Excess Profits Research Articles

ДІЛОВА РЕПУТАЦІЯ ТА ЇЇ ВПЛИВ НА ФІНАНСОВУ СТІЙКІСТЬ БАНКІВ

In the article, the author considers the main aspects of the impact of goodwill on the financial stability of banks. It is substantiated that among the numerous threats that lead to financially unstable development of the banking business, a special place should be given to the support of banks’ business reputation. The main reasons are the phenomena of financial instability caused not only by the cyclical development of the economy, but also the ability to take into account a certain state in which the financial system is able to: effectively allocate resources, assess and manage financial risks, absorb shocks. It is proved that the relationship between business reputation and financial stability is determined by the characteristics of the conceptual apparatus; the system of risks to which they are exposed in the course of their activities; methodical approaches to assessing their level. The author concludes that the key challenges for the banking business in the context of digital transformation should be considered from the standpoint of customer interests, from the standpoint of investors (owners) of the banking business and from the standpoint of the regulator. In today’s realities, when the systemic banking crisis has imposed on a large-scale economic, the decisive factor for success and continued activity in the market is the quality of business reputation. The methods of quantitative assessment of the bank’s business reputation include balance-normative, methods of additional and excess profits, methods of royalties and residual value, the method of rating and comprehensive assessment. It is proved that the level of business reputation is related to the life cycle of banks, which includes the stages of formation, growth, maturity and decline. Measures to ensure business reputation depending on the stage of development of the bank are considered. Both the business reputation and financial stability are affected by the established image of the bank. The article states that a positive image is able to maintain the bank in times of financial instability. It is determined that depending on the group of users (non-financial corporations, households, government agencies or social organizations) the image of the bank should be different and meet all requirements.It is determined that a modern bank is not only an institution of the financial market, but also a financial institution for which social role and reputation in social and economic relations become the primary criteria for ensuring their competitive position.

Option pricing models without probability: a rough paths approach

AbstractWe describe the pricing and hedging of financial options without the use of probability using rough paths. By encoding the volatility of assets in an enhancement of the price trajectory, we give a pathwise presentation of the replication of European options. The continuity properties of rough‐paths allow us to generalize the so‐called fundamental theorem of derivative trading, showing that a small misspecification of the model will yield only a small excess profit or loss of the replication strategy. Our hedging strategy is an enhanced version of classical delta hedging where we use volatility swaps to hedge the second‐order terms arising in rough‐path integrals, resulting in improved robustness.

The place of reporting in the management of financial results of the enterprise

The purpose of the article is to determine the place and impact of indicators of financial, non-financial and internal reporting on the management of financial results of enterprises. It is determined that the primary cause of significant losses in the activities of enterprises is the global epidemic COVID-19, which reduced economic activity, gave impetus to additional investment and financial incentives. It is proved that in order to increase the efficiency of profitability management, enterprises need to systematically analyze the indicators of financial, non-financial and internal reporting and investigate the factors influencing their importance and make appropriate changes to the financial performance management system. The place of different types of reporting in the process of managing the financial results of the enterprise is considered. In order to obtain the highest quality, objective and true forecast indicators of financial results, a sequence of analysis of indicators based on financial statements has been developed. In order to determine the financial indicators, strengths and weaknesses of the entity and the list of issues that should be disclosed in the internal financial statements, it is proposed to conduct a survey of stakeholders. It is proved that the mechanism of financial results management should be based on special indicators that comprehensively characterize the tax, investment, innovation, social and environmental components of the business model of the entity, which is most fully implemented in integrated reporting. It is proposed to constantly assess the risks that may arise when expecting excess profits from its use and in the event of certain deviations to make appropriate adjustments to financial policy, analyzing the indicators of integrated reporting. A matrix for monitoring the financial reliability of the business model of the business entity has been developed. Factors that significantly affect the financial results of the enterprise are classified according to the following characteristics: attitude to the enterprise (external and internal); time of action (permanent, temporary, past, current and future); content (economic, social and environmental).

