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Reviews previous research on the links between business failures, macroeconomic conditions and insolvency law; and develops a mathematical, econometric model to investigate them further, using 1996‐1998 UK data. Presents and discusses the results, which suggest that the 1986 Insolvency Act did help to reduce the overall level of business failures and estimates that it saved 1100 companies from bankruptcy in the first three years after implementation. Finds that interest rates, price levels, levels of business formation, credit conditions and profit levels also affect business failure rates.

This paper investigates the performance characteristics of Turkish private and state‐owned commercial banks for the 1986– 1990 period. The link between interest margins and maturity structures of bank asset and liabilities is specified. Empirical evidence indicates that banks with longer positions experienced lower interest margins, a finding consistent with the presence of a downward sloping yield curve during most of this period. The results document that bank margins suffered after the financial reforms of 1988. Further, compared to private banks, state‐owned banks exhibited lower interest margins and longer maturities, which is a direct consequence of portfolio constraints and management style of banks.

The relationship between airports and airlines is very interesting from an economics perspective, and analysis of this relationship is wide open for new research endeavors. For instance, airport and airline interactions can be viewed as a zero-sum game of deciding, say, airport landing charges, while at the same time both entities have an incentive making a joint effort to enhance their ability to generate passenger demand and to contribute to growing regional economies. Within this theoretical framework, their relationship consists of not only a binary choice of conflict or cooperation, but also suggests the possibility of complex mixtures of conflict and cooperation. While understanding the interdependence of airports and airlines is an important issue in transportation economics, research examining the complexity of airport and airline relationships is relatively new to the field. This chapter contributes to this research area, in part, by introducing one very interesting example of an airport and airline relationship that considers an element of conflict and cooperation. Specifically, this chapter examines the economic consequences of a risk sharing contract. Analysis of the risk sharing contract recognizes the relevance of microeconomic theories, such as contract theory and principal–agent theory and reveals how these concepts can be applied to traditional transport economics. Predictions of risk sharing between airlines and airports using these theories are derived using numerical examples. Findings reveal that the risk-sharing agreement based on the Noto Airport Load Factor Guarantee Mechanism (LFGM) contract enables the airport side and the airline side not only to share the monetary consequences of demand fluctuation, but also to secure air flights from a local airport to Tokyo, to jointly enhance their various demand-inducing efforts, and to increase their utilities in order to meet the common target they set in the contract. With the LFGM contract, both sides have consistently maintained the air transport network in a relatively low demand area for more than 10 years without significant outside financial assistance. The findings from this chapter also contribute to better understanding the complex relationships among aviation entities, to the recognition of importance and potential to design properly the airport and airline contract, and to the advancement of economic and public policy analysis of this sector.

The relationship between airline and airport is complex, fascinating, and wide open for new research endeavors. In Volume 6 of the series, we conducted the analyses of risk-sharing contract between airline and airport from numerical risk balance assessment and incomplete contract theory perspectives based on an interesting real example of risk-sharing contracts, the Noto Airport Load Factor Guarantee Mechanism (LFGM) contract in Japan.

In this chapter, we further advance the analyses of risk-sharing contracts, based on the real example of Noto LFGM contract, from the perspectives of game theory and principal-agent theory. The risk-sharing arrangements, such as LFGM contract, are relevant to the rapidly changing business environment in Asia’s aviation industries.

We conduct a two-stage game analysis. The first phase is the contract negotiation phase and the second phase is the effort-making phase after signing the contract. We show that the two parties can attain a Pareto optimal utility level by bargaining a simple linear risk-sharing contract in the contract negotiation phase based on the equilibrium effort levels in the effort-making phase.

This study analyzes small-sized asset owners’ optimal choice problems in selecting an outsourced chief investment officer (OCIO). While large-sized asset owners can select OCIOs through procurement auctions, it is difficult for small-sized asset owners to use this method. Instead, they access OCIO services by participating in an investment pool or utilizing OCIO funds. In this study, the authors compare the two OCIO selection methods. The authors construct an agent-based model for OCIO selection to reflect the heterogeneity in production efficiency and preferences. The results of this study imply that when the market has enough investment pools, the utility of all small-sized asset owners increases. To enhance the growth in the OCIO market, the investment pool should represent the preferences of small-sized asset owners and enable individual owners to find an appropriate OCIO.

In recent times, high demand for cloud-based services has led to substantial focus in extant literature from technological and business perspectives. However, the prevailing market imperfections have not drawn much interest. This study aims to emphasize on potential sources of market imperfections from new institutional economics (NIE) perspective and attempts to bring forth the importance of public policy in cloud computing ecosystem.

This study takes a review-based deductive approach to present a set of propositions which highlight potential causes leading to suboptimal performance of cloud-based services.

Lack of clarity around ownership and property rights, high asset specificity, existence of information asymmetry and bounded rationality of the provider and consumer, lead to higher transaction cost for providers and consumers, discouraging participation. This would lead to moral hazard and adverse selection and create market imperfections. Appropriate contractual guidelines, standards, legal framework and policy measures will reduce the risk of such imperfections.

