problems. In this context, the empirical implementation of our theoretical model allows us, under certain assumptions, to obtain consistent estimates even under the assumption of endogeneity. We present an empirical application to the education sector using data from the Spanish Structure of Earnings Survey 2010. Our results show that females and workers in the private education sector face more difficulties in achieving their maximum potential wage. [ABSTRACT FROM AUTHOR]

Since its inception, the NCREIF Property Index (NPI) has achieved preeminence as an indicator of the investment performance of institutionally-held commercial property in the United States. We introduce three new and refined series derived from NCREIF property data: the Market Value Index (MVI), Free Cash Flow Yield (FCFY), and the Capital Expense Ratio (CXR). While the NPI was designed to measure the risk and returns of the real estate asset class, these series optimize the property-level data in the NCREIF database to provide better indications of real estate value changes and operating performance. [ABSTRACT FROM AUTHOR]

We study whether R&D-intensive firms earn superior stock returns compared to matched size and book-to-market portfolios across several financial markets in Europe. Mispricing can arise if investors are not able to correctly estimate the long-term benefits of R&D investment or whether R&D firms are more risky than others. The results confirm that more innovative firms can earn future excess returns. Stocks listed on continental Europe markets and operating in high-tech sectors are more prone to undervaluation. This can be caused in the first case by information asymmetries that are more severe in bank-based countries. No evidence is found for a different risk pattern of R&D-intensive stocks. [ABSTRACT FROM AUTHOR]

Sydney Water's water network consists of about 21,000 km of water mains. Sydney Water is a statutory state owned corporation, with the Independent Pricing and Regulatory Tribunal as the economic regulator. Sydney Water has developed a comprehensive set of decision frameworks and business processes to manage the life cycle of water main assets to achieve a desired level of service and financial return within an acceptable risk. With the current constrained financial and economic environment, affordability is the most pressing issue in the water industry as customers are seeking value for money. It is requiring the water industry to reduce capital investment programs and deliver more with less while maintaining or improving customer satisfaction. This paper presents the analysis of the asset performances and customer expectations against the level of services and explains how Sydney Water explores the opportunities to build the level of services and customer value into its asset management strategy and decision framework to optimise the capital investment programs. [ABSTRACT FROM AUTHOR]

With the globalization of the economy, more and more companies have made and will continue to make project investment abroad. This paper discusses a multinational project adjustment and selection problem in which project parameters are regarded as random variables. Special cash flows and value sources brought from the new foreign projects and the adjustment of the existing foreign projects are introduced. A new risk measurement for budget exceeding is proposed and a new model is developed based on the new risk measurement. In addition, a genetic algorithm is designed for solving the problem and an example is given as an illustration. The results of the example show that the algorithm is effective for solving the proposed problem. In addition, the results show that the budget can be better used and bigger investment return in net present form can be obtained when new foreign project selection and the existing project adjustment are simultaneously considered than when only new projects are selected. [ABSTRACT FROM AUTHOR]

This paper analyzes the impact of a single round of debt renegotiation on investment and financing decisions. We produce an analytical proof for the widely-used assertion that optimal renegotiation time is common default time. We show that debt renegotiation accelerates investment and increases the investment option value by around 15%. Renegotiation surplus increases with project risk but decreases with sunk cost. Investment option value has an inverted U-shaped link with debtholders' bargaining power. If tax rate is moderate, optimal leverage with renegotiation is greater than that without renegotiation but if it is sufficiently high, the opposite holds true. [ABSTRACT FROM AUTHOR]

Together with the development of knowledge-based economy, investment in intangibles has been dramatically increasing. Although intangibles are widely recognized as primary value drivers for more firms, as evidence of many studies related to the value relevance or the market valuation of intangible investments, little is known in the literature about the cost of equity capital for financing intangible investments, especially in Vietnamese literature extent. This paper's aim is therefore to empirically investigate the association between a firm's cost of equity capital and intangible investments detailed by research and development investment, business combination investment and organizational capital investment. We investigate the above relationship through the sample of 120 Vietnamese-listed firms from 2013–2017. Regression result confirmed that both higher level of research and development investment and larger amount of accounting goodwill raise the firm's overall cost of equity capital since their characteristics of these investments are riskier and less liquid and has a higher level of information asymmetry. Our findings could suggest several implications for managers and shareholders in making their investment decisions. Once again, this study adds to the existing business valuation literature by providing additional evidence of the impact of research and development investment as well goodwill on accounting for equity capital valuation. [ABSTRACT FROM AUTHOR]

