Volume 6, Issue 3: … free online access to latest research in Finance, Risk and Accounting!

ACRN Journal of Finance and Risk Perspectives
Vol. 6, Issue 3, ISSN 2305-7394


JOFRP_Title_201912


pdf TABLE OF CONTENTS



pdf Financing Climate Justice through Climate Change Bonds


Julia M. Puaschunder
The New School, Department of Economics, Schwartz Center for Economic Policy Analysis


Abstract: Climate control needs have reached momentum. While scientists call for stabilizing climate and regulators structure climate change mitigation and adaptation efforts around the globe, economists are concerned with finding proper and fair financing mechanisms. In an overlapping-generations framework, Sachs (2014) solves the climate change predicament that seems to pit today’s against future generations. Sachs (2014) proposes that the current generation mitigates climate change financed through bonds to remain financially as well off as without mitigation while improving environmental well-being of future generations through ensured climate stability. This intergenerational tax-and-transfer policy turns climate change mitigation into a Pareto improving strategy. Sachs’ (2014) discrete model is integrated in contemporary growth and resource theories. The following article analyzes how climate bonds can be phased in, in a model for a socially optimal solution and a laissez-faire economy. Optimal trajectories are derived partially analytically (e.g. by using the Pontryagin maximum principle to define the optimal equilibrium), partially data driven (e.g., by the use of modern big market data) and partially by using novel cutting-edge methods – e.g., nonlinear model predictive control (NMPC), which solves complex dynamic optimization problems with different nonlinearities for infinite and finite decision horizons. NMPC will be programmed with terminal condition in order to determine appropriate numeric solutions converging to some optimal equilibria. The analysis tests if the climate change debt adjusted growth model stays within the bounds of a sustainable fiscal policy by employing NMPC, which solves complex dynamic systems with different nonlinearities.
Keywords: Intertemporal decisions, Climate bonds, Climate change mitigation, Economic growth, Intergenerational burden sharing, NMPC, Nonlinear model predictive control, Social discounting alternatives, Truncated finite time horizons


pdf The Austrian way: Sozialpartnerschaft as means to curb the falling rate of profit


Julia M. Puaschunder*
The New School, Department of Economics, Schwartz Center for Economic Policy Analysis

Abstract: Economic crises are inherent in all market systems.   Economic historians vividly outline overaccumulation and overheating leading to a squeeze of profits as underlying to great booms, recessions and depressions by the historical examples of Italy, France, Germany and Japan. Overaccumulation is based on the capital account being run down due to a demand for labor, which leads to rising wages and capital flight and ultimately to unprofitable economies.  Tightening labor markets during long boom phases lead eventually to class conflict, which is the starting point of the profit squeeze and eventually busts and recessions and depressions. This paper aims at adding to the existing literature the case of describing the Austrian Sozialpartnerschaft. This stakeholder engagement means practiced in Austria is shown to avert social imbalances leading to economically inefficient worker uprising, protests and strikes. The unique Austrian model of the voluntary Sozialpartnerschaft is captured to implicitly curb the falling rate of profit phenomenon. Rather than partially illegal and counterproductive, risky strike movements, the Sozialpartnerschaft forms an institutionalized relationship between the government, political parties and certain interest groups in the field of labor, social, and economic policy. While the influence of the Sozialpartnerschaft may be decreasing in the eye of the European Union integration and in times of globalization, other countries with fairly less developed stakeholder engagement approaches may learn from the positive example of the Austrian way to gracefully social partner in reaching common economic, industrial and societal endeavors together.
Keywords: booms, busts, falling rate of profit, long depression, long downturn, overaccumulation, overheating, Sozialpartnerschaft, strikes, Wirtschaftswunder, worker uprising


