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This study investigates which expectation formation mechanism governs Eurozone firms regarding their expectations on external finance availability.

In this study, we link consecutive surveys from the Survey on the Access to Finance of Enterprises to bring new evidence on how non-financial corporations shape their expectations on external finance availability.

In line with the past literature, we demonstrate that the data reject the Rational Expectations hypothesis, and we find evidence in favor of the Adaptive Expectation mechanism.

This is the first study studying firms' expectations of external finance availability, implementing survey data of firms' expectations from the SAFE database on a country level. The formation of firm expectations is vital in directing policymakers in designing appropriate monetary policies, as both the employment and inflation targets of central banks around the world are highly dependent on the firm-level decision process.

Empirical work in macroeconomics almost universally relies on the hypothesis of rational expectations (RE).

This chapter departs from the literature by considering a variety of alternative expectations formation models. We study the econometric properties of a popular New Keynesian monetary DSGE model under different expectational assumptions: the benchmark case of RE, RE extended to allow for “news” about future shocks, near-RE and learning, and observed subjective expectations from surveys.

The results show that the econometric evaluation of the model is extremely sensitive to how expectations are modeled. The posterior distributions for the structural parameters significantly shift when the assumption of RE is modified. Estimates of the structural disturbances under different expectation processes are often dissimilar.

The modeling of expectations has important effects on the ability of the model to fit macroeconomic time series. The model achieves its worse fit under RE. The introduction of news improves fit. The best-fitting specifications, however, are those that assume learning. Expectations also have large effects on forecasting. Survey expectations, news, and learning all work to improve the model's one-step-ahead forecasting accuracy. RE, however, dominate over longer horizons, such as one-year ahead or beyond.

Much of the literature in organizational change has taken a single approach to explain employee expectation formation regarding the outcomes of a change event. A conceptual model is developed to integrate two existing streams of research (the information effects approach and the social effects approach) and to develop a comprehensive picture of outcome expectation formation. We propose that information and social effects function simultaneously to shape an employee's outcome expectations. The strength and content consistency of information and social effects jointly determine what people expect regarding change outcomes and how confident they feel about those expectations. Implications are discussed in terms of setting the boundaries for information and social effects as well as future research directions.

Because clustering of organizational activities in space induces – and at the same time emerges from patterns of imperfect connectivity among interacting agents, the study of geography and strategy necessarily hinges on assumptions about how agents are linked. Spatial structure matters for the evolutionary dynamics of organizations because social systems are prime examples of connected systems, i.e. systems whose collective properties emerge from interaction among a large number of component micro-elements. Starting from this proposition, in this paper we explore the value of the claim that a wide range of interesting organizational phenomena can be represented as the outcome of processes that occur in overlapping local neighborhoods embedded in more general network structures. We document how patterns of spatial organization are sensitive to assumptions about the range of local interaction and about expectation formation mechanisms that induce temporal interdependence in agents’ choice. Within the lattice world that we define we discover a concave relation between the sensitivity of individual agents to new information (cognitive inertia) and system-level performance. These results provide experimental evidence in favor of the general claim that the evolutionary dynamics of social systems are directly affected by patterns of spatial organization induced by network-based activities.

This chapter examines a class of interest rate rules that respond to public expectations and to lagged variables. Varying levels of commitment correspond to varying degrees of response to lagged output and targeting of the price level. If the response rises (unintentionally) above the optimal level, the outcome deteriorates severely. Hence, the optimal level of commitment is sensitive to the method of expectations formation and partial commitment is the robust, optimal policy. The policymaker should adjust the price level toward a target, but complete adjustment is neither necessary nor desirable.

The paper aims to test the rational‐expectations hypothesis using data from the Chinese stock market.

The rational‐expectations hypothesis plays a critical role in economic and financial studies. However, it is unclear whether this hypothesis is consistent with real‐world decision making since existing empirical results are mixed. This paper tests the hypothesis directly using survey data from China's stock market by developing a technique to analyze discrete or limited independent‐variable models.

