Risk Aversion and the Bid–Ask Spread

This paper studies the properties of bid and ask prices posted by a monopolistic market maker, without parametric assumptions about the utility function of the market maker or about the probability distribution of the return of the risky asset. We first prove that the two prices can be higher or lower than the expected value of the asset, and that the spread is decreasing in the initial wealth when the market maker exhibits decreasing absolute risk aversion. We conclude by some examples illustrating the fact that almost all shapes can be obtained for the bid–ask spread (as a function of the inventory) depending on the probability distribution of the payment of the risky asset.     

The Effects of Market Network Heterogeneity on Innovation Diffusion: An Agent‐Based Modeling Approach

Innovations usually have an initial impact on very few people. The period of learning or early evaluation precedes the diffusion of the technology into the wider addressed population. More than a transfer, this is best characterized as communication of benefits, costs, and compatibility with earlier technologies and a relative assessment of the new state of the art. Innovation development by an organization or individual creates not just a device (i.e., process or tacit knowledge) but concomitantly a capacity on the part of other organizations or persons to use, adopt, replicate, enhance, or modify the technology, skills, or knowledge for their own purposes. How innovations actually diffuse is to understand the communication of progress, and this framing helps one to design innovations and also design the marketing and testing programs to ready innovations for market and launch them efficiently. Diffusion theory's main focus is on the flow of information within a social system, such as via mass media and word‐of‐mouth communications. This theory presents often in the form of mathematical models of innovation and imitation. Distinct from classical diffusion models, however, consumers are not all identical in how they connect to others within a market or how they respond to information. We examine the effects of various network structures and relational heterogeneity on innovation diffusion within market networks. Specifically, network topology (the structure of how individuals in the market are connected) and the strength of communication links between innovator and follower market segments (a form of relational heterogeneity) are studied. Several research questions concerning network heterogeneity are addressed with an agent‐based modeling approach. The present study's findings are based on simulation results that show important effects of network structure on the diffusion process. The ability to speed diffusion varies significantly according to within‐ and cross‐segment communications within a heterogeneous network structure. The implications of the present approach for new product diffusion are discussed, and future research directions are suggested that may add useful insights into the complex social networks inherent to diffusion. A simple summary is that discovery of significant prime communicator nodes in a network allows innovation development practices to be better calibrated to realistically multiple market segments.     

Exploring the brand value-shareholder value nexus for consumer goods companies

It is generally claimed that brand names are a corporate asset with an economic value that creates wealth for a firm’s shareholders. However, the scholarly literature has neither provided a comprehensive theoretical basis for this claim nor documented an empirical relationship between brand value and shareholder value. This exploratory study describes a rationale for, and documents, the statistical strength and functional form of a brand value-shareholder value relationship for publicly held consumer goods companies in the United States. A theoretical argument supportive of a positive relationship between a firm’s accumulated brand value and market-to-book (M/B) ratio was empirically validated. However, even though firms with higher accumulated brand values have higher M/B ratios, the functional form of the relationship was found to be concave with decreasing returns to scale. Theoretical and managerial implications of these findings are outlined, as well as study limitations and directions for future research. Roger A. Kerin (Ph.D., University of Minnesota) is the Harold C. Simmons distinguished professor of marketing at the Edwin L. Cox School of Business, Southern Methodist University. His research focuses on marketing strategy and product management issues. He has published more than 50 articles appearing in such journals as theJournal of Marketing, theJournal of Marketing Research, Strategic Management Journal, andManagement Science, in addition to authoring four books. He presently serves on numerous editorial review boards and is a former editor of theJournal of Marketing. Raj Sethuraman obtained his Ph.D. from Northwestern University and is an assistant professor at the Edwin L. Cox School of Business, Southern Methodist University. His research focuses on competitive marketing strategies, especially price and advertising strategies. He has published in several journals including theJournal of Marketing Research, Management Science, Marketing Letters, theJournal of Business Research, and theJournal of Consumer Psychology.     

Skilled maintenance work at British Telecom: findings from the Social Change and Economic Life Research Initiative

Here the author examines the relationship of technical change and job skills amongst maintenance workers in telecommunications in Britain. It demonstrates that there are significant variations within different areas of such maintenance work and strongly challenges the notion that such maintenance work is subject to a generic process of deskilling in the present era.     

Design-Based Properties of Linear Calibrated Estimators of a Finite Population Total

We extend Godambe's famous nonexistence theorem to classes of linear calibrated estimators. We also propose a new method for comparing sampling strategies in the design‐based framework without recourse to simulation.     

Accounting Practices and the Market Valuation of Accounting Numbers: Evidence from Indonesia, Korea, Malaysia, the Philippines, Taiwan, and Thailand

This study examines the relation between stock prices and accounting earnings and book values in six Asian countries: Indonesia, South Korea, Malaysia, the Philippines, Taiwan, and Thailand. The analysis is based on a residual earnings model that expresses the value of the firm in terms of book value and residual income. The model holds for any clean surplus accounting system. However, for finite time horizons, biased accounting may affect model estimates. The six countries examined in this study differ in faithfulness to clean surplus accounting as well as bias (conservatism). The study addresses two questions. First, are there systematic differences across countries in the value relevance of accounting, and are these differences related to accounting differences? Second, are there systematic differences in the incremental and relative information content of book value per share (BVPS) and abnormal (residual) earnings per share (REPS) across the countries, and are such differences related to accounting differences? We find differences across the six countries in the explanatory power of BVPS and REPS for firm values. Explanatory power for Taiwan and Malaysia is relatively low while that for Korea and the Philippines is relatively high. These differences are generally consistent with differences in accounting practice; however, since Korean accounting practice is strongly influenced by tax law, we did not expect the high association for Korea. Second, with respect to the incremental and relative explanatory power of BVPS and REPS, we find BVPS to have high explanatory power in the Philippines and Korea but little in Taiwan. In all six countries REPS has less explanatory power than BVPS in most years. Again, the evidence may be interpreted as suggesting accounting practice affects valuation (with Korea again as the exception). Finally, we provide evidence on the sensitivity of the timing of comparisons of stock prices and accounting values. We find that comparing prices at year-end (even though annual accounting information has not been released at that time), in general, provides the highest correlation between market and accounting numbers.