The optimal capital growth strategy or Kelly strategy has many desirable properties, such as maximizing the asymptotic long-run growth of capital. However, it is aggressive and can have the considerable short-run risk of losing much of the invested wealth. In this paper, we provide a method to obtain the maximum growth while staying above a specified downside wealth threshold with high probability, where shortfalls below the threshold are penalized with a convex function of shortfall. The financial market is characterized by regimes, where the dynamics of the stochastic regime process is Markovian. Within a regime, the asset prices are lognormal. With the additional model features of regimes and downside risk control, the optimal strategy has a modified Kelly format. The modification requires the assignment of weights to each regime, with the weights incorporating the risk control. The multi-asset problem is reduced to determining the regime weights and the fraction of investment capital allocated to risky assets. The estimation risk is controlled by regime switching and the decision risk is controlled by the downside threshold. The methods are applied to the problem of investing in select sector exchange-traded funds. [ABSTRACT FROM AUTHOR]

This study examines the role of human capital and institutional quality on the impact of foreign direct investment (FDI) on poverty in sub-Sahara Africa (SSA). In achieving this, a balanced panel of 30 SSA countries from 1996 to 2018 was explored using fixed-effect instrumental regression, fixed effect panel threshold model, and the heterogenous Granger-causality test. There are three main important findings from this empirical study: (1) FDI does not have a direct impact on the incidence and intensity of poverty. (2) the impact of FDI is contingent on the absorptive capacity of the host country. The study further reveals that FDI will alleviate poverty conditions if interacted with human capital and institutional quality at a given threshold. (3) bidirectional causality between FDI and poverty. This study recommends that in addition to FDI's promotional policies, governments of SSA countries need to improve investment in human capital. It is also important for SSA countries to embark on public sector reforms, as investments do not thrive in an environment characterized by high corruption or political instability. [ABSTRACT FROM AUTHOR]

The levelized cost of energy is commonly used in both policymaking and capital investment decisions. It unitizes capital costs by amortizing them over an assumed asset life. The life of the asset is usually assumed to be known with certainty. But in many electric power applications, the life is both uncertain and subject to regulatory shocks. In these cases, the standard levelized cost of energy calculation is incorrect and potentially misleading. We propose a corrected version of this measure using expectation under a probability model for shortened life and show its implications for several investment and policy applications. [ABSTRACT FROM AUTHOR]

Focused factories are one of the new manufacturing trends for automotive suppliers. A key requirement for these suppliers is the ability to accurately estimate both product and non-product related investment in these facilities to quote profitable business. We propose a systematic Bayesian framework to estimate non-product related investment in focused factories. Our approach incorporates uncertainty in the activity-based costing method and applies Monte Carlo simulation process to generate distributions of investment for the cost centres, and for the different project phases in setting up a facility. A Bayesian-updating procedure is introduced to improve parameter estimations as new information becomes available with experience in setting up these facilities. Our approach is deployed at a leading global automotive tier-one supplier, Visteon Corporation. The efficacy of the Visteon-focused factory cost model is validated using subject matter experts as well as by comparing the model results with estimates from the typical current process. [ABSTRACT FROM PUBLISHER]

