Impact Of Wealth Research Articles

The impact of wealth on financial mistakes: Evidence from credit card non-payment

Recent research finds that poorer individuals make financial mistakes when the decisions are difficult and rare. We examine who makes financial mistakes involving decisions that are easier and more frequent – specifically, the inadvertent failure to pay monthly credit card balances when sufficient funds are available. On the one hand poorer individuals may make such mistakes because of lower levels of financial literacy. Alternatively, richer individuals may make such mistakes because of the relatively lower costs to them of such mistakes. We examine this question using confidential individual credit card statement data, with over a million data points. Our results show that poorer individuals are more likely to make these mistakes, even after controlling for education.

The Impact of Wealth on the Cognitive Development of Children Who Were Preterm Infants

: The purpose of this study was to explore the influence wealth has on cognitive development in 2-year-old children who were born preterm, and to determine whether racial/ethnic differences in wealth explained disparities in cognitive development. : A nationally representative sample of 1400 children who were born between 22 and 36 weeks' gestation. : Cohort study. : Secondary data analysis of the Early Childhood Longitudinal Survey-Birth Cohort (ECLS-B). The ECLS-B was a prospective national longitudinal study of infants born in the United States during the calendar year 2001 drawn from birth certificates in the United States. : The impact wealth (parental homeownership and investments) had on cognitive development at 2 years and whether wealth eliminated the cognitive disparity seen between white, African American, and Hispanic children. : Wealth (homeownership and investments) did not have an independent effect on cognitive development, but it did eliminate the disparity between white children and African American children (P ≥ .05). However, wealth did not eliminate the disparity in cognitive development between white children and Hispanic children. Hispanic children scored 3.91 points lower than white children (P ≤ .001). : In contrast to other follow-up studies showing persistent differences in cognitive development between white children and African American children, this study found that wealth indicators attenuated the difference. Wealth may be a more accurate proxy for socioeconomic status in studying factors influencing cognitive outcomes in children born preterm than just using measures such as maternal education and income. In future follow-up studies of multiracial preterm children, indicators that represent wealth should be included for an accurate representation of social economic status.

Inequality, Intergenerational Mobility and Redistributive Policies under Endogenous Information

This paper presents a dynamic model to study how different levels of information about the root determinants of wealth (luck versus effort) can impact inequality and intergenerational mobility through societal beliefs, individual choices and redistributive policies. To my knowledge, the model presented is the first dynamic model in which skills are stochastic and both beliefs and voted redistribution are determined endogenously. The model is able to explain a number of empirical facts. Large empirical evidence shows that the difference in the political support for redistribution appears to reflect differences in the social perceptions regarding the determinants of individual wealth and the underlying sources of income inequality. Moreover the beliefs about the determinants of wealth impact individual choices of effort and therefore the beliefs about the determinants of wealth impact inequality and mobility both through choices of effort and redistributive policies. The model generates multiple equilibria (US versus Europe-type) which may account for the observed features not only in terms of societal beliefs and redistribution but also in terms of perceived versus real mobility and inequality.

Inequality of Credit Opportunities

This paper investigates the impact of heterogeneous wealth on credit allocation from an egalitarian opportunity and an efficiency point of view. Under asymmetric information on both wealth and the responsibility variable there is no trade-off between equality and efficiency, actually wealth inequality delivers both inequality of opportunity and inefficiency. Due to decreasing absolute risk aversion, poor entrepreneurs, other things equal, realize better projects. This notwithstanding, due to the bidimensional hidden information, they may be rationed out or obtain a loan only at the cost of cross subsidizing bad projects realized by rich entrepreneurs. In the first case inefficiency arises in the form of insufficient investment, in the second in the form of inefficient projects being realized. An egalitarian redistribution of endowments may lead to perfect screening, no inefficiencies in the allocation of credit and equality of opportunity.

Oil Wealth and Non-oil Sector Performance in a Developing Country: Evidence from Cameroon

This paper provides the first econometric evidence on the impact of oil wealth on Cameroon's economy. In contrast to previous descriptive analyses, this paper reports that the oil boom had a positive effect on the traditional, non-oil sector in Cameroon and that the oil sector does not appear to have been responsible for the country's economic crisis or its consequences. In fact, oil wealth helped halt the decline in the non-oil sector that began before the oil boom. However, subsequent falls in oil production and oil prices were highly damaging to the economy. Consequently, the entire structure of Cameroon's economy, which is supported by growth in natural resources, comes into question, not management of the oil boom per se. This paper questions the timing of economic reforms in a resource-based country. It concludes that these reforms should be made during boom periods, when a country has enough resources to overcome the social problems that occur during structural reforms and when the country is in a position gradually to undertake such reforms.

