DSpace Community: Stern School of Business

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Youth, Adolescence, and Maturity of Banks: Credit Availability to Small Business in an Era of Banking Consolidation

Thu, 09 Oct 1997 22:58:59 GMT

Title: Youth, Adolescence, and Maturity of Banks: Credit Availability to SmallBusiness in an Era of Banking Consolidation

DeYoung, Robert; Goldberg, Lawrence G.; White, Lawrence J.

Abstract: This paper address the relationship between the aging process at new andrelatively young banks and the tendency of banks to make loans to smallbusinesses. Defining small business loans as C&I loans that areunder $1 million in size, we analyze a sample of banks that had assetsof less than %500 million in assets for the years 1993-1996 and thatwere 25 years of age or younger.

You Can't Take It With You: Sunset Provisions for Equity Compensation When Managers Retire, Resign, or Die

Wed, 28 Nov 2007 22:58:59 GMT

Title: You Can't Take It With You: Sunset Provisions for Equity CompensationWhen Managers Retire, Resign, or Die

Dahiya, Sandeep; Yermack, David

Abstract: Company stock option plans have diverse “sunset” policiesfor modifying terms of options held by managers who exit the firm. Inour S&P 500 sample, these forfeiture, vesting, and expirationprovisions are less generous in companies characterized by fast growth,dependence on skilled human capital, and high strategic interaction withcompetitors. While these results apply for workers who retire at the endof their careers, almost no variation exists in the treatment of workerswho resign with the possibility of working elsewhere. We show that thesefeatures of firms’ option plans directly impact managementturnover. For CEOs over age 60, companies’ sunset rules implylarge discounts to option award values and estimates of totalcompensation. The authors appreciate helpful comments from ManuelAmmann, Patrick Bolton, Jennifer Carpenter, Don Chance, Stephen Choi,John Core, Joan Heminway, Tracie Woidtke, and seminar participants atChinese University Hong Kong, Fordham University, Georgetown University,Mannheim University, University of St. Gallen, University of Tennessee,and the Gerzensee European Summer Symposium in Financial Markets.

You Can't Take It With You: Sunset Provisions for Equity Compensation When Managers Retire, Resign, or Die

Tue, 29 Aug 2006 22:58:59 GMT

Title: You Can't Take It With You: Sunset Provisions for Equity CompensationWhen Managers Retire, Resign, or Die

Dahiyaa, Sandeep; Yermack, David

Abstract: Company stock option plans have diverse “sunset” policiesfor modifying terms of options held by managers who exit the firm. Inour S&P 500 sample, these forfeiture, vesting, and expirationprovisions are less generous in companies characterized by fast growth,dependence on skilled human capital, and high strategic interaction withcompetitors. We show that these features of firms’ option plansdirectly impact management turnover, early exercise of stock options,and the availability of data about early exercises. For CEOs over age60, companies’ sunset rules generally imply large discounts tooption award values and estimates of total compensation. The authorsappreciate helpful comments from Manuel Ammann, Patrick Bolton, JenniferCarpenter, Don Chance, Stephen Choi, John Core, Joan Heminway, TracieWoidtke, and seminar participants at Georgetown University, MannheimUniversity, University of St.Gallen, University of Tennessee, and theGerzensee European Summer Symposium in Financial Markets.

WWW sivujen tietosis¨all¨on louhiminen

Sat, 29 Dec 2007 22:58:59 GMT

Title: WWW sivujen tietosis¨all¨on louhiminen

Vuorinen, Matti; Blomqvist, Kati; Ahonen, Veli-Pekka; Tani, Antti; Jokinen, Sakari

Would Stricter Capital Requirements Raise the Cost of Capital? Bank Capital Regulation and the Low Risk Anomaly

Fri, 15 Mar 2013 20:17:04 GMT

Title: Would Stricter Capital Requirements Raise the Cost of Capital? BankCapital Regulation and the Low Risk Anomaly

Baker, Malcolm; Wurgler, Jeffrey

Abstract: Capital requirements for banks must balance a number of factors,including any effects on the cost of capital and in turn the ratesavailable to borrowers. Standard theory predicts that, in perfect andefficient capital markets, reducing banks’ leverage would reducethe risk and cost of their equity but leave the overall weighted averagecost of capital unchanged. We test these two predictions empirically. Weconfirm that the equity of better-capitalized banks has both lowersystematic risk (beta) and lower idiosyncratic risk. However, over thelast 40 years in the United States, lower risk banks have higher stockreturns on a risk-adjusted or even a raw basis, a pattern consistentwith a stock market anomaly previously documented in other samples. Asimple calibration using historical data suggests that a tenpercentage-point increase in Tier 1 capital to risk-weighted assetswould have increased the weighted average cost of capital by between 60and 90 basis points per year. In competitive lending markets, a changeof this magnitude would have doubled or tripled spreads, because bankasset betas implied an average risk premium of only 40 basis pointsabove Treasury yields over that same period.

WORKFLOW AND ORGANIZATIONAL UNIT: AN EMPIRICAL COMPARISON OF ANALYSIS PERSPECTIVES

Thu, 29 May 1986 22:58:59 GMT

Title: WORKFLOW AND ORGANIZATIONAL UNIT: AN EMPIRICAL COMPARISON OF ANALYSIS PERSPECTIVES

Sasso, William C.

Abstract: Many processes, techniques, tools, methodologies, and approaches claimto facilitate the process of information systems development, but littleempirical validation in support of these claims has been publiclyreported. This research addresses this shortcoming in two ways. First,it develops and applies a promising experimental design for thecomparison of systems analysis techniques. The design's objective was toexternal validity of experimental findings while maintaining highdegrees of control and comparability. Secondly, our design, the"transcript experiment," was used to evaluate two versions ofan analysis procedure. This paper both presents and evaluates thetranscript experiment as a research design and reports the results of anactual experiment. The study we report investigated the impact of aparticular factor in the systems analysis process, which we termanalysis perspective. After elaborating a (partial) theory of systemsanalysis enabling us to predict the impact of different analysisperspectives on (1) the analysis process, (2) the content of reports itproduces, and (3) the utility of the analystsâ recommendations,we compared the influences of two particular perspectives, the workflowperspective and the organizational unit perspective. We observedsignificant differences in subject behavior in acquiring informationduring the analysis process, but the data were inconclusive with respectto our predictions concerning the content of reports and the utility ofsubjectsâ recommendations. Finally, we noted a strong negativecorrelation between the number of recommendations produced by a subjectand the degree to which he documented the current system. We term thiscorrelation the descriptive/prescriptive tradeoff, and feel it deservesfurther study, as it may invalidate a number of widely-held assumptionsconcerning the systems design process.

Will Outsourcing IT Security Lead to a Higher Social Level of Security?

Sun, 29 Oct 2006 22:58:59 GMT

Title: Will Outsourcing IT Security Lead to a Higher Social Level of Security?

Brent Rowe

Why Wait? A Century of Life Before IPO

Tue, 31 Dec 2002 22:58:59 GMT

Title: Why Wait? A Century of Life Before IPO

Jovanovic, Boyan; Rousseau, Peter L.

Why Pay More? Why Charge Less?

Wed, 29 Oct 2003 22:58:59 GMT

Title: Why Pay More? Why Charge Less?

Xue Bai

Why Has House Price Dispersion Gone Up?

Mon, 30 Oct 2006 22:58:59 GMT

Title: Why Has House Price Dispersion Gone Up?

Van Nieuwerburgh, Stijn; Weill, Pierre-Olivier

Abstract: We investigate the 30 year increase in the level and dispersion of houseprices across U.S. metropolitan areas in a calibrated dynamic generalequilibrium island model. The model is based on two main assumptions:households °ow in and out metropolitan areas in response to localwage shocks, and the housing supply cannot adjust instantly because ofregulatory constraints. In our equilibrium, house prices compensate forcross-sectional wage differences. Feeding in our model the 30 yearincrease in cross-sectional wage dispersion that we document based onmetropolitan-level data, we generate the observed increase in houseprice level and dispersion. The calibration also reveals that, while abaseline level of regulation is important, a tightening of regulation byitself cannot account for the increase in house price level anddispersion: in equilibrium, workers °ow out of tightly regulatedtowards less regulated metropolitan areas, undoing most of the priceimpact of additional local supply regulations. Finally, the calibrationwith increasing wage dispersion suggests that the welfare effects ofhousing supply regulation are large.

Why Has CEO Pay Increased So Much?

Thu, 20 Jul 2006 22:58:59 GMT

Title: Why Has CEO Pay Increased So Much?