This paper investigates the extent to which state and local government capital spending in the United States can be an effective vehicle for countercyclical policy. Policy responses to recent cyclical downturns have included a variety of policies to encourage greater spending at the state and local level, including efforts to lower borrowing costs for these governments, but the effectiveness of these policies remains unclear. To examine the effectiveness of state-local capital spending as a countercyclical tool, I use a unique data set consisting of open-ended interviews with state and local budget officers and a survey of state governments. I find that at present, there are significant barriers preventing countercyclical state-local capital spending. First, interventions to stimulate capital spending via easing financing conditions are likely limited by two factors: some governments use minimal amounts of borrowing to finance capital spending, and for governments that do rely primarily on borrowing, capital spending appears insensitive to interest rates. Second, state and local capital spending decisions involve substantial lags, making it a poor vehicle for countercyclical fiscal policy even in the absence of financing constraints. Third, state-local budget officials do not view capital spending as a tool for economic stabilization. [ABSTRACT FROM AUTHOR]

Public investment has shown increasing trends both in nominal and as a share of GDP over years in Ethiopia. These upsurges in public investment are believed to be due to factors that have visible impact on the fiscal posture of the country. To investigate the validity of Wagner's law in Ethiopia; this study sets determinants of public investment in Ethiopia as a general objective. Specifically, the study sought to examine the main influencing factors on level of public investment in Ethiopia along three sets of explanatory variables. In order to meet the aforementioned objective, the study employed an autoregressive distributed lag (ARDL) approach over the period 1985–2019. Results from the bound tests show that there is a long-run relationship between the variables. The real per capita GDP is found to be positively and significantly impact on level of public investment which shows that there an evidence in favour of Wagner's law,i.e. public spending has a high income elasticity of demand. This study also found that there is a positive relationship between public investment and private investment which shows that two are moving in tandem. Again, the study also found that foreign aid has positive impact on public investment implying that additional foreign aid leads to larger spending of the government on capital. Moreover, the study found that the degree of urbanization suggests that levels of public spending are higher in the urban sector than rural economies. These findings give strong policy implication to the policy makers because an increase in public investments in may then help spur economic growth. [ABSTRACT FROM AUTHOR]

Scholars and policymakers agree that early-stage venture capital is the most important element of innovation pipeline in the health care industry. However, securing the financing at the very beginning of innovation pathway in health care is challenging and relies on an in-depth understanding of investment strategies implemented by venture capitalists. In turn, this requires us to take a broader look at global trends in early-stage venture capital funding of health care oriented life-science projects. Referred to the above, this article aims to provide the outlook for early-stage venture capital investment in Europe and provide its benchmarking performance analysis. Using data on early-stage venture investments in health care-related life-science projects, we present its long-term dynamics and analyse current trends. Additionally, we check whether investment decisions are motivated by the short-term return opportunities or they are made as a part of long-term strategy. We find that Europe, with uneven and volatile financings, is still lagging behind the investment levels of the U.S. Our findings also support the cautionary behaviour of investors and their awareness towards the highly volatile nature of short-term returns. [ABSTRACT FROM AUTHOR]

Transportation investment has served as one of the most promising economic instruments to lower transportation costs and promote economic growth. To enhance the effectiveness and efficiency of such kind of capital investments, one critical issue is to gain a better understanding of the pathways that transportation investment would have to influence economic growth. By using a provincial panel data in China, this study attempts to investigate how transportation investments impact economic growth through a variety of pathways. Structural equation modeling (SEM) is applied to understand the relationship between transportation investment, investment in relevant sectors, industrial structure, employment growth, and economic development. It finds that investment in transportation sectors can promote economic growth through direct and multiple indirect pathways. The indirect pathways can improve economic performance through the investments in relevant sectors, growth of industry and employment growth. These impacts would be significantly changed under diverse spatial and temporal conditions. [ABSTRACT FROM AUTHOR]

The equity premium is a key indicator in capital investment decisions. However, few studies estimate the equity premium for the Chinese stock market. To shed more light on the subject, we use dividend and consumption growth models to estimate the expected equity premium in China from 2005 to 2017. Our evidence shows that the geometric mean of the expected yearly equity premium from the consumption growth model, 9.69 percent, is similar to that of the realized yearly equity premium from stock returns, 8.11 percent. The corresponding values are 0.74–0.68 percent for monthly data, and 2.49–2.28 percent for quarterly data. In contrast, the estimate of the expected equity premium from the dividend growth model is far higher than the realized equity premium. However, both the dividend and consumption growth models fail to explain the high fluctuations of the realized equity premium. [ABSTRACT FROM AUTHOR]

