Browsing by Author "Bose, Niloy"
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- Essays in Industrial Organization and Political EconomyNandy, Abhinaba (Virginia Tech, 2022-09-12)This dissertation comprises of three problems in the area of Political Economy and Industrial Organization. The first chapter concerns how ideologically-opposite media firms report a particular event to maximize their payoffs from advocating their ideology and strengthen reader trust which increases if the report is proximate to their beliefs. I use these facts to develop a Hotelling's linear city model of competition where the two media firms choose their respective locations which signify the impression they want to impart to its readers. I find partisan media provides accurate information while covering topics favorable to its ideology. However, for unfavourable topics, the media never provides an indifferent report, but either defends its own ideology or delivers a partially accurate report. For unfavourable issues, imparting an indifferent impression rewards a media with lowest equilibrium payoffs. I identify sufficiency conditions where readers give better assessment to news of a media located farther away from their ideology than one which is nearer. Increasing competition by the entry of a third firm does not necessarily alleviate the level of bias in the news economy. The second paper studies the pricing schedule of a monopolist while it sells a non-durable product over two time periods. The consumer's experience with the product is correlated with two possible states — good (bad) experience is more probable under a high (low) state. Given this, I study the monopolist's pricing scheme in the two periods when consumers are wishful — overly optimistic about the high state even after a bad experience. I provide a comparative study of prices in each periods when the monopolist announces prices with and without commitment when consumers are either naive or sophisticated. The final chapter provides an understanding of the efficacy of two types of trade sanctions (import and export) using a directed network model. Sanctions are common punitive measures taken by a sender player to discipline a target player. Empirical evidences in the realm of international trade show differences in the effectiveness between import and export sanctions. This paper shows that such differences can be explained by one specific centrality feature of the underlying trading network — betweenness-centrality. This measure lends insights to the trade spill-overs following sanctions underscoring why sanctions are ineffective. I highlight when a higher value of this centrality acts as a sufficient condition towards effective sanction. Based on this analysis, one can conclude whether import or export sanction will be more effective for a given trade network.
- Essays on Financial EconomicsChi, Mengyang (Virginia Tech, 2021-04-14)This dissertation consists of three papers. In the first paper, I study firms' capital raising decisions in a two-stage signaling game. In the model, firms can issue debt or equity to finance sequentially arriving investment projects. Management is assumed to have an initial information advantage over investors. However, when a firm's decision in the first stage can change investors' beliefs and, consequently, impact the security issuance in the second stage, its optimal choice differs significantly from the strict debt-equity preference in a comparable one-stage model. In equilibrium, a dynamic pecking order arises, suggesting that the information friction can solely explain various aspects of observed corporate financing behavior. The second paper is coauthored with Hans Haller. In this paper, we model how different wealth constraints among investors affect an entrepreneur's way of raising capital, his share of project NPV, and his ownership of the new firm. Combining cooperative and noncooperative approaches, we develop and analyze a bargaining framework and demonstrate cases in which a fair division cannot be achieved when sharing of cost and sharing of return are jointly considered. Our results cover conditions on how the entrepreneur can strategically achieve larger net wealth accumulation, and when he can obtain control of the firm. We further discuss the entrepreneur's preferences on the firm's ownership dispersion level under public financing. The third paper argues that although innovation is costlier than imitation, the incumbent firm is endowed with an advantage of enhancing its product ahead of potential competitors. In a model that connects consumers' utility with firms' production, I show that the incumbent's product enhancement decision can foster the creation of a better product, improve consumers' utility, and deter entrance from competitors. The pace of creative activities is determined by the incumbent's potential of improving its product quality and the nature of product differentiation in the industry. Thus, creative destruction may not manifest itself as new firms replacing the incumbent, but as the incumbent constantly renovating its product.
- Essays on imperfect information and economic growthBose, Niloy (Virginia Tech, 1995-09-18)This dissertation is a collection of essays on economic growth in the presence of asymmetric information between lenders and borrowers in the credit market. The first chapter considers an endogenous growth model where lenders and capital producing borrowers are asymmetrically informed as to the borrower’s ability to successfully operate an investment project. In contrast to the existing literature, lenders can induce self selection either by rationing a fraction of borrowers, or by using a costly screening technology, or by a mix of the two. The growth rate of the economy and the equilibrium contract’s form are mutually dependent and are determined jointly. It is shown that a decline in the screening cost (representing a more sophisticated financial sector), paradoxically, may lower output growth and that benefit of an advanced financial sector becomes evident only when a threshold level sophistication is crossed. The second chapter draws a connection between financial development and economic growth in a neoclassical growth model. It is shown that at a low level of capital accumulation, lenders separates the borrowers by denying credit to a fraction of borrowers. As capital accumulates, credit market may function more like a modern credit market with less credit rationing and with an increasing number of lenders purchasing information to separate borrowers. The transition from rationing to screening results in a higher capital accumulation path and a higher steady state capital stock. The present chapter also highlights the conditions under which transition from rationing to screening regime will not occur and the economy may become trapped in a steady state with credit rationing and with a low level of capital. The third chapter of the dissertation analyzes the effect of inflation rate on the growth rate of output via its effect on the agents’ behavior in the credit market. It is shown that with inflation rate exceeding a critical level, a sharp fall in the growth rate of output takes place as the incentive to purchase information vanishes and borrowers are exclusively separated by means of credit rationing. This chapter also examines the panel data for a large group of countries for the period 1961-88, and shows that the relationship between the inflation rate and the growth rate of output closely follows the prediction of the theoretical model.
