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We analyze why firms use nonintermediated short-term debt by studying the commercial paper (CP) market. Using a comprehensive database of CP issuers and issuance activity, we show that firms use CP to provide start-up financing for capital investment. Firms' CP issuance is driven by a desire to minimize transaction costs associated with raising capital for new investment. We show that firms with high rollover risk are less likely to enter the CP market, borrow less CP, and borrow more from bank credit lines. Further, CP is often refinanced with long-term bond issuance to reduce rollover risk.

This paper considers identification of spatial Durbin dynamic panel models under 2SLS and ML estimations. We show that the parameters are generally identified via 2SLS moment relations or expected log-likelihood or quasi-likelihood functions. Monte Carlo experiments suggest that omitting relevant Durbin terms can result in significant biases in regression estimates, while including an irrelevant Durbin term causes no obvious loss of efficiency. Empirical illustration of the international spillover of economic growth through bilateral trade shows that inclusion of Durbin terms can be important.

We study the bidding strategies of vertically differentiated firms that bid for sponsored search advertisement positions for a keyword at a search engine. We explicitly model how consumers navigate and click on sponsored links based on their knowledge and beliefs about firm qualities. Our model yields several interesting insights; a main counterintuitive result we focus on is the \"position paradox.\" The paradox is that a superior firm may bid lower than an inferior firm and obtain a position below it, yet it still obtains more clicks than the inferior firm. Under a pay-per-impression mechanism, the inferior firm wants to be at the top where more consumers click on its link, whereas the superior firm is better off by placing its link at a lower position because it pays a smaller advertising fee, but some consumers will still reach it in search of the higher-quality firm. Under a pay-per-click mechanism, the inferior firm has an even stronger incentive to be at the top because now it only has to pay for the consumers who do not know the firms' reputations and, therefore, can bid more aggressively. Interestingly, as the quality premium for the superior firm increases, and/or if more consumers know the identity of the superior firm, the incentive for the inferior firm to be at the top may increase. Contrary to conventional belief, we find that the search engine may have the incentive to overweight the inferior firm's bid and strategically create the position paradox to increase overall clicks by consumers. To validate our model, we analyze a data set from a popular Korean search engine firm and find that (i) a large proportion of auction outcomes in the data show the position paradox, and (ii) sharp predictions from our model are validated in the data.

The critical role of research and development (R&D) and advertising in the marketing strategy of the firm is well established. This paper conceptually and empirically examines why and how much the effectiveness of these two marketing instruments differs between times of economic expansions versus periods of economic contractions-and whether these results depend on the cyclicality of the industry in question. We consider a key marketing metric (market share) and a key financial metric (firm profit). Our empirical setting is 1,175 U.S. firms across a time period spanning over three decades. We find that R&D and advertising contribute to firm performance but that their effectiveness is not constant across the business cycle. Increasing advertising share in contractions has a stronger effect on profit and market share than increasing advertising share in expansions. Likewise, investments in R&D in contractions lead to higher gains in market share and profit than R&D investments in expansions, albeit only in subsequent years. If in contractions the firm faces tight budget constraints and has to choose between either maintaining R&D or advertising, our simulation results show that maintaining R&D is associated with better company performance. We find that advertising effectiveness, in general, and in contractions, in particular, is systematically moderated by the degree of cyclicality of the industry in which the firm operates. In relatively stable industries, advertising effects are small or even nonsignificant, and they do not go beyond the year the firm advertises. However, in highly cyclical industries, advertising effects are long-lasting, its total effect being 50% larger (market share) and 200% larger (profits) than in industries of average cyclicality. The effect of industry cyclicality on advertising effectiveness is especially pronounced in contractions. Collectively, these findings provide valuable and actionable insights into how firms should respond to contractions in order to grow profits and market share.

It is often asserted that a flexible exchange rate regime would facilitate current account adjustment. Using data on over 170 countries over the 1971—2005 period, we examine this assertion systematically. We find no strong, robust, or monotonic relationship between exchange rate regime flexibility and the rate of current account reversion, even after accounting for the degree of economic development and trade and capital account openness. This finding presents a challenge to the Friedman (1953) hypothesis and a popular policy recommendation by international financial institutions.

We document that stocks with the strongest prior 12-month returns experience a significant average market-adjusted return of 1.58% during the five trading days before their earnings announcements and a significant average market-adjusted return of −1.86% in the five trading days afterward. These returns remain significant even after accounting for transactions costs. We empirically test a limited attention explanation for these anomalous returns—that stocks with sharp run-ups tend to attract individual investors’ attention and investment dollars, particularly before their earnings announcements. Our analysis suggests that the trading decisions of individual investors are at least partly responsible for the return pattern that we observe.

Purpose - The purpose of this paper is to investigate the relationship between income inequality and economic growth, both in linear and non-linear specifications.Design methodology approach - The paper has employed annual time series data over the period of 1971 up to 2005. Autoregressive distributed lag model (ARDL) bounds testing approach has been used for cointegration and error correction model for short run behavior. Unit root problem is handled by the use of augmented Dickey-Fuller unit root test.Findings - The analysis findings are sharply contrasted to the significant association between income inequality and economic growth found in 1994 by Alesina and Roderick and by Persson and Tabellini. The empirical evidence provides support for the existence of Kuznets inverted-U as well as inverted S-shaped curve in Pakistan.Practical implications - This paper opens up new directions for policy-making authorities to equalize income distribution in the case of a small transition economy like Pakistan.Originality value - This paper convincingly argues that there is a need for case-by-case study on such a project in view of each country's unique characteristics. This paper makes a unique contribution to the literature with reference to Pakistan, being a pioneering attempt that employs ARDL cointegration approach.

This article seeks to more accurately estimate the size and distance of the effect of urban proximity on agricultural land values. The econometric model lets the size and distance of the effect of urban proximity on agricultural land values vary by population, real income, and time. The changes in the effect of urban proximity over time can be largely explained by population and income. Thus, there does not appear to be a shift in preferences toward living further from the city center. (JEL Q15, R14)

Despite nearly three decades of revolutionary government rule, poverty and inequality remain the central issues of political debate in Iran. The unexpected electoral victory of Ahmadinejad, the populist candidate in the 2005 presidential election, has been widely attributed to rising poverty and inequity. Using household survey data, I examine the trends in poverty and inequality for the last three decades and show that this thesis is not grounded in facts. Survey data show that poverty has substantially declined in recent years, and is low by international standards and in comparison with pre-revolution years. This finding is consistent with pro-poor policies of the Islamic government, mainly in provision of basic infrastructure such as electricity, safe drinking water, and health. However, the same policies have not been as effective in reducing inequality, which, after an initial decline following the Revolution, has remained basically constant in the post-Revolution period.