The paper shows that in China's stock market survey forecasts are overly optimistic, especially with positive information, and can be improved slightly using past information.

The paper develops a technique to analyze the discrete or limited independent‐variable model. Testing with Chinese stock market data provides some insights into the characteristics of emerging markets.

The purpose of this paper is to test the hypothesis that the nationality of ownership affects investment through its interaction with return expectations and cash flow and to answer the question whether this is due to asymmetric information or managerial discretion problems.

Asymmetric information and managerial discretion hypothesis are being tested in a fully extended model, which provides for a variety of effects from the explanatory variables. The paper also uses firm and industry variables to account for the investment opportunities or marginal q instead of using the average Q. Using industrial variables instead of stock market data enables the possibility to extend the sample to cover a more representative sample of firms and especially a group of firms where financial constraints are expected to be more profound. Another aspect of the paper is that the ownership variable varies with the nationality of the shareholders of the firm and not with the shareholdings of the managers. This means that the paper restricts its search in two sub‐samples, those of domestic firms and of foreign (multinational) ones.

In total, 2,700 domestic and foreign (multinational) manufacturing firms located in Greece in the 1992‐1997 period were examined, providing consistent evidence supporting the asymmetric information hypothesis against the managerial discretion hypothesis. These results also support the significance of ownership effects, at least with respect to the national origin of the firm's shareholders.

This paper provides evidence that the nationality of ownership affects the investment behavior and is related with the specific information problems of the firms.

This chapter investigates the predictability of the European monetary policy through the eyes of the professional forecasters from a large investment bank. The analysis is based on forward-looking Actual and Perceived Taylor Rules for the European Central Bank which are estimated in real-time using a newly constructed database for the period April 2000–November 2009. The former policy rule is based on the actual refi rate set by the Governing Council, while the latter is estimated for the bank’s economists using their main point forecast for the upcoming refi rate decision as a dependent variable. The empirical evidence shows that the pattern of the refi rate is broadly well predicted by the professional forecasters even though the latter have foreseen more accurately the increases rather than the policy rate cuts. Second, the results point to an increasing responsiveness of the ECB to macroeconomic fundamentals along the forecast horizon. Third, the rolling window regressions suggest that the estimated coefficients have changed after the bankruptcy of Lehman Brothers in October 2008; the ECB has responded less strongly to macroeconomic fundamentals and the degree of policy inertia has decreased. A sensitivity analysis shows that the baseline results are robust to applying a recursive window methodology and some of the findings are qualitatively unaltered from using Consensus Economics forecasts in the regressions.

The goal of this paper is twofold. First, to examine the role of expectations in shaping agents' behaviour within an extended time frame which incorporates a prolonged harsh downturn of economic activity. Therefore, the authors allow for an indirect impact of economy-wide expectations operating via their coexistence with firms' balance sheet factors. Second, it is tested whether the behaviour of listed firms as regards to debt follows the pecking order theory.

The authors use the panel data methodology in the estimation of the financial structure models since unobservable heterogeneity is an important determinant towards the target leverage. A fixed effects estimation procedure, with robust intercepts allowed to vary across firms, was employed to examine the relationship between leverage and performance.

The findings offer evidence of patterns of pecking order behaviour and thus for the necessity of internal financing over external debt. The authors also extended the set of determinants by investigating the effect of macroeconomic conditions on the debt decision of firms. Contrary to the authors’ expectations, short-run beliefs of economic agents appear to play a negative role in leverage.

This paper contributes to the literature in a number of ways. First, following the growing literature of loan dynamics, the findings provide useful insights into corporate capital structure decisions in an economy in which businesses were almost excluded from external financing for over a decade. Second, in order to better understand corporate financing decisions, it is necessary to consider the overall economic framework in which companies and especially the listed ones operate.