At your service! The role of tax havens in international trade with services

This paper provides the first comprehensive study of profit shifting through service trade inside multinational firms. The analysis employs a unique firm-level dataset with detailed information about service trade and foreign affiliates for virtually all multinational firms in Germany. We find patterns consistent with profit shifting in service categories such as intellectual property (patents and trademarks), headquarter services(administration, management and advertizing), information services(data processing and storage) and financial services (investment, lending and money management). In these service categories, trade with affiliates in tax havens is skewed towards imports and the internal service providers in tax havens earn significant excess profits that vary strongly with the value of their internal service sales. These patterns are suggestive that multinational firms operate tax haven entities that sell overpriced services to affiliates in order to erode their taxable profits and reduce the global tax bill. While total service imports from tax havens are very large, our estimates suggest that Germany’s loss of government revenue from mispriced service imports from tax havens is relatively modest, less than € 1 billion per year.

The Case for a Sustainable Excess Profits Tax

Taxes designed to counter unsustainable behaviours that lead to environmental destruction are usually styled as surtaxes on purchase prices. It makes more sense to locate the source of the profits derived from such behaviours and tax them in order to internalize the environmental costs that are currently externalized to current and future societies. Since profit extracted by externalizing environmental risks constitutes economic rent, it could be taxed at high rates without creating inefficiencies. We propose a method for doing so in the form of a “sustainable excess profits tax”—a SEP tax. The tax base of a SEP tax can be constructed by using life cycle analysis methods to identify the portion of corporate profit that is attributable to the externalized environmental costs of production and distribution at all stages of supply chains. We establish the core elements of a SEP tax, demonstrate its theoretical justification, and examine its practical feasibility.See the elevator pitch of this abstract in Tax Papers Unlocked by Break Into Tax here: https://youtu.be/1ei-C4wYBvw.

Time-varying dependence structure between oil and agricultural commodity markets: A dependence-switching CoVaR copula approach

We examine the energy-food nexus using the dependence-switching copula model. Specifically, we look at the dependence for four distinct market states, such as, increasing oil–increasing commodity, declining oil–declining commodity, increasing oil–declining commodity, as well as declining oil–increasing commodity markets. Our results support the argument that the crash of oil markets and agricultural commodities happen at the same time, especially during crisis period. However, the same is not true during times of normal economic conditions, implying that investors cannot make excess profits in both agricultural and oil markets at once. Furthermore, our analysis suggests that the return chasing effect dominates for all commodities on maximum occasions. The CoVaR and ΔCoVaR results indicate important risk spillover from oil to agricultural markets, especially around the financial crisis.

Public housing, intersectoral competition, and urban ground rent: Iran’s first public housing program that never was

This paper investigates the structural political economic drivers of the housing market in urban Iran and the ways in which social and economic dynamics of the housing sector are rooted in peculiarities of Iranian capitalism, characterized by a relatively small public economy, low productivity of capital, and an underdeveloped financial system. The paper examines these processes and mechanisms in the light of the illustrative case of the country’s first and largest state-led housing program, the Mehr Housing Program (MHP). The paper argues that the program’s failure is due primarily to the state’s market-oriented approach toward housing. The MHP’s units were sold at their market prices, and the state subsidized the land to the developers with low rent, facilitating investments. Utilizing an intersectoral and multi-scalar analytical framework, we further argue that what drives the investment is absolute ground rent present in the housing sector due to its labor-intensive character. The high level of rent is due to persistently low profitability in the manufacturing sector and, subsequently, excess profits in construction and housing. Thus, rent-seeking investors tend to invest in housing. These peculiarities of the Iranian economy determined the trajectory and the failure of the MHP as a public housing initiative.

Spot trading strategy considering multiple constraints for electricity retailers

In order to solve the inert trading and irrational trading of electricity retailers in the spot market trading environment, increase the income of electricity retailers and reduce transaction risk, a spot trading strategy considering multiple constraints for electricity retailers is proposed. Similar days are selected by analyzing the date type and the temperature difference of the spot market trading day, on the basis of similar days, the electricity consumption information of electricity retailers’ agent users, day-ahead and real-time electricity price of sport trading market are predicted, combing the user-side excess profit recovery fee, mid-to-long term shortage recovery fee and mid-to-long term curve deviation recovery fee restrictions in Shanxi Province spot trading rules, optimize the mid-to-long term daily 96 points daily electricity purchase curve and day-ahead 96 points daily electricity biding curve, and use the real data of Shanxi spot market transactions to calculate the multi-day income of the electricity retailers to verify the practicability of the spot trading strategies.