Resource windfalls, innovation, and growth

This paper explores the connection between resource abundance and innovation, as a transmission mechanism that can elucidate part of the resource curse hypothesis, i.e. the observed negative impact of resource wealth on income growth. We develop a variation of the Ramsey-Cass-Koopmans model with endogenous growth to explain the phenomenon. In this model, consumers trade off leisure versus consumption, and firms trade off innovation efforts versus manufacturing. We show that an increase in resource income frustrates economic growth in two ways: directly by reducing work effort and indirectly by inducing a smaller proportion of the labor force to engage in innovation.

Parental wealth and resource transfers: How they matter in France for home ownership and living standards

The role played by parental wealth in facilitating the life chances and living standards of offspring is a topic of growing interest in stratification research. For working and middle class households much of their intervivos transfers to children is provided in the form of assistance with a home purchase. This paper examines the impact of parental wealth and transfers of wealth on several aspects of the homeownership decision – the timing of the purchase, the cost of the home, and the downpayment proportion, as well as living standards subsequent to the purchase. We utilize a unique data set from France which contains information on parental wealth and wealth transfers from both sets of parents of a couple. We correct for possible endogeneity of parental transfers and model the joint determination of the downpayment proportion and home value. The results make clear the complex pathways by which parental wealth influences the tenancy arrangements and living standards of offspring.

BOND MARKET REACTION TO STOCK REPURCHASES: IS THERE A WEALTH TRANSFER EFFECT?

We reexamine the bondholder wealth impact of stock repurchases with a focus on the wealth transfer effect. We do not detect any transfer of wealth from bondholders to shareholders surrounding open market stock repurchases. For the overall sample (1994–2002), using daily data we document a significant decrease in bond yields surrounding repurchase announcements. Subsamples classified by attributes that capture wealth transfer propensity also do not reveal evidence consistent with a wealth transfer effect. Correlation analysis between bond and stockholder wealth effects similarly is not supportive of a wealth transfer effect. Contrary to the wealth transfer hypothesis, we document a greater proportion of bond rating upgrades than downgrades in the three months following a repurchase announcement. Our results are robust to alternate bond price data and event return methodology.

NATURAL RESOURCES ENDOWMENT AND ECONOMIC GROWTH: THE WEST AFRICAN EXPERIENCE

This study aims at investigating the nexus between natural resource endowment and economic growth using a sample of West African countries. The study adopted a Barrow-type growth model to analyse the impact of natural resource wealth on economic growth. A dynamic panel estimation technique was employed using relevant data from West African Countries. The results from the panel regressions indicate that natural resource endowments have very minimal impact in terms of promoting economic growth in West Africa, more so in resource rich countries. In terms of relative effects, the results indicate that a 10% increase in natural resource export reduces growth in income per capita by approximately 0.4%. Part of the factors explaining this finding amongst others; include high corruption in the public sector as well as the frequency of civil conflicts in resource rich economies of West Africa. For the natural resources of the region to fully benefit its citizens, these countries require , urgently, to improve management of natural resource export revenues and to apply effective policy measures to eradicate/ mitigate incidences of rampant corruption in the public sector.

The informational relevance of corporate social responsibility: evidence from DS400 index reconstitutions

AbstractThis study examines the relationship between corporate social responsibility and financial performance by analyzing the intra‐industry wealth impact of additions and deletions to the Domini Social 400 index. Results from the event study analysis indicate that additions to the index generate a positive share price response for the announcement firm and a negative response by rival firms. The opposite reaction is observed for index deletions. Additionally, the share price response is more pronounced for informationally opaque industries. Our study highlights the importance of external monitoring agencies in providing meaningful information that helps resolve investor uncertainty regarding the quality of a firm's relationships with its primary stakeholders. Copyright © 2011 John Wiley & Sons, Ltd.

