Regulation and welfare: evidence from paragraph IV generic entry in the pharmaceutical industry

This article estimates welfare effects of accelerated generic entry via Paragraph IV challenges. Using data from 2000–2008 for hypertension drugs in the United States, we estimate demand using a random‐coefficients logit model. We find consumers gain $42 billion whereas producers lose $32.5 billion from entry. This modest $9.5 billion gain in social welfare is consistent with our observation that overall consumption does not increase after entry—generic sales displace branded sales, shifting surplus downstream from producers to consumers, insurance companies, and retailers. We demonstrate significant cross‐molecular substitution and discuss challenges in determining what fraction of downstream surplus actually goes to consumers.     

Competition in the Audit Market: Policy Implications

The audit market's unique combination of features—its role in capital market transparency, mandated demand, and concentrated supply—means it receives considerable attention from policy makers. We explore the effects of two market scenarios that have been the focus of policy discussions: mandatory audit firm rotation and further supply concentration due to the exit of a “Big 4” audit firm. To do so, we first estimate publicly traded firms' demand for auditing services, allowing the services provided by each of the Big 4 to be differentiated products. We then use those estimates to calculate how each scenario would affect client firms' consumer surplus. We estimate that, for U.S. publicly trade firms, mandatory audit firm rotation would induce consumer surplus losses of approximately $2.7 billion if rotation were required after 10 years and $4.7–5.0 billion if after only four years. We find similarly that exit by one of the Big 4 would reduce client firms' surplus by $1.4–1.8 billion. These estimates reflect only the value of firms' lost options to hire the exiting audit firm; they do not include likely fee increases resulting from less competition among audit firms. The latter could result in audit fee increases between $0.75–1.3 billion per year for mandatory rotation and $0.47–0.58 billion per year for the disappearance of a Big 4 audit firm. Such losses are substantial; by comparison, total audit fees for public firms were $11 billion in 2010.     

Paulson's gift

We calculate the costs and benefits of the largest ever US government intervention in the financial sector announced during the 2008 Columbus-day weekend. We estimate that this intervention increased the value of banks’ financial claims by $130 billion (bn) at a taxpayers’ cost of $21–$44 billion with a net benefit between $86 and $109 bn. By looking at the limited cross section, we infer that this net benefit arises from a reduction in the probability of bankruptcy, which we estimate would destroy 22% of the enterprise value. The big winners of the plan were the bondholders of the three former investment banks and Citigroup, while the losers were JP Morgan shareholders and the US taxpayers.     

Takeover Defences and IPO Firm Value in the Netherlands

The central question of this study involves the relation between the use of takeover defences and IPO firm value. We report that management frequently uses takeover defences before taking the firm public. The use of takeover defences is primarily motivated by managerial entrenchment. IPO investors anticipate potential conflict of interests with management and reduce the price they pay for the IPO shares if takeover defences are adopted. Although managers internalise this cost of takeover defences to the degree they own pre‐IPO stock, they are likely to gain through private control benefits. Non‐management pre‐IPO owners lose. Their shares are worth less, but different from managers, they do not get offsetting private control benefits. We infer that managers use takeover defences to protect private control benefits at non‐management pre‐IPO owners’ expense.     

The Upside to Fiscal Challenges: Innovative Partnerships Between Public and Private Sector

The first U.S. public‐private partnerships, or P3s as they are now called, began over 200 years ago. These contractual arrangements between government entities and private companies for the delivery of services or facilities have long been used for water/wastewater, transportation, urban development, and the provision of social services. And the use of such partnerships is increasing because they provide an effective means for meeting public needs, maintaining a high level of public control, improving the quality of services, and increasing the cost‐effectiveness of traditional delivery methods. Although outsourcing of public services is sometimes used to accomplish many of the same goals, P3s are likely to be a solution when public funds are not available and when:

• ? Capital is required to upgrade the infrastructure and so achieve a lower cost, or higher quality, of services.
• ? The contract horizon in the P3 transaction is sufficiently long for the investor/operation to recoup investment dollars and a rate of return.
• ? City residents make payments for the service provided, creating the revenue stream for private profits.
• ? The private partner in the P3 has a low cost of capital, often attributable largely to a large and sophisticated balance sheet.