Gabaix, Xavier; Landier, Augustin

Abstract: This paper develops a simple equilibrium model of CEO pay. CEOs havedifferent talents and are matched to firms in a competitive assignmentmodel. In market equilib-rium, a CEO’s pay changes one for onewith aggregate firm size, while changing much less with the size of hisown firm. The model determines the level of CEO pay across firms andover time, offering a benchmark for calibratable corporate finance. Thesix- fold increase of CEO pay between 1980 and 2003 can be fullyattributed to the six-fold increase in market capitalization of large UScompanies during that period. We find a very small dispersion in CEOtalent, which nonetheless justifies large pay differences. The databroadly support the model. The size of large firms explains many of thepat-terns in CEO pay, across firms, over time, and between countries.(JEL D2, D3, G34, J3).

Why Does Capital Structure Choice Vary With Macroeconomic Conditions?

Thu, 30 Nov 2000 22:58:59 GMT

Title: Why Does Capital Structure Choice Vary With Macroeconomic Conditions?

Levy, Amnon

Abstract: This paper develops a calibrated model that explains the pronouncedcounter-cyclical leverage patterns observed for firms that access publiccapital markets, and relates these patterns to debt and equity issues.Moreover, it explains why leverage and debt issues do not exhibit thispronounced behavior for firms that face more severe constraints whenaccessing capital markets. In the model, managers issue a combination ofdebt and equity to finance investment by weighting the trade-off betweenagency problems and risk sharing. During contraction, leveraged managersreceive a relatively small share of wealth, resulting in a relativeincrease in household demand for securities. Securities markets clear asmanagers that are not up against their borrowing constraints increaseleverage while satisfying the agency condition that they maintain alarge enough portion of their firm's equity.

Why Does Capital Structure Choice Vary With Macroeconomic Conditions?

Thu, 30 Nov 2000 22:58:59 GMT

Title: Why Does Capital Structure Choice Vary With Macroeconomic Conditions?

Levy, Amnon

Abstract: This paper develops a calibrated model that explains the pronouncedcounter-cyclical leverage patterns observed for firms that access publiccapital markets, and relates these patters to debt and equity issues.Moreover, it explains why leverage and debt issues do not exhibit thispronounced behavior for firms that face more severe constraints whenaccessing capital markets. In the model, managers issue a combination ofdebt and equity to finance investment by weighing the trade-off betweenagency problems and risk sharing. During contractions, leveragedmanagers receive a relatively small share of wealth, resulting in arelative increase in household demand for securities. Securities marketsclear as managers that are not up against their borrowing constraintsincrease leverage while satisfying the agency condition that theymaintain a large enough portion of their firm’s equity.

Why Does Capital Structure Choice Vary With Macroeconomic Conditions?

Thu, 30 Nov 2000 22:58:59 GMT

Title: Why Does Capital Structure Choice Vary With Macroeconomic Conditions?

Levy, Amnon

Abstract: This paper develops a calibrated model that explains the pronouncedcounter-cyclical leverage patterns observed for firms that access publiccapital markets, and relates these patters to debt and equity issues.Moreover, it explains why leverage and debt issues do not exhibit thispronounced behavior for firms that face more severe constraints whenaccessing capital markets. In the model, managers issue a combination ofdebt and equity to finance investment by weighing the trade-off betweenagency problems and risk sharing. During contractions, leveragedmanagers receive a relatively small share of wealth, resulting in arelative increase in household demand for securities. Securities marketsclear as managers that are not up against their borrowing constraintsincrease leverage while satisfying the agency condition that theymaintain a large enough portion of their firm’s equity.

Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks

Tue, 29 Oct 1996 22:58:59 GMT

Title: Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks

Madhavan, Ananth; Richardson, Matthew; Roomans, Mark

Abstract: This paper develops a structural model of intraday price formation thatembodies both information shocks and microstructure effects in aninternally consistent, unified setting. The model allows us to betterunderstand the observed intra-day patterns in bid-ask spreads, pricevolatility, transaction costs, as well as the autocorrelations oftransaction returns and quote revisions. For example, the modelsimultaneously sheds light on why, over the day, (i) the variance oftransaction price changes is U-shaped while the variance of ask pricechanges is declining, (ii) the bid-ask spread is U-shaped althoughinformation asymmetry and uncertainty over fundamentals is decreasing,and (iii) the autocorrelations of transaction price changes are largeand negative, yet the autocorrelations of ask price changes are smalland negative. In addition, the model’s parameters also provide anatural metric of price discovery and effective trading costs, which mayprove useful in future studies.

Why do Online Product Reviews have a J-shaped Distribution? Overcoming Biases in Online Word-of-Mouth Communication

Sun, 29 Oct 2006 22:58:59 GMT

Title: Why do Online Product Reviews have a J-shaped Distribution? OvercomingBiases in Online Word-of-Mouth Communication

Why do Interest Rate Options Smile?

Sun, 29 Oct 2006 22:58:59 GMT

Title: Why do Interest Rate Options Smile?

DEUSKAR, PRACHI; GUPTA, ANURAG; SUBRAHMANYAM, MARTI G.

Abstract: We address three questions relating to the interest rate options market:What is the shape of the smile? What are the economic determinants ofthe shape of the smile? Do these determinants have predictive power forthe futures shape of the smile and vice versa? We investigate theseissues using daily bid and ask prices of euro (€) interest ratecaps/floors. We find a clear smile pattern in interest rate options. Theshape of the smile varies over time and is affected in a dynamic mannerby yield curve variables and the future uncertainty in the interest ratemarkets; it also has information about future aggregate default risk.Our findings are useful for the pricing, hedging and risk management ofthese derivatives.

Why Do firms Merge and Then Divest: A Theory of Financial Synergy

Wed, 07 Oct 1998 22:58:59 GMT

Title: Why Do firms Merge and Then Divest: A Theory of Financial Synergy

Fluck, Zsuzsanna; Lynch, Anthony

Abstract: This paper develops a theory of mergers and divestitures wherein themotivation for mergers stems from the inability to finance marginallyprofitable, possibly short-horizon projects as stand-alone entities dueto agency problems between managers and potential claimholders. Aconglomerate merger can be viewed as a technology that allows amarginally profitable project, which could not obtain financing as astand-alone, to obtain financing and survive a period of distress. Ifprofitability improves, the financing synergy ends and the acquirerdivests assets to avoid coordination costs. Since it is the project'sability to survive as a stand-alone that causes the divestiture,divestiture decisions are interpreted as good news by the market in ourmodel. Further, our theory is able to reconcile two important butseemingly contradictory empirical findings: 1) mergers increase thecombined value of the acquirer and target (Jensen and Ruback (1983),Bradley et al. (1988) and Kaplan Weisbach (1992)): and, 2) diversifiedfirms are less valuable than more focused stand-alone entities (Bergerand Ofek (1995), Lang and Stulz (1994), and Servaes (1996)).Diversification adds value in our model by facilitating the financing ofpositive net present value projects that cannot be financed asstand-alones. At the same time, because these same projects are onlymarginally profitable, diversified firms are less valuable than stand-alones.

Why Do CEO's Reciprocally Sit On Each Other's Boards?

Mon, 15 Jan 2001 22:58:59 GMT

Title: Why Do CEO's Reciprocally Sit On Each Other's Boards?

Fitch, Eliezer M.; White, Lawrence J.

Abstract: The reciprocal interlocking of chief executive officers (CEOs) is anon-trivial phenomenon of the composition of boards of directors and ofcorporate governance: among large companies in 1991, about one companyin seven is part of a relationship whereby the CEO of one company sitson a second company's board and the second company's CEO sits on thefirst company's board. We are aware of no previous efforts to explainthese reciprocal relationships. We hypothesize that reciprocal CEOinterlocks are (a) more likely when a board has more outsidedirectorships, (b) less likely when a CEO has more of his total annualcompensation paid in the form of stock options, (c) less likely when acompany's board is more active and holds more meetings, (d) less likelywhen a CEO has a larger ownership share of his company, and (e) morelikely when there are more CEOs from other companies as outsidedirectors on a CEO's board. Using a sizable sample of large companies in1991, we employ simple probit and step probit models to test thesehypotheses, with the use of control variables that encompass othercompany, board, and CEO characteristics. These multivariate analysessupport our first three conjectures but do not support the remainingtwo. Since there is considerable academic and policy debate concerningboard composition and the effectiveness of interlocking directorships ingeneral, investigations focusing on reciprocal CEO interlocks, whichlink the highest ranked executives of two different firms, represent asignificant contribution to the knowledge base in this field.

Why Did so Many Poor-Performing Firms Come to Market in the Late 1990s?: Nasdaq Listing Standards and the Bubble

Tue, 29 Mar 2005 22:58:59 GMT

Title: Why Did so Many Poor-Performing Firms Come to Market in the Late 1990s?:Nasdaq Listing Standards and the Bubble

Klein, April; Mohanram, Partha S.