The substitutability of the economic institution of slave labour has often been assumed as a given. Apart from some capital investment to retrain slaves for a different task, essentially their labour could be substituted for any other form of labour. This paper questions that assumption by using a longitudinal study of the Graaff-Reinet district on the eastern frontier of South Africa's Cape Colony. We calculate the Hicksian elasticity of complementarity coefficients for each year of a 22-year combination of cross-sectional tax datasets (1805–1828) to test whether slave labour was substitutable for other forms of labour. We find that slave labour, indigenous labour and settler family labour were not substitutable over the period of the study. This lends credence to the finding that slave and family labour were two different inputs in agricultural production. Indigenous khoe labour and slave labour remain complements throughout the period of the study even when khoe labour becomes scarce after the frontier conflicts. We argue that the non-substitutability of slave labour was due to the settlers' need to acquire labourers with location-specific skills such as the indigenous khoe, and that slaves may have served a purpose other than as a source of unskilled labour, such as for artisan skills or for collateral. [ABSTRACT FROM AUTHOR]

This inquiry examines the effect of quality of governance institutions on innovation in 37 sub-Saharan African countries for the period 1996–2016. The empirical analysis followed the instrumental variables regression technique. The motivation for using this estimation technique is to provide special focus to the issue of endogeneity by estimating IV general methods of moment's model. The following general findings are presented. First, governance quality does, in fact, appear to promote innovativeness. Second, for all governance indicators, the effect of the quality of governance institutions follows two channels: directly and indirectly through its positive impact on human capital development. The empirical findings suggest that countries with better quality of governance infrastructure are able to promote innovation in better ways. That is, the results do support theories that argue in favour of the development of governance quality and the improvement of human capital infrastructure to foster the national innovation system. These results are found to be robust across alternative empirical specifications tested. [ABSTRACT FROM AUTHOR]

ABSTRACT An unprecedented number of large ice hockey arenas were built in Sweden between 2000-2014. This study explores the motives and rationale behind these capital investments in Swedish ice hockey arenas. Based on a multiple data-gathering method, this research concludes that capital investments in sport arenas are primarily driven by the need for rationalization and improvement of events, increasing societal image building through sport and an increasing focus on social enrichment in the competition for attracting citizens and companies to municipalities. Close collaborations between local politicians, club executives and entrepreneurs have provided creative financial solutions for the new arenas. The ice hockey arena projects have been legitimized from a societal perspective through either overly optimistic or manipulated sophisticated capital investment methods, which provided the necessary support for the political decision rationale that has been dominating these projects. A consequence of the arena projects, is an increased commercialization and professionalization of Swedish hockey. [ABSTRACT FROM AUTHOR]

Traditional valuation methods such as net present value (NPV) utilize increased discount rates to account for risk, in the process introducing a time bias effect that promotes short-termism. Application of NPV often discourages much needed infrastructure projects that require large capital investments yet are slow to generate positive cashflows. NPV also downplays the significance of future liabilities and can lead to risk misallocation amongst investment partners and stakeholders. The decoupled net present value (DNPV) method introduces the risk-as-a-cost concept that prices the risk of obtaining lower-than-expected cashflows and thus represents investors' compensation for bearing such risks. Capturing the loss-aversion attitudes described by prospect theory, DNPV provides a transparent and consistent valuation framework for long-term investments by: (i) calculating expected values of cashflow components using their probability characterizations, (ii) defining the cost of risk (market and non-market) as the expected downside value, (iii) subtracting/adding the cost of risk from/to expected revenues/expenditures, and (iv) discounting the results using risk-free rates. DNPV's power is illustrated by re-analyzing a 42-year toll-road concession initially evaluated using NPV and real options. The case study shows how explicit risk quantifications could be used to better structure the concession and reallocate risks among stakeholders. [ABSTRACT FROM AUTHOR]

