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Abstract - Modern Theory of Capital Cost and Capital Structure by Brusov–Filatova–Orekhova (BFO Theory) for Companies, which Ceased to Exist at the Time Moment n
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Abstract: Modern theory of capital cost and capital structure by Brusov–Filatova–Orekhova (BFO theory), which describesthecompanies of arbitrary age n in opposite to the perpetuity Modigliani – Miller theory, is applied for companies, which ceased to exist at the time moment n. The required modification of BFO theory has been done in the paper. Formula BFO-2 for calculation of dependences of weighted average cost of capital, WACC, on the company's of lifetime n, on leverage level L and on tax on profit rate t for companies, which ceased to exist at the time moment n has been derived. We analyze these dependences and compare them with the results of classical BFO theory which describesthecompanies of arbitrary age n. Comparing of results, obtained for companies as remaining in the market (BFO), as well as retired from the market (BFO-2) shows that dependence of the weighted average cost of capital WACC of companies on leverage level L, the company's lifetime (or age) n and the tax on profit rate t are qualitatively similar in nature, while, there are significant quantitative differences in these dependences: WACC for companies ceased to exist, always turns out to be higher than that of the companies that remain on the market (with the same parameters: leverage level L, the company's lifetime (or age) n and the tax on profit rate t, capital costs (equity and debt)), by other words the cost of attracting capital for companies that continue to operate, is always lower. We examine whether the effects, discovered by us within classical BFO theory, are present in its modified form (BFO-2). We have found that within trade off theory there is no an optimal capital structure for BFO-2 case as well as for BFO (as it has been proven by us before), while the qualitatively new effect in corporative finance (decreasing of equity cost withleverage L), existing within classical BFO theory, is absent in BFO-2 case similar to the case of perpetuity companies.
Keywords: Classical BFO theory, BFOtheory modified for companies, which ceased to exist. Download Full Article |
Abstract - Trickle-Down Technology and Screening of a Durable Goods Monopolist
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Abstract: We show that when it takes time for a durable goods monopolist to make its high-end new technology accessible to low-end market (the trickle-down technology constraint), the monopolist's high-end product might have a higher-than-optimum quality. This result differs from conventional screening models, in which the qualities of non-durable goods supplied by a monopolist never exceed the optimum, and only consumers with the highest valuation consume the efficient quality. In another literature discussing a durable goods monopolist who delays the introduction of low-end product as a marketing strategy, but not due to the trickle-down constraint, the qualities will not exceed the optimum either. Our results show that the trickle-down constraint will make the monopolist chooses a higher-than-optimum quality when the difference of the valuations of high demand and low demand consumers are in certain ranges. The intuition follows Spence (1975): the efficient quality is determined by the marginal cost and the average of all consumers’ marginal valuations, while the monopolist chooses quality such that the marginal cost equals the marginal consumer’s marginal valuation.. Keywords: Durable goods monopoly, Coase problem, trickle-down technology, screening.Download Full Article |
Abstract - Convergence of Health Expenditure in OECD Countries: Evidence from a Nonlinear Asymmetric Heterogeneous Panel Unit Root Test
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Abstract: This paper examines the convergence in health expenditure across 22 OECD countries between 1980 and 2012 by implementing panel unit root tests. Contribution of application of the nonlinear asymmetric heterogeneous panel unit root test is twofold. Firstly, it relaxes the assumption of cross-sectional dependency in panel data. Secondly, it incorporates the asymmetric nonlinear mean reversion in a panel setting. Results show that while the conventional panel unit root test cannot reject the null hypothesis of a unit root in relative per capita health expenditures for the whole set of countries, both the symmetric and the asymmetric nonlinear panel unit root tests indicate the stationarity of the panel. Specifically, almost 23 percent of the countries are found to be converging by employing the nonlinear asymmetric panel unit root test. In addition, introducing asymmetric structure helps to uncover additional converging countries which cannot be detected using linear and nonlinear symmetric panel unit root tests. Keywords: Health care expenditures, Convergence, Nonlinear asymmetric panel unit root tests, OECD Countries.Download Full Article |
Abstract - Global Macroeconomic Performance: A Comparative Study Based on Composite Scores
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Abstract: This paper proposes a composite indicator designed to summarise in a single statistic a variety of different facets of macroeconomic performance and assesses relative performances of countries with respect to six macroeconomic variables, viz., the growth rate of real GDP, real per capita GDP, unemployment rate, fiscal balance, rate of inflation, and current account balance. An appropriate mathematical model to aggregate these variables to form composite scores has been implemented by adopting the MCDM (Multiple Criteria Decision Making) technique of TOPSIS (Technique for Order Preference by Similarity to Ideal Solution). This allows a parsimonious representation of a variety of different facets of macroeconomic performance and its inter-temporal comparison across countries. The distinctive features of the indicator relate to the domains covered, the normalisation methodology and the weights used for aggregation. Some existing indices like the Okun index and the Calmfors index turn out to be special cases of our proposed index. The data comprising a wide spectrum of countries and spanning the pre- and post- crisis years allow us to capture the effect of the recent global financial and economic crisis on the overall macroeconomic performance of countries relative to others. Not only do the relative performance scores show tremendous variability during the post-crisis years, but the measures of disarray are also at their highest, despite there being overall stability in the country rankings in terms of indicators, which are traditionally relied on, like GDP growth or per-capita GDP. A single graphical plot easily identifies countries that have performed consistently over time, and those whose overall macroeconomic performances have deteriorated sharply relative to others during the post-crisis years. Keywords: Macroeconomic Performance, Correspondence Analysis, Composite Scores, Country Rankings, Measures of Disarray, TOPSIS, Entropy.Download Full Article |