Abstract: This paper examines the impact of Nasdaq Listing Standards on thecomposition of new listings in the late 1990s. The Nasdaq has two typesof listing standards: one based on profitability and the second basedexplicitly or implicitly on market capitalization. Specifically,unprofitable firms are allowed to list if either their pro-forma nettangible assets, which include the anticipated proceeds from their IPO,exceeds $18 million or their market capitalization exceeds $75 million.We show that as the market bubble accelerated in the late 1990s, a vastmajority of firms entered under a market capitalization based standard,and these firms became a substantial portion of the Nasdaq.Subsequently, these firms performed the poorest both in terms offinancial performance, stock return performance as well as involuntarydelistings, while firms that listed under the profitability standardperformed much better. In addition, firms that entered under marketcapitalization standards also exhibited the greatest return volatility.These results illustrate the importance of a profitability standard andthe danger of a market capitalization based standard (explicit orimplicit) in a market that is in, what ex-post turns out to be, a bubble.

Why Did FDR’s Bank Holiday Succeed?

Sun, 29 Jul 2007 22:58:59 GMT

Title: Why Did FDR’s Bank Holiday Succeed?

L. Silber*, William

Abstract: After a month-long run on American banks, Franklin Delano Rooseveltproclaimed a Bank Holiday beginning March 6, 1933 that shut down thebanking system. When banks reopened on March 13, 1933, depositors stoodin line to return their hoarded cash. This paper traces the remarkableturnaround in the public’s confidence to the Emergency BankingAct, passed by Congress on March 9, 1933. Roosevelt used the emergencycurrency provisions of the Act to prod the Federal Reserve to create defacto deposit insurance in the reopened banks. The contemporary pressconfirms that the public recognized the implicit guarantee, and as aresult, believed the President’s words in his first Fireside Chaton March 12, 1933, that the reopened banks would be safe. The publicresponded by returning more than half of their hoarded cash to the bankswithin two weeks and by bidding up stock prices on March 15, 1933, thefirst trading day after the Bank Holiday ended, by the largest everone-day percentage price increase. The Bank Holiday and the EmergencyBanking Act of 1933 reestablished the integrity of the payments systemand demonstrated the power of credible regime-shifting policies.

Why are Options Expensive?

Thu, 29 Jan 1998 22:58:59 GMT

Title: Why are Options Expensive?

Subrahmanyam, Marti G; Franke, Günter; Stapleton, Richard C.

Abstract: Many valuation models in financial economics are developed using thepricing kernel approach to adjust for risk through the equivalentmartingale representation. Often it is assumed, explicitly orimplicitly, that the pricing kernel exhibits constant elasticity withrespect to the price of the market portfolio. In a representative agenteconomy this would be close to assuming that the representative agenthas constant proportional risk aversion. The elasticity of the pricingkernel has also implications for the pricing of options. This papershows, first, that given the forward price of the market portfolio, allEuropean options would have higher prices if the elasticity of thepricing kernel was declining instead of constant. Moreover, a volatilitysmile-effect is generated. Second, the paper shows that the standardgeometric Brownian motion underlying the Black/Scholes model requiresconstant elasticity of the pricing kernel . Third, if the price of themarket portfolio at the expiration date of an option is lognormallydistributed, then declining elasticity of the pricing kernel implies astochastic process which is characterized by higher volatility andnegative autocorrelation. Thus, declining elasticity of the pricingkernel can explain several empirical findings.

WHY ARE DIVIDENDS DISAPPEARING? AN EMPIRICAL ANALYSIS

Wed, 13 Nov 2002 22:58:59 GMT

Title: WHY ARE DIVIDENDS DISAPPEARING? AN EMPIRICAL ANALYSIS

Baker, Malcolm; Wurgler, Jeffrey

Abstract: We investigate the causes of time-series fluctuations in the propensityto pay dividends,including the post-1978 decline documented by Fama andFrench (2001). We consider explanations based on fluctuations individend clienteles, agency problems, information asymmetries, executivestock options, catering incentives, tax code awareness, and short-livedidiosyncratic factors. To evaluate these explanations, we conduct threestyles of analysis. First, we count and classify influences on thepropensity to pay that were noted in the financial press. Second, weexamine time-series relationships between the propensity to pay andproxies for the driving influences in the candidate explanations. Third,we assess whether the candidate explanations are theoreticallycompatible with related time-series patterns involving dividend policy.Overall, the results are most consistent with the catering explanation.Notably, catering incentives,as measured by the stock market"dividend premium," roughly line up with the four trends inthe propensity to pay between 1963 and 2000 and are able to account forthe observed magnitude of the post-1978 decline. There is also evidencethat idiosyncratic factors, including the Nixon-era dividend controlsand the recent growth in options, affected the propensity to pay inspecific periods.

Why are dividends disappearing? An empirical analysis

Wed, 13 Nov 2002 22:58:59 GMT

Title: Why are dividends disappearing? An empirical analysis

Baker, Malcolm; Wurgler, Jeffrey

Abstract: We investigate the causes of time-series fluctuations in the propensityto pay dividends, including the post-1978 decline documented by Fama andFrench (2001). We consider explanations based on fluctuations individend clienteles, agency problems, information asymmetries, executivestock options, catering incentives, tax code awareness, and short-livedidiosyncratic factors. To evaluate these explanations, we conduct threestyles of analysis. First, we count and classify influences on thepropensity to pay that were noted in the financial press. Second, weexamine time-series relationships between the propensity to pay andproxies for the driving influences in the candidate explanations. Third,we assess whether the candidate explanations are theoreticallycompatible with related time-series patterns involving dividend policy.Overall, the results are most consistent with the catering explanation.Notably, catering incentives, as measured by the stock market"dividend premium," roughly line up with the four trends inthe propensity to pay between 1963 and 2000 and are able to account forthe observed magnitude of the post-1978 decline. There is also evidencethat idiosyncratic factors, including the Nixon-era dividend controlsand the recent growth in options, affected the propensity to pay inspecific periods.

Whom You Know Matters:Venture Capital Networks and Investment Performance

Tue, 19 Apr 2005 22:58:59 GMT

Title: Whom You Know Matters:Venture Capital Networks and Investment Performance

Hochberg, Yael; Ljungqvist, Alexander; Lu, Yang

Abstract: Many financial markets are characterized by strong relationships andnetworks, rather than arm’s-length, spot-market transactions. Weexamine the performance consequences of this organizational choice inthe context of relationships established when VCs syndicate portfoliocompany investments, using a comprehensive sample of U.S. based VCs overthe period 1980 to 2003. VC funds whose parent firms enjoy moreinfluential network positions have significantly better performance, asmeasured by the proportion of portfolio company investments that aresuccessfully exited through an initial public offering or a sale toanother company. Similarly, the portfolio companies of better networkedVC firms are significantly more likely to survive to subsequent roundsof financing and to eventual exit. The magnitude of these effects iseconomically large, and is robust to a wide range of specifications.Once we control for network effects in our models of fund and portfoliocompany performance, the importance of how much investment experience aVC has is reduced, and in some specifications, eliminated. Finally, weprovide initial evidence on the evolution of VC networks.

Who, if Anyone, Reacts to Accrual Information?

Thu, 25 Jan 2007 22:58:59 GMT

Title: Who, if Anyone, Reacts to Accrual Information?

Battalio, Robert H.; Lerman, Alina; Livnat, Joshua; Mendenhall, Richard R.

Abstract: We confirm and extend prior research that suggests accrual levelspredict future returns, even after controlling for earnings surprise. Wethen document abnormal buying behavior around 10-K/Q filing dates thatcorrelates with accrual level. Specifically, we extend Collins andHribar (2000) by showing that the accrual anomaly persists for a sampleof firms followed by analysts after controlling for analyst earningsforecast errors and using exact 10-K/Q filing dates. We then show thatlarge traders, those who initiate trades of at least 5,000 shares, tendto trade in the correct direction in response to accrual informationreleased in SEC filings after preliminary earnings. This tendency islimited, however, to cases where earnings conveyed favorable newsinitially. Investors who use accrual information apparently ignorestocks whose earnings convey unfavorable news or believe that accruallevel is not informative for these firms. We also provide some evidencethat the smallest traders react to accrual information, but in the wrong direction.

Who You Know Matters: Venture Capital Networks and Investment Performance

Tue, 07 Dec 2004 22:58:59 GMT

Title: Who You Know Matters: Venture Capital Networks and Investment Performance

Hochberg, Yael; Ljungqvist, Alexander; Lu, Yang

Abstract: Many financial markets are characterized by strong relationships andnetworks, rather than arm’s-length, spot-market transactions. Weexamine the performance consequences of this organizational choice inthe context of relationships established when VCs syndicate portfoliocompany investments, using a comprehensive sample of U.S. based VCs overthe period 1980 to 2003. VC funds whose parent firms enjoy moreinfluential network positions have significantly better performance, asmeasured by the proportion of portfolio company investments that aresuccessfully exited through an initial public offering or a sale toanother company. Similarly, the portfolio companies of better networkedVC firms are significantly more likely to survive to subsequent roundsof financing and to eventual exit. The magnitude of these effects iseconomically large, and is robust to a wide range of specifications. Ourmodels suggest that the benefits of being associated with awell-connected VC are more pronounced in later funding rounds. Once wecontrol for network effects in our models of fund and portfolio companyperformance, the importance of how much investment experience a VC hasis reduced, and in some specifications, eliminated.