Voluntary information disclosure with heterogeneous beliefs

We present a model in which an insider (i.e., manager or CEO) and an informed outsider (i.e., financial analyst or professional) have heterogeneous beliefs on their shared information about a risky asset and analyze the insider's incentive to voluntarily disclose this information to the public. We find that with heterogeneous beliefs the insider and informed outsider exploit their shared information differently and this might give rise to the insider's voluntary disclosure of this shared information to the public to seek excess profits. Specifically, the insider is more likely to release the information to the public when she has a greater relative information advantage than the informed outsider and that the informed outsider is more optimistic in the shared information. Our findings shed light on why some firm insiders prefer to trade against informed outsiders while others prefer to drive informed outsiders out of trading through voluntary disclosure.

Brand Premium and the Quality and Safety of Agricultural Products: Examples from Rice Planting in Jiangsu Province

The quality and safety of agricultural products has always been a long-term problem that plagues the government and academia. Many scholars discuss the possibility of controlling the quality and safety of agricultural products from the external measure of strengthening government supervision of agricultural production and planting, but it is difficult to avoid the embarrassing situation of “supervision failure”. At the same time, due to the decentralized and fragmented characteristics of China’s agricultural operations, the government’s comprehensive supervision on the quality and safety of agricultural products will produce extremely high supervision costs. In this context, exploring the market incentive and restraint mechanism of agricultural product quality and safety control is a hot topic of general concern of the government and academia.Based on the perspective of branding, this paper explores the impact of brand premium on rice quality and safety from the perspective of pesticide application through the theoretical and empirical analysis. The main research conclusions include: Firstly, traditional rice production is still dominated by traditional production and management methods, and the level of branded production is still at a low level as a whole. Secondly, the excess profits brought by brand premium can make up for the externality of agricultural safety production, allowing farmers to generate endogenous prices to encourage high-quality and safe agricultural production, thereby promoting the improvement of agricultural product quality and safety. Finally, there are certain boundary conditions for brand premium to promote the quality and safety of agricultural products. Only when the brand-specific assets restrict the production behavior of farmers, can the brand premium improve the quality and safety of agricultural products to the greatest extent. This paper thinks that in the process of agricultural product branding development, we should focus on the right and responsibility docking of brand subjects, and strengthen the binding effect of brand reputation, so as to give full play to the role of price mechanism in the promotion of agricultural product quality and safety.The innovation of this paper lies in the following three points: Firstly, scholars mostly explore the ways to improve the quality of agricultural products from the aspects of government supervision and the characteristics of farmers’ endowments, but there is a lack of discussion on the marketization mechanism of quality and safety improvement. This paper focuses on the price mechanism to solve the quality and safety problems, and the research perspective has certain novelty. Secondly, the existing discussion on the brand and quality safety of agricultural products lacks in-depth mechanism analysis and corresponding empirical support. This paper adds the correlation analysis of asset specificity and quality and safety cognition, and further clarifies the boundary conditions for brand premium to improve the quality and safety of agricultural products. Thirdly, in the process of analysis, we also pay attention to the differences of brand with different property rights in improving the quality and safety of agricultural products, and the relevant research is more specific and detailed.

On Conflicts between Pharmaceutical Patent Protection and the Right to Life and Health Based on a Stackelberg Game.

To solve the conflict between pharmaceutical patent protection and the right to life, health and increased patient satisfaction, drug prices can be regulated by levying an excess profit tax. An optimal tax strategy was formulated that not only could lower drug prices and improve public health and welfare, but also considers companies’ earnings. The strategy was based on the Stackelberg game theory as a bi-level mathematical model. In the model, the government is the leader, with patient satisfaction as the main goal, and pharmaceutical companies are the followers, with maximum drug revenue as the goal. The results show that under the premise of ensuring sufficient incentives for patent holders, the optimized tax on excess profit can effectively compensate for the shortcomings of pharmaceutical patent protection, alleviate the failure of market regulation of drug prices, improve patient satisfaction, and increase total social welfare.

