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Volume 12, Issue No. 1, June 2005
Table of Contents
Main Articles
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Siyan Wang and Cheng Hsiao, Should China Let Her Exchange Rate Float? The Experience of Developing Countries
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Yihong He and Ravindra Kamath, Bankruptcy Prediction of Small Firms in an Individual Industry with the Help of Mixed Industry Models
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Jong-Hag Choi, Tony Kang, Young K. Kwon, and Yoonseok Zang, Audit Quality, Legal and Disclosure Environments, and Analysts' Forecast Accuracy: Some International Evidence
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Ke Li, A General Equilibrium Analysis on Bundling Pricing, Impersonal Networking Decisions and Division of Labor
Should China Let Her Exchange Rate Float? The Experience of Developing Countries
Siyan Wang a and Cheng Hsiao b
a University of Delaware
b University of Southern California
Abstract
We empirically investigate the relationship between economic growth and the choice of exchange rate regimes for forty-two developing countries during the period 1974-1994. we consider several model specifications and three classification schemes of exchange rate regime: the IMF de jure classification, the Reinhart and Rogoff natural classification, and the Levy-Yeyati and Sturzenegger de facto classification. Statistical tests appear to favor the endogenous switching regression model, which encompasses specifications used in previous studies. Holding investment, openness and government consumption constant, we conjecture that should China switch from pegged to floating exchange rate regime, her growth rate is likely to fall by one to two percent.
JEL classification: C1, C3, C52, F4, F31, F43
Keywords: growth; exchange rate regimes; endogeneity; FIM
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Bankruptcy Prediction of Small Firms in an Individual Industry with the Help of Mixed Industry Models
Yihong He a and Ravindra Kamath b
a Monmouth University
b Cleveland State University
Abstract
This paper examines whether generic bankruptcy prediction models can maintain their validity when applied to firms from an individual industry. The literature on the subject suggests that the classification accuracy of models based on a mixed industry sample is considerably diminished when they are applied to samples drawn from a single industry. This investigation re-estimates bankruptcy prediction models by Ohlson (1980) and Shumway (2001) with a mixed industry sample of over-the-counter (OTC) traded small firms during the 1990s. both models are validated with an ex ante prediction test for a holdout sample from the equipment & machinery manufacturing (EMM) industry as well as the mixed industries. Our empirical results show that the generic models by Ohlson (1980) and Shumway (2001) are robust in classifying and predicting bankruptcy incidence of the EMM firm. However, the finding of the prediction accuracy for the holdout sample from the EMM industry being higher than that for the holdout sample from the mixed industries is counter-intuitive, which is possibly introduced by sample specific bias, and/or the models not being optimally constructed (Altman, 1968).
JEL classification: G14, G22, M41
Keywords: bankruptcy prediction; logistic regression analysis
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Audit Quality, Legal and Disclosure Environments, and Analysts' Forecast Accuracy: Some International Evidence
Jong-Hag Choi a, Tony Kang b, Young K. Kwon c, and Yoonseok Zang d
a Hong Kong University of Science and Technology
b Singapore Management University
c University of Illinois at Urbana-Champaign
d Singapore Management University
Abstract
In this study, we investigate the relation between the quality of external audit and earnings predictability of firms situated in different legal and disclosure environments around the world. In a sample of multinational firms cross-listed in the United States, we find that the association between audit quality and forecast accuracy is stronger in weak legal and disclosure environments than in strong legal and disclosure environments. We interpret these results as suggesting that audit service can serve as an alternative device to improve market participants' information environment in weak legal and disclosure environments.
JEL classification: M41, M42
Keywords, Audit quality; analysts' forecasts accuracy; legal environment; disclosure; international
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A General Equilibrium Analysis on Bundling Pricing, Impersonal Networking Decisions and Division of Labor
Ke Li
Nihon University and Nanjing University
Abstract
This paper develops a general equilibrium model of impersonal networking decision and bundling pricing, which departs from the other models of bundling sales by allowing substitution between goods, flexible quantities of goods, resale of any goods, competitive market, and ex ante identical utility function for all individuals. Applying Inframarginal Analysis, this model shows that the function of bundling pricing in a competitive market is to avoid direct pricing of goods with the lowest transaction efficiency, meanwhile getting the bundled goods involved in the division of labor and commercialized production, thereby promoting division of labor and aggregate productivity. According to this theory of bundling pricing, in a competitive market, bundling pricing is Pareto efficient and it plays a very important role to help utilize the positive network effects of the division of labor on aggregate productivity.
JEL classification: D23, D41, D58, L11, L23
Keywords: impersonal networking decision; implicit bundling; network effects; division of labor; specialization |
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