Who You Know Matters: Venture Capital Networks and Investment Performance

Tue, 07 Dec 2004 22:58:59 GMT

Who You Know Matters: Venture Capital Networks and Investment Performance

Tue, 07 Dec 2004 22:58:59 GMT

Who Buys and Who Sells Options: The Role and Pricing of Options in an Economy with Background Risk

Thu, 29 Jan 1998 22:58:59 GMT

Title: Who Buys and Who Sells Options: The Role and Pricing of Options in anEconomy with Background Risk

Subrahmanyam, Marti G.; Franke, Günter; Stapleton, Richard C.

Abstract: In this paper, we derive an equilibrium in which some investors buycall/put options on the market portfolio while others sell them. Sinceinvestors are assumed to have similar risk-averse preferences, thedemand for these contracts is not explained by differences in the shapeof utility functions. Rather, it is the degree to which agents faceother, non-hedgeable, background risks that determines their risk-takingbehavior in the model. We show that investors with low or no backgroundrisk have a concave sharing rule, i.e., they sell options on the marketportfolio, whereas investors with high background risk have a convexsharing rule and buy these options.

Who Buys and Who Sells Options: The Role and Pricing of Options in an Economy with Background Risk

Wed, 04 Sep 1996 22:58:59 GMT

Title: Who Buys and Who Sells Options: The Role and Pricing of Options in anEconomy with Background Risk

Franke, Gunter; Stapleton, Richard C.; Subrahmanyam, Marti G.

Abstract: In this paper, we drive an equilibrium in which some investors buycall/put options on the market portfolio while others sell them. Also,some investors supply and others demand forward contracts. Sinceinvestors are assumed to have similar risk-averse preferences, thedemand for these contracts is not explained by differences in the shapeof utility functions. Rather, it is the degree tow which agents faceother, non-hedgeable, background risks that determines their risk-takingbehavior in the model. We show that investors with low or no backgroundrisk have a concave sharing rule, i.e., they sell options on the marketportfolio, whereas investors with high background risk have a convexsharing rule and buy these options. A general increase in backgroundrisk in the economy reduces the forward price of the market portfolio.Furthermore, the prices of put options rise and the prices of calloptions fall. Investors without background risk then react by choosing asharing rule with higher slope and concavity.

Who Buys and Sells Options: The Role and Pricing of Options in an Economy with Background Risk

Sun, 03 Dec 1995 22:58:59 GMT

Title: Who Buys and Sells Options: The Role and Pricing of Options in anEconomy with Background Risk

Franke, Gunter; Stapleton, Richard C.; Subrahmanyam, Marti G.

Abstract: In this paper, we derive an equilibrium in which some investors buycall/put options on the market portfolio while others sell them. Also,some investors supply and others demand forward contracts. Sinceinvestors are assumed to have similar risk-averse preferences, demandfor these contracts is not explained by differences in the shape ofutility functions. Rather, it is the degree to which agents face other,non-hedgeable, background risks that determines their risk-takingbehavior in the model. We show that investors with low or no backgroundrisk have a concave sharing rule, i.e., they sell options on the marketportfolio, whereas investors with high background risk have a convexsharing rule and buy these options. A general increase in backgroundrisk in the economy reduces the forward price of the market portfolio.Furthermore, the prices of put options rise and the prices of calloptions fall. Investors without background risk then react by choosing asharing rule with higher slope and concavity.

Which Came First, IT or Productivity? The Virtuous Cycle of Investment and Use in Enterprise Systems

Mon, 10 Nov 2008 21:31:30 GMT

Title: Which Came First, IT or Productivity? The Virtuous Cycle of Investmentand Use in Enterprise Systems

Aral, Sinan; Brynjolfsson, Erik; Wu, D.J.

Abstract: While it is now well established that IT intensive firms are moreproductive, a critical question remains: Does IT cause productivity orare productive firms simply willing to spend more on IT? We address thisquestion by examining the productivity and performance effects ofenterprise systems investments in a uniquely detailed and comprehensivedata set of 623 large, public U.S. firms. The data represent all U.S.customers of a large vendor during 1998–2005 and include thevendor’s three main enterprise system suites: Enterprise ResourcePlanning (ERP), Supply Chain Management (SCM), and Customer RelationshipManagement (CRM). A particular benefit of our data is that theydistinguish the purchase of enterprise systems from their installationand use. Since enterprise systems often take years to implement, firmperformance at the time of purchase often differs markedly fromperformance after the systems “go live.” Specifically, inour ERP data, we find that purchase events are uncorrelated withperformance while go-live events are positively correlated. Thisindicates that the use of ERP systems actually causes performance gainsrather than strong performance driving the purchase of ERP. In contrast,for SCM and CRM, we find that performance is correlated with bothpurchase and golive events. Because SCM and CRM are installed after ERP,these results imply that firms that experience performance gains fromERP go on to purchase SCM and CRM. Our results are robust againstseveral alternative explanations and specifications and suggest that acausal relationship between ERP and performance triggers additional ITadoption in firms that derive value from their initial investment. Theseresults provide an explanation of simultaneity in IT value research thatfits with rational economic decision-making: Firms that successfullyimplement IT, react by investing in more IT. Our work suggests replacing“either-or” views of causality with a positive feedback loopconceptualization in which successful IT investments initiate a“virtuous cycle” of investment and gain. Our work alsoreveals other important estimation issues that can help researchersidentify relationships between IT and business value.

Where Does the Money Come From? The Financing of Small Entrepreneurial Enterprises

Thu, 29 Jan 1998 22:58:59 GMT

Title: Where Does the Money Come From? The Financing of Small Entrepreneurial Enterprises

Fluck, Zsuzsanna; Holtz-Eakin, Douglas; Rosen, Harvey S.

Abstract: Using data from the Wisconsin Entrepreneurial Climate Study, we studythe sources of firms' finance during the very early stages of theirlives. Our focus is the evolution of the mix of financial capital from'insiders' and 'outsiders' as firms age. We find that at the beginningof firms' life cycles, the proportion of funds form internal sourcesincreases with age, while the proportion from banks, venturecapitalists, and private investors declines. There is also evidence thatthese patterns eventually reverse themselves, with the proportion ofinsider finance ultimately declining and the proportion of outsiderfinance increasing with age. We argue that these findings are consistentwith elements of both reputation-based and monopoly-lender theories offirm finance.

Where are the shareholders’ mansions? CEOs’ home purchases, stock sales, and subsequent company performance

Tue, 16 Oct 2007 22:58:59 GMT

Title: Where are the shareholders’ mansions? CEOs’ home purchases,stock sales, and subsequent company performance

Liu, Crocker; Yermack, David

Abstract: We study real estate purchases by major company CEOs, compiling adatabase of the principal residences of nearly every top executive inthe Standard & Poor’s 500 index. When a CEO buys real estate,future company performance is inversely related to the CEO’sliquidation of company shares and options for financing the transaction.We also find that, regardless of the source of finance, future companyperformance deteriorates when CEOs acquire extremely large or costlymansions and estates. We therefore interpret large home acquisitions assignals of CEO entrenchment. Our research also provides useful insightsfor calibrating utility based models of executive compensation and forunderstanding patterns of Veblenian conspicuous consumption.

When Is Noise Not Noise – A Microstructure Estimate of Realized Volatility

Sun, 29 Oct 2006 22:58:59 GMT

Title: When Is Noise Not Noise – A Microstructure Estimate of Realized Volatility

Engle, Engle; Sun, Zheng

Abstract: This paper studies the joint distribution of tick by tick returns anddurations between trades. Returns are decomposed into changes in fullinformation prices and microstructure noise, but the noise is modeled inaccordance with various models of market microstructure allowing richcorrelation structures both with the efficient price and over time. Thefull information price has time varying volatility which depends uponthe arrival time of trades. The paper aims at three contributions:First, the noise is modeled to allow asymmetric information, inventoryand order processing costs, and delayed quote setting. Second, theresponse to the trade arrival times allows trade durations to beinformative on future volatility. Third, the estimated state spacemodels can act as a laboratory to examine various non-parametricapproaches to realized volatility estimation. Both simulated and actualdata can be compared across methods and the accuracy and efficiencyassessed as long as the parameteric model is viewed as a sufficientlyaccurate representation. We apply the above model to 10 NYSE stocktransactions data series with varying transaction rates. It appears thatcontemporaneous duration has little effect on the volatility per tradeafter conditioning on the past, which means average per secondvolatility is inversely related to the duration between trades.Microstructure noise is found to be informative about the unobservedefficient price, and the informational component explains 45% of thetotal variation of the microstructure noise.

