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Article
Publication date: 1 January 1997

Richard J. Cebula

Using Cointegration Tests, Granger‐Causality Tests, and OLS, this study empirically investigates the determinants of the rate of return on savings and loan assets over the…

Abstract

Using Cointegration Tests, Granger‐Causality Tests, and OLS, this study empirically investigates the determinants of the rate of return on savings and loan assets over the 1965–1991 period. It is found that it is determined by the mortgage rate, the capital/asset ratio, the price of imported crude oil, the cost of deposits, and the ceiling on federal deposit insurance.

Details

Studies in Economics and Finance, vol. 17 no. 2
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 4 April 2016

Richard J. Cebula, Fabrizio Rossi, Fiorentina Dajci and Maggie Foley

The purpose of this study is to provide new empirical evidence on the impact of a variety of financial market forces on the ex post real cost of funds to corporations…

Abstract

Purpose

The purpose of this study is to provide new empirical evidence on the impact of a variety of financial market forces on the ex post real cost of funds to corporations, namely, the ex post real interest rate yield on AAA-rated long-term corporate bonds in the USA. The study is couched within an open-economy loanable funds model, and it adopts annual data for the period 1973-2013, so that the results are current while being applicable only for the post-Bretton Woods era. The auto-regressive two-stage least squares (2SLS) and generalized method of moments (GMM) estimations reveal that the ex post real interest rate yield on AAA-rated long-term corporate bonds in the USA was an increasing function of the ex post real interest rate yields on six-month Treasury bills, seven-year Treasury notes, high-grade municipal bonds and the Moody’s BAA-rated corporate bonds, while being a decreasing function of the monetary base as a per cent of gross domestic product (GDP) and net financial capital inflows as a per cent of GDP. Finally, additional estimates reveal that the higher the budget deficit as a per cent of GDP, the higher the ex post real interest rate on AAA-rated long-term corporate bonds.

Design/methodology/approach

After developing an initial open-economy loanable funds model, the empirical dimension of the study involves auto-regressive, two-stage least squares and GMM estimates. The model is then expanded to include the federal budget deficit, and new AR/2SLS and GMM estimates are provided.

Findings

The AR/2SLS and GMM (generalized method of moments) estimations reveal that the ex post real interest rate yield on AAA-rated long-term corporate bonds in the USA was an increasing function of the ex post real interest rate yields on six-month Treasury bills, seven-year Treasury notes, high-grade municipal bonds and the Moody’s BAA-rated corporate bonds, while being a decreasing function of the monetary base as a per cent of GDP and net financial capital inflows as a per cent of GDP. Finally, additional estimates reveal that the higher the budget deficit as a per cent of GDP, the higher the ex post real interest rate on AAA-rated long -term corporate bonds.

Originality/value

The author is unaware of a study that adopts this particular set of real interest rates along with net capital inflows and the monetary base as a per cent of GDP and net capital inflows. Also, the data run through 2013. There have been only studies of deficits and real interest rates in the past few years.

Details

Journal of Financial Economic Policy, vol. 8 no. 1
Type: Research Article
ISSN: 1757-6385

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Article
Publication date: 6 November 2017

Richard Cebula, James E. Payne, Donnie Horner and Robert Boylan

The purpose of this paper is to examine the impact of labor market freedom on state-level cost of living differentials in the USA using cross-sectional data for 2016 after…

Abstract

Purpose

The purpose of this paper is to examine the impact of labor market freedom on state-level cost of living differentials in the USA using cross-sectional data for 2016 after allowing for the impacts of economic and quality of life factors.

Design/methodology/approach

The study uses two-stage least squares estimation controlling for factors contributing to cost of living differences across states.

Findings

The results reveal that an increase in labor market freedom reduces the overall cost of living.

Research limitations/implications

The study can be extended using panel data and alternative measures of labor market freedom.

Practical implications

In general, the finding that less intrusive government and greater labor freedom are associated with a reduced cost of living should not be surprising. This is because less government intrusion and greater labor freedom both inherently allow markets to be more efficient in the rationalization of and interplay with forces of supply and demand.

Social implications

The findings of this and future related studies could prove very useful to policy makers and entrepreneurs, as well as small business owners and public corporations of all sizes – particularly those considering either location in, relocation to, or expansion into other markets within the USA. Furthermore, the potential benefits of the National Right-to-Work Law currently under consideration in Congress could add cost of living reductions to the debate.

