Price‐Match Announcements in a Consumer Search Duopoly

Using a model of sequential search, we show that announcements to price‐match raise prices by altering consumer search behavior. First, price‐matching diminishes firms’ incentives to lower prices to attract consumers who have no search costs. Second, for consumers with positive search costs, price‐matching lowers the marginal benefit of search, inducing them to accept higher prices. Finally, price‐matching can lead to asymmetric equilibria where one firm runs fewer sales and both firms tend to offer smaller discounts than in a symmetric equilibrium. Price increases grow in the proportion of consumers who invoke price‐matching guarantees and in the level of equilibrium asymmetry.     

Price‐Setting Behavior of Korean Firms†

This paper investigates a pattern of price revision by firms in Korea and sheds light on the cause of price stickiness by providing reliable statistical estimates for calibration of the parameters of the widely‐used macro‐models. Based on firm‐level survey data and using a probit model, we identify the firm characteristics or market conditions that discourage firms from carrying out state‐dependent price adjustment. We also estimate the factors driving firms to engage in state‐dependent adjustment rather than wait until the next scheduled revision under three different shocks: demand, general cost and exchange rate shocks. We find a few interesting features, as follows. First, price revision by Korean firms tends to be time‐dependent rather than state‐dependent, with a sizable dispersion across sectors and firm sizes. Second, the pattern of price revision in Korea is not significantly different from that in selected advanced economies. Third, the reason why firms favor time‐dependent price adjustments appears to be endogenous, accounted for by a number of market institution variables. Fourth, in response to shocks, Korean firms tend to wait until the next periodically scheduled revision rather than make a state‐dependent price adjustment, unless marginal costs are affected significantly by the shock, and state‐dependent revisions are often significantly delayed when they do occur.     

Why Do Large Firms' Prices Anticipate Earnings Earlier than Small Firms' Prices?*

This paper presents evidence that the positive association between firm size and price leads of earnings is not solely a function of private search incentives for firm‐specific information. Specifically, we find that small‐firm prices also lag large‐firm prices with respect to industry‐wide information. Our empirical analysis extends Collins, Kothari, and Rayburn 1987 and Freeman 1987, who document that security‐price leads of earnings are positively associated with market capitalization. In particular, we examine the association between firm size and the timing of security returns for two components of annual earnings changes: the average change for a firm's industry and the firm's idiosyncratic change. We find that large firms' prices have a longer lead than small firms' prices with respect to both components. Large firms' early lead on industry‐wide earnings suggests that returns of large firms predict returns of same‐industry small firms. To test this implication, we construct a portfolio of long (short) positions in small firms when the prior month's returns of large firms in their industry are above (below) average for large firms in other industries. This zero investment portfolio earns 4.5 percent over 12 months.     

Energy price shocks,monetary policy and China's economic fluctuations

This paper develops a New Keynesian dynamic stochastic general equilibrium model with energy factors to study various channels through which China's economic fluctuations are linked to energy price shocks and to search for the optimal monetary policy to cope with energy price shocks. We conclude that there are channels through which changes in energy prices will have the following cause–effect relationships. First, a rise in energy price as a negative technology shock will raise the costs of providing capital services per unit of capital, thereby reducing output. Second, a rising energy price distorts the intertemporal choices of households and firms, creating downward pressure on the expected future return on capital. Third, an energy price shock places upward pressure on the marginal costs associated with an increase in inflation. Numerical simulation results show that a positive energy price shock has a positive effect on energy technology improvements. In addition, the effects of energy price shocks can be mitigated by nominal rigidities, and interest rate rules will determine the magnitude of those effects. Using the efficient frontier method, we also show that optimal monetary policy in China should help control energy price volatility.     

