A Rose.com by Any Other Name

We document a striking positive stock price reaction to the announcement of corporate name changes to Internet-related dotcom names. This "dotcom" effect produces cumulative abnormal returns on the order of 74 percent for the 10 days surrounding the announcement day. The effect does not appear to be transitory; there is no evidence of a postannouncement negative drift. The announcement day effect is also similar across all firms, regardless of the firm's level of involvement with the Internet. A mere association with the Internet seems enough to provide a firm with a large and permanent value increase.     

Does Board Independence Matter in Companies with a Controlling Shareholder?

A number of studies have reported value discounts for listed companies in countries that provide weak legal protection to minority shareholders. Such studies typically attribute these discounts to the ability, and the well‐documented tendency, of controlling shareholders to extract a disproportionate share of corporate resources for “private benefits.” This tendency and the resulting discounts create a dilemma for those controlling shareholders intent on maximizing value for not just themselves, but all shareholders: How can such controlling shareholders assure their minority shareholders that they will not exploit their power to expropriate resources and so eliminate the discount from their companies' shares? This article investigates the possibility that such discounts can be reduced by appointing boards of directors made up of individuals who are independent of the controlling shareholders. Based on the systematic analysis of some 800 companies representing 22 countries, the authors' recent study reports that corporate values are consistently higher when boards are more independent of controlling shareholders—and that this relationship is especially strong in those countries that afford fewer rights to minority shareholders. What is likely to cause controlling shareholders to appoint more independent directors—a change that, after all, effectively limits the controlling shareholders' power and “degrees of freedom”? The answer provided by the authors is that board independence is most likely to be pursued by companies with controlling shareholders that also have major growth opportunities that must be funded mainly with outside equity.     

Proportionality and the power of unequal parties

In this paper we introduce the concept of an overall power function that is meant to combine two sources of a party's power in a parliament. The first source is based on the possibilities for the party to be part of a majority coalition and it is typically modeled using a cooperative simple game. The second source takes into account parties' asymmetries outside the cooperative game and it is displayed by a vector of exogenously given weights. We adopt a normative point of view and provide an axiomatic characterization of a specific overall power function, in which the weights enter in a proportional fashion.     

On top responsiveness and strict core stability

Alcalde and Revilla [Journal of Mathematical Economics 40 (2004) 869–887] introduce a top responsiveness condition on players’ preferences in hedonic games and show that it guarantees the existence of a core stable partition. In the present note we strengthen this observation by proving that under top responsiveness even the strict core is non-empty.     

Stable governments and the semistrict core

We consider the class of proper monotonic simple games and study coalition formation when an exogenous weight vector and a solution concept are combined to guide the distribution of power within winning coalitions. These distributions induce players' preferences over coalitions in a hedonic game. We formalize the notion of semistrict core stability, which is stronger than the standard core concept but weaker than the strict core notion and derive two characterization results for the semistrict core, depending on conditions we impose on the solution concept. A bounded power condition, which connects exogenous weights and the solution, turns out to be crucial. It generalizes a condition termed “absence of the paradox of smaller coalitions” that was previously used to derive core existence results.     

Corporate Diversification and Credit Constraints: Real Effects across the Business Cycle

We study whether differences in access to credit cause focusedfirms to perform differently from diversified firms in the productmarket. Prior work has identified binding credit constraintsfor bank-dependent firms during recessions. We assess whethercorporate diversification alleviates these constraints. We findthat during recessions sales growth rates drop more for bank-dependentfocused firms than for rival segments of bank-dependent diversifiedfirms. We also find that during recessions inventory growthrates drop more for bank-dependent focused firms than for bank-dependentdiversified firms even after we control for contemporaneoussales growth. Consistent with a credit constraint explanation,we find no difference in the sensitivities to recessions ofbank-independent focused and bank-independent diversified firms.(JEL G30, G31, G32)     

Sell on the news: Differences of opinion,short-sales constraints,and returns around earnings announcements

Miller [1977. Risk, uncertainty, and divergence of opinion. Journal of Finance 32, 1151–1168] hypothesizes that prices of stocks subject to high differences of opinion and short-sales constraints are biased upward. We expect earnings announcements to reduce differences of opinion among investors, and consequently, these announcements should reduce overvaluation. Using five distinct proxies for differences of opinion, we find that high differences of opinion stocks earn significantly lower returns around earnings announcements than low differences of opinion stocks. In addition, the returns on high differences of opinion stocks are more negative within the subsample of stocks that are most difficult for investors to sell short. These results are robust when we control for the size effect and the market-to-book effect and when we examine alternative explanations such as financial leverage, earnings announcement premium, post-earnings announcement drift, return momentum, and potential biases in analysts’ forecasts. Also consistent with Miller's theory, we find that stocks subject to high differences of opinion and more binding short-sales constraints have a price run-up just prior to earnings announcements that is followed by an even larger decline after the announcements.     

Dominant shareholders,corporate boards,and corporate value: A cross-country analysis

We investigate the relation between corporate value and the proportion of the board made up of independent directors in 799 firms with a dominant shareholder across 22 countries. We find a positive relation, especially in countries with weak legal protection for shareholders. The findings suggest that a dominant shareholder, were he so inclined, could offset, at least in part, the documented value discount associated with weak country-level shareholder protection by appointing an ‘independent’ board. The cost to the dominant shareholder of doing so is the loss in perquisites associated with being a dominant shareholder. Thus, not all dominant shareholders choose independent boards.     

Government versus Opposition: Who Should be Who in the 16th German Bundestag?

We model the process of coalition formation in the 16th German Bundestag as a hedonic coalition formation game. In order to induce players' preferences in the game we apply the Shapley value of the simple game describing all winning coalitions in the Bundestag. Using different stability notions for hedonic games we prove that the ``most' stable government is formed by the Union Parties together with the Social Democratic Party.     

Separability and aggregation of equivalence relations

We provide axiomatic characterizations of two natural families of rules for aggregating equivalence relations: the family of join aggregators and the family of meet aggregators. The central conditions in these characterizations are two separability axioms. Disjunctive separability, neutrality, and unanimity characterize the family of join aggregators. On the other hand, conjunctive separability and unanimity characterize the family of meet aggregators. We show another characterization of the family of meet aggregators using conjunctive separability and two Pareto axioms, Pareto⁺ and Pareto^?. If we drop Pareto^?, then conjunctive separability and Pareto⁺ characterize the family of meet aggregators along with a trivial aggregator.