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Volume 6 Issue 2 (2012)

Trust, Personal Moral Codes, and the Resource-Advantage Theory of Competition: Explaining Productivity, Economic Growth, and Wealth Creation original article

pp. 4-19 | First published in 28 May 2012 | DOI:10.5709/ce.1897-9254.38

Shelby D. Hunt


Scholars agree that societal-level moral codes that promote social trust also promote wealth creation.  However, what specific kinds of societal-level moral codes promote social trust?  Also, by what specific kind of competitive process does social trust promote wealth creation?  Because societal-level moral codes are composed of or formed from peoples’ personal moral codes, this article explores a theory of ethics, known as the “Hunt-Vitell” theory of ethics, that illuminates the concept of personal moral codes and uses the theory to discuss which types of personal moral codes foster trust and distrust in society.  This article then uses resource-advantage (R-A) theory, one of the most completely articulated dynamic theories of competition, to show the process by which trust-promoting, societal-level moral codes promote productivity and economic growth.  That is, they promote wealth creation.

Keywords: trust, competition, productivity, economic growth, resource-advantage theory, Hunt-Vitell theory

Scaling of Growth Rate Volatility for Six Macroeconomic Variables original article

pp. 20-25 | First published in 25 June 2012 | DOI:10.5709/ce.1897-9254.45

Boris Podobnik, Davor Horvatic, Djuro Njavro, Mato Njavro, H. Eugene Stanley


We study the annual growth rates of six macroeconomic variables: public debt, public health expenditures, exports of goods, government consumption expenditures, total exports of goods and services, and total imports of goods and services. For each variable, we find (i) that the distribution of the growth rate residuals approximately follows a double exponential (Laplace) distribution and (ii) that the standard deviation of growth rate residuals scales according to the size of the variable as a power law, with a scaling exponent similar to the scaling exponent found for GDP [Economics Letters 60, 335 (1998)]. We hypothesise that the volatility scaling we find for these GDP constituents causes the volatility scaling found in GDP data.

Keywords: composite index, complex phenomena, dynamics

Operational Risk, Translation, and Globalization original article

pp. 26-39 | First published in 31 May 2012 | DOI:10.5709/ce.1897-9254.40

Barbara Czarniawska


This paper compares a translation of a global (more specifically, European) regulation into two local contexts, setting this process in a broader context of the all-pervading risk management. The two countries are Sweden and Poland, both relatively untouched by the current financial crisis, and the regulation is Basel II Accord. In both countries, the translation is shaped by the past history, and the present circumstances. The results show that, in spite of local differences, there is a common belief in quantification of risks as the main remedy and therefore the main way of managing them. Abstract and vague formulations, combined with sophisticated calculation techniques, win over the complications of actual practices. The role of researchers in this process is also examined. A study illustrates also the advantages of translation theory versus diffusion theory of spreading of ideas.

Keywords: translation, diffusion, globalization, operational risk, risk management

The Analysis of Nonstationary Time Series Using Regression, Correlation and Cointegration original article

pp. 40-57 | First published in 12 June 2012 | DOI:10.5709/ce.1897-9254.39

Søren Johansen


There are simple well-known conditions for the validity of regression and correlation as statistical tools. We analyse by examples the effect of nonstationarity on inference using these methods and compare them to model based inference using the cointegrated vector autoregressive model. Finally we analyse some monthly data from US on interest rates as an illustration of the methods.

Keywords: regression, correlation, cointegration, model based inference, likelihood inference

Testing the Perturbation Sensitivity of Abortion-Crime Regressions original article

pp. 58-63 | First published in 15 June 2012 | DOI:10.5709/ce.1897-9254.41

Michał Brzeziński, Maria Halber


The hypothesis that the legalisation of abortion contributed significantly to the reduction of crime in the United States in 1990s is one of the most prominent ideas from the recent “economics-made-fun” movement sparked by the book Freakonomics. This paper expands on the existing literature about the computational stability of abortion-crime regressions by testing the sensitivity of coefficients’ estimates to small amounts of data perturbation. In contrast to previous studies, we use a new data set on crime correlates for each of the US states, the original model specifica-tion and estimation methodology, and an improved data perturbation algorithm. We find that the coefficients’ estimates in abortion-crime regressions are not computationally stable and, therefore, are unreliable.

Keywords: abortion, crime, computational stability, perturbation test

Overview of Approaches to Incorporate Dynamics into the Measurement of Complex Phenomena with the Use of Composite Indices original article

pp. 64-73 | First published in 25 June 2012 | DOI:10.5709/ce.1897-9254.42

Anna Łatuszyńska


Composite indices have substantially gained in popularity in recent years. Despite their alleged disadvantages, they appear to be very useful in measuring the level of certain phenomena that are too complex to express with a single indicator. Most rankings based on composite indicators are created at regular intervals, such as every month, every quarter or every year. A common approach is to base rankings solely on the most current values of single indicators, making no reference to previous results. The absence of dynamics from such measurements deprives studies of information on change in these phenomena and may limit the stability of classifications.This article presents the possibility of creating reliable, dynamic rankings of measured items and measuring the complex phenomena with the use of composite indices. Potential solutions are presented on the basis of a review of the international literature. Some advantages and disadvantages of the presented solutions are described and an example of a new approach is shown.

Keywords: composite index, complex phenomena, dynamics

Investor Reaction to Mandatory Offers on the Warsaw Stock Exchange original article

pp. 74-83 | First published in 26 June 2012 | DOI:10.5709/ce.1897-9254.44

Szymon Okoń


The following paper aims to assess investor reaction to mandatory offers on the Warsaw Stock Exchange, which is important because knowledge about these reactions can be used to make better investment decisions. This paper highlights the importance of procedure in making a mandatory offer and its grounds in the Polish legal system. Additionally, it presents empirical research on the reactions of investors to mandatory offers on the Warsaw Stock Exchange. It has been provided that mandatory offers have a significant impact on the price of a company’s shares listed on the Warsaw Stock Exchange. Knowledge about the reactions of investors to a mandatory offer may be used when selecting securities for an investment portfolio. The findings may provide guidance in deciding whether to begin or end investment in the company, both for individual and institutional investors. The event study methodology approach used in the paper is regarded as valuable and can be the basis for further research in other areas of the capital market research, especially in the context of information efficiency.

Keywords: mandatory offer, event study, investors’ reactions

The Role of Hybrid Instruments in the Implementation of Business Tax Policy original article

pp. 84-90 | First published in 13 June 2012 | DOI:10.5709/ce.1897-9254.43

Dominik Gajewski


The purpose of this article is the presentation of issues related to hybrid instruments. We will primarily focus on the analysis of various aspects of hybrid instruments and entities. The use of these instruments produces fairly significant tax implications that have specific effects on the holdings of capital group companies operating worldwide, and these companies therefore frequently use hybrid instruments to optimise their tax policies. This study identifies numerous issues that may be critical to these firms when designing an optimal tax policy, without losing sight of the fact that fiscal policy is an essential determinant of the financial standing of a company. In particular, this article discusses the tax consequences of various policies given the different tax systems used in the European Union countries, focusing upon the specific conditions and implications of the Polish tax system.

Keywords: income tax, hybrid instruments, hybrid entities.