Mariko Watanabe

Ex Ante Bargaining and Ex Post Enforcement in Trade Credit Supply: Theory and Evidence from China

If payment of goods is easily default, economic transaction may deeply suffer from the risk. This risky environment formed a mechanism that governs how economic transaction is realized, subsequently how trade credit is given. This paper distinguished ex ante bargaining and ex post enforcement, then modeled that bargaining power reduces trade credit ex ante, and ex post enforcement power and cash in hand of buyer can enhance both trade amount and trade credit in a presence of default risk. We modeled this relationship in order to organize findings from previous literature and from our original micro data on detailed transaction in China to consistently understand the mechanism governing trade credit. Then tested empirically a structure from the theoretical prediction with data. Results show that the ex post enforcement power of seller mainly determines size of trade credit and trade amount, cash in hand of the buyer can substitute with enforcement power; Bargaining power of seller is exercised to reduce trade credit and trade amount for avoiding default risk, but it simultaneously improves enforcement power as well. We found that ex post enforcement power consists of (ex ante) bargaining power on between two parties and intervention from the third party. However, its magnitude is far smaller than the direct impact to reduce trade credit and trade amount.

Cash as Substitute for Enforcement Power: A Theory of Trade Credit and Evidence from China

If payment of goods is easily default, economic transaction may deeply suffer from the risk. This risky environment formed a mechanism that governs how economic transaction is realized, subsequently how trade credit is given. This paper distinguished ex ante bargaining and ex post enforcement, then modeled that bargaining power reduces trade credit ex ante, and ex post enforcement power and cash in hand of buyer can enhance both trade amount and trade credit in a presence of default risk. We modeled this relationship in order to organize findings from previous literature and from our original micro data on detailed transaction in China to consistently understand the mechanism governing trade credit. Then tested empirically a structure from the theoretical prediction with data. Results show that the ex post enforcement power of seller mainly determines size of trade credit and trade amount, cash in hand of the buyer can substitute with enforcement power; Bargaining power of seller is exercised to reduce trade credit and trade amount for avoiding default risk, but it simultaneously improves enforcement power as well. We found that ex post enforcement power consists of (ex ante) bargaining power on between two parties and intervention from the third party. However, its magnitude is far smaller than the direct impact to reduce trade credit and trade amount.

Refining estimates of air conditioning energy consumption in Asian countries: stock volume and energy efficiency labeling and standard

Abstract In order to evaluate how the standard and labeling program for energy efficiency reduces energy demand in an economy, we must know how many appliances work and the total energy consumption capacity developed before and after the introduction of the program. This paper calculates the stock of air conditioners and its total electricity consumption capacity based on GfK market survey and collected data by authors. The results show that Japan has experienced a substantial reduction of electricity demand from air conditioning overall in the economy. However, Thailand and China maintain their average electricity consumption levels, but are unable to reduce total demand. A study of the energy efficiency standard-labeling mechanism development and market outcomes reveals that Thailand and China fail to continuously improve energy efficiency, although the mechanism curbed the increasing inefficiency. This implies that China’s and Thailand’s mechanisms need to raise the upper bound of the distribution of energy efficiency.

Does Market Upgrading Benefit Farmers?: Market Differentiation, Contract Farming, and Professional Cooperatives in China's Pork Processing Industry

This study tested whether contract farming or farmers professional cooperatives (FPCs) improved the social benefit of pork production and income of breeding farmers in China. The main concern of this study is whether institutional arrangement like contract farming or FPCs actually improved the welfare of farmers as expected. To answer this question accurately, we estimated the differentiated market demand of pork products in order to quantify the benefit by transaction types. Our study finds that contract farming or FPCs improved the benefits of pork products, but farmers income remained lower than that of traditional transaction types. This finding is new in terms of quantifying distribution of the economic values among sales outlets, agro-firms and farmers. It is more reliable because it explicitly captures impacts from both demand side and supply side by structural estimation. In practice, we need to keep it mind the bargaining power of small farmers will not improve instantly even when the contract farming or FPCs are introduced.

Identifying Competition Neutrality of SOEs in China

This paper attempts to identify competition neutrality of state-owned enterprises (SOEs) in three consumer electronics industries in China. First, I draw a benefit-price indifference curve at the mode of consumer surplus for each year, and a benefit-price supply curve by manufacturers and ownership types based on the demand estimates for the color TV (CTV), mobile phone, and air conditioning industries in the 2000s. These exercises indicate heterogeneous situations of market neutrality of SOEs in the Chinese consumer electronics industries. The air conditioning market shows a clear positive relationship between benefit and price for all ownership types. At the same time, no clear correlation between ownership and strategies focusing on price or benefit is observed. On the other hand, SOEs and privately-owned enterprises (POEs) in CTV and mobile phone markets concentrate their products based on lower prices and lower benefit area, namely, cost advantage strategies. Ownership type and strategies appear to have a correlation. Furthermore, prices become independent to the level of benefit for local firms. These tendencies are clearly observed in the price-benefit supply curve of the two markets. A simple model of differentiated competition with one agent committing predatory pricing in expropriating soft financial constraint shows that the price set by the rivals of a soft constrained firm is independent to the benefit.

