Long‐run price competition

We generalize the standard repeated‐games model of dynamic oligopolistic competition to allow for consumers who are long‐lived and forward looking. Each period leaves some residual demand to future periods and pricing in one period affects consumers' expectations about future prices. We analyze this setting for an indivisible durable good with price‐setting firms and overlapping cohorts of consumers. The model nests the repeated‐game model and the Coasian durable‐goods model as its two extreme cases. The analysis is mostly focused on constant‐price collusion but conditions for collusive recurrent sales are also identified.     

Effective derivative hedging and initial public offering long‐run performance

We investigate the role of corporate currency risk management through the use of financial derivatives in influencing the long‐run performance of a sample of Australian resources companies. We find that derivative users generally outperformed nonderivative users in the 5‐year period following listing. Effective derivative users consistently outperformed the nonhedgers. Furthermore, within the population of derivative users, effective derivative users tended to perform better than ineffective hedgers. Our results indicate that effective financial risk management plays a role in long‐run IPO performance.     

Estimating dynamic R&D choice: an analysis of costs and long‐run benefits

This article estimates a dynamic structural model of discrete Research and Development (R&D) investment and quantifies its cost and long‐run benefit for German manufacturing firms. The model incorporates linkages between R&D choice, product and process innovations, and future productivity and profits. The long‐run payoff to R&D is the proportional difference in expected firm value generated by the investment. It increases firm value by 6.7% for the median firm in high‐tech industries but only 2.8% in low‐tech industries. Simulations show that reductions in maintenance costs of innovation significantly raise investment rates and productivity, whereas reductions in startup costs have little effect.     

An investigation of the short‐ and long‐run relations between executive cash bonus payments and firm financial performance: a pitch

This letter is a discussion of the application of the pitch template developed by Faff (2015) to a financial accounting research topic. The pitch template focuses ideas into key areas, giving clear and concise direction in planning and structuring the research idea. In this instance, the template is used in a nonlinear manner to develop a research proposal to investigate the relation between cash bonus payments and firm financial performance.     

Does market misvaluation help explain share market long‐run underperformance following a seasoned equity issue?

We examine the relation between pre‐seasoned equity offering (SEO) announcement date misvaluation and long‐run post‐SEO performance for a large sample of Australian SEOs made between 1993 and 2001. Our study is motivated by inconsistent findings across countries with respect to the SEO long‐run underperformance anomaly first documented in the USA, inconclusive findings with respect to the hypothesis that managers exploit market misvaluation when timing equity issues, and a recent Australian Stock Exchange proposal to loosen SEO regulation. We find SEO firms underperform common share market benchmarks for up to 5 years after the announcement. Using a residual income valuation method, we show that this underperformance is related to pre‐announcement date misvaluation. An unexpected result is that underperformance and misvaluation are more severe for private placements than rights issues. Institutional factors unique to the Australian setting, particularly the large number of smaller loss‐making firms among private placement issuers, appear to explain the poorer performance of placement firms. Our results are robust to various measurement methods and assumptions, and demonstrate the importance of researching SEO performance in alternative institutional settings.     

Underwriter reputation,earnings management and the long‐run performance of initial public offerings

This study contributes to the extant literature on the nature of earnings management surrounding initial public offerings (IPOs) by investigating the role of underwriter reputation. We argue that prestigious underwriters will protect their reputation by carefully monitoring and certifying financial information on IPO firms, thereby limiting any potential earnings manipulation. As a result, those IPO firms that are associated with more prestigious underwriters are likely to exhibit substantially less‐aggressive earnings management. Conversely, we find the existence of a negative relationship between earnings management and the post‐offer performance of an IPO firm’s stocks only for those firms associated with less‐prestigious underwriters.     

Market power,price discrimination,and allocative efficiency in intermediate‐goods markets

We consider a monopolistic supplier's optimal choice of two‐part tariff contracts when downstream firms are asymmetric. We find that the optimal discriminatory contracts amplify differences in downstream firms' competitiveness. Firms that are larger—either because they are more efficient or because they sell a superior product—obtain a lower wholesale price than their rivals. This increases allocative efficiency by favoring the more productive firms. In contrast, we show that a ban on price discrimination reduces allocative efficiency and can lead to higher wholesale prices for all firms. As a result, consumer surplus, industry profits, and welfare are lower.     

Costly contracting in a long‐term relationship

We examine a model of contracting where parties interact repeatedly and can contract at any point in time, but writing formal contracts is costly. A contract can describe the external environment and the parties' behavior in a more or less detailed way, and the cost of writing a contract is proportional to the amount of detail. We consider both formal (externally enforced) and informal (self‐enforcing) contracts. The presence of writing costs has important implications both for the optimal structure of formal contracts, particularly the tradeoff between contingent and spot contracting, and for the interaction between formal and informal contracting. Our model sheds light on these implications and generates a rich set of predictions about the determinants of the optimal mode of contracting.     

Design principles for long‐lived Internet agents

Prior research on intelligent Internet agents has failed to address the needs of long‐lived data‐collecting agents, focusing instead on short‐lived transaction agents. Transaction agents typically run for a few seconds and retrieve information for a single transaction. With the staggering growth of electronic commerce, researchers and practitioners will want to design long‐lived data‐collecting agents that intelligently search for, retrieve, interpret, categorize, and store vast amounts of related information each time that they run. Such agents can run over the course of days rather than seconds and can be used by practitioners for decision support applications or by researchers as part of an empirical research methodology. This paper proposes a framework for agent sophistication, and emphasizes a number of design concepts for long‐lived Internet agents, including intelligence, validation, concurrency, recovery, monitoring, and interactivity. These concepts are used in the development of an illustrative tool called Electronic Data Retrieval LexicaL Agent (eDRILL), an object‐oriented data‐collecting agent. eDRILL is designed using the Unified Modeling Language (UML) and is written in Java. It gathers research data from an online auction. © 2000 John Wiley & Sons, Ltd.     