Do companies in the pharmaceutical supply chain earn excess returns?

Rising drug spending has led to increased calls to curtail drug costs. However, it is unclear where to target policy solutions. We estimated excess returns (the extent to which a firm’s profits are higher than expected given the risk associated with their investments) for manufacturers and middlemen in the pharmaceutical supply chain to determine who is making excessive profits. Excess returns were calculated as the difference between return on invested capital and the expected returns given risk, which is known as the weighted average cost of capital. We compared excess returns for manufacturers and middlemen to the average for S&P 500 companies. We find that both manufacturers and middlemen have higher excess returns in 2013–2018 compared with the S&P 500. However, if we treat research and development (R&D) as an investment rather than an expense, we find that excess returns for pharmaceutical manufacturers are lower than the S&P 500 (1.7% vs. 3.6%), but biotech manufacturers (9.6%), wholesalers (8.1%), and insurers/PBM/retailers (5.9%) continue to have significantly higher excess returns compared to the S&P 500. Our findings suggest public policies that promote competition in all areas of the pharmaceutical supply chain are important avenues for curtailing drug spending.Electronic supplementary materialThe online version of this article (10.1007/s10754-020-09291-1) contains supplementary material, which is available to authorized users.

Funding Implications of Normal and Excessive Profitability in the Nonprofit Sector

We study how nonprofit profitability affects external funding. Using a sample of over 273 thousand U.S. nonprofit organization (NPO) observations between 1999-2019, we find that profitability is associated with greater public support; however, when NPOs are excessively profitable, they receive fewer subsequent donations. We find a similar relationship, but to a smaller degree, between NPO profitability and government grant funding. We infer that funders desire moderate but not overly high profitability. We also find that donors are more tolerant of normal and excessive profitability for NPOs in the healthcare industry, smaller NPOs, and NPOs with shorter planning horizons. The relationship between profitability and external funding is weaker during recession periods, with funders not penalizing excessively profitable organizations during economic downturns.

Corporate Purpose and Corporate Competition

The large American corporation faces ever-rising pressure to pursue a purpose beyond shareholder profit. This rising pressure interacts with changes in industrial organization in a way that has not been comprehensively analyzed and is generally ignored. It’s not just purpose pressure that is rising: firms’ capacities to accommodate that pressure for a wider purpose is rising as well. Three changes in industrial organization are most relevant: the possibility of declining competition, the counter-possibility of increasing winner-take-all competition, and the possibility that the ownership of the big firms has concentrated (even if the firms themselves have not), thereby diluting competitive zeal. Consider competitive decline: In robustly competitive economies, firms cannot deviate much from profit maximization for expensive corporate purpose programs unless they bolster profitability (by branding the firm positively for consumers or by better motivating employees, for example). In economies with slack competition, in contrast, monopolistic and oligopolistic firms can accommodate purpose pressure from their excess profits, redirecting some or much excess profit from shareholders to stakeholders—to customers, employees, or the public good. By many accounts, competition has been declining in the United States. By some accounts, it has declined precipitously. That decline suggests three possibilities: One—the central thesis of this Article— purpose pressure has greater potential to succeed if competition has declined or rents have otherwise grown; in competitive markets, the profit-oriented but purpose-pressured firm has no choice but to refuse the purpose pressure (or to give it only lip service), while in monopolistically-organized industries, the purpose-pressured firm has more room to maneuver. Two, the normative bases undergirding shareholder primacy, although still strong, are less powerful in monopolistic markets. Three, declining corporate competition and rising corporate profits create a lush field for social conflict inside the firm and the polity for shareholders and stakeholders each to seek a share of those profits. The result can infuse basic corporate governance with social conflict, contributing to or exacerbating our rising political and social instability. Expanding purpose pressure is one manifestation of this conflict.

