The effect of ASU 2014–08 on the use of discontinued operations to manage earnings

Review of Accounting Studies - Accounting regulations require firms to separately disclose the profits and losses from discontinued operations. These discontinued operations are typically excluded...     

Are college education and job experience complements or substitutes? Evidence from hedge fund portfolio performance

Review of Quantitative Finance and Accounting - We examine, for various educational characteristics of hedge fund managers, the performance profile of hedge fund portfolios along their...     

Stock repurchases: How firms choose between a self tender offer and an open-market program

In practice, open-market stock repurchase programs outnumber self tender offers by approximately 10–1. This evidence is puzzling given that tender offers are more efficient in disbursing free cash and in signaling undervaluation – the two main motivations suggested in the literature for repurchasing shares. We provide a theoretical model to explore this puzzle. In the model, tender offers disburse free cash quickly but induce information asymmetry and hence require a price premium. Open-market programs disburse free cash slowly, and hence do not require a price premium, but because they are slow, result in partial free cash waste. The model predicts that the likelihood that a tender offer will be chosen over an open-market program increases with the agency costs of free cash and decreases with uncertainty (risk), information asymmetry, ownership concentration, and liquidity. These predictions are generally consistent with the empirical evidence.     

Differential Migration Prospects,Skill Formation,and Welfare

This paper develops a one sector, two‐input model with endogenous human capital formation. The two inputs are two types of skilled labor: “engineering,” which exerts a positive externality on total factor productivity, and “law,” which does not. The paper shows that a marginal prospect of migration by engineers increases human capital accumulation of both types of workers (engineers and lawyers), and also the number of engineers who remain in the country. These two effects are socially desirable, since they move the economy from the (inefficient) free‐market equilibrium towards the social optimum. The paper also shows that if the externality effect of engineering is sufficiently powerful, everyone will be better off as a consequence of the said prospect of migration, including the engineers who lose the migration “lottery,” and even the individuals who practice law.     

Evolution and the growth process: Natural selection of entrepreneurial traits

This research suggests that a Darwinian evolution of entrepreneurial spirit played a significant role in the process of economic development and the dynamics of inequality within and across societies. The study argues that entrepreneurial spirit evolved non-monotonically in the course of human history. In early stages of development, risk-tolerant, growth promoting traits generated an evolutionary advantage and their increased representation accelerated the pace of technological progress and the process of economic development. In mature stages of development, however, risk-averse traits gained an evolutionary advantage, diminishing the growth potential of advanced economies and contributing to convergence in economic growth across countries.     

Ownership coordination in a channel: Incentives,returns, and negotiations

In many industries firms have to make quantity decisions before knowing the exact state of demand. In such cases, channel members have to decide which firm will own the units until demand uncertainty is resolved. The decision about who should retain ownership depends on the balance of benefit and risk to each member. Ownership, after all, is costly. Whichever member owns the units accepts the risk of loss if more units are produced than can be sold. But ownership also grants firms the flexibility to respond to demand once it becomes known by adjusting price. In this study, we analyze ownership decisions in distribution channels and how those decisions are affected by demand uncertainty. We model demand based on micro-modeling of consumer utility functions and capture demand uncertainty related to market size and price sensitivity. This study shows that as long as the degree of uncertainty about market size is intermediate, the retailer and the manufacturer both benefit when the manufacturer maintains ownership of the units. But when there is substantial uncertainty about market size, the retailer and the channel are better off if the retailer takes ownership but the manufacturer still prefers to maintain ownership. Thus, there is potential for channel conflict regarding ownership under high levels of uncertainty. We show that, using product returns, the manufacturer can achieve the same outcome under retailer ownership as under manufacturer ownership. This provides an additional new rationale for the prevalence of product returns. The first-best outcome (from the perspective of total channel profit), however, is under retailer ownership without product returns when uncertainty is high (i.e., product returns reduce the total channel profit). Negotiations between the manufacturer and the retailer can lead to the first-best outcome but only under quite restrictive constraints that include direct side payments by the retailer to the manufacturer and the retailer being pessimistic about its outside option (when an agreement cannot be reached) during the negotiation.     

Optimizing service failure and damage control

Should a provider deliver a reliable service or should it allow for occasional service failures? This paper derives conditions under which randomizing service quality can benefit the provider and society. In addition to cost considerations, heterogeneity in customer damages from service failures allows the provider to generate profit from selling damage prevention services or offering compensation to high-damage customers. This strategy is viable even when reputation counts and markets are competitive.     

Strategic Responses to Competitive Pressure: The Case of Township and Village Enterprises in China

This study assesses the configuration between strategic orientation and industrial environment for Chinese township and village enterprises (TVEs), the organizational form which has played an increasingly important role in Chinese economic development and structural reform. We argue that the complexity, dynamism, and hostility of the industrial environment influence TVE managers' perception of competitive pressure, which in turn affects the firm's strategic orientations such as innovativeness, proactiveness, risk-taking, and analysis. Our analysis, based on a survey of TVE managers in Tinjin and Jiangsu, demonstrates that complexity and dynamism of industrial competition have a systematically positive impact on TVE's innovativeness, proactiveness, risk-taking, or analysis. Environmental hostility is not significantly associated with any strategic orientations adopted by Chinese TVEs. Implications of the findings are discussed.     

LOOKING AT THE “POPULATION PROBLEM” THROUGH THE PRISM OF HETEROGENEITY: WELFARE AND POLICY ANALYSES*

Upon introducing heterogeneity and dynamics into a model of the demand for children, a problem of optimal population is defined and analyzed. It is shown that from the perspective of social welfare, better‐educated individuals produce too few children while less‐educated individuals produce too many children and all individuals invest too little in the education of their children. The impact of several policy tools geared at addressing the “population problem” is investigated, in particular how child allowances and other tax‐subsidy policies can be harnessed to enhance welfare, and how and why early childhood education programs can mitigate the “population problem.”     

From political praise to stock options: Reforming compensation systems in the people's republic of China

The recent reforms in the People's Republic of China have brought into focus the system of compensation in Chinese enterprises. This paper examines the evolution of compensation schemes in China, with a special emphasis on the reforms of recent years, the obstacles they face, and the prospects for the future.