Liquidity and market efficiency: A large sample study

Chordia et al. (2008, hereafter CRS) examine short horizon return predictability from past order flows of large, actively traded NYSE firms across three tick size regimes and conclude that higher liquidity facilitates arbitrage trading which enhances market efficiency. We extend CRS to a comprehensive sample of all NYSE firms and examine the dynamics between liquidity and market efficiency during informational periods. Our results indicate that although all NYSE firms experience an overall improvement in market efficiency across periods of different tick size regimes, this improvement varies significantly across the portfolios of sample companies formed on the basis of trading frequency, market capitalization, and trading volume. After controlling for these factors, we further document a positive association between a continuous measure of liquidity and market efficiency, and show that this effect is amplified during periods that contain new information, as reflected in high adverse selection component of the bid-ask spread.     

Underwriter reputation,earnings management and the long‐run performance of initial public offerings

This study contributes to the extant literature on the nature of earnings management surrounding initial public offerings (IPOs) by investigating the role of underwriter reputation. We argue that prestigious underwriters will protect their reputation by carefully monitoring and certifying financial information on IPO firms, thereby limiting any potential earnings manipulation. As a result, those IPO firms that are associated with more prestigious underwriters are likely to exhibit substantially less‐aggressive earnings management. Conversely, we find the existence of a negative relationship between earnings management and the post‐offer performance of an IPO firm’s stocks only for those firms associated with less‐prestigious underwriters.     

Applying the Randomized Response Technique in Business Ethics Research: The Misuse of Information Systems Resources in the Workplace

Mitigating response distortion in answers to sensitive questions is an important issue for business ethics researchers. Sensitive questions may be asked in surveys related to business ethics, and respondents may intend to avoid exposing sensitive aspects of their character by answering such questions dishonestly, resulting in response distortion. Previous studies have provided evidence that a surveying procedure called the randomized response technique (RRT) is useful for mitigating such distortion. However, previous studies have mainly applied the RRT to individual dichotomous questions (e.g., yes/no questions) in face-to-face survey settings. In this study, we focus on behavioral research examining the relationships between latent variables, which are unobserved variables measured by multiple items on Likert or bipolar scales. To demonstrate how the RRT can be applied to obtain valid answers from respondents answering a self-administered online questionnaire with Likert and bipolar scales, we build a behavioral model to study the effect of punishment severity on employees’ attitudes toward misuse of information systems resources in the workplace, which in turn influence misuse behavior. The survey findings meet our expectations. The respondents are generally more willing to disclose sensitive data about their attitudes and actual behavior related to misuse when the RRT is implemented. The RRT’s implications for causal modeling and the advantages and challenges of its use in online environments are also discussed.     

Occupational Segregation and Gender Wage Differentials: Evidence from Malaysia

In Malaysia, the participation of women in the labor market has increased over time. However, occupational segregation and wage differentials continue to be prevalent between men and women in the labor market. The present paper investigates gender‐related occupational segregation and wage differentials based on data collected from 7135 working households in Peninsular Malaysia in 2011. The wage decomposition model introduced by Brown et al. (1980) is used to examine the determinants of gender‐related wage differentials. The results suggest that differences within occupations account for the largest portion of the wage gap between men and women. The results also indicate that wage discrimination within occupations plays an important role in the gender wage gap, while sample selection bias plays an important role in the examination of gender wage gaps.     

Foreign Debt,Foreign Direct Investment and Volatility

We investigate how foreign debt and foreign direct investment (FDI) affect the growth and welfare of a stochastically growing small open economy. First, we find that foreign debt influences the growth of domestic wealth by lowering the cost of capital, while FDI affects the country's welfare by providing an additional source of permanent income. Second, a decline in domestic investment may improve domestic welfare as FDI replaces the gap. Even when the welfare deteriorates, its magnitude is mitigated, leaving more room for discretionary fiscal policy. Third, a fiscal policy aimed to stabilize domestic output fluctuations needs to be conducted not to crowd out the welfare benefit of FDI too much. Fourth, an economy with both types of foreign capital experiences wider welfare swings by external volatility shocks than the one with foreign debt alone, while the welfare effects from domestic volatility shocks are mitigated. The welfare effects of fiscal shocks are much smaller with both types of foreign capital. Lastly, the first-best labor income tax covers the government absorption by the labor's share of total output, and the capital income tax covers the rest. Investment is penalized or subsidized depending on the social marginal cost-gain differential.     

Nesting Horizontal and Vertical Differentiation with Location Choices

This study solves a location‐then‐price game in which horizontal and vertical differentiation are combined using an asymmetric distribution of consumers’ taste. Boundary locations are robust when the taste disparity of the population is not large and out‐of‐market locations are not allowed. Firms may have incentives to move either inside or outside the market in other situations, so the equilibrium prices are never differentiated. The restrictions of vertical differentiation under this framework are further examined. A model with the entrance of a vertically differentiated product is also discussed.     

When do wholly owned subsidiaries perform better than joint ventures?

This study explores when wholly owned subsidiaries outperform joint ventures with local partners. In order to avoid the endogeneity problem inherent in foreign subsidiaries' operating mode decisions that might confound performance measurement, we employ the propensity score matching method, along with the difference‐in‐differences approach, and compare the performances of joint ventures turned wholly owned subsidiaries vis‐à‐vis continuing joint ventures. Based on foreign subsidiaries' financial data in China for 1998–2006, we find strong evidence that converted wholly owned subsidiaries outperform continuing joint ventures in industries characterized by high levels of intangible assets such as technology or brand, after controlling for factors that may affect the conversion decision. This finding is consistent with the prediction of transaction cost theory. Copyright © 2012 John Wiley & Sons, Ltd.     

Static hedging and pricing American knock-in put options

This paper extends the static hedging portfolio (SHP) approach of  and  to price and hedge American knock-in put options under the Black–Scholes model and the constant elasticity of variance (CEV) model. We use standard European calls (puts) to construct the SHPs for American up-and-in (down-and-in) puts. We also use theta-matching condition to improve the performance of the SHP approach. Numerical results indicate that the hedging effectiveness of a bi-monthly SHP is far less risky than that of a delta-hedging portfolio with daily rebalance. The numerical accuracy of the proposed method is comparable to the trinomial tree methods of  and . Furthermore, the recalculation time (the term is explained in Section 1) of the option prices is much easier and quicker than the tree method when the stock price and/or time to maturity are changed.     

The effect of outward investment to China on domestic R&D: a two-hurdle model with endogenous ODI

Outward direct investment (ODI) and domestic R&D are interrelated, but empirical evidence is affected by the nature of a firm's data, which are heavily censored. Firm data contain a firm's yes/no decision to invest in China, yes/no decision of R&D, and the decision of R&D intensity. We thus adopt a two-hurdle model and allow the China investment decision to be endogenous in an R&D model in order to examine the effect of ODI in China on domestic R&D investment in Taiwan's electronics industry. In the model, a two-equation simultaneous subsystem is formed, in which three regression equations are specified: a decision of R&D intensity, and a yes/no decision of location to conduct R&D together with a yes/no decision to invest in China Our results indicate that China investment and R&D intensity are positively related such that ODI in China helps to raise significantly a firm's R&D intensity as compared to the estimate if the endogeneity of China investment and the nature of data were not properly accounted.