Rodrigo M. Zeidan

The failure of risk management for nonfinancial companies in the context of the financial crisis: lessons from Aracruz Celulose and hedging with derivatives

The main contribution of this article is to present hard evidence on hedging strategies and relate it to behavioural and agency problems resulting from speculation with derivatives. We focus on the case of Aracruz Celulose. We show how the real hedge position of Aracruz – that lost US2.1 billion in currency derivatives – deviated from its optimal hedge as the result of speculation with Over-the-Counter (OTC) derivatives.

Adverse selection in the health insurance market: some empirical evidence

This paper tests for the existence of adverse selection in the Brazilian individual health insurance market in 2003. The testing approach adapts that conceived by Chiappori and Salanié (Eur Econ Rev 41, 943–950, 1997; J Polit Econ 108, 56–78, 2000). After controlling for sex, age, income, number of dependents, occupational groups and schooling levels, the evidence favors adverse selection as indicated by a positive correlation between the coverage of the contract and occurrence of illnesses (as approximated by hospitalization) was not strong. The consideration of complex sampling in the probit estimations led to empirical evidence that does not indicate the presence of adverse selection, but which highlighted some interesting features of the relationship between the selected variables.

Restructuring Brazil's National Financial System

This paper focuses on the recent development of the Brazilian financial system and its institutions. It begins by presenting an overview of the credit market in the post-Real Plan period. After stabilization, financial institutions had to be completely reformed. A very conservative and successful regulatory framework was created to avoid the permanent instability of the past. The paper also analyses the impact of the rapid credit growth after 2004 and the role of state-owned banks in compensating for the impact of the international crisis of 2008. It is important to note that the process of formulation and implementation of the financial market reforms was not the result of prior strategic planning, but a response based on the past experience of internal and external crises and the political opportunities created after 1994.

Dynamic Entry and Exit Linkages in the Brazilian Manufacturing Industry: An Econometric Investigation

Abstract The paper investigates dynamic linkages between entry and exit rates in Brazilian manufacturing in the context of 231 (four-digit) industries during the 1996–2005 period. The empirical analysis focuses on the estimation of a dynamic panel data model for entry and exit rates, and controls for the business cycle and structural characteristics, such as industrial concentration and suboptimal scale. The empirical evidence is partially consistent with a multiplier effect where synergetic factors prevail by exit inducing exit. Evidence partially supports a competition effect that could be related to a selection process favoring efficiency, as exit induces entry. The business cycle control variable and the aforementioned structural variables appear to play no role in delineating entry and exit linkages. The results are similar, although not identical, to previous evidence for developed countries.

The displacement effects of Chinese exports on the US clothing market

This paper focuses on the displacement of other countries’ exports by Chinese exports in the US clothing market during the 2002–2010 period (sector 62 of the Harmonized System). The main contribution is to consider individual product data and its dynamic for finding evidence of displacement. Data are for 13 countries, with balanced panels of 12 variables, 104 months, and 277 goods (08 digits). I find evidence of trade displacement for more than half of the sample, composed of developing and developed countries alike. There is evidence that Chinese exports displace other countries’ exports in all three income groups, but clearly the most affected group is the middle-income group. For Mexico and Thailand, displacement is significant and the effect is large. Some low-income countries are also affected, particularly Sri Lanka. Data on Taiwan show a particularly interesting result, with a conjecture regarding disappearance of tariff arbitrage and re-exports of Chinese apparel to the USA through Taiwan. There is no evidence of displacement patterns changing due to quotas imposed by MFA and previous trade agreements.

Voluntary corporate governance with an empirical application

The main idea of the article is to advance some arguments regarding a paradox of corporate governance: if it creates so much value for shareholders why in most countries governance is still heavily regulated by strict codes? The article advances a theoretical framework for the voluntary adoption of better corporate governance practices as influenced by four dimensions: ownership and control issues, capital structure, exit strategies and market performance. I estimate probit panel models with data from Brazilian companies that voluntarily moved to the Novo Mercado (New Market). Results indicate as significant variables representing the need for exit strategies through liquidity and the existence of shareholders’ agreements, while higher capital concentration implies a lower probability of companies voluntarily adopting better governance practices. Also, market drivers such as lower capital costs and performance are not statistically significant.

Tariff reduction on renewables inputs for European decarbonization

Climate action is an integral part of the Sustainable Development Goals agreed by all 193 United Nations member states. We show that lifting European Union import tariffs on some inputs used to produce renewable energy could lessen Europe’s carbon footprint, improving the likelihood that the region meets the targets of the Paris Agreement and the Sustainable Development Goals. The results of a panel regression analysis with detailed product-level data indicate that eliminating the tariffs on 11 intermediate inputs may help to offset fossil fuel consumption driven by growth in economic activity. Abolishing the tariff on a single product—cylindrical roller bearings, used in the manufacturing of wind turbines—would probably bring the most benefit, cancelling out the expansion in demand for fossil fuels otherwise expected from 1–4% European gross domestic product growth (46,000–236,000 tonnes of oil equivalent per member state).An econometric modelling analysis shows that eliminating tariffs in key inputs for renewable energy production can have a significant impact on reducing carbon emissions in Europe.

Tacit collusion with imperfect monitoring in the Canadian manufacturing industry: an empirical study

ABSTRACT This article undertakes a cross-sectoral analysis of a salient empirical implication of the model of tacit collusion advanced by Abreu, Pearce, and Stachetti (1986). Specifically, we assess the prevalence of a first-order Markovian process for alternating between price wars and collusive periods through nonparametric tests. The analysis focuses on 30 different industries in Canada. The evidence provides weak support for optimal collusion in one industry, which is consistent with the idea that such kind of collusive arrangements is unusual, or, if collusion is all too common, that price wars as deviations from collusion are rare.

Price synchronization in retailing: some empirical evidence

The paper investigates the synchronization of price changes in the context of retail tire dealers in Sao Paulo-Brazil and selected items in supermarkets for cleaning supplies and food in Rio de Janeiro-Brazil. Results indicate similar and non-negligible synchronization for different brands, although magnitudes are distant from a perfect synchronization pattern. We find interesting patterns in inter-firm competition, with similar magnitudes across different tire types. Intra-chain synchronization is substantial, indicating that a common price adjustment policy tends to be sustained for each chain across different products.