Cesar E. A. Virata School of Business

Theses and dissertations submitted to Cesar E. A. Virata School of Business

Items in this Collection

A standard inflation targeting framework assumes the absence of fiscal dominance, and abstracts from the effects of unbalanced fiscal positions and public debt financing. This assumption is relaxed by adding the notion of a fiscal gap into the standard inflation targeting model. The financing of fiscal gaps is assumed to be largely implemented through the creation or retirement of public debt, which then affects the premium levied on Philippine interest and exchange rates in the international and domestic capital markets. A structural model of an inflation targeting framework is specified under the presence of a fiscal gap and public debt. The model is empirically tested for Philippine data using a three stage least squares estimation procedure, and taking note of the impact of the fiscal gap on the output gap, inflation and interest rates. The existence of interest rate rule regimes in the presence of a fiscal gap variable is examined separately through Markov Switching VectorAutoregressive Models.

We find that the fiscal gap significantly impacts on the target variables in the inflation targeting system and directly affects the short term interest rate contrary to the standard assumption of zero fiscal dominance. Furthermore, there is evidence of the existence of interest rate regimes, such that activist fiscal policies in the low output regimes are only effective in the short term, as their impact on interest rates are larger and tend to lead to interest rate increases beyond those intended by the monetary authorities.


The 1991 Local Government Code of the Philippines gave increased revenue-raising and expenditure responsibilities to local government units (LGUs) to enable them to attain their fullest development as self-reliant communities and make them more effective partners in the attainment of national goals. This study examines why, after 25 years, LGUs are still at varied levels of income and development despite the mandate given to local chief executives (LCEs) and locally elected officials. This study uses public expenditure management, organization theory and public choice to understand resource allocation, and the consequent outcomes, at the local government level. Specifically, this research tries to answer the question: How do voter and politician characteristics affect local government decision-making?

Using panel data from the Family Income and Expenditure Survey and the linked Labor Force Survey of 2000 and 2003 and local government fiscal data from the Bureau of Local Government Finance, the essays test two general public choice models that focus on the influence of either voters or a self-interested incumbent politician on local resource allocation and policy. The first essay tests the median voter model that highlights the role of a specific voter in the design of fiscal policy. While evidence is provided in support of the influence of the median voter, evidence cannot rule out other influences on local fiscal decision-making. The second essay examines the effect of an incumbent rent-seeking politician’s characteristics on local government spending priorities and finds that term limits and membership in political dynasties also affect sectoral priorities. Finally, the third essay shows that characteristics of the population, i.e. income inequality, affect public employment policy more than the characteristics of the self-interested incumbent politician. Overall, the study provides evidence that both voter and politician characteristics affect local-government decision-making and, consequently, the state of varied local government income and development.


Regulatory risk is defined as “the risk of operating or investing in a country where regulatory changes may have an adverse impact on earnings or returns”1 and is consistently deemed one of the most significant risks for businesses across the world.2 This may result when a regulator’s risk preferences contradict those of the firm (Strausz, 2011). Research indicates that regulatory changes may affect shareholder wealth (e.g. Greenstone, Oyer, & Vissing Jorgensen (2006)). The effects of regulatory changes may be measured by estimating the abnormal returns associated with the event (OECD, 2009). This paper focuses on the securities regulation, nationalization, and mining sectors which have pervasive effects on all listed firms and/or untapped potential.

In the securities regulation field, the results are generally consistent with extant literature. Initiation of proceedings at the trial court to prosecute insider traders and stock price manipulators are associated with positive returns. Decisions of the Supreme Court on interlocutory matters, or which sustain previous Court of Appeals decisions, were statistically insignificant. Interestingly, the enactment of the Securities Regulation Code resulted in negative returns. Both the launch of the PSE surveillance system and endorsement of the results of stock price manipulation investigation to the Department of Justice did not produce positive abnormal returns.

In the nationalization and mining area, the results are generally consistent with theory. Supreme Court decisions which increased uncertainty and regulatory risk caused negative abnormal returns, while Supreme Court decisions which decreased uncertainty and regulatory risk by causing the regulatory regime to revert to the status quo ante caused positive abnormal returns. Releases of implementing rules drafts did not result in statistically significant effects.


This study examines the empirical evidence about the effects of audit quality on the equity costs of capital of local companies listed in the Philippine Stock Exchange. The study aims to determine if audit opinions provided by independent auditors influence the equity cost of capital of Philippine listed firms. Will an opinion other than unqualified impact the required return of shareholders? Also, different dimensions of audit quality are explored and evaluated if each dimension affects the equity cost of capital of the listed firms included in the study. The audit quality dimensions that were analysed include auditor choice using audit firm size and audit firm switches as proxies, auditor tenure using audit firm tenure and engagement partner rotation as proxies, audit effort and auditor independence. Focusing on listed companies from the Property, Financial nstitutions and Energy & Utilities sectors, a sample of 308 firm-year observations from the period 2004-2011 were included in the study. Using Pooled Ordinary Least Squares and including Company Growth Opportunities, Leverage and Company Size as control variables, various regression models were developed to test the various hypotheses. The results show that proxies for the size of the audit firm and tenure of the firm as auditor are statistically significant. The proxies for the other audit quality dimensions such as audit opinion, partner rotation, auditor independence, audit effort and change in auditors are statistically insignificant. Auditor independence may still be significant given that this is related to audit firm size.

The results of the study may indicate that Auditor Competence is assessed and consequently measured by the stakeholders, stockholders in particular, in their valuation of information risk. Thus, the audit quality variables, Audit Firm Size and Audit Firm Tenure, identified by this study as significant act as signals to the stockholders, or other stakeholders, of the level of credibility of the financial statements that they depend on in making sound economic decisions.


Based on 2012 estimates, 58.7% of the Philippine’s total GDP came from the services sector, an increase of three-percentage points (3%) from the 2010 estimates. As the services industry makes an increasingly larger contribution to the country’s GDP, the quality of services rendered is key to the sustainable growth of the industry. Since service failure occurs despite management efforts to prevent it, appropriate handling of these situations is a crucial part of a company’s business strategy. Service recovery refers to the firm’s action in response to a service failure. This paper attempts to provide answers to the following questions: (1) What are the underlying factors that impact customer satisfaction in a service recovery process? And (2) what managerial practices are important to improve the efforts of restaurant frontline employees as they perform service recovery? A survey was used to gather data to evaluate the actions, attitudes and efforts of the service employee in the recovery attempt and how the performance of the service employee affects the behavioral intentions of the customers. The survey method assumes that all the questions are measured by customer perceptions. Purposive and snowball sampling were used to collect data from 223 respondents used for this study. Structural Equation Modeling path analysis testing showed mixed results. Only seven of the eleven hypotheses were supported. The results show that all the recovery attributes (reliability, responsiveness and assurance) directly affect the satisfaction of the customer in relation to the recovery performance of the service employee. The influence of the service recovery attributes on behavioral intentions (repurchase and word-of-mouth communication) is mediated by the customer’s level of satisfaction with the frontline employee’s recovery performance.

This research extends the concept of service quality in the service recovery field and contributes to the pool of existing knowledge with regards the relationship of service recovery attributes with customer satisfaction and customer satisfaction with behavioral intentions of repurchase and word-of-mouth communication. This research also provides some guidelines to managers and business owners for developing, evaluating and improving service recovery procedures that increase the level of customer satisfaction and enhance customer relationships. These guidelines serve as a checklist of what the frontline employees should be trained to do to guarantee high levels of customer satisfaction with the recovery process, which in turn affects customers’ future behavior of repurchase and recommendation.