Originality/value

The authors extend the literature on cost of living differentials by investigating whether higher amounts of state-level labor market freedom act to reduce the states’ cost of living using the most recent annual data available (2016). That labor freedom has a systemic efficiency impact on the state-level cost of living is a significant finding. In our opinion, it is likely that labor market freedom is increasing the efficiency of labor market transactions in the production and distribution of goods and services, and acts to reduce the cost of living in states. In addition, unlike previous related studies, the authors investigate the impact of not only overall labor market freedom on the state-level cost of living, but also how the three sub-indices of labor market freedom, as identified and measured by Stansel et al. (2014, 2015), impact the cost of living state by state.

Details

Journal of Entrepreneurship and Public Policy, vol. 6 no. 3
Type: Research Article
ISSN: 2045-2101

Keywords

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Article
Publication date: 30 October 2019

Richard J. Cebula, Christopher M. Duquette and G. Jason Jolley

Influences on the pattern of internal migration in the US, including economic factors, quality-of-life factors and public policy variables have been extensively studied by…

Abstract

Purpose

Influences on the pattern of internal migration in the US, including economic factors, quality-of-life factors and public policy variables have been extensively studied by regional scientists since the early 1970s. Interestingly, a small number of studies also address the effects of economic freedom on migration. The purpose of this paper is to add to the migration literature by examining the impact of labor market freedom on both gross and net state in-migration over the study period 2008–2016.

Design/methodology/approach

This study uses dynamic panel data analysis to investigate the impact of labor market freedom on both gross and net state in-migration over the study period 2008–2016.

Findings

The panel generalized method of moments analysis reveals that overall labor market freedom exercised a positive and statistically significant impact on both measures of state in-migration over the study period. The study finds a 1 percentage point increase in the overall labor market freedom index results in a 2.8 percent increase in the gross in-migration rate.

Research limitations/implications

The findings imply states interested in attracting migrants and stimulating economic growth should pursue policies consistent with increased labor freedom.

Originality/value

The emphasis in the present study is on the impact of labor market freedom on state-level in-migration patterns, both gross and net, over a contemporary time period that includes both the Great Recession and subsequent recovering.

Details

Journal of Entrepreneurship and Public Policy, vol. 9 no. 1
Type: Research Article
ISSN: 2045-2101

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Article
Publication date: 1 August 2016

Richard J. Cebula, Wendy Gillis, S. Cathy McCrary and Don Capener

This study aims to identify factors influencing the bank failure rate in the USA over the period from 1970 to 2014 with an emphasis on economic/financial factors on the…

Abstract

Purpose

This study aims to identify factors influencing the bank failure rate in the USA over the period from 1970 to 2014 with an emphasis on economic/financial factors on the one hand and on banking legislation on the other hand. Regarding the latter, this study empirically investigates four major banking statutes: the Community Reinvestment Act of 1977; the Depository Institutions Deregulation and Monetary Control Act of 1980; the Federal Deposit Insurance Corporation Improvement Act of 1991; and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. After adopting the technique of generalized method of moments (GMM), a robustness check in the form of autoregressive conditional heteroskedasticity (ARCH) is undertaken. Overall, the estimations imply that the bank failure rate was a decreasing function of the percentage growth rate of real gross domestic product (GDP) and the real interest rate yields on both three-month US Treasury bills and 30-year fixed-rate mortgages and an increasing function of the real cost of funds. In addition, there is strong evidence that the bank failure rate was increased by provisions in the Community Reinvestment Act of 1977 and the Depository Institutions Deregulation and Monetary Control Act of 1980, whereas the bank failure rate was decreased as a result of provisions in the Federal Deposit Insurance Corporation Improvement Act of 1991 and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Finally, there also is evidence that higher federal budget deficits elevated the bank failure rate.

Design/methodology/approach

After modeling the bank failure rate as a function of financial/economic variables and banking legislation, the times series from 1970 to 2014 is estimated by GMM and then by the ARCH techniques.

Findings

The results of the GMM and ARCH estimations imply that the bank failure rate in the US was a decreasing function of the percentage growth rate of real GDP as well as the real interest rate yields on both three-month US Treasury bills and 30-year fixed-rate mortgages and an increasing function of the real cost of funds. Furthermore, there is strong empirical support indicating that the bank failure rate was elevated by various provisions in the Community Reinvestment Act of 1977 and in the Depository Institutions Deregulation and Monetary Control Act of 1980, while the bank failure rate was reduced by certain provisions in the Federal Deposit Insurance Corporation Improvement Act of 1991 and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. There also is evidence that higher federal budget deficits increased the bank failure rate.