Earnings Management under Price Regulation*

Price controls¹ have a major impact on firms' earnings and cash flows. Because price control regulation is costly to firms, it is a type of regulatory intervention that can impact a firm's accounting decisions (Watts and Zimmerman, 1978). Thus, regulatory changes that give firms relief from price controls provide incentives for earnings management. This paper examines discretionary accruals made by New Zealand manufacturing firms in response to two sets of regulations issued in 1971 and 1972. These regulations allowed manufacturing firms to apply for price increases to gain relief from financial hardship caused by the 1970 Price Freeze Regulation. Using a modified accruals mode! that adjusts for price-level movements, the paper tests discretionary accruals of two samples of manufacturing firms and one control sample of nonmanufacturing firms. The results provide evidence of income decreasing discretionary accruals by manufacturing firms for the years during which they could apply for price increases. The control firms do not exhibit significant discretionary accruals in 1971 or 1972. Also, this paper provides evidence that failing to adjust for price-level movements in high inflationary periods could result in inferences of income decreasing discretionary accruals where none may exist.     

Price Dispersion in Online Grocery Stores: An Analysis of the UK Market

Search costs is the key determinant of price variance in offline markets. Yet, despite the lack of significant search costs, it is observed that price dispersion in online grocery markets still exist. This paper explores the possible determinants of this phenomena through an empirical model. Price data was gathered for the period of thirteen weeks for twenty-one product categories. In essence, the findings suggest that there is an indication of a price-quality relationship, but more significantly, retailers undertake randomized pricing strategies, culminating in sporadic price changes across the given time period.     

Output price fluctuations,short-run profits and long-run industry size with input market equilibrium effects

Conclusions In this paper, input market equilibrium effects are incorporated into an analysis of output price fluctuations. In particular, it is shown that an increase (decrease) in output price may not necessarily lead to an increase (decrease) in the shortrun profit of a firm operating in a competitive product market. The firm's profit may not necessarily be convex in output price. Hence,ex-post flexibility in production does not guarantee the preference for price instability by risk-neutral firms. Finally, in longrun equilibrium, a mean-preserving spread in output price may increase or reduce the equilibrium number of firms.     

Too big to change: How heterogeneous firms respond to time-of-use electricity price

To manage the peak load by demand response, time-of-use (TOU) pricing with hourly and seasonal adjustments has been applied in industrial and commercial sectors in Shanghai. However, the requirement of continuous production and exogenous output level might be a serious barrier for responding to TOU price, as these are different across industrial sectors, firm scale or even seasons. Thus, the extent to which heterogeneous firms respond to price signals is still ambiguous and worthy of exploration. Based on a regression discontinuity approach, we disentangle the firm-level effects of TOU pricing for industrial and commercial firms. While the overall result shows a nonsignificant average response to TOU pricing, the firm-level analysis concerning individual heterogeneity indicates that smaller firms are much more sensitive to TOU pricing than larger firms. Moreover, this effect is much more significant in the commercial sector. This study expands understanding of the heterogeneous effects of TOU pricing with consideration of firm-level information and fills the gap between different estimation results from the previous literature. The results also indicate a price policy failure and unbalanced effects on industrial and commercial firms.     

Volatility transmission for cross-listed firms and the role of international exposure

We find empirical evidence suggesting that the volatility dynamics of Japanese firms cross-listed in the US is characterized as a Meteor Shower with Country-Specific News. Furthermore, we find differences in volatility dynamics depending on the international exposure of firms. These differences are consistent with a higher contribution of foreign traders (foreign markets) to the price discovery process of Japanese firms with higher international exposure, and with a news-correlated process for these firms. We also find weaker empirical evidence suggesting a higher contribution of Japanese traders to the price discovery process of Japanese firms with lower international exposure.     

CEO Overconfidence and Stock Price Crash Risk

This study examines the association between chief executive officer (CEO) overconfidence and future stock price crash risk. Overconfident managers overestimate the returns to their investment projects and misperceive negative net present value (NPV) projects as value creating. They also tend to ignore or explain away privately observed negative feedback. As a result, negative NPV projects are kept for too long and their bad performance accumulates, which can lead to stock price crashes. Using a large sample of firms for the period 1993–2010, we find that firms with overconfident CEOs have higher stock price crash risk than firms with nonoverconfident CEOs. The impact of managerial overconfidence on crash risk is more pronounced when the CEO is more dominant in the top management team and when there are greater differences of opinion among investors. Finally, it appears that the effect of CEO overconfidence on crash risk is less pronounced for firms with more conservative accounting policies.     