Public pension and household saving: Evidence from urban China

We relate household savings to pension reform, to explain the high household savings rates in urban China from a new perspective. We use the exogenous – policy-induced – variation in pension wealth to estimate explicitly the impact of pension wealth on household savings, and obtain evidence of a significant offset effect of pension wealth on household savings. Although the size of the effect depends on the parameter values assumed, the finding that household savings are affected by pension reform is robust. Our estimates show that, under plausible scenarios, pension reform boosted household savings rates in 1999 by about 6–9 percentage points for cohorts aged 25–29 and by about 2–3 percentage points for cohorts aged 50–59. Our results also indicate that declining pension wealth reduces expenditure on education and health more than on other consumption items.

Mapping the global digital divide

The global digital divide as a concept is intuitively understood by most academicians, politicians and public policy makers. However, to date little empirical work exists to explain differences in per country access to information and communication technologies (ICTs). The research that does exist places heavy influence on the impact of country wealth, as measured by gross domestic product (GDP) per capita, on the diffusion of ICTs. While GDP per capita certainly influences the diffusion of ICTs within a country, it is not the sole determinant of a country's location versus other countries vis-a-vis the global digital divide. To investigate and map the global digital divide, as it currently exists, the authors utilise model-based cluster analysis to determine cohorts of countries based on three variables: personal computers per 100 population, internet users per 100 population and internet bandwidth per person. The results indicate that the global digital divide consists of four tiers. And although all of the developed countries are included in the first tier, some surprising results are obtained. Implications of the results are discussed and directions for future research are provided.

Wealth impact of cross-border US acquisitions of Chinese firms

Do US firms gain value by buying Chinese firms? This study investigates the wealth impact of mergers and acquisitions' announcements on US firms involved in cross-border acquisitions of 204 Chinese firms from 1999 to 2007. The empirical findings show that US firms experienced statistically significant wealth gains on the announcement day, though they are primarily concentrated in transactions involving divested targets. An analysis of wealth gains with respect to industry affiliation indicates that acquisitions in the Chinese manufacturing and services sectors experience the greatest wealth gains. In contrast, acquisitions in the financial sector result in a loss of wealth. Among the factors influencing wealth gains were the undervaluation of the yuan, favourable Chinese economic conditions, positive sales growth rates and financial slack of the acquiring firms.

Persistent performance and interaction effects in sequential cross-border mergers and acquisitions

This study examines the short-term wealth impact of cross-border mergers and acquisitions (M&As) by acquiring companies in 70 countries between the years of 1978 and 2008. We find persistent stock performance in sequential cross-border M&As; that is, the acquiring firms that gained positive (negative) abnormal returns in previous cross-border acquisitions are more likely to experience positive (negative) abnormal returns in subsequent cross-border acquisitions. The persistency of the stock performance is stronger in situations when the elapsed time between the sequential acquisitions is shorter. We find that the persistent stock performance is affected by investor sentiment as well as the choice of cash payments in the sequential cross-border M&As. We do not find that the acquiring firm's operating performance affects the persistency of the stock performance.

Spousal Health Shocks and the Timing of the Retirement Decision in the Face of Forward-Looking Financial Incentives

A long and still growing strand of the retirement literature examines the role financial incentives play in the timing of the retirement decision. A more recent second strand of work has focused on the role of health shocks in the retirement decision. This paper combines these two components of the literature in order to measure the marginal impact of current wealth (including pension accrual), forward-looking financial incentives (peak-value pension wealth), and health shocks on married individuals’ retirement decision. This paper helps to clarify whether previously omitted forward-looking financial incentives can explain the strong role attributed to health shocks in the retirement decisions of coupled individuals. We find that financial incentives are the most important determinant of retirement behavior empirically. A husband is about half as responsive to his wife’s financial incentives as he is to his own. Interestingly, we find that married men are responsive to their wives’ health shocks, on both the intensive and extensive margin, but find wives’ decisions concerning work are largely unaffected by their husbands’ health shocks.

Money Giveth, Money Taketh Away

This study provides the first evidence that money impairs people’s ability to savor everyday positive emotions and experiences. In a sample of working adults, wealthier individuals reported lower savoring ability (the ability to enhance and prolong positive emotional experience). Moreover, the negative impact of wealth on individuals’ ability to savor undermined the positive effects of money on their happiness. We experimentally exposed participants to a reminder of wealth and produced the same deleterious effect on their ability to savor as that produced by actual individual differences in wealth, a result supporting the theory that money has a causal effect on savoring. Moving beyond self-reports, we found that participants exposed to a reminder of wealth spent less time savoring a piece of chocolate and exhibited reduced enjoyment of it compared with participants not exposed to wealth. This article presents evidence supporting the widely held but previously untested belief that having access to the best things in life may actually undercut people’s ability to reap enjoyment from life’s small pleasures.