pdf Financing Social Enterprise in the very long run


Jeremy Thornton1, David King2

1 Samford University
2 Indiana University-Purdue University Indianapolis

Abstract: Social enterprises share a common struggle to finance output that have public good characteristics. Public goods are notoriously difficult for private firms to produce, because of the incentive for their constituents to defect, or free-ride, on the contributions of others. Due of their historical success, this paper examines long-lived religions institutions for strategies to mitigate this collective action problem. We empirically examine the Southern Baptist Convention, which records its efforts to finance international mission activities since 1935. We test a variation of the club good model, which emphasizes imposing costs on members to separate out high intensity adherents. Consistent with the model, we find that contributions to international missions increase when the cost of affiliation increases. We do not find that the specific mechanism for collection within the Southern Baptist matters. We conclude that the club model of organization, where high membership costs are deliberately applied, offers valuable – and counterintuitive – lessons for social enterprises more broadly.
Keywords: Social Entrepreneurship, Finance, Religion, Club Model



pdf Sustainable Lending for Housing Projects: Is Affordable Housing a Myth for Depressed Russion Monotowns?


Leonid A. Shafirov
Southern Federal University, Russia

Abstract: The research presents the author’s attempt to provide a link between the idea of sustainable consumer credit practice and increase in housing affordability, as one of the key elements for the local socio-economic development participatory programs for depressed territories in Russia. Lack of applied studies exists on retail product and service development aimed at harmonization of interests among all the parties involved in consumer lending system at the local level, in Russian developmental context. Meanwhile, housing affordability issue is one of increasing importance for Russian small towns and settlements, also relatively poor highlighted in existing research literature in terms of proposed measures to improve the local households’ living conditions. This research gap is addressed in the paper relying on an integrative framework, blending the elements of the project management theory, pragmatic institutional economics, and reasoned action approach. Conceptual model is proposed to illustrate the process of institutionalization of sustainable lending and borrowing principles within the local communities, which implies prevention of wasteful-spending credit practices and transformation of consumer loan products into the financial source of development. The household survey, accompanied by the interviews with the community leaders in small depressed Russian monotown, have supported the relevance of sustainable credit products development to address local households’ problems related to housing construction and renovation. The research findings have shown that Russian depressed mono-industrial towns are viewed as the testing areas for such pilot projects to be implement with the local authority’s genuine participation.
Keywords: Sustainable credit, local economic development policy, affordable housing, institutionalisation of household housing projects


pdf Business model and firm’s financial performance: evidence from the Canadian mining sector


Jean-Claude Macena1, Ahmed Marhfor2, Suzanne Durand3

1 Uqat-Uqam Chair in Mining Entrepreneurship, Department of Administrative Studies, University of Quebec in Abitibi-Témiscamingue,
2,3 Department of Administrative Studies, University of Quebec in Abitibi-Témiscamingue

Abstract: In this paper, we investigate the impact of business model design on the performance of Canadian mining companies. We propose a comprehensive typology of business models and use a variety of financial performance measures to test whether some business models do perform better than others. The findings indicate that all business models generate lower returns in comparison to a well diversified market portfolio. In addition, we have only weak evidence suggesting that some models (Productors and Streaming/Royalties) do have better financial performance than others. Overall, our results show that Canadian mining companies need to reevaluate the elements of their current business models.
Keywords: Business model, financial performance, economic logic, value creation, value capture, conditional performance


pdf Theoretical grounding for Sustainability Reporting: A Comparison between Indian and European Banks


Taral Pathak1 and Ruchi Tewari2
1 Assistant Professor, Ahmedabad University, Ahmedabad
2 Associate Professor, MICA, Ahmedabad