This article uses examples of several recent P3 contracts to illustrate their role in shifting risk and increasing collaboration between the public and private sectors.     

Short sales and speed of price adjustment: Evidence from the Hong Kong stock market

We present empirical evidence that short sales contribute to market efficiency by increasing the speed of price adjustment to not only private/public firm-specific information but also market-wide information. Shortable stocks are characterized by weaker trade continuity and stronger quote reversals. They adjust faster to new information than non-shortable counterparts. These findings remain robust even in an “up” market condition in which short sales are not binding. The amount of information incorporated in each trade is also significantly higher for shortable than non-shortable stocks in both “up” and “down” market conditions. After controlling for firm size, trading volume, liquidity, price and option trading, short sales stand out as one of the significant factors that speed up the price adjustment.     

Stimulating Housing Markets

We study temporary fiscal stimulus designed to support distressed housing markets by inducing demand from buyers in the private market. Using difference-in-differences and regression kink research designs, we find that the First-Time Homebuyer Credit increased home sales by 490,000 (9.8%), median home prices by $2,400 (1.1%) per standard deviation increase in program exposure, and the transition rate into homeownership by 53%. The policy response did not reverse immediately. Instead, demand comes from several years in the future: induced buyers were three years younger in 2009 than typical first-time buyers. The program's market-stabilizing benefits likely exceeded its direct stimulus effects.     

Pension roulette: have you bet too much on equities?

In the 1990s, funding pension obligations by investing in stocks looked smart. By 1999, the bull market had poured a collective $260 billion surplus into the pension coffers of the S&P 500, permitting the companies to record the year-to-year increases as additional income. But just two years later, the bear market had obliterated those gains, replacing them with a cavernous $240 billion deficit--which had to be offset by the unlucky firms' ongoing cash flows, wreaking havoc on their earnings, debt levels, and stock prices. Corporate executives may be blamed for this debacle. But they were only following the rules. Current accounting guidelines keep companies from recording pension liabilities and assets on their balance sheets, instead relegating them to the footnotes. That makes it hard to see the risk that market drops expose companies to. Board members and top executives need to look beyond distorted accounting numbers to the economic realities of pension plans. Once they do, they may be surprised to find that they would gain far greater value and flexibility by passively investing their pension funds entirely in bonds. A bond portfolio can be designed to meet precisely, and with virtual certainty, a company's pension obligation, thus eliminating the chance of a funding gap. The predictability of bond investments also stabilizes earnings and cash flow. The expanded corporate debt capacity that results can then be used to fuel growth or reduce the firm's overall cost of capital. Even without an overhaul of today's misguided accounting rules, there's little reason for companies' pension funds to hold anything other than bonds.     

Dynamic efficiencies of the 1997 Boeing‐McDonnell Douglas merger

We evaluate the welfare effects of the 1997 Boeing‐McDonnell Douglas merger in the medium‐sized, wide‐body aircraft industry. We find that the merger led to lower prices. To explain the price drop, we develop a dynamic oligopoly game with learning‐by‐doing. We quantify the welfare effects of the merger by incorporating both increased market power and merger efficiencies from accelerated learning‐by‐doing. Our dynamic analysis indicates that net consumer surplus increased by as much as $5.14 billion, whereas a static model ignoring efficiencies of learning‐by‐doing predicts a $0.92 billion loss.     

Are good financial advisors really good? The performance of investment banks in the M&;A market

The study examines whether prestigious investment banks deliver quality gains to their clients in a sample of 6,379 US M&A deals. It finds that acquirers advised by tier-one advisors lost more than $42 billion, whereas those advised by tier-two advisors gained $42 billion, whereas those advised by tier-two advisors gained 13.5 billion at the merger announcement. The results were mainly driven by the large loss deals advised by tier-one advisors. The evidence indicates that investment banks might have different incentives when they advise on large deals vs. small deals. The results imply that market share based reputation league tables, could be misleading and therefore, the selection of investment banks should be based on their track record in generating gains to their clients. The findings were consistent with the superior deal hypothesis as tier-one target advisors outperformed tier-two advisors and the existence of a prestigious advisor on at least one side of an M&A transaction resulted in higher wealth gains to the combined entity. Target advisors were able to extract more wealth gains for their clients, which led to higher combined gains at the expense of the acquirer.     