When Everyone Runs for the Exit

Tue, 24 Nov 2009 17:59:56 GMT

Title: When Everyone Runs for the Exit

Pedersen, Lasse Heje

Abstract: The dangers of shouting \re" in a crowded theater are wellunderstood, but the dangers of rushing to the exit in the nancialmarkets are more complex. Yet, the two events share several features,and I analyze why people crowd into theaters and trades, why they run,what determines the risk, whether to return to the theater or trade whenthe dust settles, and how much to pay for assets (or tickets) in lightof this risk. These theoretical considerations shed light on the recentglobal liquidity crisis and, in particular, the quant event of 2007.

When Does the Market Matter? Stock Prices and the Investment of Equity-Dependent Firms

Mon, 08 Oct 2001 22:58:59 GMT

Title: When Does the Market Matter? Stock Prices and the Investment ofEquity-Dependent Firms

Baker, Malcolm; Stein, Jeremy C.; Wurgler, Jeffrey

Abstract: We use a simple model of corporate investment to determine wheninvestment will be sensitive to non-fundamental movements in stockprices. The key cross-sectional prediction of the model is that stockprices will have a stronger impact on the investment of firms that are“equity dependent” – firms that need external equityto finance their marginal investments. Using an index of equitydependence based on the work of Kaplan and Zingales (1997), we findstrong support for this prediction. In particular, firms that rank inthe top quintile of the KZ index have investment that is two-and-a-halftimes as sensitive to stock prices as firms in the bottom quintile. Wealso verify several other predictions of the model.

When Does Strategic Debt Service Matter?

Wed, 01 May 2002 22:58:59 GMT

Title: When Does Strategic Debt Service Matter?

Acharya, Viral V.; Huang, Huang; Subrahmanyam, Marti G.; Sundaram, Rangarajan K.

Abstract: Recent work has suggested that strategic under performance of debtservice obligations by equity holders can resolve the gap betweenobserved yield spreads and those generated Merton (41) style models. Weshow that it is not quite correct. The value of the option to underperform on debt-service obligations depend on two other optionality'savailable to equity holders, namely, the option to carry cash reserveswithin the firm and the option to raise new external financing.

When Does Strategic Debt Service Matter?

Wed, 01 May 2002 22:58:59 GMT

Title: When Does Strategic Debt Service Matter?

Acharya, Viral V.; Huang, Jing-zhi; Subrahmanyam, Marti G.; Sundaram, Rangarajan K.

Abstract: Recent work has suggested that strategic underperformance ofdebt-service obligations by equity holders can resolve the gap betweenobserved yield spreads and those generated by Merton (1974)-stylemodels. We show that this is not quite correct. The value of the optionto underperform on debt-service obligations depends on two otheroptionalities available to equity holders, namely, the option to carrycash reserves within the firm and the option to raise new externalfinancing. We disentangle the effects of the three factors, andcharacterize the impact of each in isolation as well as theirinteraction. We find, among other things, that while strategic behaviorcan increase spreads significantly under some conditions, its impact isnegligible in others, and in some cases it even leads to a decline inequilibrium spreads. We show that this last apparently paradoxicalresult is a consequence of an interaction of optionalities that resultsin a trade-off between strategic and liquidity-driven defaults.

When are Options Overpriced? The Black-Scholes Model and Alternative Characterizations of the Pricing Kernel

Tue, 29 Dec 1998 22:58:59 GMT

Title: When are Options Overpriced? The Black-Scholes Model and AlternativeCharacterizations of the Pricing Kernel

Franke, Guntar; Stapleton, Richard C.; Subrahmanyam, Marti G.

Abstract: An important determinant of option prices is the elasticity of thepricing kernel used to price all claims in the economy. In this paper,we first show that for a given forward price of the underlying asset,option prices are higher when the elasticity of the pricing kernel isdeclining than when it is constant. We then investigate the implicaitonsof the elasticity of the pricing kernel for the stochastic processfollowed by the underlying asset. Given that the underlying informationprocess follows a geometric. Brownian motion, we demonstrate thatconstant elasticity of the pricing kernel is equivalent to a Brownianmotion for the forward price of the underlying asset, so that theBlack-Scholes formula correctly prices options on the asset. In contast,declining elasticiy implies that the forward price process is no longera Brownian motion: It has higher volatility and exhibitsautocorrelation. In this case, the Black-Scholes formula underprices all options.

What’s In It For Me? Personal Benefits Obtained by CEOs Whose Firms Are Acquired

Wed, 28 Jun 2000 22:58:59 GMT

Title: What’s In It For Me? Personal Benefits Obtained by CEOs WhoseFirms Are Acquired

Hartzell, Jay; Ofek, Eli; Yermack, David

Abstract: We study benefits received by target company CEOs in completed mergersand acquisitions. These executives obtain wealth increases with a medianof $4 to $5 million and a mean of $8 to $11 million, roughly in linewith the permanent income streams that they sacrifice. CEOs receivelower financial gains from those transactions in which they becomeexecutives of the buyer, suggesting that tradeoffs exist between thefinancial and career-related benefits they extract. Regression estimatessuggest that target shareholders receive lower acquisition premia intransactions that involve extraordinary personal treatment of the CEO.

What’s In It For Me? CEOs Whose Firms Are Acquired

Sat, 28 Apr 2001 22:58:59 GMT

Title: What’s In It For Me? CEOs Whose Firms Are Acquired

Hartzell, Jay; Ofek, Eli; Yermack, David

Abstract: We study benefits received by target company CEOs in completed mergersand acquisitions. These executives obtain wealth increases with a medianof $4 to $5 million and a mean of $8 to $11 million, roughly in linewith the permanent income streams that they sacrifice. CEOs receivelower financial gains from those transactions in which they becomeexecutives of the buyer, suggesting that tradeoffs exist between thefinancial and career-related benefits they extract. We find very highrates of turnover both at the time of the merger and, for thoseexecutives who stay, for several years post-merger. Regression estimatessuggest that target shareholders receive lower acquisition premia intransactions that involve extraordinary personal treatment of the CEO.

What's Been Happening To Aggregate Concentration in the United States? (And Should We Care?),

Mon, 10 Dec 2001 22:58:59 GMT

Title: What's Been Happening To Aggregate Concentration in the United States?(And Should We Care?),

White, Lawrence J.

Abstract: In this paper I assemble and array two rarely used data sets to measurethe extent of aggregate concentration the share of national economicactivity accounted for by the largest X companies in the U.S. in the1980s and 1990s. The data show clearly that, despite the substantialmerger wave of the 1980s and the far larger wave of the 1990s, aggregateconcentration declined in the 1980s and the early 1990s. Aggregateconcentration increased after the mid 1990s, but the levels at the endof the decade were still at or below the levels of the late 1980s orearly 1990s. The average size of firm did increase, however, and therelative importance of the larger size classes of firms increasedgenerally. Gini coefficients computed for employment shares and payrollshares of companies showed moderate but steady increases from 1988through 1998. In the conclusion of the paper I offer some tentativehypotheses for explaining these patterns.

What Value Analysts?

Fri, 29 Oct 1999 22:58:59 GMT

Title: What Value Analysts?

Amit, Eli; Lev, Baruch; Sougiannis, Theodore

What to Put on the Table

Sun, 29 Jul 2007 22:58:59 GMT

Title: What to Put on the Table

Skreta, Vasiliki; Figueroa, Nicolas

Abstract: This paper investigates under which circumstances negotiatingsimultaneously over multiple issues or assets helps reduce ine¢ciencies due to the presence of asymmetric information. We Önd thata simultaneous negotiation over multiple assets that are substitutesreduces ine¢ ciencies. The e§ect is stronger if goods areheterogeneous, and in this case the ine¢ ciency can be eliminatedaltogether. When assets are not substitutes ine¢ ciencies alwaysprevail. We also study cases where co-ownership is possible(partnerships), allowing for asymmetric distributions, general valuationfunctions and for multiple assets. We show that e¢ cientdissolution is possible if all agents valuations at their types wheregains of trade are minimal are equal: For this to hold, the agent thatmost likely has the highest valuation for a given asset should initiallyown a bigger share of that asset. We discuss implications of theseÖndings for the design of partnerships and joint ventures.

What pieces of limit order book information do are informative? An empirical analysis of a pure order-driven market

Fri, 28 Nov 2003 22:58:59 GMT

Title: What pieces of limit order book information do are informative? Anempirical analysis of a pure order-driven market

Pascual, Roberto; Veredas, David

Abstract: This paper studies the importance of different pieces of limit orderbook information in characterizing order aggressiveness and the timingof trades, order submissions and cancellations. Using limit order bookinformation on liquid and frequently traded Spanish stock, we evidencethat most of the explanatory power of the book concentrates on the bestquotes. However, the book beyond the best quotes also matters inexplaining the aggressiveness of traders. Liquidity providers benefitmore from an increased degree of pre-trade transparency than liquidityconsumers. Finally, no piece of book information matters in explainingthe timing of orders.

