Renters,landlords, and farmland stewardship

Are farmers better stewards of the land they own than the land they rent from others? We answer this question using a data set that identifies Ontario farmers’ conservation practices on their own land as well as the land they rent. Using a fixed‐effects regression approach, we find that the role of tenure varies for different types of conservation practices. Farmers were found to be just as likely to adopt a machinery‐related practice such as conservation tillage on their rented land as that land which they own. On the other hand, farmers were found to be less likely to adopt site‐specific conservation practices such as planting cover crops on rented land. However, this effect diminishes as the expected length of the rental relationship increases when the landlord has a farming background.     

CAN INEFFICIENT TRADERS CREATE VALUE?

I examine the aggregate expected profit generated by informed traders of diverse ability in a competitive market. I assume that efficient traders get perfect information on asset values whereas inefficient traders get noisy information. In the presence of order size restrictions, I show that the aggregate expected profit generated by efficient and inefficient traders together can be higher than that generated by efficient traders alone. Thus, inefficient traders can create value in a constrained trading environment.     

Who Herds? Who Doesn't? Estimates of Analysts’ Herding Propensity in Forecasting Earnings

We develop parametric estimates of the imitation‐driven herding propensity of analysts and their earnings forecasts. By invoking rational expectations, we solve an explicit analyst optimization problem and estimate herding propensity using two measures: First, we estimate analysts’ posterior beliefs using actual earnings plus a realization drawn from a mean‐zero normal distribution. Second, we estimate herding propensity without seeding a random error, and allow for nonorthogonal information signals. In doing so, we avoid using the analyst's prior forecast as the proxy for his posterior beliefs, which is a traditional criticism in the literature. We find that more than 60 percent of analysts herd toward the prevailing consensus, and herding propensity is associated with various economic factors. We also validate our herding propensity measure by confirming its predictive power in explaining the cross‐sectional variation in analysts’ out‐of‐sample herding behavior and forecast accuracy. Finally, we find that forecasts adjusted for analysts’ herding propensity are less biased than the raw forecasts. This adjustment formula can help researchers and investors obtain better proxies for analysts’ unbiased earnings forecasts.     

Examining bank SEOs: Are offers made by undercapitalized banks different?

Despite extensive monitoring, banking operations are often considered opaque, and despite explicit capital adequacy regulation, banks may have substantial discretion in their financing. Both monitoring and capital regulation have changed substantially over time, with the adoption of FDICIA being one important breakpoint. This article empirically studies seasoned equity offerings (SEOs) by banks to understand how opacity and capital regulation interact to determine the timing of bank SEOs and their market valuation. SEOs both by banks that are undercapitalized relative to regulatory standards and also well-capitalized banks are fully discretionary when it comes to SEOs, even before FDICIA. Both undercapitalized and well-capitalized banks experience similar and significantly negative stock price reactions to SEO announcements, and also have similar prior patterns of insider trading and similar economic drivers of the issuance decision. Moreover, post-SEO abnormal stock returns are similar to benchmark returns for both types of issuers in the long run, suggesting that, contrary to the well-documented evidence for industrial SEOs, investors understand the value implications of bank SEOs upon announcement. The evidence implies that undercapitalized banks' SEOs are more discretionary and that all bank SEOs are less opaque than implied by earlier studies.     

Supplier Selection Practices among Small Firms in the United States: Testing Three Models

One of the issues investigated in recent studies on small business enterprises involves the role of supply chain management. Supply chain management has become an important part of strategic planning in both large and small businesses in the 1990s as firms increasingly choose outsourcingas an externally-driven strategic growth path. This study examines the supplier selection practices among 78 small business executives in the midwest United States by testing three models: rational/normative, external control, and strategic choice. Although the results show support for all three models, the rational/normative model emerges as the most significant model for predicting the supplier selection practices of small firms.     

Predicting credit spreads

Predictions of firm-level credit spreads based on the current spot and forward credit spreads can be significantly improved upon by using the information contained in the shape of the credit-spread curve. However, the current credit-spread curve is not a sufficient statistic for predicting future out-of-sample credit spreads; predictions can be significantly improved upon by exploiting the information contained in the shape of the riskless yield curve. In the presence of credit-spread and riskless factors, other macroeconomic, marketwide, and firm-specific risk variables do not significantly improve predictions of credit spreads. These results have important implications for credit-spreads modeling as well as for better understanding corporate capital structure and risk management policies.     

Are non‐audit services associated with firm value? Evidence from financial information system‐related services

The purchase of non‐audit services from incumbent auditors has generated considerable attention. Surprisingly, limited empirical evidence exists on the association of non‐audit services with firm value. Focusing on services related to financial information system (FIS), we find that the market value of equity is greater for firms that purchase FIS‐related services from their incumbent auditors relative to firms that do not. The levels of FIS fees are also positively related to firm value after controlling for total other fees, or total other non‐audit fees. Hence, despite the negative perception associated with non‐audit services, investors regard FIS‐related services as value‐adding activities.     

How do small firms possibly survive? A comparison study of marketing skills and logistics infrastructure of small and large wholesalers

Most wholesalers are small family-owned firms that frequently lack marketing skills and an infrastructure capable of setting into practice state-of-the-art marketing distribution systems. They are much more consumed with daily activities and credit and collection functions than they are with developing marketing skills and logistics networks. The purpose of this exploratory study is to identify the elements of marketing skills and logistics that are associated with the performance of small and large wholesalers, and to compare and contrast these variables. Data were collected from 4500 small and large wholesalers in Hyogo and Osaka prefectures in Japan. Multiple regression analysis of this study found that the factors of supplier's financial assistance and buyer's services to wholesalers explained the performance of small wholesalers, and the factors of supplier's service to wholesalers and buyer's service to wholesalers explained the performance of large wholesalers. Multivariate analysis of variance and multiple discriminant analysis revealed that large and small wholesalers differed with respect to supplier's services to wholesalers, the supplier's financial assistance, and the wholesaler's intra logistics activities. Implications are discussed.