This paper assesses the main theoretical contributions by Fernando Cardim de Carvalho to the post-Keynesian Economics Paradigm: his elucidation of the fundamental principles that define the concept of a monetary production economy; his analysis of decision-making under non-probabilistic uncertainty; his development of a portfolio choice theory in which the decision to invest is regarded as one of possible wealth accumulation strategies; his liquidity preference theory, including its application to banks' portfolio allocations under uncertainty; and finally his analysis of the finance-funding circuit and its implications for the functioning of monetary economies. [ABSTRACT FROM AUTHOR]

This study investigates the moderating effects of legitimacy on the liability- and R&D investment-innovation relationships in manufacturing small and medium-sized enterprises (SMEs). Examining 2659 firms in South Korea, this study demonstrates that organizational legitimacy has not only the direct effect on innovation performance but also moderating effects on the relationship between liability and R&D expenditure and innovation performance. The present research provides evidence that normative legitimacy alleviates the adverse effects of liability on new product launches and the innovative sales revenue. Further, normative legitimacy weakens the relationship between R&D investment and innovation, whereas cognitive legitimacy can aggravate the adverse effects of liability but enhance the positive effects of R&D expenditure on the innovative sales revenue. The analysis presented in this study also demonstrates that the anti-synergistic interactions between regulatory, normative, and cognitive legitimacy can hinder the overall positive effects on innovation performance. This study extends the literature on legitimacy in the context of innovation by exhibiting that the strategic dilemma of SMEs regarding innovation can be a serious concern because of the conflicting roles of legitimacy on the liability-innovation and R&D invest-innovation relationship. [ABSTRACT FROM AUTHOR]

Brands that have worldwide recognition are perceived as profitable businesses. One of the reasons for this perception might lie in the belief that these companies usually employ some degree of financial evaluation to make the right choice in terms of investment; Hard Rock Cafe is no exception. The brand opened one restaurant in the Riviera Maya in 2011 which closed within nine months. Could a better investment decision have been made if the Hard Rock Cafe Mexico management had followed the Integral Decision Analysis (IDA) method? This method gives decision-makers a chance to analyze mutually exclusive capital budgeting projects. The case study illustrates the type of elements that the model can yield, it provides a brief explanation on how this process could have been used by the Hard Rock Cafe management and it offers an explanation on how this knowledge might have helped in supporting a final investment decision. In conclusion, the IDA method used to analyze this project might reduce the risks in capital investments. [ABSTRACT FROM AUTHOR]

This study investigates how mispricing and financing constraints affect firms' future capital investments. We find that when the financing constraints are high, overpriced (underpriced) firms invest more (less) subsequently under previous non-optimal investments. The overpriced (underpriced) firms with precautionary motives invest significantly less subsequently when they are financially constrained. The overall evidence suggests that share mispricing, financial constraints and precautionary motives play a critical role that enables investors to less effectively monitor managers' real decisions, thus limiting firms' capital investments. [ABSTRACT FROM AUTHOR]

Developing an understanding of economic variance (risk) is critical when evaluating alternative aquaculture production technologies. This article assesses the efficacy of employing a quantitative stochastic analysis technique to support technology selection decision making by undertaking a case study investment assessment of three alternative production expansion strategies (offshore sea-pens, land-based RAS growout and larger post-smolt) for the Tasmanian salmon industry. Results demonstrate that salmon aquaculture is undertaken with considerable underlying levels of economic risk, expansion offshore probably represents the lowest initial capital investment and greatest economic return, and that levels of financial uncertainty increase with land-based RAS production. The study highlights stochastic modeling provides significant "added-value" over single-point deterministic analysis and that developing an appreciation of the input variability is a key component in critically evaluating alternative production technologies. [ABSTRACT FROM AUTHOR]

