The effect of information releases on the pricing and timing of equity issues

With time-varying adverse selection in the market for new equityissues, firms will prefer to issue equity when the market ismost informed about the quality of the firm. This implies thatequity issues tend to follow credible information releases.In addition, if the asymmetric in information increases overtime between information releases, the price drop at the announcementof an equity issue should increase in the time since the lastinformation release. Using earning releases as a proxy for informativeevents, we find evidence supporting these propositions.     

Leadership run amok. The destructive potential of overachievers

The desire to achieve is a major source of strength in business, and it is on the rise. The authors' consulting firm has seen a steady increase in the extent to which achievement motivates managers. There's a dark side to the trend, however. By relentlessly focusing on tasks and goals, an executive or company can damage performance. Overachievers tend to command and coerce, stifling subordinates. Psychologist David McClelland identified three drivers of behavior: achievement, meeting a standard of excellence; affiliation, maintaining close relationships; and power, having an impact on others. He said the power motive comes in two forms: personalized, in which the leader draws strength from controlling people, and socialized, where the leader derives strength from empowering people. Studies show that great charismatic leaders are highly motivated by socialized power. To look at how motives and leadership style affect a group's work climate and performance, the authors studied 21 senior managers at IBM.The leaders who created high-performing and energizing climates got more lasting results by using a broad range of styles, choosing different ones for different circumstances. Rather than order people around, they provided vision, sought buy-in and commitment, and coached. If you're an overachiever seeking to broaden your range, you can study your actions and ask your team, peers, and manager to give you honest feedback. You can adopt specific new behaviors, such as engaging your team in a discussion of how to achieve goals, rather than issuing a set of directives. The company as a whole can play a part, too: Organizations must learn when to draw on the achievement drive and when to rein it in.     

THE IMPACT OF PRICES AND CONTROL POLICIES ON CIGARETTE SMOKING AMONG COLLEGE STUDENTS

Smoking among youths and young adults rose throughout the 1990s. Numerous policies were enacted to try to reverse this trend. However, little is known about the impact these policies have on the smoking behavior of young adults. This article uses a dichotomous indicator of daily smoking participation in the past 30 days, an ordered measure representing the frequency of cigarette consumption, and a quasi-continuous measure of the number of cigarettes smoked per day on average to examine the impact of cigarette prices, clean indoor air laws, and campus-level smoking policies on the smoking behaviors of a 1997 cross section of college students. The results of the analysis indicate that higher cigarette prices are associated with lower smoking participation and lower levels of use among college student smokers. Local- and state-level clean indoor air restrictions have a cumulative impact on the level of smoking by current smokers. Complete smoking bans on college campuses are associated with lower levels of smoking among current smokers but have no significant impact on smoking participation. Bans on cigarette advertising on campus as well as bans on the sale of cigarettes on campus have no significant effect on the smoking behavior of college students.     

Legislating stock prices

We demonstrate that legislation has a simple, yet previously undetected, impact on stock prices. Exploiting the voting record of legislators whose constituents are the affected industries, we show that the votes of these “interested” legislators capture important information seemingly ignored by the market. A long-short portfolio based on these legislators' views earns abnormal returns of over 90 basis points per month following the passage of legislation. Industries that we classify as beneficiaries of legislation experience significantly more positive earnings surprises and positive analyst revisions in the months following passage of the bill, as well as significantly higher future sales and profitability. We show that the more complex the legislation, the more difficulty the market has in assessing the impact of these bills. Further, the more concentrated the legislator's interest in the industry, the more informative are her votes for future returns.     

The role of existentialism in ethical business decision‐making

This paper presents an integrated model of ethical decision‐making in business that incorporates teleological, deontological and existential theory. Existentialism has been curiously overlooked by many scholars in the field despite the fact that it is so fundamentally a theory of choice. We argue that it is possible to seek good organisational ends (teleology), through the use of right means (deontology), and enable the decision‐maker to do so authentically (existentialism). More specifically, we provide a framework that will enable the decision‐maker to integrate the various ethical schools of thought available to them and to apply this framework in the ethical decision‐making process. The model presented makes explicit the existential position of choice and takes into account other contextual moderating factors. Negative Option Marketing is used as a running application to illustrate the role of existentialism in the decision‐making process.     

Differences of Opinion and the Cross Section of Stock Returns

We provide evidence that stocks with higher dispersion in analysts' earnings forecasts earn lower future returns than otherwise similar stocks. This effect is most pronounced in small stocks and stocks that have performed poorly over the past year. Interpreting dispersion in analysts' forecasts as a proxy for differences in opinion about a stock, we show that this evidence is consistent with the hypothesis that prices will reflect the optimistic view whenever investors with the lowest valuations do not trade. By contrast, our evidence is inconsistent with a view that dispersion in analysts' forecasts proxies for risk.     

Asymmetric information and the medium of exchange in takeovers: theory and tests

In a model of takeovers under asymmetric information, we identifya separating equilibrium in which the value of the bidder firmis revealed by the mix of cash and securities used as paymentfor the target. The model predicts that the revealed biddervalue is monotonically increasing and convex in the fractionof the total offer that consists of cash. We examine the modelrestrictions using data from Canada, where mixed offers areboth relatively frequent and free of the confounding tax-relatedoptions characterizing mixed offers in the United States. Wefind that the average announcement-month bidder abnormal returnin mixed offers is large and significant. However, maximum likelihoodestimates of parameters in both linear and nonlinear cross-sectionalregressions fail to support the model predictions.     

European monetary union and asymmetric shocks in a new Keynesian model

This paper attempts to quantify the costs imposed by asymmetricshocks under European Monetary Union compared to free floating.A simple two-country model is examined where policy is set inan optimal, time consistent manner. Nominal and real rigiditiesare present in both economies, but prices are set in a forwardlooking manner and expectations are rational. Results suggestthat the costs of asymmetric shocks under EMU may be significantlyhigher than under free floating, particularly if fiscal policyis not used for demand management.