Association of Socioeconomic Status and CKD Among African Americans: The Jackson Heart Study

Socioeconomic status (SES) is recognized as a key social environmental factor because it has implications for access to resources that help individuals care for themselves and others. Few studies have examined the association of SES with chronic kidney disease (CKD) in high-risk populations. Single-site longitudinal population-based cohort. Data for this study were drawn from the baseline examination of the Jackson Heart Study. The analytic cohort consisted of 3,430 African American men and women living in the tricounty region of the Jackson, MS, metropolitan area with complete data to determine CKD status. High SES (defined as having a family income at least 3.5 times the poverty level or having at least 1 undergraduate degree). CKD (defined as the presence of albuminuria or decreased estimated glomerular filtration rate [<60 mL/min/1.73 m(2)]). Associations were explored using bivariable analyses and multivariable logistic regression analyses adjusting for CKD and cardiovascular disease risk factors, as well as demographic factors. The prevalence of CKD in the Jackson Heart Study was 20% (865 of 3,430 participants). Proportions of the Jackson Heart Study cohort with albuminuria and decreased estimated glomerular filtration rate were 12.5% (429 of 3,430 participants) and 10.1% (347 of 3,430 participants), respectively. High SES was associated inversely with CKD. The odds of having CKD were 41% lower for affluent participants than their less affluent counterparts. There were no statistically significant interactions between sex and education or income, although subgroup analysis showed that high income was associated with CKD in men (OR, 0.47; 95% CI, 0.23-0.97), but not women (OR, 0.64; 95% CI, 0.40-1.03). Models were estimated using cross-sectional data. CKD is associated with SES. Additional research is needed to elucidate the impact of wealth and social contexts in which individuals are embedded and the mediating effects of sociocultural factors.

Loss aversion, asymmetric market comovements, and the home bias

Loss aversion has been used to explain why a high equity premium might be consistent with plausible levels of risk aversion. The intuition is that the first-order-different utility impact of wealth gains and losses leads loss-averse investors to behave similarly to investors with high risk aversion. But if so, should those agents not perceive larger gains from international diversification than standard expected-utility investors with plausible levels of risk aversion? They might not, because comovements in international stock markets are asymmetric: correlations are higher in market downturns than in upturns. This asymmetry dampens the gains from diversification relatively more for loss-averse investors. We analyze the portfolio problem of such an investor who has to choose between home and foreign equities in the presence of asymmetric comovement in returns. Perhaps surprisingly, in the context of the home bias puzzle we find that loss-averse investors behave similarly to those with standard expected-utility preferences and plausible levels of risk aversion. We argue that preference specifications that appear to perform well with respect to the equity premium puzzle should be subjected to this “test”.

HIV, poverty and women

This review examines the interactions of financial status and HIV and its implications for women. MEDLINE and Google scholar were searched using the keywords 'women', 'poverty' and 'HIV' in any field of the article. The search was limited to articles published in English over the last 10 years. The first section of the article tries to establish whether poverty or wealth is a risk factor for HIV. There is credible evidence for both arguments. While wealth shows an increased risk for both sexes, poverty places women at a special disadvantage. The second section explains how the financial status interacts with other 'non biological' factors to put women at increased risk. While discrimination based on these factors disadvantage women, there are some paradoxical observations that do not fit with the traditional line of explanation (e.g. paradoxical impact of wealth and education on HIV). The final section assesses the impact of HIV in driving poverty and the role of women in interventional programmes. The specific impact of poverty on females in families living with HIV is less explored. Though microfinance initiatives to empower women are a good idea in theory, the actual outcome of such a programme is less convincing.

Late-Twentieth-Century Fertility Decline in Moldova: Interplay of Female Autonomy, Wealth, and Education

The aim of this article is to empirically assess the impact of female decision-making autonomy, educational attainment, and wealth on risks of having low-parity births and fertility preferences in the Republic of Moldova. The empirical analysis uses data from the 2005 Moldova Demographic and Health Survey. Hazard modeling is applied to study the transition to first, second, and third birth, while logistic regression is used to model desire for children. Considered for the first time are female decision-making autonomy measures, indicators that are essential in evaluating premises of gender equity theory. The main focus of the analysis is to assess the relative importance of female decision-making autonomy, education, and wealth for the timing of fertility, odds of having low-parity births, and desired fertility in Moldova.