Keywords: Reason, Rationality,Freedom, Libery
We like the description that an entrepreneur is somebody who believes in "a yet-to-be-made future".
"What are the characteristics, habits, and behaviors of the species entrepreneur? Is there such a thing as "entrepreneurial thinking"? Is there a learnable and teachable "core" to entrepreneurship? This case examines the problem-solving process of 30 entrepreneurs from a variety of industries whose companies range in value from $200 million to $6.5 billion. Careful analysis reveals a distinct thought process: "effectual reasoning." Using U-Haul as an example, the case delineates the way in which entrepreneurs factor in affordable loss, strategic partnerships, and leveraging contingencies. Thinking entrepreneurially, as opposed to managerially or strategically, means believing in a yet-to-be-made future that can be shaped by human action and realizing that, to the extent that such action can control the future, one need not expend energy trying to predict it. It is much more useful to understand and work with the people who are engaged in the decisions and actions that bring it into existence."
Keywords: Entrepreneur, Entrepreneurship
De Socio, Antonio and Nigro, Valentina, Does Corporate Taxation Affect Cross-Country Firm Leverage? (November 29, 2012). Bank of Italy Temi di Discussione (Working Paper) No. 889. Available at SSRN: http://ssrn.com/abstract=2206357
"We evaluate the relation between firm leverage and taxation of corporate income using a dataset of mostly unlisted European corporations, highly representative of medium-sized and large firms. We use a correlated random effect approach in order to take into account unobserved heterogeneity and to assess the contribution of cross-sectional variation of the regressors. We also apply quantile regressions to evaluate a possible differential impact of taxation on leverage across firms. Our results suggest that corporate income taxation is positively related to leverage and explains part of the cross-country variability, showing a stronger effect for less levered firms. In accordance with the theory of the debt tax shield, the relation between debt and taxation is stronger for highly profitable firms. These findings are robust to the inclusion of different measures of the financial development and characteristics of the legal system of the country where firms are located."
Keywords: Firm Leverage, Leverage, Corporate Taxes, Capital Structure
US public debt is skyrocketing. Future reduction due to economic improvement wishful thinking?
Keywords: US Debt, US Economy
Keywords: Investment Climate, Investment Strategy, Private Equity, Global Economy, China
Mercatus Center published a good article on the relationship between economic prosperity and freedom:
Keywords: Freedom, Growth, Wealth, Prosperity
Previous MarketObservation posts, covering the subject of "economic freedom":
Most of the globe may still be reeling from the great recession, but one continent is booming. Surprise—it’s Africa. Jake Bright on what’s driving the growth, and whether the opportunities are trickling down. read more in The Daily Beast
Keywords: Africa, Resources, African Institutions, Trade with Africa, Free Markets
We recently sat down with world-renowned money manager Felix Zulauf to get his view on global markets. Felix discusses the European debt crisis, the rebound in Chinese equities, the recent Japanese election and its impact on their markets, the U.S. markets in light of our fiscal issues, and much more. read more on Euromarketsite
Keywords: Felix Zulauf, Euro, Global Economy, China
Keywords: Megatrends, Re-Balancing, Economic Development
"This paper studies the effect of business partners on the commercialization of invention based ventures, and it assesses the relative importance of partners’ human and social capital on commercialization outcomes. Projects run by partnerships were five times more likely to reach commercialization, and they had mean revenues approximately ten times greater than projects run by solo-entrepreneurs. These gross differences may be due both to business partners’ value added and to selection. After controlling for selection effects and observed/unobserved heterogeneity, our smallest estimate of partner value added approximately doubles the probability of commercialization and increases expected revenues by 29% at the sample mean."