Originality/value

This study is the most contemporary (1970-2014) analysis of potential causes of the bank failure rate in the USA. The study also may be the first to apply the GMM and GARCH models to the problem. Also, some interesting policy implications are provided in the Conclusion.

Details

Journal of Financial Economic Policy, vol. 8 no. 3
Type: Research Article
ISSN: 1757-6385

Keywords

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Article
Publication date: 17 October 2019

Richard Cebula

The purpose of this study is to empirically investigate the impact of aggregate federal personal income tax evasion on the real interest rate yield on 10-year Treasury…

Abstract

Purpose

The purpose of this study is to empirically investigate the impact of aggregate federal personal income tax evasion on the real interest rate yield on 10-year Treasury notes, 20-year Treasury bonds and 30-year US Treasury bonds.

Design/methodology/approach

An open-economy loanable funds model is developed, with income tax evasion expressly included in the specification in the form of the AGI (adjusted gross income) gap and the ratio of unreported AGI to actual AGI, expressed as a per cent.

Findings

The empirical estimations reveal compelling evidence that income tax evasion thus measured acts to elevate the real interest rate yields on 10-year Treasury notes and both 20-year and 30-year Treasury bonds, raising the possibility of a tax evasion-induced form of “crowding out”.

Research limitations/implications

Ideally, tax evasion data for a longer time period would be very useful.

Practical implications

To the extent that greater federal personal income tax evasion yields a higher interest rate yield on 10-year, 20-year and 30-year Treasury debt issues, it is likely that the tax evasion will also elevate other interest rates in the economy.

Social implications

Higher interest rates resulting from tax evasion would likely slow-down macroeconomic growth and accelerate unemployment.

Originality/value

Neither the tax evasion literature nor the interest rate literature has ever considered the impact of tax evasion behavior on long-term interest rates.

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Article
Publication date: 24 May 2018

Richard Cebula and Usha Nair-Reichert

This study investigates the impact of federal income tax rates and budget deficits on the nominal interest rate yield on high-grade municipal tax-free bonds (municipals…

Abstract

Purpose

This study investigates the impact of federal income tax rates and budget deficits on the nominal interest rate yield on high-grade municipal tax-free bonds (municipals) in the US. The 58-year study period covers the years 1959 through 2016 and thus is very recent.

Design/methodology/approach

The study develops a loanable funds model that allows for various financial market factors. Once developed, the model is estimated by autoregressive two-stage least squares, with a Newey-West heteroskedasticity correction.

Findings

The nominal interest rate yield on municipals is a decreasing function of the maximum marginal federal personal income tax rate and an increasing function of the federal budget deficit (expressed as a per cent of GDP). This yield is also an increasing function of nominal interest rate yields on three- and ten-year treasury notes and expected inflation.

Research limitations/implications

When introducing additional interest rates such as treasury bills as explanatory variables, multi-collinearity becomes a serious problem.

Practical implications

This study indicates that lower maximum federal personal income tax rates and larger federal budget deficits, both act to raise borrowing costs for cities (of all sizes), counties and states across the country. Given the study period of 58 years, these relationships appear to be enduring ones that responsible policy-makers should not overlook.

Social implications

Tax reform and debt management need to be conducted in a very circumspect fashion.

Originality/value

No recent study investigating the impact of the two key policy variables in this study has been published.

Details

Journal of Financial Economic Policy, vol. 10 no. 3
Type: Research Article
ISSN: 1757-6385

Keywords

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Article
Publication date: 2 May 2017

Don Capener, Richard Cebula and Fabrizio Rossi

To investigate the impact of the federal budget deficit (expressed as a per cent of the Gross Domestic Product, GDP) in the US on the ex ante real interest rate yield on…

Abstract

Purpose

To investigate the impact of the federal budget deficit (expressed as a per cent of the Gross Domestic Product, GDP) in the US on the ex ante real interest rate yield on Moody’s Baa-rated corporate bonds and to provide evidence that is both contemporary and covers an extended time period, namely, 1960 through 2015.

Design/methodology/approach

The analysis constructs a loanable funds model that involves a variety of financial and economic variables, with the ex ante real interest rate yield on Moody’s Baa-rated long-term corporate bonds as the dependent variable. The dependent variable is contemporaneous with the federal budget deficit and two other interest rate measures. Accordingly, instrumental variables are identified for each of these contemporaneous explanatory variables. The model also consists of four additional (lagged) explanatory variables. The model is then estimated using auto-regressive, i.e., AR(1), two-stage least squares.