We estimate the costs of equity capital for 117 industries from 16 European countries employing the CAPM and 8 multifactor asset pricing models as well as a variety of different econometric techniques. In doing so, we extend previous research on cost of equity estimation in mainly two ways. First, our study involves European instead of US or UK industries, which are investigated in previous research, and we find that cost of equity estimates obtained from the CAPM or multifactor asset pricing models are as imprecise for European industries as for US and UK industries. Second, in addition to the CAPM, the Fama and French [1993. “Common Risk Factors in the Returns on Stocks and Bonds.”Journal of Financial Economics33: 3–56] three-factor model, and the Carhart [1997. “On Persistence in Mutual Fund Performance.”The Journal of Finance52 (1): 57–82] four-factor model, which are usually employed, our study includes six multifactor models that have not yet been examined on their ability to provide precise estimates of the costs of equity: the five-factor model of Fama and French [1993. “Common Risk Factors in the Returns on Stocks and Bonds.”Journal of Financial Economics33: 3–56] as well as the multifactor models of Pástor and Stambaugh [2003. “Liquidity Risk and Expected Stock Returns.”Journal of Political Economy111 (3): 642–685]; Campbell and Vuolteenaho [2004. “Bad Beta, Good Beta.”American Economic Review94 (5): 1249–1275]; Hahn and Lee [2006. “Yield Spreads as Alternative Risk Factors for Size and Book-To-Market.”Journal of Financial & Quantitative Analysis41 (2): 245–269]; Petkova [2006. “Do the Fama–French Factors Proxy for Innovations in Predictive Variables?”The Journal of Finance61 (2): 581–612]; and Koijen, Lustig, and van Nieuwerburgh [2010. “The Cross-Section and Time-Series of Stock and Bond Returns.” Working Paper, University of Chicago, University of California at Los Angeles, New York University]. Our results suggest that these models provide even more imprecise cost of equity estimates. One main reason for these inaccurate estimates is the large temporal variation of the risk loadings on the non-traded factors in these models. [ABSTRACT FROM AUTHOR]

This article contributes to the establishment of a framework for the analysis of international capital flows, with a specific focus on emerging markets. It is based on a "monetary" analysis of the economy, as well as on the works of Hyman Minsky and Jan Toporowski in particular. The key aspects of such an approach are the following. First, in a monetary economy, capital flows need to be understood as "flows of funds" that pertain to the realm of financial choices, as opposed to the traditional understanding of capital flows as based on "real" variables, such as saving and investment. A consequence of this is the need to focus on gross flows rather than capital flows. Second, liquidity preference considerations also apply at the international level, particularly in relation to the liquidity of emerging-market currencies that, in turn, depends on context-specific "Keynesian fundamentals." Third, the rise of institutional investors is the key historical development in the financial system, shaping the current reality of cross-border capital flows, including to emerging markets. I argue that institutional investors' liabilities, in light of the theories of Minsky and Toporowski, are one of the most important variables in determining these investors' portfolio choices. I synthesize these elements by defining capital flows to emerging markets as the demand for emerging-market assets by institutional investors. I propose a framework to categorize the various channels that guide this demand. [ABSTRACT FROM AUTHOR]

This paper studies the effect of corporate taxes on investment. Since firms with a foreign parent have more cross-country profit shifting opportunities than domestically owned firms do, their effective tax rate and, consequently, their tax-induced costs to investment are lower. We therefore expect capital investment responses to a corporate tax cut to be heterogeneous across firms. Using firm-level data on German corporations, we exploit the 2008 tax reform, which substantially cut corporate taxes as an exogenous policy shock and expect domestically owned firms' investments to be more responsive to the reform. We show exactly this in a difference-in-differences setting. We find that the reduction in corporate tax payments led to a one-to-one increase in the real investments of domestic firms. The effect is stronger for domestic firms relying more on internal funds. Correspondingly, labor investment increased more for domestic firms, ensuring a constant mix of input factors. In addition, we show that domestic firms' sales grew faster after the tax cut than the sales of foreign-owned firms. Our results imply that corporate tax changes can increase corporate investment but that domestic firms benefit more than foreign-owned firms from a tax cut through higher investment responses resulting in greater sales growth. [ABSTRACT FROM PUBLISHER]

