Recent Projects Involving the International Private Enterprise Center
Changes in the value of the dollar can substantially affect the competitiveness of New Hampshire companies. In terms of New Hampshire export destinations, the exchange rates that most affect the competitiveness of New Hampshire firms are the Canadian dollar and the euro followed by the yen and the British pound.
Presently New Hampshire exporters have a currency competitive advantage based on purchasing power parity exchange rates with Euroland and Japan. The Canadian dollar remains undervalued relative to the U.S. dollar but much less so than in 2001 and 2002. Should China revalue its currency, New Hampshire firms would see an improvement in their currency competitiveness relative to China and their major Asian destinations – South Korea, Hong Kong, Thailand and Singapore. New Hampshire exporters tend to bill their foreign customers in dollars. Consequently, they have little transaction exposure. However, this practice may be causing New Hampshire exporters to forego profits since the dollar has been depreciating in real terms since 2002. As long as the dollar continues to depreciate, the consequences of billing in dollars and ignoring exchange rate changes is not likely to create financial problems. However, should the dollar begin to strengthen, the dollar billing strategy may need to be revisited.
Firm Size, Employees and Profitability in U.S. Manufacturing Industries
John Becker-Blease, Fred R. Kaen and Hans Baumann
This study examines the relation between firm size and profitability within 109 SIC four-digit manufacturing industries. Depending on our measure of profitability, we find that profitability increases at a decreasing rate and eventually declines in up to 47 of our industries. No relation between profitability and size is found in up to 52 of our industries. These two categories account for 97 of our 109 industries. Profitability continues to increase as firms become larger in up to 11 industries. Hence, the relation between size and profitability is industry specific. But, regardless of the shape of the size profitability function, we find that profitability is negatively correlated with the number of employees for firms of a given size measured in terms of total assets and sales.
These results are puzzling in the context of work by others who report that common stock returns are negatively correlated with size when size is measured by the market value of a company or with the work of those who argue that size is a proxy for risk. Interpreted against these works, our findings may mean that large firms earn excess returns, that small firms fail to earn their cost of capital, or that accounting returns simply behave differently than market returns with respect to firm size. Click on the title to download the paper.
John Becker-Blease, Lawrence Goldberg, Fred R. Kaen
As a response to the deregulation of the electric power industry, many electric utilities adopted a strategy of acquiring other electric or gas utilities. We examine whether these merger and acquisition strategies create value for the utility shareholders and whether the strategies result in superior post merger operating and stock-price performance relative to utilities that chose not to grow through acquisitions.
We find no evidence that the mergers and acquisitions create long-term value for a fully diversified investor. Furthermore, the stock price and operating performance of the acquirers was worse than the stock price and operating performance of a control portfolio of utilities that did not engage in merger activity. We conclude that if efficiencies and synergies were created as a result of deregulation, it was not necessary to grow through merger to capture them. Our findings also suggest that utility regulation did not preclude economically efficient mergers from taking place prior to deregulation. Click on the title to download the paper.
A Framework For Evaluating State-Assisted Financing Programs
State-assisted financing programs provide both economic and social benefits but can also impact state budgets and credit ratings. State-assisted financing programs are often touted as programs for mitigating or solving financial market imperfections, especially credit market failures. In reality, these programs are designed more to: (1) address borrower credit risk problems; (2) provide a lender of last resort to small businesses during and right after economic recessions; (3) provide a less costly and more socially desirable alternative to direct social payments for people living in economically depressed regions or regions experiencing the strain of structural adjustment; and (4) direct funds into preferential uses. This paper provides both an historical evolution of State-assisted financing programs and a framework for evaluating the financial costs associated with extending financial assistance to prospective recipients. Four categories of financing programs are reviewed: (1) concessionary finance for projects that already have positive private NPVs; (2) quasi-equity financing for potentially positive private NPVs; (3) subsidies for projects with negative private NPVs but positive externalities producing a positive public NPV; and (4) politically compelling projects with negative private and public NPVs. A framework is developed that values loan guarantees as put options. Who pays the option premium and who receives the benefits depend on the fee charged for the guarantee and the interest rate the lender charges to the borrower whose loan has been guaranteed. Finally, the risks, moral hazards and policy issues of State-assisted financing programs are discussed. Suggestions for overcoming special interest and collective action obstacles are offered. Click on the title to download a copy of the paper.
This book, available from AMACOM, provides a detailed overview of corporate governance from a managerial perspective.
Corporate Governance And Shareholder Value: How Did We Get Here And Where Are We Going?
An essay about the evolution of corporate governance. A shorter versions appears in CESifo Forum, Volume 3, Number 3 Autumn 2002, pp. 7-13. Click on title to download essay.
Risk Management, Corporate Governance and the Public Corporation
International Private Enterprise Center, Whittemore
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