Do politically connected independent directors matter? Evidence from mandatory resignation events in China

This paper investigates the contributions of politically connected independent directors to shareholder value by examining stock price reactions to their mandatory resignations. Employing an event study, we find that, if a private firm loses its politically connected independent director due to mandatory resignation, its stock price drops 4.61% on average within ten trading days, compared with control firms. We observe that, compared with independent directors from academia, politically connected independent directors are absent from more board meetings and are reluctant to express dissenting opinions even if they attend meetings. So the negative stock price reaction cannot be mainly explained by the loss of supervisory functions after politically connected independent directors were forced to resign from positions. By employing DID estimation, we further find that the economic benefits obtained by private firms decrease after the mandatory resignation. The heterogeneity and robustness checks further confirm that private firms indeed were unable to get the same amount of economic benefits from the government as before, which provides a reasonable explanation for the negative stock price reaction after mandatory resignations of politically connected independent directors.     

Real estate prices and firm borrowings: Micro evidence from China

Real estate price appreciation can lessen firm's financial constraint by increasing its collateral value. This paper studies this channel by utilizing a large firm-level dataset during the 2000–2007 period on Chinese firms. In contrast to Wu, Gyourko, and Deng (2015) that collateral channel effect in China does not exist either for firms overall or for private firms, we provide empirical evidence on the presence of collateral channel effect and show the effect is significant for private firms but not significant for state owned enterprises, whose behavior is more of political based. Further analysis shows that firms significantly change their debt structures in response to real estate price shocks.     

Voluntary Disclosure and Equity Offerings: Reducing Information Asymmetry or Hyping the Stock?*

We examine corporate disclosure activity around seasoned equity offerings and its relationship to stock prices. Beginning six months before the offering, our sample issuing firms dramatically increase their disclosure activity, particularly for the categories of disclosure over which firms have the most discretion. The increase is significant after controlling for the firm's current and future earnings performance and tends to be largest for firms with selling shareholders participating in the offering. However, there is no change in the frequency of forward‐looking statements prior to the equity offering, something that is expressly discouraged by the securities law. Firms that maintain a consistent level of disclosure experience price increases prior to the offering, and only minor price declines at the offering announcement relative to the control firms, suggesting that disclosure may have reduced the information asymmetry inherent in the offering. Firms that substantially increase their disclosure activity in the six months before the offering also experience price increases prior to the offering relative to the control firms, but suffer much larger price declines at the announcement of their intent to issue equity, suggesting that the disclosure increase may have been used to “hype the stock” and the market may have partially corrected for the earlier price increase. Firms that maintain a consistent disclosure level have no unusual return behavior relative to the control firms subsequent to the announcement, while the firms that “hyped” their stock continue to suffer negative returns, providing further evidence that the increased disclosure activity may have been hype, and suggesting that the hype may have been successful in lowering the firms' cost of equity capital.     

Pricing to market, firm heterogeneity and the role of quality

We build a pricing-to-market (PTM) model with firm heterogeneity, which allows for imperfect competition and market segmentation in the presence of flexible exchange rates, horizontal and vertical differentiation and different tastes of consumers in destination markets. We derive firm’s pricing behaviour in response to price and quality competition shocks. We show that there is PTM heterogeneity across firms if quality has a role. We empirically assess the main predictions of our theoretical framework on Italian firm-level data. We document that export-domestic price margins are significantly affected by price and quality competitiveness factors even controlling for foreign demand conditions, size, export intensity, destination markets and unobservables. Finally, we provide evidence of strong heterogeneity across firms in their reaction to price and quality competitiveness.     

How revolving-door recruitment makes firms stand out in land market: Evidence from China

The fact that firms seek political connections through revolving-door recruitment is widely acknowledged around the world. Using an original database including the information of listed firms' board members and parcel-level land transaction records, this paper documents how revolving-door recruitment makes firms stand out in China's land market. We show that firms with revolving-door recruitment receive special deals in land transactions, which are simultaneously reflected in the quantity and price of land. Specifically, connected firms buy more parcels and larger areas of land in the primary land market. Due to the particularity of industrial land, price discounts are only identified for commercial and residential land, while not for industrial land. Measuring economic activity by night light intensity, we find no evidence that land transaction under the influence of political connections has a negative impact on economic activity on land. Our research advances the understanding that the state-business relationship is an essential factor in resource allocation in an emerging market with government intervention.     

