The Impact of Automated Reminders on Credit Outcomes: Results from an Experimental Pilot Program

This study evaluates the impact of an automated reminder program designed to help credit counseling consumers manage their payment obligations and financial goals. Credit counseling consumers were randomly assigned to receive reminders linked to their financial goals and payment obligations for one year after an initial credit counseling session. We find that consumers offered reminders were 21% less likely than the control to experience severe (60+ day) payment delinquencies and were 12% less likely to experience a 30+ day delinquency. At the same time, these consumers saw a 10.5 point increase in credit scores relative to the control group. There were no significant impacts on total credit card balances or installment debt levels. This analysis provides promising evidence that automated reminders can provide an important complement to traditional credit counseling when it comes to improving consumers' credit profiles and does so at a fairly low cost.     

Negotiations under the threat of an auction

Many takeovers occur after one-on-one negotiations, which suggests a troubling lack of competition. We seek to determine whether acquirers in such friendly deals are truly insulated from competitive pressures. We study two countervailing influences: (1) potential but unobserved latent competition, i.e., the likelihood that rival bidders could appear, and (2) anticipated auction costs when negotiations fail. Using various proxies, we find that latent competition increases the bid premium offered in negotiated deals and that auction costs reduce the premium.     

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Ohne Zusammenfassung     

Learning, hubris and corporate serial acquisitions

Recent empirical research has shown that, from deal to deal, serial acquirers' cumulative abnormal returns (CAR) are declining. This has been most often attributed to CEOs hubris. We question this interpretation. Our theoretical analysis shows that (i) a declining CAR from deal to deal is not sufficient to reveal the presence of hubris, (ii) if CEOs are learning, economically motivated and rational, a declining CAR from deal to deal should be observed, (iii) predictions can be derived about the impact of learning and hubris on the time between successive deals and, finally, (iv) predictions about the CAR and about the time between successive deal trends lead to testable empirical hypotheses.     

Investor Reaction to Inter-corporate Business Contracting: Evidence and Explanation

We examine the stock market reaction to 1227 inter-corporate ordinary business contract announcements reported by Dow Jones between January 1, 1990 and December 31, 2001. Around contract announcement dates, we find statistically significant positive average abnormal returns and abnormal trading volume for contractors, but insignificant positive abnormal returns and negative abnormal volume for contractees. Cross-sectionally, contract announcement period returns are higher for contractors who are small relative to the contract size, have higher return volatility, larger market-to-book ratios and higher profitability. The announcement period returns of contract-awarding firms are not significant and are only marginally related to cross-sectional explanatory factors. The results are consistent with two explanatory stories: contractor quasi-rents induced by the winner's curse and information signalling about contractor production costs. The results are not consistent with perfect competition, with contracts having positive net present values for both parties, and with a version of incomplete contracting theory.     

Market Liquidity and Trading Activity

Previous studies of liquidity span short time periods and focus on the individual security. In contrast, we study aggregate market spreads, depths, and trading activity for U.S. equities over an extended time sample. Daily changes in market averages of liquidity and trading activity are highly volatile and negatively serially dependent. Liquidity plummets significantly in down markets. Recent market volatility induces a decrease in trading activity and spreads. There are strong day-of-the-week effects; Fridays accompany a significant decrease in trading activity and liquidity, while Tuesdays display the opposite pattern. Long- and short-term interest rates influence liquidity. Depth and trading activity increase just prior to major macroeconomic announcements.     

On computing mean returns and the small firm premium

The mean return computational method has a substantial effect on the estimated small firm premium. The buy-and-hold method, which best mimics actual investment experience, produces an estimated small-firm premium only one-half as large as the arithmetic and re-balanced methods which are often used in empirical studies. Similar biases can be expected in mean returns when securities are classified by any variable related to trading volume.     

Price volatility,international market links,and their implications for regulatory policies

Conclusions The October 1987 stock market crash spawned an abundance of research papers, as scholars attempted to explain what seemed at the time, and to some extent remains, an inexplicable event.Except for the period immediately around the crash, there is only meager evidence that international linkages across markets have become tighter over time. Yet the crash was worldwide in scope, and its similarity across countries was uncanny. Just on the face, this international similarity puts doubt to such explanations as particular macroeconomic events in one country, failure of a given country's market system, or simultaneous changes in underlying fundamentals (which were quite different across countries).Assigning the origination of the crash to one country cannot be entirely ruled out, however, because of the possibility of a non-fully revealing equilibrium contagion process of the type suggested by King and Wadhwani (1988). Such a process would allow a world-wide crash to begin by a particular news event or even by a market mistake in one country. Evidence in favor of this process is that international correlations of returns increased dramatically during the crash period. However, this increase is consistent with other explanations, such as transaction costs hindering international arbitrage except during periods of high volatility.Was the crash the bursting of a bubble? Some evidence seems to support this proposition: for example, in the majority of countries, the pre-crash period displayed significant serial dependence in stock returns, dependence that was definitely not present in the post-crash period. However, further work is necessary to ascertain whether this measured serial dependence is unusual relative to what one would have expected to find, even in a perfectly random process, by choosing a sample period that happened to culminate in a random peak. Ross (1987) shows that such ex post sample period selection will induce upward bias in estimates of serial dependence. Cross-country tests failed to detect this bias, but there are several ambiguities in the tests that will have to be resolved in future work.The crash is history. What implications, if any, does it have for regulatory policy? Is there evidence that popular regulations or rules would have mitigated the crash, or that they would decrease price volatility in general? There is very little evidence in favor of the efficacity of margin requirements, price limits, or transactions taxes. Despite a large number of empirical studies, no one has provided evidence that margin requirements have an impact on volatility. There has been at least one recent paper claiming the contrary, but a careful examination of its methods have uncovered enough problems to cast those results into doubt.As for price limits, there must be a very short-term impact on measured volatility, for the measured market price at a trading halt is likely to understate the direction of movement. Yet even for daily data, the cross-country evidence is slim that price limits reduce volatility, and there is no evidence at all that they work over periods as long as a week. In other words, trading halts caused by limits seem to have no effect on true volatility.Transaction taxes are inversely but insignificantly correlated with volatility across countries, and the effect is too questionable for taxes to be used with confidence as an effective policy instrument.     

Learning from repetitive acquisitions: Evidence from the time between deals

Knowledge gleaned from previous acquisitions may confer valuation expertise and other benefits. But numerous acquisitions also entail costs, due to problems of incorporating diverse units into an ever larger firm. Such benefits and costs are not directly observable from outside the firm. This article proposes a simple model to infer their relative importance, using the time between successive deals. The data requirements are minimal and allow the use of all mergers and acquisitions during 1992–2009 (more than 300,000 deals). The results provide evidence of learning gains through repetitive acquisitions, especially under CEO continuity and when successive deals are more similar.