Sentiment and stock prices: The case of aviation disasters

Behavioral economic studies reveal that negative sentiment driven by bad mood and anxiety affects investment decisions and may hence affect asset pricing. In this study we examine the effect of aviation disasters on stock prices. We find evidence of a significant negative event effect with an average market loss of more than $60 billion per aviation disaster, whereas the estimated actual loss is no more than $1 billion. In two days a price reversal occurs. We find the effect to be greater in small and riskier stocks and in firms belonging to less stable industries. This event effect is also accompanied by an increase in the perceived risk: implied volatility increases after aviation disasters without an increase in actual volatility.     

人力资本及其对应人力资源的确认与计量问题研究

企业按照契约约定授予人力资源拥有者以权益性工具,才是会计确认人力资本的基本依据;对因授予人力资源拥有者以股票而确认的人力资本,应记入"股本"账户,对因授予人力资源拥有者以股票期权而确认的人力资本,应记入"资本公积"账户;与人力资本对应的人力资源,在收到时就是资产,但因不能储存而不应确认为资产,应立即确认为成本或费用;作为所授予权益性工具之对价的人力资源,应按相应权益性工具的公允价值计量,并以此计量相应的人力资本。     

The Effect of Eliminating Direct Payments to Farmers on Land Values

This study looks at the effects of the complete elimination of direct government payments to farmers on the U.S. economy in general and the effect on land values in particular. The analytical approach used consists of a computable general equilibrium model composed of 14 producing sectors, 14 consuming sectors, six household categories classified by income, and a government. The results suggest that, with a complete elimination of direct government payments to farmers, there will be a reduction in output by all producing sectors of 0.18% or about $14.5 billion, a decline in output in the agricultural sectors of 4.39% or about $12.0 billion, a fall in the consumption of goods and services by about 0.11% or $4.15 billion, a fall in total utility by 0.47% or $22.0 billion, and a net reduction in expenditures for the government of $13.4 billion. Land values will be adversely affected, falling an average of 14%.     

Costly trade,managerial myopia,and long-term investment

The costly trade theory predicts that it is much more difficult to exploit long-term private information than short-term. Thus, there is less long-term information impounded in prices. The managerial myopia theory predicts that a variety of short-term pressures, including inadequate information on long-term projects, cause asymmetrically-informed corporate managers to underinvest in long-term projects. The introduction of long-term options called LEAPS provides a natural experiment to jointly test both theories, which are otherwise difficult to test. We conduct an event study around the introduction of LEAPS for a given stock and test whether corporate investment in long-term R&D/sales increases in the years following the introduction. We find that over a two year period of time LEAPS firms increase their R&D/sales between 23% and 28% ($125–$152 million annually) compared to matching non-LEAPS firms. The difference depends on the matching technique used. Two other proxies for long-term investment find similar increases. We find that the increase is positively related to LEAPS volume. We also find that the increase is larger in firms where R&D plays a larger and more strategic role. We test if a firm becomes less likely to beat analyst's quarterly earnings forecasts after LEAPS are introduced and find support for the hypothesis. These results provide both statistically and economically significant support for the costly trade and managerial myopia theories.     

Inside the <Emphasis FontCategory="SansSerif">“</Emphasis>black box<Emphasis FontCategory="SansSerif">”</Emphasis> of private in-house meetings

We examine information content and related insider trading around private in-house meetings between corporate insiders and investors and analysts. We use a hand-collected dataset of approximately 17,000 private meeting summary reports of Shenzhen Stock Exchange firms over 2012–2014. We find that these private meetings are informative and corporate insiders conducted over one-half of their stock sales (totaling $8.7 billion) around these meetings. Some insiders time their transactions and earn substantial gains by selling (purchasing) relatively more shares before bad (good) news disclosures while postponing selling (purchasing) when good (bad) news is to be disclosed in the meeting. Finally, we conduct a content analysis of published meeting summary reports and find that the tone in these reports is associated with stock market reactions around (1) private meetings themselves, (2) subsequent public release of private meeting details, (3) subsequent earnings announcements and (4) future stock performance.     