What makes issuers happy? Testing the Prospect Theory of IPO Underpricing

Tue, 09 Dec 2003 22:58:59 GMT

Title: What makes issuers happy? Testing the Prospect Theory of IPO Underpricing

Ljungqvist, Alexander P.; Wilhelm, William J.Jr.

Abstract: We derive a behavioral measure of the IPO decision-maker's satisfactionwith the underwriter's performance based on Loughran and Ritter's (2002)prospect theory of IPO underpricing. We assess the plausibility of thismeasure by studying its power to explain the decision-maker’ssubsequent choices. Controlling for other known factors, IPO firms areless likely to switch underwriters for their first seasoned equityoffering when our behavioral measure indicates they were satisfied withthe IPO underwriter’s performance. Underwriters also appear tobenefit from behavioral biases in the sense that they extract higherfees for subsequent transactions involving satisfied decision-makers.Although our tests suggest there is explanatory power in the behavioralmodel, they do not speak directly to whether deviations from expectedutility maximization determine patterns in IPO initial returns.

What is happening to the impact of financial deepening on economic growth?

Mon, 08 Jan 2007 22:58:59 GMT

Title: What is happening to the impact of financial deepening on economic growth?

Wachtel, Paul; Rousseau, Peter L.

Abstract: Although the finance-growth relationship is now firmly entrenched in theempirical literature, we show that it is not as strong in more recentdata as it was in the original studies with data for the period from1960 to 1989. We consider two related explanations. First, excessivefinancial deepening or too rapid growth of credit may have led to bothinflation and weakened banking systems which in turn gave rise togrowthinhibiting financial crises. Second, excessive financial deepeningmay be a result of widespread financial liberalizations in the late1980s and early 1990s in countries that lacked the legal or regulatoryinfrastructure to exploit financial development successfully. We findthat the increased incidence of financial crises since the 1990s isprimarily responsible for the recent weakening of the finance-growthlink, but find no direct evidence that liberalizations played animportant supporting role.

WHAT HAPPENED TO LIQUIDITY WHEN WORLD WAR I SHUT THE NYSE?

Tue, 31 Dec 2002 22:58:59 GMT

Title: WHAT HAPPENED TO LIQUIDITY WHEN WORLD WAR I SHUT THE NYSE?

Silber, William L.

Abstract: The suspension of trading on the New York Stock Exchange for more thanfour months following the outbreak of World War I fostered a substitutemarket on New Street as a source of liquidity. The New Street marketsuffered from a lack of price transparency because its transactions werenot disseminated on the NYSE ticker and its quotations were blacklistedat the leading newspapers. This paper shows that despite the impairedinformation flow and the somewhat wider bid-ask spreads compared withthe New York Stock Exchange, New Street offered economically meaningfulliquidity services. The absence of price transparency turned anindividual stock’s reputation for liquidity into an importantvariable in explaining the structure of bid-ask spreads on New Street.

What Happened to Liquidity When World War I Shut the NYSE?

Sun, 28 Sep 2003 22:58:59 GMT

Title: What Happened to Liquidity When World War I Shut the NYSE?

Silber, William L.

Abstract: The suspension of trading on the New York Stock Exchange for more thanfour months following the outbreak of World War I fostered a substitutemarket on New Street as a source of liquidity. The New Street marketsuffered from impaired price transparency because its transactions werenot disseminated on the NYSE ticker and its quotations were blacklistedat the leading newspapers. This paper shows that despite the incompleteinformation flow and the somewhat wider bid-ask spreads compared withthe New York Stock Exchange, New Street offered economically meaningfulliquidity services. The interference with price transparency turned anindividual stock’s reputation for liquidity into an importantadded variable in explaining the structure of bid-ask spreads on New Street.

WHAT HAPPENED TO LIQUIDITY WHEN WORLD WAR I SHUT THE NYSE?

Tue, 29 Jul 2003 22:58:59 GMT

WHAT GOOD IS A VOLATILITY MODEL?

Sun, 28 Jan 2001 22:58:59 GMT

Title: WHAT GOOD IS A VOLATILITY MODEL?

Engle, Robert F.; Patton, Andrew J.

Abstract: A volatility model must be able to forecast volatility; this is thecentral requirement in almost all financial applications. In this paperwe outline some stylised facts about volatility that should beincorporated in a model; pronounced persistence and meanreversion,asymmetry such that the sign of an innovation also affects volatilityand the possibility of exogenous or pre-determined variables influencingvolatility. We use data on the Dow Jones Industrial index to illustratethese stylised facts, and the ability of GARCH-type models to capturethese features. We conclude with some challenges for future research inthis area.

WHAT GOOD IS A VOLATILITY MODEL?

Mon, 26 May 2008 22:26:07 GMT

Title: WHAT GOOD IS A VOLATILITY MODEL?

Engle, Robert F.; Patton, Andrew J.

Abstract: volatility model must be able to forecast volatility; this is thecentral requirement in almost all financial applications. In this paperwe outline some stylised facts about volatility that should beincorporated in a model; pronounced persistence and meanreversion,asymmetry such that the sign of an innovation also affects volatilityand the possibility of exogenous or pre-determined variables influencingvolatility. We use data on the Dow Jones Industrial index to illustratethese stylised facts, and the ability of GARCH-type models to capturethese features. We conclude with some challenges for future research inthis area.

What Explains Superior Retail Performance?

Tue, 28 Sep 1999 22:58:59 GMT

Title: What Explains Superior Retail Performance?

Gaur, Vishal; Fisher, Marshall; Raman, Ananth

Abstract: We analyze the performance of retail firms for the period 1978-97 usingpublic financial data. Our performance measures are long-term stockreturns and whether the firm filed for bankruptcy in the period ofstudy. We assume that over a long time period of at least five years,stock returns are a reasonable measure of the overall success of a firm.We have found a very wide disparity in performance between firms. On theone hand, retailers like Wal-Mart, the Gap and Circuit City have hadphenomenal success (nineteen year compounded stock returns of 31.2%,29.5%, and 34.5%, respectively), while on the other, 17% of the publicretail firms filed for bankruptcy. We investigate how the followinglevers managed by the CEO of a retail firm affect performance: return onassets, sales growth, inventory turns, gross margin, financial leverage,and selling, general, and administrative expenses. The nature of theanalysis is contemporaneous, providing insights into managerial actionsthat correlate with success as measured by stock returns, but not aprediction of future stock returns. We find that (1) return on assets,sales growth, standard deviation of return on assets and financialleverage explain more than 50% of the variation in stock returns forperiods of ten years or more; (2) retailers in different segmentsâapparel, department stores, grocery and convenience stores, drugs andpharmaceuticals, jewelry, consumer electronics, home furnishings, toys,and variety storesâ achieve similar return on assets and returnon equity by following very different strategies with respect to theirgross margins and inventory turns; (3) even within the same segment,high gross margin correlates with low inventory turns, and with highselling, general, and administrative expenses; (4) risk of bankruptcy isrelated to the mismatch between how fast a firm attempts to grow versuswhat growth rate it realizes. We also test for a negative correlationbetween sales growth and return on assets, which is widely believed tobe true but is not borne out by our data.

What Do Private Firms Look like?

Mon, 12 Dec 2011 17:44:40 GMT

Title: What Do Private Firms Look like?

Asker, John; Farre-Mensa, Joan; Ljungqvist, Alexander

Abstract: Private firms in the U.S. are not subject to public reportingrequirements, so relatively little is known about their characteristicsand behavior – until now. This Data Appendix describes a newdatabase on private U.S. firms, created by Sageworks Inc. in cooperationwith hundreds of accounting firms. The contents of the Sageworksdatabase mirror Compustat, the standard database for public U.S. firms.It contains balance sheet and income statement data for 95,297 privatefirms covering 250,507 firms-years over the period 2002 to 2007. Wecompare this database to the joint Compustat-CRSP database of publicfirms and to the Federal Reserve’s 2003 National Survey of SmallBusiness Finances.

What Do Independent Directors Know?Evidence from Their Trading

Tue, 28 Nov 2006 22:58:59 GMT

Title: What Do Independent Directors Know?Evidence from Their Trading

Ravina, Enrichetta; Sapienza, Paola

Abstract: We compare the trading performance of independent directors and otherofficers of the firm.We find that independent directors earn positiveand substantial abnormal returns when they purchase their company stock,and that the difference with the same firm’s officers isrelatively small at most horizons. The results are robust to controllingfor firm fixed effects and to using a variety of alternativespecifications. Executive officers and independent directors make higherreturns in firms with weaker governance and the gap between these twogroups widens in such firms. Independent directors who sit in auditcommittees earn higher return than other independent directors at thesame firm. Finally, independent directors earn significantly higherreturns than the market when they sell the company stock in a windowbefore bad news and around a restatement announcement.