Effectiveness of Energy Efficiency Standards and Labeling Requirements: The Case of Air Conditioners in Japan, Thailand, China and India

This chapter evaluates whether standards and labeling programs aimed at improving the energy efficiency of electrical appliances have been successful at achieving their goals. Standards and labeling programs work to reduce energy consumption by (a) influencing consumers’ choice of appliance and (b) inducing manufacturers to improve the energy efficiency of their products. In Most middle- and high-income countries first introduced mandatory minimum energy performance standards (MEPS) and/or multi-grade labeling and then added high energy performance standards (HEPS) that upgraded those standards. Analysis of product-level data for the air conditioner markets in Japan, Thailand, India and China yielded the following findings: (1) Standards and labeling programs appear to be effective at changing energy efficiency levels in the marketplace. There has been a clear improvement in the energy efficiency of air conditioners, measured by such indexes as coefficient of performance (COP), energy efficiency ratio (EER) and annual performance factor (APF) in Japan. (2) More energy-efficient products are priced higher in Japan and India. (3) Japan succeeded in reducing electricity consumption from air conditioners by one-half, but neither Thailand nor China succeeded in curbing electricity consumption. Appropriate fine-tuning of policy instruments is necessary to effectively reduce electricity use by air conditioners. An example is the introduction of a rule-based mechanism to revise minimum efficiency standards regularly. Cross-country harmonization of regulatory methods, such as methods to measure energy efficiency and revise efficiency standards, may also be beneficial.

Competition of the Mechanisms: A Structural Analysis on How Chinese Home Appliance Firms Coped with Default Risk of Trade Credit?

During the transition period from a planned economy to a market economy in the 1990s of China, there was a considerable accrual of deferred payment, and default due to inferior enforcement institutions. This is a very common phenomenon in the transition economies at that time. The Chinese government attempted in vain to deal with this problem by legislation of related institutions and administrative control. Interviews with home electronics appliance firms revealed that firms were able to cope with this problem by adjusting their sales mechanisms (found four types), and the benefit of institutions was limited. A theoretical analysis here found that spot and integration are inferior to the two contract mechanisms in terms of cost and price: a contract with a rebate on volume and prepayment against an exclusive agent can realize the lowest cost and price, and maximize social welfare. Hence, through Bertrand price competition, any of two contract mechanisms is selected to dominate the supply behavior. The empirical part showed that mechanisms converged into a mechanism with a rebate on volume an against exclusive agent, and a firm who initiated this mechanism gained the largest share in the market. Estimation of a (semi) structural supply function that utilizes demand estimates showed that the price level with the dominant mechanisms is the lowest. The competition is the driving force of the convergence of mechanisms and improvement risk management capacity.

Cash can substitute Enforcement Power: A Theory and Evidence from China

If payment of goods is easily default, economic transaction may deeply suffer from the risk. This risky environment formed a mechanism that governs how economic transaction is realized, subsequently how trade credit is given. This paper distinguished ex ante bargaining and ex post enforcement, then modeled that bargaining power reduces trade credit ex ante, and ex post enforcement power and cash in hand of buyer can enhance both trade amount and trade credit in a presence of default risk. We modeled this relationship in order to organize findings from previous literature and from our original micro data on detailed transaction in China to consistently understand the mechanism governing trade credit. Then tested empirically a structure from the theoretical prediction with data. Results show that the ex post enforcement power of seller mainly determines size of trade credit and trade amount, cash in hand of the buyer can substitute with enforcement power; Bargaining power of seller is exercised to reduce trade credit and trade amount for avoiding default risk, but it simultaneously improves enforcement power as well. We found that ex post enforcement power consists of (ex ante) bargaining power on between two parties and intervention from the third party. However, its magnitude is far smaller than the direct impact to reduce trade credit and trade amount.

Control Rights, Pyramids and Expropriation of State-Owned Listed Enterprises: Evidence from the Dual Class Share Reform in China

Literatures of corporate governance claim that expropriation by controlling owner towards the listed firm emerges when separation of cash flow and control rights exist, and that the separation emerges when dual class shares or pyramiding corporate structures exist. In China, dual class share and pyramiding coexisted in listed companies until the dual share reform was implemented since 2005. Exploiting this good exogenous change in the institution, which only resolve dual class share structure and pyramids remained, this paper tested how much the pyramiding allow the controlling owner to expropriate listed firm. Results show that: the larger control right and the Smaller cash flow right ear, size of expropriation becomes bigger; the expropriation is apparent For state controlled listed companies, though private owned firms do not. This is because level of control right ratio is higher than private though state firmss control-cash slow right ratio is Larger than a private one. While the dual class share reform weakened the power to expropriate, Separation still remains, and generates expropriation. Structural estimation shows the size of Expropriation to be 7 to 8 per cent of total assets at the main. If the one share one vote principle were to be realized, asset inflation could be reduced by 13 percent.