Abstract: Sustainable development (SD) is gaining acceptance leading organizations to engage in non-economic activities, connect with a larger stakeholder beneficiary group consequently contributing to the over-all development. Banking industry, stereotypically known to hold a myopic focus on economic returns has evolved practices like impact investing, where both the financial and non-financial contribution is assessed and performance is disclosed in annual reports (AR) and/or sustainability reports (SR). These reports provide rich information – qualitative and quantitative, of the non-financial activities, present the firms focus on SD and cater to the conflicting demands of stakeholders. This study analyses the sustainability reporting of the top 60 banks – 20 Indian, European and International banks to investigate the focus of their non-economic disclosure and analyse them through the theoretical lens of accounting disclosure theories – Legitimacy, Institutional, resource-dependency and stakeholder theory (Chen and Roberts, 2010) .
Content Analysis of AR’s and SR’s was done with an initial list (119 words) culled out of literature (academic articles and practitioners reports) and pilot tested on 6 reports; words which did not have a match were dropped and a final list of 30 words was used for analysis. Results indicate that banks focus upon areas which cater to the immediate and elementary needs of the business eco-system like Energy; agriculture, wind and water. All these have a definite social consequence. Results find support in the resource-dependency and legitimacy theories. Findings provides impetus and grounding to recent non-financial activities like positive impact financing, social responsibilities handled by hard-core financial institutions like banks.
Keywords: Sustainability Reporting; Theories of non-financial disclosure; Banks, Positive Impact Finance.


pdf Energy Prices and Emerging Market Investor Sentiments


Mobeen Ur Rehman1, Ameena Arshad2
1 Szabist Islamabad, Pakistan
2 COMSATS Islamabad, Pakistan

Abstract: Energy prices are known to have significant impact on equity returns, however its impact on investor sentiments is a new concept. This paper investigates the relationship between investor sentiments and energy price in an emerging market. Current literature deals with the impact of investor sentiments on energy prices however we have tried to investigate the reverse of it. This is because uncertainty in energy prices has major influence on investor confidence which affects their investment decisions in energy sector. Generalized autoregressive conditional heteroscedasticity (GARCH) with its exponential form (E-GARCH) is used to investigate the impact of energy prices on investor sentiments. A sharp increase in investor sentiment index is observed in the first and third quarter of 2006 and 2009 respectively that might be attributed to an increase in economic growth. Results of the study show that energy prices have noticeable effect on investor sentiments in Pakistani equity market. This finding highlights the fact that even in an emerging market like Pakistan with least market efficiency, investors are sensitive to the global energy prices.
Keywords
: Investor sentiments, Energy prices, GARCH/EGARCH models.


pdf Financial distress and economic cycle in a dual banking system: Evidence from Malaysia


Mobeen Ur Rehman1, Ameena Arshad2
1 Szabist Islamabad, Pakistan
2 COMSATS Islamabad, Pakistan

Abstract: Energy prices are known to have significant impact on equity returns, however its impact on investor sentiments is a new concept. This paper investigates the relationship between investor sentiments and energy price in an emerging market. Current literature deals with the impact of investor sentiments on energy prices however we have tried to investigate the reverse of it. This is because uncertainty in energy prices has major influence on investor confidence which affects their investment decisions in energy sector. Generalized autoregressive conditional heteroscedasticity (GARCH) with its exponential form (E-GARCH) is used to investigate the impact of energy prices on investor sentiments. A sharp increase in investor sentiment index is observed in the first and third quarter of 2006 and 2009 respectively that might be attributed to an increase in economic growth. Results of the study show that energy prices have noticeable effect on investor sentiments in Pakistani equity market. This finding highlights the fact that even in an emerging market like Pakistan with least market efficiency, investors are sensitive to the global energy prices.
Keywords
: Investor sentiments, Energy prices, GARCH/EGARCH models.


pdf Closing the Knowledge Gap in Corporate Entrepreneurship through Staged Commitment


Steven C. Michael
Department of Business Administration, University of Illinois

Abstract: Corporate entrepreneurship requires senior executives to evaluate proposals for investment and projects from corporate entrepreneurs. Properties of technology make this evaluation difficult, creating a knowledge gap. Whether through opportunism, overconfidence, or opportunism, corporate entrepreneurs are likely to induce overinvestment in projects, perhaps at the expense of corporate goals. In this paper we analyze this problem using the tools of agency theory, and identify a solution, staged commitment, used and useful in many areas of business.
Keywords: agency theory, technical management, new product development, corporate strategy, corporate entrepreneurship.