СУЩНОСТЬ ПРИРОДНОЙ РЕНТЫ И РЕАЛИЗАЦИЯ ПРИНЦИПОВ РЕНТНОГО НАЛОГООБЛОЖЕНИЯ В ИНТЕРЕСАХ ПОВЫШЕНИЯ СТИМУЛИРУЮЩЕГО ВОЗДЕЙСТВИЯ НАЛОГОВОГО МЕХАНИЗМА И УСИЛЕНИЯ ЭКОНОМИЧЕСКОЙ БЕЗОПАСНОСТИ ГОСУДАРСТВА

The article analyzes and develops the theoretical views on the category of natural rent in the works of Adam Smith (income exceeding all reasonable costs plus the average profit typical for a given area), David Ricardo (income from the initial and indestructible forces of the soil, the other part of it is paid for the use of capital that was used to improve the quality of the soil and for the construction of buildings), and other economists from land rent (income due to differences in the location and fertility of land) to differential rent II (rental income from additional capital investments) and quasi-rent (rent of machines and equipment), etc. David Ricardo formulated the conditions for the formation and receipt of land rent (lands differ in their location and in their fertility; the number and area of plots that are best in terms of these parameters are limited; lands are privately owned). In turn, Alfred Marshall noted that land rent does not appear as an exclusive phenomenon, but only as one of income sources, among similar ones. In modern conditions, the understanding of rental income is reduced to its interpretation as a profit above the average normal level, that is, excess profit. However, when considering rent as excess profit, the determination of its size is based on a comparison of indicators such as actual and normal profitability rather than land fertility or differences in the depth of occurrence and other natural mining conditions compared with the worst land plot or deposit, and also minerals. The location of land plots, as one of the factors of land productivity affecting land rent, laid the foundation for research in the field of the theory of the location of productive forces. Therefore, in relation to natural (mining) rent, it is necessary to be guided by the classical understanding of it, as income due to objective differences in natural or climatic conditions of agricultural production or subsoil use in comparison with the trailing land plot or deposit. In these conditions, receiving natural rent as income independent of the efforts of the subsoil user (excessive/unearned profit) in favor of the owner of the subsoil, the state, increases the stimulating effect of the tax mechanism in agriculture and the extractive sector of the economy, the efficiency of production and the economy as a whole, and strengthens the national and economic security of the state.

A Structural Model of Market Friction with Time-Varying Volatility

We propose a model of price formation in which the trading price varies only if the value of the information signal is large enough to guarantee a profit in excess of transaction costs. Using transaction data only, we extract: (i) the conditional volatility of the underlying security, which is thus cleaned out by market frictions, (ii) an estimate of transaction costs. Our analysis reveals that, after correcting for frictions, the risk of illiquid securities is substantially different from what predicted by traditional volatility models. Furthermore, in periods of high volatility, our estimate of transaction costs remains highly correlated with bid-ask spreads, whereas alternative illiquidity proxies, such as the fraction of zero returns, loose their explanatory power.

АНАЛІЗ ФІНАНСОВИХ РЕЗУЛЬТАТІВ У СИСТЕМІ ІНФОРМАЦІЙНОГО ЗАБЕЗПЕЧЕННЯ ЕКОНОМІЧНОЇ БЕЗПЕКИ ПІДПРИЄМСТВА

The purpose of the article is to identify areas for improving the analytical management of financial and economic security of the enterprise through the use of a system of indicators that characterize the financial results as indicators of threat assessment of internal and external environment of the enterprise. The article identifies the relationship between financial results and financial security as a component of economic security of economic entities. The concept of profit in the domestic legal framework and international standards of accounting and financial reporting is revealed. The essence of normal profit, lost profit and excess profit, which arise as a result of risky transactions, is highlighted. Measures have been identified to ensure the objectivity of financial performance indicators, which include compliance with the principles of accounting and financial reporting, timely development of accounting policies, compliance with laws and regulations, and the absence of falsifications, errors and fraud in calculating financial results. The composition of information support for the analysis of financial results, which is based on financial, tax and statistical reporting, is determined. It is established that the assessment of the level of financial security is based on the use of methods of analysis based on quantitative and qualitative approaches. The essence of methods of analysis with the use of indicators of financial results is revealed, which allow assessing the level of financial security of the enterprise. The peculiarities of the methodology of analysis of the composition, dynamics and structure of financial results, factor analysis of profit, profitability assessment, analysis of the relationship between financial results and financial security using indicator methods that involve the use of income, expenses and financial results. It is indicated that the indicator methods include the indicator method with the formation of an integrated indicator, the spectral-point method, the multiplicative model of financial security assessment, the model of assessing the probability of bankruptcy. As a result of the review of the specified methods, advantages and disadvantages of their use are defined.