Market Performance Implications of the Transfer Price Rule

The “transfer price rule” (TPR) defines a vertical price squeeze as an input price, output price combination set by a vertically‐integrated firm monopoly producer of an essential input that would not allow the firm's downstream unit to earn at least a normal rate of return on investment in the “as‐if” case that it had to purchase the input at the price charged independent firms. In its 2009 linkLine decision, the U.S. Supreme Court rejected the TPR for the purpose of enforcing the anti‐monopolization prohibition of Section 2 of the Sherman Act. In contrast, a vertical price squeeze, defined by a TPR‐like standard, is an abuse of a dominant position under Article 102 of the Treaty on the Functioning of the European Union. In this article, we model the impact of the TPR on market performance. We find that the TPR increases consumer surplus and net social welfare if all firms remain active in the downstream market. It sometimes induces the upstream firm to refuse to supply the downstream firm, and in such cases, consumer surplus and net social welfare are reduced. The impact of the TPR on market performance thus depends on whether or not an upstream firm can refuse to supply downstream firms on terms that would offer it at least a normal rate of return on investment.     

Do Corporate Site Visits Impact Stock Prices?

We examine the stock price impact of corporate site visits using a unique data set of site visits to listed firms in China. Our main findings are as follows. First, the market reaction around corporate site visits is statistically and economically significant and is stronger for group visits, visits conducted by mutual fund managers, visits covering accounting and finance topics, visits to firms with poor information environments, and visits to manufacturing firms. Second, the stock returns around site visits are positively associated with firms’ future performance. Third, the changes in visiting funds’ holdings are more predictive of firms’ future performance than those of nonvisiting funds. Overall, this study contributes to the literature by providing evidence that site visits are important venues for investors to collect information about firms and make informed trades.     

Price Discrimination and Efficient Distribution

This paper focuses on third‐degree price discrimination by an upstream firm with some degree of monopoly power. Downstream firms fall into two categories: efficient and inefficient, according to their relative costs of transforming a unit of the upstream good into a unit of final product. Under ordinary static conditions, price discrimination favors the inefficient firms, which have more elastic demands. We consider, however, the possibility that discrimination in the opposite direction can alter the downstream market structure toward greater efficiency. Discriminatory pricing, then, involves charging a higher price to the less efficient firms. Such pricing is shown to be both potentially profitable for the upstream firm and welfare improving as average consumer prices fall.     

Pricing of Initial Audit Engagements by Large and Small Audit Firms*

We investigate the extent to which auditors of U.S. companies reduce fees on initial audit engagements (“fee discounting”). We hypothesize that rivalries among sellers, in terms of client turnover and price competition, are more intense among small audit firms. The data support this hypothesis. New clients account for 34 percent of all clients for small audit firms, but only 9 percent of all clients for large audit firms. We theorize that differences in client turnover rates between large and small audit firms can be explained by the market structure of the audit industry, which consists of an oligopolistic segment dominated by a few large audit firms and an atomistic segment composed of many small audit firms. We further hypothesize and confirm that fee discounting is more extensive in the atomistic sector, and our results confirm this hypothesis. Our analysis of audit fee changes indicates that clients who switch auditors within the atomistic sector receive on average a discount of 24 percent over the prior auditor's fee. However, clients who switch auditors within the oligopolistic sector receive on average a discount of only 4 percent. Given that price competition is known to be less intense in oligopolistic markets than in atomistic markets, we believe that market structure theory can explain why fee discounting is lower when larger audit firms compete for clients.     

网上知识市场定价策略博弈分析

基于互联网的知识市场在近几年发展迅速,这种新兴的以知识为交易对象的电子商务平台的定价策略值得研究。采用博弈论的研究方法,对网上知识市场中和知识提供者分别达到利益最大化的情况进行分析,得出网上知识市场定价策略的制定方法。分析表明,增值服务模式是网上知识市场定价策略的发展趋势。