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The Impact of Overconfident Customers on Supplier Firm Risks
Journal of Economic Behavior and Organization,
Research has shown that firms with overconfident chief executive officers (CEOs) tend to overinvest and are exposed to high risks due to unrealistically optimistic estimates of their firms’ future performance. This study finds evidence that overconfident CEOs also affect suppliers’ risk taking. Specifically, serving overconfident customers can lead to high supplier risks, measured by stock volatility, idiosyncratic risk, and market risk. The effects are pronounced when customers aggressively invest in research and development (R&D). Our results are robust after addressing self-selection bias and using different CEO overconfidence measures. We also document some real effects of customer CEO overconfidence on suppliers.
East Germany Three Decades After the Wall Came Down: What has Been Achieved and What Should Economic Policy Do?
The persistent difference in productivity between East and West Germany not only results from the relative absence of large firms based in the East as many believe. Companies of all sizes exhibit an East-West productivity gap. The gap is larger in urban regions. Scarcity of skilled labour has emerged as the new barrier to business development. In order to boost productivity, economic policy should avoid additional subsidies that are conditional on creating jobs. Additionally, the potential of East German urban areas should be better explored. Mitigating the shortage in qualified workers requires in-migration of skilled labour from abroad, supported by an open mindset and environment.
TV and Entrepreneurship
IWH Discussion Papers,
We empirically analyse whether television (TV) can influence entrepreneurial identity and incidence. To identify causal effects, we utilise a quasi-natural experiment setting. During the division of Germany after WWII into West Germany with a free-market economy and the socialistic East Germany with centrally-planned economy, some East German regions had access to West German public TV that – differently from the East German TV – transmitted images, values, attitudes and view of life compatible with the free-market economy principles and supportive of entrepreneurship. We show that during the 40 years of socialistic regime in East Germany entrepreneurship was highly regulated and virtually impossible and that the prevalent formal and informal institutions broke the traditional ties linking entrepreneurship to the characteristics of individuals so that there were hardly any differences in the levels and development of entrepreneurship between East German regions with and without West German TV signal. Using both, regional and individual level data, we show then that, for the period after the Unification in 1990 which made starting an own business in East Germany, possible again, entrepreneurship incidence is higher among the residents of East German regions that had access to West German public TV, indicating that TV can, while transmitting specific images, values, attitudes and view of life, directly impact on the entrepreneurial mindset of individuals. Moreover, we find that young individuals born after 1980 in East German households that had access to West German TV are also more entrepreneurial. These findings point to second-order effects due to inter-personal and inter-generational transmission, a mechanism that can cause persistent differences in the entrepreneurship incidence across (geographically defined) population groups.
04.01.2017 • 2/2017
Worse ratings by U.S. rating agencies for European sovereigns no argument for European rating agency
A new study by the Halle Institute for Economic Research (IWH) – Member of the Leibniz Association shows that the major U.S. rating agencies rated European sovereigns significantly worse than Fitch, which is more “Europe oriented”. Although the findings in part support the claim of some European politicians during the recent debt crisis that there was an “anti-Europe” bias of the U.S. agencies, the study shows that a new European agency would not address this problem. The reason: Market participants would not listen to the new agency.
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Regional Capital Flows and Economic Regimes: Evidence from China
Using provincial data from China, this paper examines the pattern of capital flows in relation to the transition of economic regimes. We show that fast-growing provinces experienced less capital inflows before the large-scale market reform, contrary to the prediction of the neoclassical growth theory. As China transitioned from the central-planning economy to the market economy, the negative correlation between productivity growth and capital inflows became much less pronounced. From a regional perspective, this finding suggests domestic institutional factors play an important role in shaping the pattern of capital flows.