As the focus of the study is to forward the propositions and not to empirically test them, future researchers can adopt data-driven studies to validate those propositions.

To ensure equity in the cloud-market, government and industry bodies should work towards enabling both the small and large players to use cloud-based services efficiently and effectively. Appropriate public policy measures can help remove potential market imperfections, encourage better participation and adoption of cloud-based services.

This study identifies potential market imperfections in cloud computing ecosystem through the lens of the theoretical frameworks of NIE.

Through portfolio diversification, the author identifies the risk sharing deposit contract in a three-period model that maximizes the ex ante expected utility of depositors.

In this paper, the author extends the study by Allen and Gale (1998) by adding a long-term riskless investment opportunity to the original portfolio of a short-term liquid asset and a long-term risky illiquid asset.

Unlike Allen and Gale, there are no information-based bank runs in equilibrium. In addition, the model can improve consumers' welfare over the Allen and Gale model. The author also shows that the bank will choose to liquidate the cheaper investments, in terms of the gain-loss ratios for the two types of existing long-term assets, when there is liquidity shortage in some cases. Such a policy reduces the liquidation cost and enables the bank to meet the outstanding liability to depositors without large liquidation losses.

The author believe that the reader would be interested in this article because it is relevant to real world where depositors rush to withdraw their deposits from a bank if there is negative information about future prospect of the bank asset portfolio and bank investment. Economists and financial analysts need to determine the suitable mechanism to improve the stability of the bank and the depositor welfare.

Clawback provisions entitle shareholders to recover previously awarded incentive compensation after the discovery of accounting manipulation or misconduct. The author evaluates the impact of clawback enforcement heterogeneity on the horizon of executive compensation.

The author provides empirical tests to evaluate the impact of clawback adoption decisions. The author deals with the endogeneity of clawback adoption decisions through an instrumental variables strategy that exploits the transmission of governance choices within firms’ networks.

While the author finds that clawback adoption reduces the frequency of accounting manipulation, this reduction is accompanied by heterogeneous effects on the horizon of executive pay across firms. Clawback adopters with high director independence, high leverage, high managerial termination payments and low executive ownership tilt their compensation toward the short-term.

The results, robust to alternative specifications, suggest that clawbacks allow strong-enforcement firms to tilt compensation toward the short-term, offsetting some of the direct manipulation disincentives generated by the clawback. The stock market reacts positively to the adoption in firms with weak enforcement, suggesting that clawbacks significantly reduce the managers’ rent-extraction capacity.

Using a novel empirical and identification approach, the results suggest that clawbacks allow strong-enforcement firms to tilt compensation toward the short-term, offsetting some of the direct manipulation disincentives generated by the clawback.

It is well known that a player in a non-cooperative game can benefit by publicly restricting his possible moves before play begins. We show that, more generally, a player may benefit by publicly committing to pay an external party an amount that is contingent on the game’s outcome. We explore what happens when external parties – who we call “game miners” – discover this fact and seek to profit from it by entering an outcome-contingent contract with the players. We analyze various structured bargaining games among such miner(s) and players that determine such an outcome-contingent contract before the start of the original game. These bargaining games include playing the players against one another as in the original game, as well as allowing the players to pay the miner(s) for exclusivity and first-mover advantage. We establish restrictions on the strategic settings in which a game miner can profit and bounds on the game miner’s profit. We also find that game miners can lead to both efficient and inefficient equilibria.

The purpose of this study is to understand the profit-sharing structure at equilibrium of the two-tier mudharaba contract in a pure Islamic banking system and then in a dual banking system.

This paper aims to better understand the profit-sharing structure at the equilibrium of the two-tier mudharaba. It first assumes a purely Islamic banking system and then introduces a risk-free asset to simulate trade-off opportunities in a dual banking system.

First, by using a model inspired from a neoclassical framework and assuming that the Islamic banks are the only channel for financing the economy, the results suggest that the profit-sharing structure built up by the three parties, the bank, the depositor and the entrepreneur, at the time of signing the Mudharaba contract has to be drawn up in the way that, at the ex post, the remuneration of each necessary production factor, capital and labor, should equal its marginal productivity. Second, the authors relax the hypothesis of a purely Islamic financial system and introduced a risk-free asset in favor of the depositor. Thereby, the authors are able to apprehend the financial balance of the two-tier mudharaba contract by simulating the trade-offs that can occur in a dual banking system. The findings suggest that the profit-sharing structure is not the same whether we are at the level of bank assets (bank–entrepreneur relationship) or liabilities (bank–depositor relationship). For the asset side, an increase (respectively decrease) in the expected profit of the mudharaba implies a decrease (respectively increase) in the share of the bank, whereas an increase (respectively decrease) in the return of the risk-free asset and/or the risk underlying the project implies an increase (respectively decrease) of the bank’s share in the expected profit.

Theoretical work that has studied the determinants of the ratio of profit sharing between capitalists and entrepreneurs in the context of mudharaba has omitted that this contract should be assessed at both asset and liability sides of the bank. To overcome this theoretical gap, this paper aims to better understand the structure of profit sharing at the equilibrium of the two-tier mudharaba, while taking into account the contractual specificities between the different stakeholders.