- Macroeconomic Forecasting: Statistically Adequate, Temporal Principal ComponentsDorazio, Brian Arthur (Virginia Tech, 2023-06-05)The main goal of this dissertation is to expand upon the use of Principal Component Analysis (PCA) in macroeconomic forecasting, particularly in cases where traditional principal components fail to account for all of the systematic information making up common macroeconomic and financial indicators. At the outset, PCA is viewed as a statistical model derived from the reparameterization of the Multivariate Normal model in Spanos (1986). To motivate a PCA forecasting framework prioritizing sound model assumptions, it is demonstrated, through simulation experiments, that model mis-specification erodes reliability of inferences. The Vector Autoregressive (VAR) model at the center of these simulations allows for the Markov (temporal) dependence inherent in macroeconomic data and serves as the basis for extending conventional PCA. Stemming from the relationship between PCA and the VAR model, an operational out-of-sample forecasting methodology is prescribed incorporating statistically adequate, temporal principal components, i.e. principal components which capture not only Markov dependence, but all of the other, relevant information in the original series. The macroeconomic forecasts produced from applying this framework to several, common macroeconomic indicators are shown to outperform standard benchmarks in terms of predictive accuracy over longer forecasting horizons.
- Three Essays on the Analysis of Firms' Behaviors Under Staggered Treatment AdoptionSedaghatkish, Nazanin (Virginia Tech, 2023-08-03)This dissertation consists of three essays on firms' behaviors under staggered treatment adoption. The first essay draws information from a micro-lender and a credit bureau to identify the causal effects of small loans on the financial health of a group of small U.S. business owners. To achieve this, we exploit temporal variations in the loan disbursements and use an estimation strategy that controls for potential biases due to treatment effect heterogeneity. The results suggest that even small loans are effective in generating lasting positive impacts on widely accepted financial health indicators, such as Vantage Score (Credit Score), Debt-to-Income Ratio, and Credit Utilization Ratio. We obtain similar robust results for subprime and startup borrowers, who are known to face difficulties in securing credit. The second essay combines unionization data from the National Labor Relations Board and financial data from Compustat to examine the causal effects of unionization on the financing decisions of publicly traded firms in the United States. In this essay, I exploit temporal variations in the election date of unionization across firms and use a dynamic difference-in- difference estimation strategy to identify the effects of unionization on a range of financial indicators, including the Debt-to-Equity ratio, market leverage, book leverage, long-term book leverage, net leverage and cash to asset ratio. I find that unionization negatively affect firms' financing decisions. For example, after unionization, firms rely less on leverage to raise capital. At the same time, unionization offers incentive to firms to hold more cash in hand. My analysis also suggests that the effects of unionization vary according to the political and institutional structure of the states in which firms operate. For instance, the impacts on the outcome variables are more pronounced for the firms in democrat-led states and for firms which operate in states without right-to-work laws. The effects of unionization are also more noticeable for multi-establishment firms versus one-establishment firms. In addition, we find that the effects vary according to the margin of support for unionization within a firm. The third essay examines the causal effects of unionization on innovation activities of publicly traded firms in the United States. As in the case of chapters 1 and 2, the analysis uses a dynamic difference-in-difference estimation strategy on a dataset that is compiled using information on unionization data from the National Labor Relations Board, financial data from Compustat and KPSS patent data. My analysis encompasses a wide range of innovation indicators, including the number of patents, number of forward citations, market value of patents, average citations, number of patents to RandD expenditures ratio, number of citations to RandD expenditures ratio, number of patents per 1000 employees, capital expenditures to sales ratio and RandD expenditures to sales ratio. The findings suggest a small positive impact of unionization on most of these innovation indicators, with the exception of market value of patents and number of patents to RandD expenditures ratio. I also find that the effects of unionization vary according to political orientations of states, industry type, firm size and firm age. The results demonstrate that the effects on innovation are more pronounced for smaller and younger firms and for firms operating in democrat-led states as well as manufacturing firms.
- Volatility Modeling and Risk Measurement using Statistical Models based on the Multivariate Student's t DistributionBanasaz, Mohammad Mahdi (Virginia Tech, 2022-04-01)An effective risk management program requires reliable risk measurement. Failure to assess inherited risks in mortgage-backed securities in the U.S. market contributed to the financial crisis of 2007–2008, which has prompted government regulators to pay greater attention to controlling risk in banks, investment funds, credit unions, and other financial institutions to prevent bankruptcy and financial crisis in the future. In order to calculate risk in a reliable manner, this thesis has focused on the statistical modeling of expected return and volatility. The primary aim of this study is to propose a framework, based on the probabilistic reduction approach, to reliably quantify market risk using statistical models and historical data. Particular emphasis is placed on the importance of the validity of the probabilistic assumptions in risk measurement by demonstrating how a statistically misspecified model will lead the evaluation of risk astray. The concept of market risk is explained by discussing the narrow definition of risk in a financial context and its evaluation and implications for financial management. After highlighting empirical evidence and discussing the limitations of the ARCH-GARCH-type volatility models using exchange rate and stock market data, we proposed Student's t Autoregressive models to estimate expected return and volatility to measure risk, using Value at Risk (VaR) and Expected Shortfall (ES). The misspecification testing analysis shows that our proposed models can adequately capture the chance regularities in exchange rates and stock indexes data and give a reliable estimation of regression and skedastic functions used in risk measurement. According to empirical findings, the COVID-19 pandemic in the first quarter of 2020 posed an enormous risk to global financial markets. The risk in financial markets returned to levels prior to the COVID-19 pandemic in 2021, after COVID-19 vaccine distribution started in developed countries.