Wealth Effects Research Articles

Do Lucky People Reciprocate More? The Effect of Outcome Bias on Trustworthiness

This study investigates how reciprocity works in a simple trust game when the subjects are framed as either lucky or unlucky. We induce luckiness perception to the second mover by introducing uncertainty with a different combination of possible multipliers, allowing us to observe the effect of outcome bias on trustworthiness while controlling for the wealth effect. We do not find a significantly different level of trustworthiness between lucky second movers and unlucky second movers. The result suggests the null effect of outcome bias on reciprocal behaviour. JEL Classifications: C91, D01, D63, D91

Monetary Policy, Homeowner Balance Sheet Channel, and Integration: A Lesson from South Korea during the 2000s

We estimate the household consumption function using the Korean labor and income panel data (2001-2012) with the instrument of the housing supply to figure out the homeowner balance sheet channel of monetary policy in South Korea during the 2000s and the early 2010s. We find that monetary policy has a significant effect through both the wealth and collateral effects comprising the homeowner balance sheet transmission channel. Furthermore, the wealth effect shows a significant result across all income quantile groups, whereas the collateral effect is significant in the low- and middle-income quantile groups. This finding implies that the lower-income groups are more sensitive to changes in the value of real estate assets. Based on the analysis, we derive policy implication that socio-economic integration will be enhanced under the considerately targetted monetary policy, which is a lesson for the emerging or developing countries whose current economic situation is similar to the past South Korea.

An analysis of the correlation between income and the consumption of energy in Bangladesh

This research takes a methodical look at how rising incomes and climate change affect energy use in six different divisions of Bangladesh. To investigate the indirect mechanism of income influence on the consumption of energy, this study employs indicators of industrial structure upgrading and urbanization in a novel way using the fixed effects model which has not been used so far in this kind of study. The results show that income affects energy use in two ways: directly and indirectly. The influence of income on the consumption of energy is inverted U-shaped and may be readily observed. Furthermore, by encouraging urbanization and upgrading of industrial structure, income can indirectly lower energy use. While energy consumption is negatively impacted by climate change, it is less severe than the effect on earnings. Furthermore, there are substantial geographical and temporal variations in the effect of wealth on energy use. Energy use decreases significantly as income rises over time. Income has a detrimental effect on the consumption of energy in the developed southern area. Energy usage is positively affected by income in the undeveloped northern area. In light of Bangladesh’s unique the consumption of energy profile, we must reject the “one size fits all” approach and instead concentrate on reducing wasteful spending in areas like income growth, industrial structure and urbanization, and while simultaneously increasing efficiency and precision in our aiming. This study aims to provide policymakers with fresh insights to inform decisions on energy production and consumption policies considering urbanization and industrial growth.

It Is Time to Reconsider the 3% Discount Rate

ObjectivesHealth technology assessment (HTA) guidance often recommends a 3% real annual discount rate, the appropriateness of which has received limited attention. This article seeks to identify an appropriate rate for high-income countries because it can influence projected cost-effectiveness and hence resource allocation recommendations. MethodsThe author conducted 2 Pubmed.gov searches. The first sought articles on the theory for selecting a rate. The second sought HTA guidance documents. ResultsThe first search yielded 21 articles describing 2 approaches. The “Ramsey Equation” sums contributions by 4 factors: pure time preference, catastrophic risk, wealth effect, and macroeconomic risk. The first 3 factors increase the discount rate because they indicate future impacts are less important, whereas the last, suggesting greater future need, decreases the discount rate. A fifth factor—project-specific risk—increases the discount rate but does not appear in the Ramsey Equation. Market interest rates represent a second approach for identifying a discount rate because they represent competing investment returns and hence opportunity costs.The second search identified HTA guidelines for 32 high-income countries. Twenty-two provide no explicit rationale for their recommended rates, 8 appeal to market interest rates, 3 to consistency, and 3 to Ramsey Equation factors. ConclusionsDeclining consumption growth and real interest rates imply HTA guidance should reduce recommended discount rates to 1.5 to 2+%. This change will improve projected cost-effectiveness for therapies with long-term benefits and increase the impact of accounting for long-term drug price dynamics, including reduced prices attending loss of market exclusivity.

