Is the Interest Rate Channel still working? Post-Crisis Evidence from German SMEs

Using a unique dataset from German small and medium-sized enterprises (SMEs), we test whether pessimistic business expectations have impeded the functioning of the interest rate channel during the post-crisis period. We estimate firms’ user cost elasticity of capital for the period 2008–2015, and test whether this elasticity differs for firms that hold pessimistic business expectations compared with those that hold positive expectations. Our results show that SMEs have significantly responded to changes in the user cost of capital during the post-crisis period. However, the results are mainly driven by SMEs that hold positive business expectations. Firms having neutral or negative expectations depict a much smaller user cost elasticity, which is not statistically different from zero. Our results reveal the limitations of an expansionary monetary policy and confirm the important role that expectations play for firms’ investment decisions.

Cost Efficiencies in the Management of Commodity Mutual Funds

This article examines the determinants of cost efficiencies in the U.S. commodity mutual fund industry from 2001 to 2016. Empirical results show that cost increases in the U.S. commodity mutual fund industry have been less than proportional to increases in fund assets, pointing to economies of scale for the industry. Average cost elasticity varies by fund size, existence of 12b-1 fees, load versus no-load funds, and institutional versus retail funds. Funds without a 12b-1 plan show larger economies of scale than funds with a 12b-1 plan. Institutional funds show greater economies of scale than retail funds since 2010.

Markup and Cost Dispersion across Firms: Direct Evidence from Producer Surveys in Pakistan

Researchers typically invoke theoretical assumptions to estimate mark-ups. Instead, we directly obtain mark-ups by surveying Pakistani soccer-ball producers. We document six facts: (i) Mark-ups are more dispersed than costs; (ii) Mark-ups and costs increase with firm size; (iii) The mark-up elasticity with respect to size exceeds the cost elasticity; (iv) Costs increase with size because larger firms use higher-quality inputs; (v) Larger firms charge higher mark-ups because they have higher production shares of high-quality balls that carry higher mark-ups, and because they charge higher mark-ups conditional on ball type; (vi) Correlations suggest marketing efforts are important for generating higher mark-ups.

Unraveling the Black Box of Cost Behavior: An Empirical Investigation of Risk Drivers, Managerial Resource Procurement, and Cost Elasticity

ABSTRACT This paper extends prior literature on cost behavior by providing insights into how firms achieve changes to cost structure in response to two important risk drivers, i.e., demand uncertainty and financial risk. Using theory from labor economics, supply-chain management, and finance, we posit that demand uncertainty and financial risk influence cost management activities. Specifically, we argue that firms are likely to alter resource procurement choices to increase cost elasticity in response to these two risk drivers. We use data from California hospitals that allow for the calibration of three distinct resource procurement choices that increase cost elasticity: outsourcing, leasing of equipment, and hiring contract labor. Mediation analysis using 2,202 hospital year observations indicates that both demand uncertainty and financial risk influence cost elasticity. Importantly, these effects are mediated by the three aforementioned resource procurement choices. Overall, our findings support the view that firms make procurement choices to manage the risk associated with cost structures. Data Availability: Data used in this study are publicly available from the Office of Statewide Health Planning and Development (see: http://www.oshpd.ca.gov/). JEL Classifications: I18; M41.