What Do Independent Directors Know? Evidence from Their Trading

Tue, 28 Nov 2006 22:58:59 GMT

Title: What Do Independent Directors Know? Evidence from Their Trading

Ravina, Enrichetta; Sapienza, Paola

Abstract: We compare the trading performance of independent directors and otherofficers of the firm. We find that independent directors earn positiveand substantial abnormal returns when they purchase their company stock,and that the difference with the same firm’s officers isrelatively small at most horizons. The results are robust to controllingfor firm fixed effects and to using a variety of alternativespecifications. Executive officers and independent directors makehigher returns in firms with weaker governance and the gap between thesetwo groups widens in such firms. Independent directors who sit in auditcommittees earn higher return than other indepen- dent directors at thesame firm. Finally, independent directors earn significantly higherreturns than the market when they sell the company stock in a windowbefore bad news and around arestatement announcement.

What Constitutes Appropriate Disclosure for a Financial Conglomerate?

Thu, 21 Nov 2002 22:58:59 GMT

Title: What Constitutes Appropriate Disclosure for a Financial Conglomerate?

White, Lawrence J.

Abstract: This paper addresses the disclosure issues for financial conglomeratesprincipally from the same perspective as that of the Basel Committee onBanking Supervision: that disclosure is important for the safety andsoundness of banks. However, we reach substantially differentconclusions with respect to three important disclosure issues: the roleof market value accounting; the frequency of disclosures; and the roleof subordinated debt. We start by asking why any special disclosuremight be required for financial conglomerates. This question immediatelyleads to a discussion of what is special about financial conglomerates.We also address the question of, "Disclosure to whom?" Thereare at least two potential audiences for information disclosures:financial regulators; and the public investors/creditors/customers of afinancial conglomerate. Issues of the appropriate structure for afinancial conglomerate, and the information revelation that shouldaccompany that structure, are also raised. Finally, we return to thetitle topic: What constitutes appropriate disclosure for a financialconglomerate. Unfortunately, by turning its back on the three mostimportant steps that could be taken to improve information disclosure --mandating market value accounting (MVA) for banks' reports toregulators, aiming toward daily submission of these reports, andrequiring the issuance of subordinated debt -- the Basel Committee hasfundamentally undermined its efforts to enhance banks' safety and soundness.

What Constitutes Appropriate Disclosure for a Financial Conglomerate?

Thu, 21 Nov 2002 22:58:59 GMT

Title: What Constitutes Appropriate Disclosure for a Financial Conglomerate?

White, Lawrence J.

Abstract: This paper addresses the disclosure issues for financial conglomeratesprincipally from the same perspective as that of the Basel Committee onBanking Supervision: that disclosure is important for the safety andsoundness of banks. However, we reach substantially differentconclusions with respect to three important disclosure issues: the roleof market value accounting; the frequency of disclosures; and the roleof subordinated debt. We start by asking why any special disclosuremight be required for financial conglomerates. This question immediatelyleads to a discussion of what is special about financial conglomerates.We also address the question of, "Disclosure to whom?" Thereare at least two potential audiences for information disclosures:financial regulators; and the public investors/creditors/customers of afinancial conglomerate. Issues of the appropriate structure for afinancial conglomerate, and the information revelation that shouldaccompany that structure, are also raised. Finally, we return to thetitle topic: What constitutes appropriate disclosure for a financialconglomerate. Unfortunately, by turning its back on the three mostimportant steps that could be taken to improve information disclosuremandating market value accounting (MVA) for banks' reports toregulators, aiming toward daily submission of these reports, andrequiring the issuance of subordinated debt the Basel Committee hasfundamentally undermined its efforts to enhance banks' safety and soundness.

What Are the Sources of Country and Industry Diversification?

Fri, 29 Oct 1999 22:58:59 GMT

Title: What Are the Sources of Country and Industry Diversification?

Hargis, Kent; Mei, Jianping (J.P.)

Abstract: In this paper, we develop a new framework in which one can analyzeindustry and country effects by examining their underlying returncomponents. We find that the global cash flow factor explains on average48% of the variation of industry cash flows and the global discountrates explain 43% of the variation of industry discount rates. These aremore than double the explanatory power of the two factors over countrycash flow and discount rate variations, which are 23% and 13%respectively. This suggests that global factors are much less importantfor return components at country level than at industry level. Thelarger benefits of diversification across countries than acrossindustries are thus driven more by better diversification of expectedreturns, although better diversification of cash flows also drives theresult. Moreover, emerging markets tend to have much smallerco-movements of both dividends and equity risk premiums with those ofthe world, suggesting a lower degree of integration with the world goodsand financial markets. This appears to be the basis for emerging market diversification.

What Affects the Implied Cost of Equity Capital?

Fri, 02 Feb 2001 22:58:59 GMT

Title: What Affects the Implied Cost of Equity Capital?

Gode, Dan; Mohanram, Partha

Abstract: We estimate implied cost of equity capital for a sample of firms from1984 to 1998 using the Ohlson and Juettner (2000) model that does notmake restrictive assumptions about clean surplus and payout policies. Wefind that cost of equity capital is strongly positively associated withconventional risk factors such as earnings variability, systematic andunsystematic return volatility, and leverage, and is negativelyassociated with analyst following. These associations are robust tocontrols for industry membership and to running the regression inchanges instead of levels. Our results support the Ohlson-Juettnermetric as a robust and appealing measure of cost of equity capital.

Were the 1996-2000 Yankees the Best Baseball Team Ever?

Sun, 29 Oct 2000 22:58:59 GMT

Title: Were the 1996-2000 Yankees the Best Baseball Team Ever?

Simon, Gary A.; Simonoff, Jeffrey S.

Weighing the Evidence on the Relation between External Corporate Financing Activities, Accruals and Stock Returns

Thu, 27 Apr 2006 22:58:59 GMT

Title: Weighing the Evidence on the Relation between External CorporateFinancing Activities, Accruals and Stock Returns

Cohen, Daniel A.; Lys, Thomas Z.

Abstract: Bradshaw, Richardson, and Sloan (BRS) find a negative relation betweentheir comprehensive measure of corporate financing activities and futurestock returns and future profitability. Noticing that accountingaccruals are increases in net operating assets on a company’sbalance sheet, we question whether it is possible to distinguish betweenthe ‘external financing anomaly’ documented by BRS and the‘accrual anomaly’ first documented by Sloan (1996). We showthat once controlling for total accruals, the relation between externalfinancing activities and future stock returns is attenuated and notstatistically significant. These findings are consistent with Richardsonand Sloan (2003).

Wealth Creation and Destruction from Brooke Group's Tobacco Litigation Strategy

Sun, 28 Nov 1999 22:58:59 GMT

Title: Wealth Creation and Destruction from Brooke Group's Tobacco Litigation Strategy

Dahiya, Sandeep; Yermack, David

Abstract: We examine value creation and destruction in the tobacco industry due tothe radical litigation strategy pursued by Brooke Group and its CEO,Bennett LeBow. Brooke Group has a tiny market share, low margins, highleverage, and a high concentration of management ownership.Beginning in1996 the firm reached settlements in lawsuits brought against allcigarette companies by class action plaintiffs and U.S. stategovernments. Brooke Group's actions, which included promises tocooperate in litigation against its rivals, spurred other companies toreach settlements on less favorable terms. The settlements eventuallyled to massive wealth destruction within the tobacco industry butimpressive returns for shareholders of Brooke Group.

Wavelets in Economics and Finance: Past and Future

Tue, 26 Feb 2002 22:58:59 GMT

Title: Wavelets in Economics and Finance: Past and Future

Ramsey, James B.

Abstract: In this paper I review what insights we have gained about economic andfinancial relationships from the use of wavelets and speculate on whatfurther insights we may gain in the future. Wavelets are treated as a“lens” that enables the researcher to explore relationshipsthat previously were unobservable.

Warranty Reserve: Contingent Liability, Strategic Signal, or Earnings Management Tool

Mon, 29 Oct 2007 22:58:59 GMT

Title: Warranty Reserve: Contingent Liability, Strategic Signal, or EarningsManagement Tool

Cohen, Daniel; Darrough, Masako; Huang, Rong; Zach, Tzachi

Abstract: Utilizing a database that recently became available due to therequirements of FIN 45, we examine the information content of accountingdisclosures on warranties from two perspectives. First, since a warrantypolicy is a business strategy through which firms choose to promotetheir products, a warranty reserve serves two roles: a signal of productquality as well as a contingent liability to be honored in the future.Consistent with this view, we find that the stock market recognizes thewarranty reserve as both a signal of firms’ future performance aswell as a liability. Second, since warranty accruals require estimationof future claims, any discretion in this context can also be used as atool of earnings management. Consistent with this expectation, ourevidence indicates that managers use warranty accruals to manageearnings opportunistically to meet their earnings targets.

Wanted: A Market Definition Paradigm for Monopolization Cases

Thu, 29 Oct 1998 22:58:59 GMT

Title: Wanted: A Market Definition Paradigm for Monopolization Cases

White, Lawrence J.