Modelling the Demand for Indonesia’s Foreign Reserves

Abstract The foreign reserves sufficiency is important to maintain macroeconomic stability. The main objective of this paper is to model the behaviour of the central bank in accumulating the foreign reserves in the case of Indonesia. Unlike the previous empirical studies, this paper disaggregates the components of foreign reserves into foreign currency, securities, gold, and special drawing rights. This paper relies on the Almost Ideal Demand System combined with the Error Correction Model. The estimation result for monthly data over the period 2010(1)-2020(12) reveals that the own-price coefficients are negative and statistically significant which is consistent with the standard theory of demand. While the foreign currency-securities pairwise is substitutive, the foreign currency-gold and the foreign currency-special drawing rights pairwise are complementary or even independent. However, the wealth effect is inelastic except for securities reserves. These results imply that the central bank of Indonesia can re-balance its reserves. The securities holding which have the highest proportion of foreign reserve scan be switched to foreign currency, gold, and/or special drawing rights. The rebalancing measures would remain having an optimal level of foreign reserves holding in terms of its opportunity cost. Therefore, the monetary authority can conduct a further macroeconomic stabilisation without substantially losing the returns.

More is less? Wealth effects of Italian stocks to the increase in allowed voting rights

To address the steadily declining numbers of listed companies, several European countries are going to allow the issuance of dual class shares. However, there is skepticism among corporate governance experts whether this is an attractive option to increase the number of IPOs. To evaluate this new rule, the Italian stock market offers a unique natural experiment. We investigate the wealth effect for Italian shareholders to the announcement of this increase in allowed voting rights. Our results show significant negative abnormal returns for firms with dual class shares, thus indicating an aversion of investors towards an asymmetrical distribution of voting rights.

Study on the influence of housing price on fertility intention in the new development stage

In recent years, in order to adapt to the economic and social development and constantly adjust the fertility policy, the improvement of residents' fertility willingness has not reached the ideal level. The reason is that housing is necessary for life. The housing price, as the cost of living and the cost of raising children, has a very significant impact on the current residents' willingness to have children. According to the relevant literature, it can be seen that the influence of housing price on fertility intention is mostly analyzed from two aspects: crowding out effect and wealth effect. Therefore, this study relies on the micro-data of families in recent years to study the influence mechanism of housing prices on the fertility willingness of urban and rural residents. The results show that the housing price has a crowding out effect on the fertility willingness of urban and rural residents, that is, the higher the housing price, the lower the residents' fertility willingness, and other variables also have an impact on the fertility intention, such as gender, annual family income, etc. The housing price also has a wealth effect on the fertility willingness, that is, the higher the housing price, the higher the residents' willingness to reproduce. However, the wealth effect is less than the crowding out effect, so in general, in the new stage of development, the higher the housing price in China, the lower the residents' willingness to have children.

Directors and officers liability insurance and the wealth effect of M&A announcements

ABSTRACT We explore the association between Directors and Officers Liability Insurance (D&O insurance) and the valuation of mergers and acquisitions (M&As) from the perspective of the monitoring hypothesis versus the moral hazard hypothesis. Examining a sample of 278 M&A announcements made by listed firms in Taiwan from 2009 to 2020, our study finds that high D&O-insured acquiring firms are associated with producing better benefits for shareholders through M&A channels than low-insured firms. Such a positive relationship is more evident for acquirers with higher agency problems, indicating that D&O insurance assists in weakening the conflict between managers and shareholders and serves as a viable substitute for traditional corporate governance, effectively taking on the role of an external monitoring channel. Further analyses reveal that D&O insurance is associated with improvement in the post-M&A operating performance. Overall, the evidence supports the monitoring hypothesis, implying that acquirers holding high-level D&O insurance are more likely to deter opportunistic managerial behaviours and enhance the corporate monitoring quality, thereby exerting a positive influence on valuation from M&A transactions.

