Pensions: the voluntary growth of participation*

In spite of the deepening of the economic recession, the issue of employee participation or industrial democracy has not disappeared from the political or industrial agendas. This article, which reports the findings of a two year UK study at Glasgow University, examines one area of survival—employee participation in the management of pension schemes.     

Consolidation in the financial services industry: Are there industry gains for acquisitions of security firms?

We examine the revaluation of target security firms, their respective acquirers, both banks and non-banks, and their corresponding rivals before and after the major consolidation wave of 1994 to 1997. We find that target security firms as well as their respective acquirers are favorably revalued at the time of their acquisitions. The valuation effects are more favorable for non-bank acquirers and for acquirers with more growth potential and a lower degree of financial leverage. This suggests that investors expect greater synergies for mergers by better capitalized, faster growing, non-bank acquirers. In contrast to previous merger studies that generally find negative wealth effects for acquiring firms, cumulative abnormal returns (CARs) are on average positive for acquirers, targets, and portfolios of competing security firms, with the highest positive CARs for targets.     

A Quarterly Transactions-based Index of Institutional Real Estate Investment Performance and Movements in Supply and Demand

This article presents a methodology for producing a quarterly transactions-based index (TBI) of property-level investment performance for U.S. institutional real estate. Indices are presented for investment periodic total returns and capital appreciation (or price-changes) for the major property types included in the NCREIF Property Index. These indices are based on transaction prices to avoid appraisal-based sources of index “smoothing” and lagging bias. In addition to producing variable-liquidity indices, this approach employs the Fisher-Gatzlaff-Geltner-Haurin (Real Estate Econ., 31: 269–303, 2003) methodology to produce separate indices tracking movements on the demand and supply sides of the investment market, including a “constant-liquidity” (demand side) index. Extensions of Bayesian noise filtering techniques developed by Gatzlaff and Geltner (Real Estate Finance, 15: 7–22, 1998) and Geltner and Goetzmann (J. Real Estate Finance Econ., 21: 5–21, 2000) are employed to allow development of quarterly frequency, market segment specific indices. The hedonic price model used in the indices is based on an extension of the Clapp and Giacotto (J. Am. Stat. Assoc., 87: 300–306, 1992) “assessed value method,” using a NCREIF-reported recent appraised value of each transacting property as the composite “hedonic” variable, thus allowing time-dummy coefficients to represent the difference each period between the (lagged) appraisals and the transaction prices. The index could also be used to produce a mass appraisal of the NCREIF property database each quarter, a byproduct of which would be the ability to provide transactions price based “automated valuation model” estimates of property value for each NCREIF property each quarter. Detailed results are available at .     

The quality of market volatility forecasts implied by S&P 100 index option prices

This study examines the performance of the S&P 100 implied volatility as a forecast of future stock market volatility. The results indicate that the implied volatility is an upward biased forecast, but also that it contains relevant information regarding future volatility. The implied volatility dominates the historical volatility rate in terms of ex ante forecasting power, and its forecast error is orthogonal to parameters frequently linked to conditional volatility, including those employed in various ARCH specifications. These findings suggest that a linear model which corrects for the implied volatility's bias can provide a useful market-based estimator of conditional volatility.     

Manufacturer-supplier relationships: An empirical test of a model of buyer outcomes

Relational buyer-seller exchanges have been the focus of significant research in the past few years. In extending this recent research, the authors draw upon transaction cost analysis and symbolic interactionism to propose and test a model focusing on outcomes of manufacturer-supplier relationships from the perspective of the manufacturer. Data from 157 purchasing executives offer empirical support for the relationships proposed in the model. In the context of acquiring critical items, relational orientation is found to be negatively related to measures of acquisition and possession costs and positively related to perceived product quality, and these variables, in turn, are significantly linked to the buyer's satisfaction with the supplier. Model results also indicate that a relational orientation has both a direct and an indirect link to satisfaction. Implications for both marketing managers and researchers interested in collaborative relationships between buyer and supplier organizations are offered.     

The Limits of Corporate Social Responsibility: Techniques of Neutralization, Stakeholder Management and Political CSR

Since scholarly interest in corporate social responsibility (CSR) has primarily focused on the synergies between social and economic performance, our understanding of how (and the conditions under which) companies use CSR to produce policy outcomes that work against public welfare has remained comparatively underdeveloped. In particular, little is known about how corporate decision-makers privately reconcile the conflicts between public and private interests, even though this is likely to be relevant to understanding the limitations of CSR as a means of aligning business activity with the broader public interest. This study addresses this issue using internal tobacco industry documents to explore British-American Tobacco’s (BAT) thinking on CSR and its effects on the company’s CSR Programme. The article presents a three-stage model of CSR development, based on Sykes and Matza’s theory of techniques of neutralization, which links together: how BAT managers made sense of the company’s declining political authority in the mid-1990s; how they subsequently justified the use of CSR as a tool of stakeholder management aimed at diffusing the political impact of public health advocates by breaking up political constituencies working towards evidence-based tobacco regulation; and how CSR works ideologically to shape stakeholders’ perceptions of the relative merits of competing approaches to tobacco control. Our analysis has three implications for research and practice. First, it underlines the importance of approaching corporate managers’ public comments on CSR critically and situating them in their economic, political and historical contexts. Second, it illustrates the importance of focusing on the political aims and effects of CSR. Third, by showing how CSR practices are used to stymie evidence-based government regulation, the article underlines the importance of highlighting and developing matrices to assess the negative social impacts of CSR.     

Eyes on the prize: How did the fed respond to the stock market?

Since the stock market boom of the 1990s, many have suggested the Federal Open Market Committee (FOMC) has adopted an unannounced policy goal of supporting equity values. This paper offers a new approach to disentangle the relationship between changes in equity values and monetary policy. Specifically, the paper distinguishes the FOMC's reaction to forecasts of traditional goal variables, which may depend on equity prices, from the FOMC's independent reaction to changes in equity prices. By using actual forward-looking variables examined by the FOMC before each action (the “Greenbook” forecasts), the authors find little evidence to support the proposition that the FOMC responds to stock values, except as filtered through a forecast of accepted monetary policy goal variables.     

Accounting contagion: The case of Enron

The Enron scandal offers the opportunity to assess the degree to which misleading accounting can affect connected firms and industry rivals. While the market was inept at detecting the inaccuracy of Enron’s financial statements, it swiftly punished many connected firms once Enron's faulty accounting was publicized. A cross-sectional analysis documents that the market punished connected firms that had greater exposure to Enron’s business, whose financial statements were viewed as more complex, and that had greater financial leverage. Most of the negative news indicating concern with Enron’s accounting corresponded with a significant decline in the stock prices of firms in the energy and natural gas (ENG) industry, regardless of an explicit connection to Enron. Furthermore, rival firms with direct exposure to Enron and more aggressive earnings-reporting methods also experienced more detrimental effects.     

EFFECT OF FEDERAL RESERVE POLICIES ON BANK EQUITY RETURNS

We investigate the reaction of bank equity returns to changes in the relevant Federal Reserve (Fed) policy tool, which is the federal funds rate during periods of interest rate targeting and the discount rate during periods of reserves targeting. Three policy periods from 1974 to 1996 are investigated. We find that bank equity returns are inversely related to changes in the relevant Fed policy tool and that the degree of sensitivity of bank equity returns is conditioned on the direction of the change in the Fed policy tool. Also, we find that values of larger commercial banks and low‐capital‐ratio commercial banks are more exposed to changes in the relevant Fed policy tool. JEL classification: G11, G12, G14.