Keywords: Inventions, Entrepreneurial Success Rates, Partnerships
Important academic paper to "calibrate" judgement related to corporate decision making:
Ben-David, Itzhak, Graham, John R. and Harvey, Campbell R., Managerial Miscalibration (August 8, 2012). Charles A. Dice Center Working Paper No. 2010-12; Fisher College of Business Working Paper No. 2010-03-012; AFA 2007 Chicago Meetings Paper . Available at SSRN: http://ssrn.com/abstract=1640552 or http://dx.doi.org/10.2139/ssrn.1640552
"We test whether top financial executives are miscalibrated using a unique 10-year panel that includes over 13,300 probability distributions of expected stock market returns. We find that executives are severely miscalibrated, producing distributions that are too narrow: realized market returns are within the executives’ 80% confidence intervals only 36% of the time. We show that the lower bound of the forecast confidence interval is lower during times of high market uncertainty; however, ex-post miscalibration is worst during these episodes. We also find that executives who are miscalibrated about the stock market show similar miscalibration regarding their own firms’ prospects. Finally, firms with miscalibrated executives appear to follow more aggressive corporate policies: investing more and using more debt financing."
Keywords: Overconfidence, Behavioral Biases, Behavioral Corporate Finance
Keywords: US Economy, Eurozone Economy, S&P, Euro Stoxx
Conrad, Christian and Zumbach, Klaus Ulrich, The Effect of Political Communication on European Financial Markets During the Sovereign Debt Crisis (December 12, 2012). University of Heidelberg, Department of Economics, Discussion Paper No. 536. Available at SSRN: http://ssrn.com/abstract=2188358
"We quantify all statements by major European politicians reported by Reuters during the August 2011 to December 2011 period and show that political communication significantly affects European stock and bond markets as well as the EURUSD exchange rate. Communication with respect to Italy induces the strongest market reactions. Financial markets consider the German bond market a safe haven."
Keywords: Political Statements, Capital Markets, High-Frequency Response
Source: Intel Free Press
Keywords: Technology, China
Burton Malkiel, the Princeton economics professor and author of the index investing classic “A Random Walk Down Wall Street,” has a new gig that’s worth taking measure of. The legend of passive investing is now chief investment advisor of Wealthfront, a Silicon Valley-based financial advisory firm that is serving up a dirt-cheap online approach to money management. read more on IndexUniverse
Keywords: Indices, Index, Index Investing, Online Money Management
Highly relevant article of Megan McArdle on the demographic shift in the US - a problem which also other Western civilizations face:
Birthrates are falling. Will the economy follow
....... "Start with a simple equation: economic growth equals the growth in the workforce plus the growth in the productivity of that workforce. If the workforce shrinks, then productivity growth needs to be higher, in order to compensate; otherwise your economy shrinks. In theory, we can compensate for the coming demographic shift with higher productivity. A shrinking population, after all, means a higher capital to worker ratio.
But this doesn't quite work, because our population will not simply get smaller; it will also get older. If everyone was going to suddenly die at 45, we might be able to get the requisite productivity boost. But as the population ages, it will change dramatically, becoming less innovative, more risk averse, less physically capable. Just as we desperately need productivity to speed up, it is probably going to slow down.".... Source: Excerpt of Megan McArdle article
Keywords: Population, Western Economies, Economic Growth, Demographics
The answer seems to be clearly No, as a new study shows:
Bargeron, Leonce, Schlingemann, Frederik P., Zutter, Chad J. and Stulz, Rene M., Does Target CEO Retention in Acquisitions Involving Private Equity Acquirers Harm Target Shareholders? (December 5, 2012). Charles A. Dice Center Working Paper No. 2012-026. Available at SSRN: http://ssrn.com/abstract=2185574
"While there is widespread concern that target CEO retention by the acquirer harms target shareholders when the acquirer is a private equity firm, CEO retention can also be valuable to private equity acquirers, and hence potentially benefit shareholders. We find that CEO retention does not harm target shareholders when the acquirer is a private equity firm. In fact, we show that, in acquisitions by private equity firms, better performing CEOs are more likely to be retained and target shareholders gain an additional 10% to 23% of pre-acquisition firm value when the CEO is retained compared to when the CEO is not retained. In contrast, shareholders of targets acquired by operating companies do not benefit from CEO retention. Finally, we find no evidence that the target’s value is artificially depressed ahead of a private equity acquisition where the CEO is retained."
Keywords: Private Equity, CEO Retention, Acquisition Premium
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