James P. Gander

Bank financial structure in pre-crisis East and Southeast Asia

Abstract Seeking evidence on the role of bank governance in the 1997 crisis, we study financial structure and bank performance from 1987 to 1997. Financial performance ratios (capital adequacy, liquidity, profitability, and loan preference) are regressed on structural variables (bank assets, net income, administrative expenses, and time), focusing on banks’ management efficiency and financial performance. During financial liberalization, loan-preference ratios were higher, perhaps signaling more risk; so were capital-adequacy ratios. Capital adequacy falls, then rises as management size increases; profitability behaves oppositely, indicating diminishing returns. Thailand’s, Korea’s and Indonesia’s banks show stronger lending preference but weaker profitability; possible harbingers of crisis.

Academic research and teaching productivities: A case study

Abstract This paper uses University of Utah data on funded research output, teaching output, faculty, and student enrollment for the academic years 1991–1992 to 1993–1994 for a sample of 31 academic departments to estimate joint-product production functions. It is a micro-micro theory approach. Single equation ordinary least squares (OLS) and simultaneous equations generalized least squares (GLS) by linear structural relations (LISREL) estimating methods are used. Research and teaching productivities are compared to the Schumpeterian hypothesis relating to department size and research productivity. Falling teaching productivity and rising research productivity as faculty size increases are among the results. The time effect on production performance was not significant. Implications for the supply of basic research are discussed. Various hypotheses and implications for social policy are discussed.

The economics of university-industry research linkages

Abstract Cooperative research can involve various combinations of government, industry, and the university. This article focuses on university-industry cooperative research interactions or linkages. Such linkages involve a network of money, information, and human effort flows between the science and engineering sector of the university and its counterpart in business firms. The university is modeled as a multiproduct-multisector nonprofit organization where the linkages are produced by research faculty. A dynamic control theory approach is used to shed light on the economic decisions of the university relating to the hiring of faculty and the production of products. One likely result of such decisions is the fallover time of undergraduate output and the rise of research output. Since research output is an element in overall technological change, the internal management of the university has public policy implications. Other policy values of the analysis are also indicated.

Technology adoption and labor training under uncertainty

Abstract Technology adoption must be accompanied by firm-specific employee training. The reliability of the effect of this training is uncertain. A model of the firm is developed incorporating training and uncertainty. The training effect on labor productivity is captured by an augmenter. The uncertainty is captured by a two-state probability function. Both of these are joint functions of the firm’s investment in training. The first-order conditions for profit maximization give an ex post equation showing the training cost intensity (investment per total wage bill) as the sum of two elasticities: the investment elasticity of augmentation and the investment elasticity of probability. From previous empirical studies, estimates of the training cost ratio range from 4–10%, so the elasticities are relatively small (in the range 0.02–0.05), yet they are significant.

University/industry research linkages and knowledge transfers: A general equilibrium approach

Abstract This article models the dynamic behavior of the firm (or industry) and the university, intricately linked together in their respective research efforts by research personnel and faculty exchanges to each others organization. One of the novel features of the model is the development of what is called the Fletcher rule (or hypothesis); namely, a top-rate university (or firm by implication) will always have 10% of its research faculty (personnel) away (at various sites) on leave from the campus (firm). It is then shown how the rule relates to knowledge transfer and personnel and faculty exchanges and turnovers. The model also differentiates between produced knowledge and transferred knowledge and shows that both types of knowledge (like capital) have implicit prices (values) which decline over time. The decline puts downward pressure over time on the employment and exchanges of research personnel and faculty. Both types of knowledge, however, can continue to increase at steady rates, due to an increase in the efficiency of knowledge production and transfer. The results of the analysis have policy implications for management, state legislators, and higher education and for technological change. The article also includes the empirical results of a small pilot study on the Fletcher rule.