Abstract: For the wide range of antitrust cases involving allegations of monopolyor monopolization (or variations on that theme), the presence of marketpower is a necessary prerequisite for finding liability. In turn, thedefinition or delineation of a relevant market is essential formeasuring a defendant's market share -- a key determinant of thepresence or absence of market power. Unfortunately, there are few or nointellectual underpinnings for the market definition process inmonopolization cases. This void contrasts sharply with the substantialconceptual developments of the past two decades with respect to themarket definition process in antitrust merger analysis, as embodied inthe Merger Guidelines of the U.S. Department of Justice. This articlecontrasts the achievements in the merger analysis area with thecontinuing dilemmas and conundrums in the monopolization area withrespect to market definition. In the latter area the "cellophanefallacy" (which is explained), combined with the frequently cloudystate of firm level profit data, continues to create confusion as towhen the presence of competitors is an indication of the absence ofmarket power and when their presence is the consequence of the exerciseof market power. Underlying this confusion is the absence of a clearmarket definition paradigm for these monopolization cases. Until such aparadigm is developed, the confusion will persist, as will a pattern oferratic and inconsistent outcomes in alleged monopolization cases.

Voucher Privatization : A Detour on the Road to Transition?

Tue, 13 Mar 2001 22:58:59 GMT

Title: Voucher Privatization : A Detour on the Road to Transition?

Katz, Barbara G.; Owen, Joel

Viscous Demand

Thu, 29 Jul 1999 22:58:59 GMT

Title: Viscous Demand

Radner, Roy

Abstract: In many markets, demand adjusts slowly to changes in prices, i.e.,demand is "viscous." For such a market, the time path of afirm's prices acquires added significance, compared with the case ofinstantaneous demand response. In this paper I explore some problems instrategic dynamic pricing of a service, in the presence of viscousdemand, for simple models of a monopoly and a duopoly.

VIRTUAL ORGANIZATIONS: WHAT YOU SEE MAY NOT BE WHAT YOU GET

Wed, 26 Feb 1997 22:58:59 GMT

Title: VIRTUAL ORGANIZATIONS: WHAT YOU SEE MAY NOT BE WHAT YOU GET

Garud, Raghu; Lucas, Henry C.

Abstract: Virtual organizations are new organizational forms comprising a set ofnetwork transactions that differ from those found in markets andhierarchies. This paper explores the nature of these networktransactions through an in-depth study of a virtual firm. The virtualorganization is characterized by constant organizing through virtualteams and alliances, a unique management culture and a set of norms,information and knowledge sharing enabled by information technology, andemployee self-governance. The organization gains from a culture offast-response and efficiency while employees are trusted to exercisediscretion and take initiatives.

Viral Marketing: Identifying Likely Adopters Via Consumer Networks

Fri, 29 Oct 2004 22:58:59 GMT

Title: Viral Marketing: Identifying Likely Adopters Via Consumer Networks

Hill, Shawndra; Provost, Foster; Volinsky, Chris

Abstract: We investigate the hypothesis: those consumers who have communicatedwith a customer of a particular service have increased likelihood ofadopting the service. We survey the diverse literature on such"viral marketing," providing a categorization of the specificresearch questions asked, the data analyzed, and the statistical methodsused. We highlight a striking gap in the literature: no prior study hashad both of the two key types of data necessary to provide directsupport for the hypothesis: data on communications between consumers,and data on product adoption. We suggest a type of service for whichboth types of data are available telecommunications services. Then, fora particular telecommunication service, we show support for thehypothesis. Specifically, we show three main results. 1) there is such a"viral" effect and it is statistically significant, resultingin take rates 3-5 times greater than a baseline group; 2) attributesconstructed from the consumer network can improve models for ranking oftargeted customers by likelihood of adoption, and 3) observing thenetwork allows the firm to target new customers that would have fallenthrough the cracks, because they would not have been identified basedsolely on the traditional set of attributes used for marketing by thefirm. We close with a discussion of challenges and opportunities forresearch in this area. For example, can one determine whether the reasonfor the viral effect is customer advocacy (e.g., via "word ofmouth") versus network-identified homophily?

Viability and Equilibrium in Securities Markets with Frictions

Fri, 26 Feb 1999 22:58:59 GMT

Title: Viability and Equilibrium in Securities Markets with Frictions

Jouini, Elyès; Kallal, Hédi

Abstract: In this paper we study some foundational issues in the theory of assetpricing with market frictions. We model market frictions by letting theset of marketed contingent claims (the opportunity set) be a convex set,and the pricing rule at which these claims are available be convex. Thisis the reduced form of multiperiod securities price models incorporatinga large class of market frictions. It is said to be viable as a model ofeconomic equilibrium if there exist price-taking maximizing agents whoare happy with their initial endowment, given the opportunity set, andhence for whom supply equals demand. This is equivalent to the existenceof a positive linear pricing rule on the entire space of contingentclaims - an underlying frictionless linear pricing rule - that liesbelow the convex pricing rule on the set of marketed claims. This isalso equivalent to the absence of asymptotic free lunches - ageneralization of opportunities of arbitrage. When a market for a nonmarketed contingent claim opens, a bid-ask price pair for this claim issaid to be consistent if it is a bid-ask price pair in at least a viableeconomy with this extended opportunity set. If the set of marketedcontingent claims is a convex cone and the pricing rule is convex andsublinear, we show that the set of consistent prices of a claim is aclosed interval and is equal (up to its boundary) to the set of itsprices for all the underlying frictionless pricing rules. We also showthat there exists a unique extended consistent sublinear pricing rule -the supremum of the underlying frictionless linear pricing rules - forwhich the original equilibrium does not collapse, when a new marketopens, regardless of preferences and endowments. If the opportunity setis the reduced form of a multiperiod securities market model, we studythe closedness of the interval of prices of a contingent claim for theunderlying frictionless pricing rules.

Vertically Differentiated Information Goods: Entry Deterrence, Rivalry Clear-out or Coexistence

Sat, 29 Oct 2005 22:58:59 GMT

Title: Vertically Differentiated Information Goods: Entry Deterrence, RivalryClear-out or Coexistence

Xueqi (David) Wei, Barrie R. Nault

Vertically Differentiated Information Goods: Entry Deterrence, Rivalry Clear-out or Coexistence

Sat, 29 Oct 2005 22:58:59 GMT

Title: Vertically Differentiated Information Goods: Entry Deterrence, RivalryClear-out or Coexistence

Wei, David and Nault, Barrie

Vertical Practices Facilitating Exclusion

Mon, 26 Nov 2012 14:46:51 GMT

Title: Vertical Practices Facilitating Exclusion

Asker, John; Bar-Isaac, Heski

Abstract: Resale price maintenance (RPM), slotting fees, loyalty rebates and otherrelated vertical practices can allow an incumbent manufacturer totransfer profits to retailers. If these retailers were to accommodateentry, upstream competition could lead to lower industry profits and thebreakdown of these profit transfers. Thus, in equilibrium, retailers caninternalize the effect of accommodating entry on the incumbent’sprofits. Consequently, if entry requires downstream accommodation, entrycan be deterred. We discuss policy implications of this aspect ofvertical contracting practices.

Vertical Leverage and the Sacrifice Principle: Why the Supreme Court Got Trinko Wrong

Fri, 29 Oct 2004 22:58:59 GMT

Title: Vertical Leverage and the Sacrifice Principle: Why the Supreme Court GotTrinko Wrong

Economides, Nicholas

Abstract: Trinko, a local telecommunications services customer of AT&T, suedVerizon for anti-competitively raising the costs of AT&T, Verizon'srival in the market for local telecommunications services. Pursuant tothe rules of the Telecommunications Act of 1996, AT&T was leasingparts of the local telecommunications network (unbundled networkelements, 'UNEs') from Verizon at 'cost plus reasonable profit' prices.The Supreme Court held that Trinko's complaint failed to state a claimunder § 2 of the Sherman Act, and dismissed the complaint. I arguethat the Court drew incorrect inferences from its AsPen Skiing decision.The Court also missed a key vertical leveraging issue in Trinko. Theopening of competition mandated by the Telecommunications Act of 1996challenged Verizon's traditional monopoly in the localtelecommunications services market. By raising the cost and/ordecreasing the quality of the service of rivals in the retailingservices market, Verizon aimed to preserve that monopoly. As a result ofthese efforts, rivals suffered a disadvantage. Yet Verizon also causedretailing rivals to lease a lower number of unbundled network elementsand thus incurred a revenue sacrifice. Therefore the actions of Verizonin raising the costs of retailing telecommunications services rivals arean indication of. liability according to the 'sacrifice principle'proposed in the Government's brief in Trinko, according to which adefendant is liable if its conduct "involves a sacrifice ofshort-term profits or goodwill that makes sense only insofar as it helpsthe defendant maintain or obtain monopoly power," even though thesacrifice principle defines a stringent condition for a finding of liability.