The Effect of Income and Wealth on Behavioral Strategies, Personality Traits, and Preferences.

Individuals living in either harsh or favorable environments display well-documented psychological and behavioral differences. For example, people in favorable environments tend to be more future-oriented, trust strangers more, and have more explorative preferences. To account for such differences, psychologists have turned to evolutionary biology and behavioral ecology, in particular, the literature on life-history theory and pace-of-life syndrome. However, critics have found that the theoretical foundations of these approaches are fragile and that differences in life expectancy cannot explain vast psychological and behavioral differences. In this article, we build on the theory of optimal resource allocation to propose an alternative framework. We hypothesize that the quantity of resources available, such as income, has downstream consequences on psychological traits, leading to the emergence of behavioral syndromes. We show that more resources lead to more long-term orientation, more tolerance of variance, and more investment in low marginal-benefit needs. At the behavioral level, this translates, among others, into more large-scale cooperation, more investment in health, and more exploration. These individual-level differences in behavior, in turn, account for cultural phenomena such as puritanism, authoritarianism, and innovation.

Bequest motives in the housing wealth effect: A new perspective from China

While previous studies have extensively explored the impact of housing wealth on household consumption, only a limited number have investigated the role of bequest motives. This study focuses on understanding how bequest motives influence household consumption and decisions related to the intergenerational transfer of housing assets. Using panel data from three waves of the China Family Panel Studies collected biennially from 2014 to 2018, we empirically assess the housing wealth effect (HWE) and find that bequest motives play a significant negative role in this context, producing a dampening effect on household life satisfaction. Our results also suggest that the influence of bequest motives on housing wealth is more prominent among economically disadvantaged households, households with higher levels of education, and middle-aged and older households. These findings imply that implementing inheritance taxes could facilitate the leveraging of the HWE, ultimately promoting increased household consumption.

The Effect of local government size, wealth, balancing funds, capital expenditures, employee expenditures and budget financing surplus (SILPA) on regional financial independence in regency/city governments in North Sumatra province

This study aims to determine the effect of Local Government Size, Wealth, Balance Fund, Capital Expenditure, Employee Expenditure, and Budget Financing Surplus (SILPA) on Regional Financial Independence at Regency/City Governments in North Sumatra Province. The population of this study were 33 regencies/cities in North Sumatra Province with a total sample of 28 regencies/cities in North Sumatra Province for the period 2020-2022 based on purposive sampling and using secondary data. The data analysis technique used is descriptive statistics, classical assumption test, multiple linear regression analysis then hypothesis testing. The results prove that partially, Capital Expenditure and Employee Expenditure have a significant positive effect on Regional Financial Independence, while Balance Funds have a significant negative effect on Regional Financial Independence. Local Government Size, Wealth and Budget Financing Surplus (SILPA) have no effect on Regional Financial Independence. Simultaneously, all independent variables have an influence on Regional Financial Independence.

The Effects of Wealth on Health Care Spending: Evidence from the Housing Market

The Effects of Wealth on Health Care Spending: Evidence from the Housing Market

Monetary Policy and Wealth Effects: The Role of Risk and Heterogeneity

Monetary Policy and Wealth Effects: The Role of Risk and Heterogeneity

Households' Response to the Wealth Effects of Inflation

Households' Response to the Wealth Effects of Inflation

When green is no longer a win -new evidence on the shareholder wealth effects of green bond offerings

When green is no longer a win -new evidence on the shareholder wealth effects of green bond offerings

The Family-Owned Business Decision Making In Preserving Socioemotional Wealth

Regarding socioemotional wealth, which is derived from non-financial business elements, this study attempts to investigate the tax aggressiveness of public family-owned businesses in Indonesia. The effect of socioemotional wealth in terms of family engagement on tax aggression (measured by effective tax rate) and family generational stage as a moderator were assessed using a panel data set from 2010 to 2017 and moderated regression models using WarpPLS software version 6.0. The findings illustrate that the higher the involvement of the family in terms of ownership, management, and board of directors as well as a board of commissioners, the less tax aggressiveness. Furthermore, the findings imply that family involvement and tax behavior are not necessarily aligned and that these relationships are moderated by the family's generational stage. Considering that public family-owned business samples still exhibit the same traits as non-family-owned business, the next generation stage board of directors seems to be concerned about how aggressive tax behaviors may affect shareholder wealth and reputation.

