Building Trust Between Consumers and Corporations: The Role of Consumer Perceptions of Transparency and Social Responsibility

Developing trust in a company is a significant part of building the company-consumer relationship. Previous studies have sought to identify the positive consequences of trust such as loyalty and repurchase, but the question of what builds trust remains largely unanswered. To answer the question, we developed a model that depicts the relationships among transparency, social responsibility, trust, attitude, word-of-mouth (WOM) intention, and purchase intention. An online survey was conducted with a US nationwide sample of 303 consumers, and the data were analyzed using the structural equation modeling method. The results indicated that consumers’ perceptions of a corporation’s efforts to be transparent in the production and labor conditions and to be socially responsible by giving back to the local community directly affected these consumers’ trust and attitudes toward the corporation, and indirectly affected their intentions to purchase from and spread positive WOM about the corporation. Theoretical and practical implications are discussed.     

The dark side of competition: Modeling status games

Though “teams” are supposed to work together for the benefit of the firm, suboptimal outcomes may emerge when individuals within a team are more concerned with their own status and outcomes relative to their “teammates,” behaving as if they are competitors. Using a version of the stag hunt coordination game, we develop hypotheses regarding the role of status and competitiveness on coordination on Pareto optimal solutions. We test these hypotheses using three studies, with manipulations for both role and status. Status is found to play a significant role, resulting in suboptimal outcomes for competitors but not teammates.     

The information content of stock split announcements: Do options matter?

We provide a new test of the informational efficiency of trading in stock options in the context of stock split announcements. These announcements tend to be associated with positive abnormal returns. Our traditional event study results show abnormal returns that are significantly lower for optioned than non-optioned stocks, whether traded on the NYSE, Amex, or Nasdaq. After controlling for market returns, capitalization, book-to-market ratio, and trading volume, we find that the abnormal returns are significantly lower for NYSE/Amex optioned than non-optioned stocks. Although the results for Nasdaq stocks are not as clear, the overall effects tend to be lower after optioning. These findings are consistent with the hypothesis that the prices of optioned stocks embody more information, diminishing the impact of the stock split announcement. They provide new evidence of the beneficial effects of options on their underlying stocks.     

ESTIMATING THE EFFECTS OF BROWNFIELDS AND BROWNFIELD REMEDIATION ON PROPERTY VALUES IN A NEW SOUTH CITY

Using data from Charlotte, NC, a New South city without a legacy of heavily contaminated properties, we find the distance from unremediated brownfields—typically former industrial properties believed to have modest contamination—to have no effect on residential sales values, but proposed cleanup and actual remediation have positive, substantial, and significant effects especially within 0.5 miles of the brownfield. Our results are consistent whether we examine all property values within a given distance, such as 0.5 miles, or examine discrete distances, such as 0.3–0.5 miles. An estimate of the benefits is on the order of $4 million. (JEL Q51, Q24, Q28, R52)     

EVIDENCE OF MANAGERIAL TIMING: THE CASE OF EXCHANGE LISTINGS

Before an exchange listing, stock performance is exceptionally high. Earlier research reports that post-listing performance is poor. I document that the post-listing performance of most firms that list on either the American Stock Exchange or the New York Stock Exchange differs little from that of similar stocks that do not list. However, listing stocks that experience the highest pre-listing performance underperform their control stocks after listing. This finding supports the hypothesis that managers can time exchange listings around a peak in stock performance.     

Relevance of organizational capabilities and its dynamics: what to learn from entrants' product portfolios about the determinants of entry timing

The resource‐based view of the firm suggests that the timing of market entry by a firm depends on its resources and capabilities, but several important questions remain. First, in a high‐velocity market where capabilities change quickly, how does entry timing depend on the capabilities at varying points in time? Second, how much flexibility does a firm have in altering its capabilities to achieve desirable entry timing? To answer these questions, this study sets out to develop a dynamic, refined version of the resource‐based view that parameterizes a firm by its time‐varying capability relevance with respect to a focal market, and makes predictions on entry timing and future growth of capability relevance. The study develops a novel approach that uses the entrants' product portfolios to infer a potential entrant's capability relevance. The results based on a panel of potential entrants show that the initial and current capability relevance each affect entry timing alone, revealing the persistent effect of the initial condition. However, given the knowledge of the current capability relevance, the initial relevance has no effect on entry timing, suggesting that the initial relevance affects entry timing through its influence on the current relevance. Firms that are in an initially unfavorable position can still achieve early entry, provided that they improve their capability relevance over time. Copyright © 2008 John Wiley & Sons, Ltd.     

RECENT GROWTH IN NASDAQ TRADING VOLUME AND ITS RELATION TO MARKET VOLATILITY

We document a significant increase in Nasdaq trading volume relative to New York Stock Exchange (NYSE) and American Stock Exchange (AMEX) trading volumes. Although recent increases in the number of shares traded are reported in the financial press, we also find it present in the percentage of dollar values traded. We then examine correlations between trading volume and several measures of market volatility. Nasdaq volume appears to be more closely correlated with residual variance, while NYSE and AMEX volumes are more closely correlated with overall market variance. We conclude that the type and quantity of information driving trading are different on Nasdaq than on the two exchanges, and that the relative growth in Nasdaq volume cannot be attributed solely to differences in the methods of counting volume in the two market environments.     

Network Externalities and Standardization: A Classroom Demonstration

This paper presents a classroom game that can be used to demonstrate network externalities, standardization, and switching costs. In the basic game, students independently choose a technology whose value depends on the total number of students choosing that technology. In the next round, sequential decision making is allowed that quickly leads to standardization. Introducing imperfect information and switching costs into subsequent rounds can lead to the real-world phenomenon of an inferior technology becoming the standard. This exercise can be used in principles of economics classes to teach these important concepts without requiring mathematical models. In more advanced classes, construction of the mathematical model behind the game may be assigned.     

Consumer willingness to pay for sustainable apparel: the influence of labelling for fibre origin and production methods

This study of value‐based labelling for apparel products examined consumer willingness to pay (WTP) for three credence attributes of fibre: origin, type and production method. Experimental auctions were conducted with student subjects in Texas and used socks made from cotton and polylactic acid (PLA), a fibre manufactured from corn. The bid results of two rounds were compared. The first round was conducted without information about the credence attributes of the socks. The second round included varying levels of three types of attributes: fibre origin (imported, US and Texas), fibre type (cotton and corn) and production method [conventional, organic and non‐genetically modified (GM)]. Tobit regression analysis was performed using the attributes and subject demographics to determine consumer WTP for the various attribute levels and to profile consumers with interest in the attributes. In terms of origin, results show that participants were willing to pay a premium for socks with fibres produced in Texas, but not for those produced in the US. Fibre type mattered, with participants requiring a discount once they learned that socks were made with PLA fibre. The greatest premium ($1.86) was placed on socks labelled as organic, slightly more than the premium for socks labelled as non‐GM. The results also indicate that women were less willing to pay for US fibres than men, and Hispanics were less willing to pay for organic or non‐GM fibre production. A key finding of this study is that consumers value information about the local origin of fibres. The premium for organic fibres is not unexpected, given the success of the organic apparel market, but the premium on non‐GM fibres suggests that sustainable production systems that are not organic may be successful if they emphasize other attributes such as local or non‐GM.