YANKEE BONDS AND CROSS-BORDER PRIVATE PLACEMENTS: AN UPDATE

With U.S. Treasury yields near historical lows and the recent relaxation of U.S. regulatory reporting requirements, the U.S. bond markets are more and more frequently the markets of choice for international issuers. Total crossborder U.S. bond issuance is expected to top $350 billion in 2000, easily surpassing previous issuance levels.
Overseas issuers have three primary forms through which they can participate in the U.S. long-term debt markets: publicly traded, SEC-registered bonds (commonly known as "Yankee" bonds); traditional private placements; and underwritten Rule 144A private placements. Each of these three financing methods has distinct benefits and limitations that should be thoroughly evaluated in light of the specific objectives of the issuer. Yankee bonds are typically the most cost efficient vehicle for large, investment grade issuers, and they are expected to account for over 75% of the $350 billion market in 2000. Second in importance is the rule 144A market, which is typically used for complex structures requiring heavy rating-agency involvement, such as future financial flow transactions and project financings. The 144A market has also become a particular favorite with international issuers because of its less formal disclosure requirements and streamlined execution process. The private placement market continues to be the dominant choice of smaller issuers, companies with complicated "stories," and firms that do not wish to submit to regular scrutiny by rating agencies. This article provides a detailed analysis of each type of bond issuance and the issues facing a financial officer in trying to determine the most appropriate source of long-term debt.     

Particulate matter air pollution control programs in Japan — an analysis of health risks in the absence of future remediation

The objective of this case study was to assess potential health risks and productivity loss in the absence of future additional environmental control of particulate matter (PM) in Japan. Assuming a 10% decline in PM, the estimates of the numbers of possible cases of premature mortality and morbidity that could be prevented in the year 2010 were (1) 8700 long term deaths, (2) 12,000 cases of chronic bronchitis, (3) 24,000 cases of cardiovascular disease, (4) 10,000 cases of pneumonia, (5) 18,000 asthma attacks, and (6) 12,000 cases of acute bronchitis during a one year period. The best estimate of medical costs plus lost productivity in adults and children was $56 billion USD. When compared to a separately derived estimate of $31 billion USD in avoided pollution control costs, the health risk to no‐control benefit ratio of 1.8 suggests that additional future pollution control policies would successfully prevent a large expense to the society in medical care and lost productivity while imposing a lesser cost to the private sector in control equipment, to government in oversight expenses and to society in opportunity costs.     

Raising search costs to deter window shopping can increase profits and welfare

Consumers tend to browse products they are interested in and firms often invest resources in selling to them. A consequence, I show, is that it is optimal for a firm to increase the cost of browsing (even though this drives away potential customers) because doing so allows it to target sales efforts at those consumers most likely to buy. Despite representing pure waste, this can increase welfare by facilitating efficient allocation of sales or marketing resources. For a similar reason, consumers often benefit from search costs in aggregate, and prefer them to other means of screening, such as price increases.     

Piecing together the extent of retail fractional trading

We examine the introduction of fractional trading and its impact on retail security ownership. Fractional trading aims to increase investor access to securities with high prices. Over the initial months of Robinhood’s fractional trading program, the number of unique owners increases approximately 53 percentage points more for stocks priced above $100 versus those priced below $50. Intraday, high-price stocks exhibit incremental ownership growth specifically during periods when fractional trading is permitted. Our results show that Robinhood investors make ample use of fractional trading to acquire previously inaccessible securities, indicating a substantial reduction in price-based investing frictions and carrying implications for retail portfolio management. In addition, we show that potential market impacts of fractional trading appear negligible based on share volume data from multiple brokers with fractional trading programs.