The Asian growth miracle is often attributed to factor accumulation under the implicit assumption that savings, broadly defined, have been high and increasing due to exogenous forces. Using data for India, Indonesia, Korea, Singapore and Taiwan over the period 1870–2011 this article examines the causal relationship between growth and saving. The response of growth to savings is first estimated using instruments to generate exogenous variation in savings rates. The residual variation in growth that is not driven by savings is then used as an instrument to estimate the effect of growth on savings. The estimates show that the spectacular saving rates in the Asian miracle economies have been fuelled by growth, and not the other way around. [ABSTRACT FROM AUTHOR]

Innovative financing solutions for public infrastructure megaprojects require new approaches to assess the various financing portfolios being proposed. This paper discusses a range of international financing models and presents a new multi- criteria appraisal framework for assessing alternative ways of raising capital. The proposed framework combines elements of a multi-criteria analysis and cost benefit analysis, and incorporates both monetary and intangible impact measures to facilitate the selection of a financing approach that is in society’s best interest. [ABSTRACT FROM PUBLISHER]

Using firm-level information on the world leading R&D investors and employing a system generalised method of moment estimation, this paper investigates how sensitive R&D investments are to cash-flow movements, which would be suggestive of financial constraints. The analysis confirms that over the last decade, the R&D investments of younger aged leading innovators appear to be more sensitive to cash flows compared to their older counterparts and that this holds particularly for EU younger aged leading innovators compared to their US counterparts, particularly in medium- and high-tech sectors. [ABSTRACT FROM PUBLISHER]

In this study, we investigate how persuasiveness of self-assessment-based post-completion auditing (PCA) reports on capital investment is constructed. We examine what makes companies consider that information in these reports rises to an acceptable quality level. The investigation was motivated by extant agency theory (AT) informed literature suggesting that self-auditing will entail obvious risks for the quality of PCA reports in terms of data manipulation. We employed actor-network theory as our method theory. The empirical evidence of our case study came from 24 semi-structured interviews and the analysis of the construction of 22 PCA reports of strategic investments in one of the major European forest companies. We add to the capital budgeting literature by identifying and discussing the role of various conditions affecting the construction of persuasiveness of PCA reports. We maintain that the existence of three conditions (i.e. an appropriate collective process, alignment with relevant external/internal reference points, and following of formal guidance) can play a major role in facilitating the production of a persuasive PCA report. Additionally, the paper is able to make sense of the complex process of fabricating the persuasiveness of PCA reports, which would remain a black box when examined from the AT viewpoint only. [ABSTRACT FROM PUBLISHER]

Investment in real estate by Jews in medieval Aragon/Catalonia has been discussed by previous authors but detailed studies of their economic activities focus on finance, with some analysis of crafts and trading. No previous work analyses the economic role of real estate investment, other than stemming from secured lending, and some have challenged the idea of property as an attractive investment. In Barcelona, whilst property investment by Jews was notable up to the late thirteenth century, it declined thereafter. This study employs the case study of a prominent family of Zaragoza in the late fourteenth century, Salamon Abnarrabi and sons, to challenge these notions. It finds that real estate was a major asset, acquired and often held for long periods, sometimes leased to Christians for cash rentals, often with no clear link to lending but as an independent source of income. The events of 1391, which theory suggests might render a long-term, fixed asset less attractive to a persecuted minority, seems to have had no such effect and acquisitions persisted throughout the 1390s. These behaviours seem more consistent with modern portfolio theory, favouring diversification of assets, than with traditional views of medieval Jews as principally money-lenders. [ABSTRACT FROM PUBLISHER]

People who possess richer social capital can earn more than others can. An econometric analysis reveals that social capital increases a person’s wage income even as human capital does. Previous empirical studies have clarified that gender, academic history, work history and similar social attributes are determinant factors of earnings. They also hint at other social attributes, apart from those mentioned above, that determine earnings. This article suggests that the positive effect of social capital on annual salary is the same for both men and women. This social capital feature differs from the gender inequality effect of human capital on annual salary in Japan. [ABSTRACT FROM AUTHOR]

