Division Manager Lobbying Power and the Allocation of Capital

We investigate whether division manager lobbying power affects the allocation of capital in multi-divisional firms. We find that firm-level disparities in division manager lobbying power (measured by tenure, time-in-position, board membership, and top executive status) affect capital allocation in expected ways. Managers with greater relative lobbying power compete for capital expenditures from a position of strength. Evidence is also provided which suggests that division manager ownership mitigates lobbying efforts. Furthermore, disparity in division manager lobbying power is associated with lower firm excess value. These results support the view that division manager influence activities impact the operation of internal capital markets.     

Computing the covariance of two Brownian area integrals

We compute the expected product of two correlated Brownian area integrals, a problem that arises in the analysis of a popular sorting algorithm. Along the way we find three different formulas for the expectation of the product of the absolute values of two standard normal random variables with correlation θ . These two formulas are found: (a) via conditioning and the non-central chi-square distribution; (b) via Mehler's formula; (c) by representing the correlated normal random variables in terms of independent normal's and integration using polar coordinates.     

Gains to Mutual Fund Sponsors Offering Multiple Share Class Funds

Although the number of mutual funds grew during the 1990s, much of the growth is attributable to the introduction of multiple share class (MS) funds. Proponents argue that the MS structure leads to cost savings, which can be passed onto investors as lower expenses. However, if the structure lowers costs, sponsors are likely to profit from it. Though investors are concerned about the base expense ratio, the sum of administrative and management fees, fund sponsors generate profits from the management fees. As such, they would prefer to increase the management fee if they can simultaneously lower administrative fees. Our results indicate that MS fund investors pay lower administrative fees, but management fees are approximately 7 basis points higher than single-class funds. Overall, base expense ratios are higher than for single-class funds, suggesting fund sponsors capture the cost benefits the MS structure provides. Our results are robust to different model specifications and different estimation techniques.     

Regulating Information Disclosure in Mutual Fund Advertising in the United States: Will Consumers Utilize Cost Information?

Consumer decision making with regard to mutual funds is less than rational. Consumers tend to focus on past performance and virtually ignore a variable which has a more definite (and negative) impact on wealth—cost. FINRA, the mutual fund industry’s self-regulatory body in the USA, has recently changed its regulations for fund advertising to require that cost information be reported when performance information is present. We conducted an exploratory conjoint study to examine whether consumers might, in fact, use the additional information, and found that despite the highly salient presence of expense information, consumers overwhelmingly continue to use past performance when forming mutual fund preference.     

The Dynamics of Oligopoly Behavior: A Study of the US Cigarette Industry, 1955–90

This paper uses the comparative statics method of testing for a monopoly equilibrium to track the competitiveness of the US cigarette industry between 1955 and 1990. The degree of competition ranged from somewhat less than a Coumot–Nash equilibrium would imply to somewhat more. Although the industry's behavior was highly autocorrelated, there were periodic reversions to behavior that was much more competitive than the trend     

Effects of Market Segmentation and Bank Concentration on Mutual Fund Expenses and Returns: Evidence from Finland

A tremendous amount of research examines US mutual funds, but fund markets also thrive in other countries. However, research about these fast growing markets is lacking. This study addresses Finnish funds. Fast growth of the Finnish fund industry, strong bank dominance in the industry and recent EU membership make it an interesting market to examine. The Finnish fund market is also of particular interest since it had the fastest growth among the EU countries during 1996–2000. We find evidence that bank‐managed and older funds charge higher expenses but investors are not compensated for paying higher expenses with higher risk‐adjusted returns, suggesting a potential agency problem. Overall, Finnish fund expenses have decreased over time, consistent with EU membership reducing market segmentation and generating competition.     

A Schumpeterian view of the Great Merger Movement in American manufacturing

This paper offers a Schumpeterian view of the Great Merger Movement in the American manufacturing industries, which occurred from 1895 to 1904. From this perspective, the Great Merger Movement was a response to competitive pressures associated with a number of significant technological innovations which occurred at the end of the nineteenth century. Because the implementation of these innovations required large capital investments, and because the returns to the investments would have been highly uncertain if they had been made competitively, firms at the turn of the twentieth century sought to restrain competition. Since the uncertainty precluded cooperating at arms-length, cooperation was internalized through horizontal consolidations. The consolidations in turn increased the size of the capital investments undertaken to implement the technological innovations. The theory is supported with historical evidence about the technological environment and industrial conditions at the turn of the twentieth century, and an econometric model is tested using data from the Twelfth and Thirteenth Censuses of Manufactures.     

The customer orientation of financial advisers

Customer orientation, the disposition to meet customers' needs, is central to creating satisfactory relationships with clients. Yet to date, no research has examined the customer orientation of financial planners despite a number of recent scandals in the mutual fund industry that directly affected investors. This research provides survey results from 530 financial advisers regarding their customer orientation levels. The results indicate that financial advisers exhibit very high customer orientation levels, although customer orientation varied across gender, income, and company type. The results also indicate that the importance that advisers place on critical mutual fund characteristics varies according to advisers' level of customer orientation. Finally, the results indicate that advisers with higher customer orientation are more satisfied with their performance in a number of key areas.     

Communication concerns across different accounting constituencies

The literature in accounting education has consistently called for more courses emphasizing instruction in oral communication for accounting students. This paper reports on an exploratory investigation of the communication concerns of three distinct constituencies in accounting: undergraduate students majoring in accounting, graduate students pursuing advanced degrees in accounting, and practicing professional accountants from the midwestern offices of two international public accounting firms. The communication concerns model suggests that the locus of communicators' anxieties or frustrations about communication centers on self-, task-, or impact-related issues, and that these concerns may define areas in which communication instruction is required for individuals to achieve appropriate levels of competency. The results of this study provide support for the predictions of the concerns model and point to its efficacy as a tool for curriculum design.     

Advertising appeals across varying economic and regulatory conditions: A longitudinal content analysis in the mutual fund industry

This research investigates the relationship between the utilization of various appeals in mutual fund advertisements and prevailing market, and regulatory conditions during the period 2000—2009. Mutual fund firms promote their investment products utilizing an array of advertising appeals, including those that highlight performance, product and consistency. We hypothesize that the application of these appeals varies over time and according to market conditions. In addition, the research considers the 2007 regulatory efforts mandating the inclusion of mutual fund expense information in advertisements that promote fund performance. A longitudinal content analysis is utilized to survey the presence and prevalence of various advertising appeals by mutual fund providers in Money magazine from 2000 to 2009. Results reveal that appeal usage varies over time and by market performance. Appeals focusing on performance and product are strongly correlated with market performance, whereas appeals relating to trust are correlated with subpar market performance. In addition, the use of cost information, broadly defined, has become more important over the 2000–2009 period independent of market performance. The implications of these findings and their relationship to government regulation are also discussed.