A UTILITY-THEORY ANALYSIS OF AUTOMOBILE SPEED UNDER UNCERTAINTY OF ENFORCEMENT

Highway automobile speed and uncertain enforcement of the speed limit are introduced into a standard household utility model having time and income constraints. Due to uncertainty, expected utility is maximized to obtain the optimal speed (in excess of the speed limit). The optimal amounts of all other commodities and travel are also obtained. The key feature of the model is the risk attitude of the driver and the effect on optimal speed of such attitude. A related feature is the effect of risk attitude on the amount of speed self-insurance. An important finding is that the risk avert (seeking, neutral) driver charges himself an insurance premium that is larger than (smaller than, equal to) what is actuarially sufficient. The relationship between speed, risk attitude, and efficient cost of automobile travel is developed and implications are explored. A parametric analysis is conducted to establish the effect on optimal speed (and other variables) of changes in such policy instruments as the price of gasoline, the probability of being caught exceeding the speed limit, the unit speed fine, and the speed limit. Policy implications of the theoretical results are part of the conclusions.

Cooperative research and the firm

Abstract This paper models cooperative R & D involving the university, the government, and the firm, using a linear programming format to determine the optimal cooperative structure or, “Who does what?” Both prime and dual are discussed. Sensitivity and simulation techniques are discussed as analytical tools to evaluate the effect of uncertainty and returns to scale on the optimal mix or structure of cooperative R & D. The value of the approach is both heuristic and analytical. Some problems and limitations of the approach are discussed briefly.

Equity valuation under Bull and Bear market regimes in South East Asia firms: a switching regression approach

A switching regression approach is used to analyse the market equity value of firms in the three South East Asia countries with a comparison to Japan. Two regimes are used to optimally sort the firms in a given country based on a switching function using profit rate (net income to book equity) as its variable. The regimes are identified as a Bear security market or a Bull security market depending on the value of the profit rate. Two financial ratios are used in the regime regressions. It was found that the optimum scaled switch point separating the Bulls from the Bears for the countries was a positive profit rate ranging between 6 and 24%. The notion that a zero or negative profit rate identifies a Bear market is not supported. In general, the results across countries and for the long-term debt ratio were quite consistent. The post-Asian financial crisis of 1997 had a depressing effect on firm market equity values, regardless of the market type and the country. The Bulls and the Bears are not cousins when it comes to their different reactions to the long-term debt ratio and their different, relative, adverse responses to the financial crisis.

Cooperative research, government involvement, and timing of innovations

Abstract Government involvement in the innovation process, both direct and indirect, is introduced into a standard innovation time-cost trade-off model. Different forms of involvement are treated and each form entails cooperation between the firm and the government. The optimal development time (or project completion date) is determined and analyzed parametrically. This analysis produced five hypotheses concerning the effect of government involvement on the timing of innovations. Selected empirical applications (or tests) of the hypotheses are presented and then concluding remarks are made.

Firm debt structure, firm size and risk volatility in US industrial firms

US industrial-firm panel data on short-term and long-term borrowing (term debt structure) for annual and quarterly time periods over the years 1995 to 2008 are used to test an insulation hypothesis and a related volatility hypothesis. The former test uses a regression model relating the log of the ratio of accounts payable in trade to Long-Term Debt (LTD) to firm size and other variables. The focus is on the firms response to the US Federal Reserve (FED)s monetary policy, where the response is a micro perspective on the earlier macro debate over the existence of bank lending channels. The latter hypothesis uses the panel heteroscedastic variances from the first regression procedure to test for a quadratic-form risk function (either U-shaped or inverted U-shaped) using sigma squared and the Coefficient of Variation (CV) as risk indexes and firm size as a determinant. The findings suggest that there is some evidence that US industrial firms in their borrowing behaviour do insulate themselves from the effects of monetary policy and that retained earnings have a significant role in the insulation effect. The evidence also suggests that the risk index, the net variances of the debt ratio, is related to firm size by a U-shaped quadratic function with most of the actual observations on the downward sloping part of the function. As firm size increases, not only does the term-structure ratio fall, but also the volatility falls and at a falling rate of change, approaching zero for a sufficiently large firm.