The impact of monetary policy shocks on net worth and consumption across races in the United States

The aim of this paper is to determine whether monetary policy has a heterogeneous impact on net worth and consumption across races in the United States by applying several empirical methodologies and combining macro and micro data. The results suggest that an expansionary monetary shock increases the race gap in the short run in terms of net worth and that this is explained by differences in portfolio composition, especially between black and white households. Consequently, the heterogeneous wealth effect among these racial groups means that white households retain a higher elasticity than some minorities with respect to different forms of consumption as a consequence of a monetary policy shock. Although the heterogeneous effects of monetary policy across race are primarily explained by the different observable characteristics of households, a non-negligible part of this heterogeneity could be explained by the credit constraints faced by racial minorities that determine the composition of their wealth.

Analysis of Financialization in the Process of Economic Development

Economic development is a top priority for the overall development of modern societies today. Since the financial crisis the position and role of financialization in economic development have received increasing attention. This paper begins with different perspectives to demonstrate the expansion financial industry, elevated status and expanding influence of a country. Financialization affects many aspects of our lives, such as the food industry, housing, and higher education. This paper analyses the root causes of financialization from the perspective of money and capital, and the external factors that give rise to financialization from the perspectives of policy, technology, and Internet information. Financialization can have a positive impact on investment and consumption by mechanisms including wealth effects and channel effects. On the other hand, the development of financialization has largely disconnected monetary and virtual capital accumulation from capital accumulation within the real economy, reinforcing the speculative and fragile nature of finance, and thus adversely affecting the real economy. Financialization development should be compatible with real economy development, to avoid excessive financialization causing harm to the real economy.

International Evidence on the Interest Rate Effect in Dynamic IS Curves

ABSTRACT A number of studies have found little evidence of the effect of the interest rate in dynamic IS curves. We show that this is due to de-trending. The interest rate has a weak effect on the output gap even when controlling for wealth effects. However, when the IS curve is formulated in an error-correction form, we find a significant interest rate effect. Furthermore, we find that the nominal interest rate explains output dynamics better. Lastly, there are significant effects of long-term interest rates in emerging markets, which may justify the use of yield curve control policies in these economies.

Wealth effects of firm's strategic technology investments: evidence from Ethereum blockchain

PurposeEthereum-based blockchain technology (EBT) affords members of the Enterprise Ethereum Alliance (EEA) a market advantage in deploying blockchain within their organizations, including cybersecurity and operational benefits, that leads firms to strategically invest in this nascent technology. However, the impact of such strategic investments in EBT has yet to be explored in the context of its relationship to firm value. Therefore, this study explores EBT-specific firm-level characteristics that result in a stock market reaction to announcements of strategic investments.Design/methodology/approachThe authors use the event study methodology, strategic investment literature and signaling theory as contextualizing frameworks for their study. Additionally, the authors explore a new method for examining technology investments as a strategic counter to cybersecurity threats.FindingsFirms that signal to the market their strong commitment to their strategic investment by developing an EBT proof of concept see significantly higher market returns. Firms that have had prior cybersecurity incidents are rewarded by the market for strategically investing in EBT, and when firms with large undistributed free cash flows utilize this cash for strategic EBT investment, the market is more likely to reward these firms, indicating the market views EBT investment positively in these circumstances.Originality/valueThe results of this study provide new evidence of the value impact of EBT for firms that suffered cybersecurity events in the past. The authors provide empirical evidence of firm-level characteristics that investors use to discern whether a strategic investment in EBT will drive organizational value. Likewise, the authors demonstrate how signaling affects investor perceptions of strategic information technology (IT) investments in EBT.