The industrial sector is responsible for about a third of the energy usage in the United States, and there is significant energy saving potential from the industrial sector. However, the phenomenon of “energy efficiency gap” – the scenario in which cost-effective energy efficient technologies enjoy only limited market success – appears frequently in the industrial sector. This article tries to explain this efficiency gap in the industrial sector by empirically estimating the implied discount rates and payback thresholds industrial firms use to evaluate their energy efficiency investments. Using the Industrial Assessment Centers (IAC) database from 2002 to 2011, with more than 30 000 energy efficiency recommendations, this article builds structural models of firms’ evaluation of an energy efficiency project. The model results show that the implied discount rates of medium to small industrial firms range from 40 to 45%, and the average payback threshold is about 9 months. [ABSTRACT FROM PUBLISHER]

This article discusses the central macroeconomic claims that are made in Thomas Piketty’s bookCapital in the Twenty-first Century. The article aims to show that Piketty’s contentions are not only logically flawed but also contradicted by his own data. [ABSTRACT FROM AUTHOR]

In this article, the authors develop a closed-form solution for assessing the capital investment projectNPVvariance when cash flows obey a first-order autoregressive process. A distinction is established between static and dynamic solutions as the authors focus on the case involving partial positive dependence between cash flows. Under a Markovian process, theNPVsolution is stationary in mean but not strictly in variance. Constraining the process to become fully stationary will overestimate theNPVvariance. Finally, the authors show that the MarkovianNPVvariance closed-form solution is robust to the introduction of autoregressive conditional heteroscedastic variances complying with a GARCH(1,1) process; it will, however, have its value increased and consequently the riskiness of the capital investment project. [ABSTRACT FROM PUBLISHER]

We investigate the problem of dynamic optimal capital growth of diversified investment. A general framework that the trader maximize the expected log utility of long-term growth rate of initial wealth was developed. We show that the trader's fortune will exceed any fixed bound when the fraction is chosen less than critical value. But, if the fraction is larger than that value, ruin is almost sure. In order to maximize wealth, we should choose the optimal fraction at each trade. Empirical results with real financial data show the feasible allocation. The larger the fraction and hence the larger the chance of falling below the desired wealth growth path. [ABSTRACT FROM AUTHOR]

In this article, we focus on how investors add value, in addition to finances, to resource-constrained young technology companies in a pre-commercial and capital-intensive industry. Based on a review of the entrepreneurial finance literature, we group investors' value-added contributions into four categories: ‘Business development’, ‘Technology development’, ‘Investor's outreach’ and ‘Legitimacy’.We build our study on six case studies of firms in the pre-commercial and emerging marine energy industry. Our case companies have received investments from business angels (BAs), venture capital (VC) firms and larger corporations (CVCs). We observed that the contributions from the investors clearly differ and that CVC investors appear to be especially important as their involvement helps increase young technology firms' credibility, which could be a crucial factor in pre-commercial and emerging industries. Overall, by engaging ‘smart capital’, a company can move from a situation of true uncertainty to one of manageable risk. [ABSTRACT FROM PUBLISHER]

In this article, we consider the question of barriers to increasing investment activity in the Boreal and Arctic regions of Siberia, taking into account the factors of ecological and climatic changes. We investigate the current tendencies of large Russian companies in financing environmental policy measures. This is studied mainly in the dynamic of the ratio of ‘current expenditures to investments’ for environmental protection. It is essential to change the financial preference of remedying environmental damage to one of preventing environmental damage by improving warning technology and conducting research and development. Solving this problem is only possible by dictating a standard discounting procedure based on correcting discount rates, periods of cash flow analysis and regulations of Russian accounting standards regarding expenditures on natural resource development. [ABSTRACT FROM PUBLISHER]

The Venture Capital decision making process involves several conflicting and imprecise criteria. The decision to invest is a difficult one with serious adverse selection risk and surrounded with uncertainty. The aim of this paper is to propose a cardinality constrained Fuzzy Goal Programming (FGP) model to deal with such a complex scenario. A FGP model does not require any assumptions on the probability distribution, better fitting with the characteristics of the Venture Capital market. The developed model is illustrated through a numerical example which uses data taken from an Italian venture capital fund. [ABSTRACT FROM AUTHOR]