ГРАНИЦІ МОДЕЛІ УПРАВЛІННЯ СТАЛИМ РОЗВИТКОМ РИБНИХ РЕСУРСІВ

The article aims to examine sustainable resource management (SRM) models and provide recommendations for fisheries development based on economic rent analysis. The results of the study revealed that Thailand’s bio-economic model for sustainable resource management does not contribute to a sustainable approach to marine bio-resource management because the sustainability of the fishery economy and society is neglected. The model used does not specify the maximum economic yield (MEY) and other parameters affecting the fisheries sector development and failure to ensure the fair use of marine bio-resources and the creation of national wealth and prosperity. Therefore, the estimation method for fishery rent tax by each fishery area should be shifted to a reasonable total production and solving problems on the difference in catch costs by extracting income from excess profits through the accumulation of surplus rents in the form of a sustainable fisheries fund for the development of future fisheries economy projects.

Research on Energy Internet Management Mechanism from the Perspective of Cooperative Game

Energy is closely related to the overall progress of society and the overall development of mankind. The two major problems of energy shortage and environmental pollution caused by long-term energy use have been plagued by scholars at home and abroad. The proposal of the Energy Internet aims to improve energy utilization efficiency, reduce energy waste, optimize energy allocation, and thereby alleviate environmental pollution.Therefore, the research on energy internet management is of great significance. Starting from the cooperative game theory, this paper combines the Shapley value with energy Internet management, and establishes a model to solve the problem of the distribution of excess profits caused by the joint work of the Energy Internet Alliance, and provides a new research perspective for energy Internet management.

Pandemic Profiteers Exposed: A COVID-19 Pandemic Profits TAx as One Essential Tool to Reverse Inequalities and Rebuild Better Post-Pandemic, Oxfam America

The COVID-19 pandemic has exposed the deep systemic inequalities and massive failures in our economic system, leaving tens of millions of people in the United States without jobs, devastating public services, and bankrupting countless small businesses. Yet as we face our deepest economic downturn since the Great Depression, a subset of companies is experiencing windfall profits. Seventeen of the top 25 most profitable US corporations, including Microsoft, Johnson & Johnson, Facebook, Pfizer, and Visa, are expected to make almost $85 billion more in 2020 super-profits compared to previous years, this research shows. If we continue with business as usual, these windfall profits will not be handed out to workers in wages, won’t be used to lower consumer prices, nor used to pay a bit more in taxes to fund healthcare workers. These profits will be paid to shareholders, a group of largely white, rich men who already control the vast majority of our country’s corporate stock. The wealthiest 10 percent of Americans own 87 percent of all corporate stock in the US, compared to less than 1 percent of shares owned by the bottom half. Racial disparities are even more stark. this paper estimates that 9 out of every 10 dollars of pandemic profits will end up with white Americans in 2020. Black and Latinx families—already disproportionately affected by COVID-19—receive only 16 cents each. COVID-19 presents us with a choice as a society: Do we want to continue distributing our economic resources to the already-wealthy and well-connected, or shall we choose to redeploy this money into the once-in-a-century fight against COVID-19 and the inequalities it brings in its wake? Resurrecting an emergency tax tool used during World War II, this paper estimates that temporarily taxing the excessive profits of the top 25 US companies could raise almost $80 billion annually to re-invest in tackling COVID-19 inequalities across the US and around the world.