OPTIMAL ENFORCEMENT AND ANTI‐COPYING STRATEGIES TO COUNTER COPYRIGHT INFRINGEMENT*

In this paper we study the mix of anti‐copying investment strategies by an incumbent firm and the enforcement policies of a government that consists of monitoring and penalizing the copier to address the issue of commercial piracy. If monitoring is socially optimal then the subgame perfect equilibrium anti‐copying investment does not guarantee the prevention of copying. If not monitoring is socially optimal then the subgame perfect equilibrium anti‐copying investment may guarantee the prevention of copying.     

Information Complementarities and the Dynamics of Transparency Shock Spillovers

We show that information complementarities play an important role in the spillover of transparency shocks. We exploit the revelation of financial misconduct by S&P 500 firms, and in a “Stacked Difference-in-Differences” design, find that the implied cost of capital increases for “close” industry peers of the fraudulent firms relative to “distant” industry peers. The spillover effect is particularly strong when the close peers and the fraudulent firm share common analyst coverage and common institutional ownership, which have been shown to be powerful proxies for fundamental linkages and information complementarities. We provide evidence that increase in the cost of capital of peer firms is due, at least in part, to “beta shocks.” Disclosure by close peers—especially those with co-coverage and co-ownership links—also increases following fraud revelation. Although disclosure remains high in the following years, the cost of equity starts to decrease.     

Public Information Precision and Coordination Failure: An Experiment

More precise public disclosure reduces uncertainty about economic fundamentals, but it can increase uncertainty about other agents' actions, leading to coordination failure. We conducted a laboratory experiment to study the effects of public information precision and strategic complementarity on coordination failure. Information precision is operationalized in terms of “granularity” (level of detail). We found that (1) granular public disclosure, which is disaggregated and precise, increases the likelihood of coordination failure and decreases coordination efficiency when public information is pessimistic about future economic prospects; (2) the deleterious effect of granular disclosure is stronger when strategic complementarity is high; and (3) higher levels of strategic complementarity decrease coordination efficiency. Overall, the observed likelihood of coordination failure is higher and coordination efficiency is lower than predicted by theory. Our findings have implications for the Federal Reserve's decision to publicly disclose detailed stress test results for distressed banks, and the debate on whether the Public Company Accounting Oversight Board should publicly release reports on firm‐specific quality‐control deficiencies of audit firms.     

Buyer–Supplier Relationships and the Stakeholder Theory of Capital Structure

Firms in bilateral relationships are likely to produce or procure unique products—especially when they are in durable goods industries. Consistent with the arguments of Titman and Titman and Wessels, such firms are likely to maintain lower leverage. We compile a database of firms' principal customers (those that account for at least 10% of sales or are otherwise considered important for business) from the Business Information File of Compustat and find results consistent with the predictions of this theory.     

Choosing to Disagree: Endogenous Dismissiveness and Overconfidence in Financial Markets

The psychology literature documents that individuals derive current utility from their beliefs about future events. We show that, as a result, investors in financial markets choose to disagree about both private information and price information. When objective price informativeness is low, each investor dismisses the private signals of others and ignores price information. In contrast, when prices are sufficiently informative, heterogeneous interpretations arise endogenously: most investors ignore prices, while the rest condition on it. Our analysis demonstrates how observed deviations from rational expectations (e.g., dismissiveness, overconfidence) arise endogenously, interact with each other, and vary with economic conditions.     

Disclosing to Informed Traders

We develop a model in which a firm's manager can voluntarily disclose to privately informed investors. In equilibrium, the manager only discloses sufficiently favorable news. If the manager is known to be informed but disclosure is costly, the probability of disclosure increases with market liquidity and the stock trades at a discount relative to expected cash flows. However, when investors are uncertain about whether the manager is informed, disclosure can decrease with market liquidity and the stock can trade at a premium relative to expected cash flows. Moreover, contrary to common intuition, public information can crowd in more voluntary disclosure.     

The Cost of Short‐Selling Liquid Securities

Standard models of liquidity argue that the higher price for a liquid security reflects the future benefits that long investors expect to receive. We show that short‐sellers can also pay a net liquidity premium if their cost to borrow the security is higher than the price premium they collect from selling it. We provide a model‐free decomposition of the price premium for liquid securities into the net premiums paid by both long investors and short‐sellers. Empirically, we find that short‐sellers were responsible for a substantial fraction of the liquidity premium for on‐the‐run Treasuries from November 1995 through July 2009.     

How Do Anticipated Changes to Short‐Term Market Rates Influence Banks' Retail Interest Rates? Evidence from the Four Major Euro Area Economies

In this paper, we argue that banks anticipate short‐term market rates when setting interest rates on loans and deposits. In order to include anticipated rates in an empirical model, we use two methods to forecast market rates—a level, slope, curvature model, and a principal components model—before including them in a model of retail rate adjustment for four retail rates in four major euro area economies. Using both aggregate data and data from individual French banks, we find a significant role for forecasts of market rates in determining retail rates; alternative specifications with futures information yield comparable results.     

Disagreement and Learning: Dynamic Patterns of Trade

The empirical evidence on investor disagreement and trading volume is difficult to reconcile in standard rational expectations models. We develop a dynamic model in which investors disagree about the interpretation of public information. We obtain a closed‐form linear equilibrium that allows us to study which restrictions on the disagreement process yield empirically observed volume and return dynamics. We show that when investors have infrequent but major disagreements, there is positive autocorrelation in volume and positive correlation between volume and volatility. We also derive novel empirical predictions that relate the degree and frequency of disagreement to volume and volatility dynamics.