Findings

The principal finding is that the ex ante real interest rate yield on Moody’s Baa rated corporate bonds is an increasing function of the federal budget deficit, expressed as a per cent of GDP. In particular, if the federal budget deficit were to rise by one per centage point, say from 3 to 4 per cent of GDP, the ex ante real interest rate would rise by 58 basis points.

Research limitations/implications

There are other time-series techniques that could be applied to the topic, such as co-integration, although the AR(1) process is tailored for studying volatile series such as interest rates and stock prices.

Practical/implications

The greater the US federal budget deficit, the greater the real cost of funds to firms. Hence, the high budget deficits of recent years have led to the crowding out of investment in new plant, new equipment, and new technology. These impacts lower economic growth and restrict prosperity in the US over time. Federal budget deficits must be substantially reduced so as to protect the US economy.

Social/implications

Higher budget deficits act to reduce investment in ew plant, new equipment and new technology. This in turn reduces job growth and real GDP growth and compromises the health of the economy.

Originality/value

This is the first study to focus on the impact of the federal budget deficit on the ex ante real long term cost of funds to firms in decades. Nearly all related studies fail to focus on this variable. Since, in theory, this variable (represented by the ex ante real yield on Moody’s Baa rated long term corporate bonds) is a key factor in corporate investment decisions, the empirical findings have potentially very significant implications for US firms and for the economy as a whole in view of the extraordinarily high budget deficits of recent years.

Details

Journal of Financial Economic Policy, vol. 9 no. 02
Type: Research Article
ISSN: 1757-6385

Keywords

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Article
Publication date: 29 July 2021

Richard Cebula and Fabrizio Rossi

This study mathematically aims to evaluate the implications of a central bank’s adoption of a policy of quantitative easing (QE)/relative QE.

Abstract

Purpose

This study mathematically aims to evaluate the implications of a central bank’s adoption of a policy of quantitative easing (QE)/relative QE.

Design/methodology/approach

It is shown, within an investment-savings (IS)-liquidity preference-money supply (LM) framework, that this policy prerogative has, depending upon the aggressiveness which QE is undertaken, demonstrable implications for the conditions under which macroeconomic stability exists.

Findings

Furthermore, it is shown here that the presence of QE increases the effectiveness of traditional discretionary monetary and fiscal policies.

Originality/value

The study shows, within an IS-LM framework, that this policy prerogative has, depending upon the aggressiveness which QE is undertaken, demonstrable implications for the conditions under which macroeconomic stability exists.

Details

Journal of Financial Economic Policy, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1757-6385

Keywords

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Article
Publication date: 13 February 2018

Fabrizio Rossi, Robert Boylan and Richard J. Cebula

The purpose of this study is to investigate the relationship between financial decisions and ownership structure by using the control contests on a sample of Italian…

Abstract

Purpose

The purpose of this study is to investigate the relationship between financial decisions and ownership structure by using the control contests on a sample of Italian listed companies.

Design/methodology/approach

The analysis adopts a balanced panel data set of 984 firm-year observations for the period of 2002-2013, with estimation using a generalized method of moments.

Findings

The results appear to confirm both the hypotheses of the alignment of interests and the entrenchment effect. The entrenchment and alignment effects are not found to be alternatives but rather are found to co-exist. The presence of a coalition of minority shareholders acts as a tool to control agency costs, particularly when the coalition is instrumental in the contestability of corporate control.

Practical implications

These findings suggest that minority shareholders may have a larger impact than previously identified by strategically aligning with other shareholders to form coalitions. This study provides several practical implications. First, dividend payout is not necessarily a good instrument to control and monitor agency costs. This is because the payout can be used to expropriate benefits from the minority shareholders. Second, high ownership concentration does not always reduce agency costs. Third, a non-collusive coalition can be more useful in the monitoring of agency costs than other tools, such as the debt level.

Originality/value

This study shows that there is considerable value to the firm when individual blockholders come together in a contestable environment and become instrumental in making business decisions. The results support the contention that contestability is an excellent deterrent to dampen the expropriation of benefits to minority shareholders. This study also provides evidence that cash holding can be a good substitute for dividends and debt in the effort to limit agency costs.

Details

Corporate Governance: The International Journal of Business in Society, vol. 18 no. 3
Type: Research Article
ISSN: 1472-0701

Keywords

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