Selling substitute goods to loss‐averse consumers: limited availability,bargains, and rip‐offs

This article derives the optimal pricing and product‐availability strategies for a retailer selling two substitute goods to loss‐averse consumers and shows that limited‐availability sales manipulate consumers into an ex ante unfavorable purchase. The seller maximizes profits by raising the consumers' reference point through a tempting discount on a good available only in limited supply (the bargain), and cashing in with a high price on the other (the rip‐off), which consumers buy if the bargain is not available to reduce their disappointment. The seller might prefer to offer a deal on the more valuable product, using it as a bait.     

Stock price response to new‐CEO earnings news

New‐CEO earnings news exhibits asymmetric effects on stock prices. Stock prices rise more on good earnings news announced by firms with new CEOs compared with those with established CEOs. By contrast, stock prices tend to fall by a smaller amount on bad earnings news for new CEOs. Both the new‐CEO quality effect and the new‐CEO honeymoon effect are more pronounced for CEOs appointed during challenging situations. The new‐CEO quality effect is stronger for firms followed by fewer analysts, while the honeymoon effect is stronger for firms followed by more analysts – illustrating the importance of a transparent information environment.     

A retail benchmarking approach to efficient two‐way access pricing: no termination‐based price discrimination†

We study access pricing rules that determine the access prices between two networks as a linear function of marginal costs and (average) retail prices set by both networks. When firms compete in linear prices, there is a unique linear rule that implements the Ramsey outcome as the unique equilibrium, independently of underlying demand conditions. When firms compete in two‐part tariffs, there exists a class of rules under which firms choose the variable price equal to the marginal cost. Therefore, the regulator can choose among these rules to pursue additional objectives such as increasing consumer surplus or promoting socially optimal investment.     

Durable‐goods oligopoly with secondary markets: the case of automobiles

We study the effects of durability and secondary markets on equilibrium firm behavior in the car market. We construct a dynamic oligopoly model of a differentiated product market to incorporate the equilibrium production dynamics that arise from the durability of the goods and their active trade in secondary markets. We derive an econometric model and estimate its parameters using data from the automobile industry over a 20‐year period. Our estimates are used to provide a measure of the competitive importance of the secondary market.     

Determinants of Investor Demand for Cross‐Listed Firms

By focusing on the decisions of investors to invest in cross‐listed stocks, this paper presents new evidence on why we observe striking differences in the percentage of trade in foreign markets for cross‐listed stocks. With a large sample of Toronto Stock Exchange (TSX) stocks cross‐listed in the U.S. and Canada, we document the effect of investor recognition and risk characteristics on the distribution of trading volume. Firms that are more visible to American investors are traded more heavily in the U.S. At the same time, firms that offer diverse risk characteristics are attractive to Americans. While investors understand the benefits of international diversification, as they are attracted to stocks that are different (e.g., the stock of small firms with few assets in the U.S.), they also seek stocks that provide them with high returns.     

On the asymptotic distribution of the transaction price in a clock model of a multi‐unit,oral, ascending‐price auction within the common‐value paradigm

Using a clock model of a multi‐unit, oral, ascending‐price auction, within the common‐value paradigm, we analyze the behavior of the transaction price as the numbers of bidders and units gets large in a particular way. We find that even though the transaction price is determined by a fraction of losing drop‐out bids, that price converges in probability to the true, but ex ante unknown, value. Subsequently, we demonstrate that the asymptotic distribution of the transaction price is Gaussian. Finally, we apply our methods to data from an auction of taxi license plates held in Shenzhen, China.     

First‐price auctions with resale and with outcomes robust to bid disclosure

Although there exists a pure separating equilibrium of the two‐bidder first‐price auction with resale when the bids are kept secret, the ratchet effect prevents the existence of such an equilibrium if the bidders are heterogeneous and the bids are fully disclosed. Nevertheless, we construct a behavioral equilibrium under full disclosure that is equivalent to the pure separating equilibrium under no disclosure. Thus, if the bidders follow this equilibrium, the choice of the disclosure regime does not affect the final allocation of the item nor the expected payoffs.     

Medicaid and long‐term care: The effects of penalizing strategic asset transfers

Medicaid provides a critical source of insurance for long‐term care, and individuals may strategically offload assets (typically to children) to meet the means‐tested eligibility requirement. In this article, we quantify the extent of such behavior using variation in the penalty for improper parent‐to‐child transfers induced by the Deficit Reduction Act of 2005. We estimate difference‐in‐differences models based on the hypothesis that only individuals with high levels of nursing home risk (high risk) will alter transfers because of the Act. We find that over a 2‐year horizon, high‐risk individuals reduced transfers to children on the extensive margin by 11 percent and that the average total amount of transfers decreased by $4,860. The results hold only for coupled respondents. We also conduct a triple‐differences analysis to examine heterogeneity with financial literacy and find that even those with a low level of financial literacy responded to the penalty.     

Relative Liquidity,Fund Flows and Short‐Term Demand: Evidence from Exchange‐Traded Funds

We show that highly liquid Exchange‐Traded Funds (ETFs), especially those that are more liquid than their underlying basket of securities (i.e., positive relative liquidity), are particularly attractive to investors. Using three definitions of liquidity, we find that relative liquidity predicts net fund flows, as well as inflows and outflows positively and significantly. We further document a liquidity clientele among institutional investors: (i) relative liquidity is significantly more important for short‐ than for long‐term investors; and (ii) relative liquidity is inversely related to investors’ average holding duration in the ETFs. These two findings provide evidence that relative liquidity encourages short‐term demand.