DIFFERENTIAL INFORMATION AND THE UNDERPRICING OF INITIAL PUBLIC OFFERINGS: AUSTRALIAN EVIDENCE

This paper provides evidence on underpricing in Australia using 340 industrial initial public offerings over the period 1980 to 1990. It aims to explain why underpricing is consistent with rational behaviour by focusing on differential information across IPO firms. We measure differential information along two dimensions, the quality and the quantity of information. We propose that the quality of information is reflected in the reputation of independent advisers to the preparation of the issuing firm's prospectus. Three such independent external advisers are examined: the investigating accountant, the underwriter, and the expert. The results provide strong support for the reputation effect of the underwriter on underpricing. Although there is evidence showing a negative relation between underpricing and the reputation of the investigating accountant and the expert, it is not significant. Our results also support the differential quantity of information hypothesis. Firms with more information available are, on average, less underpriced.     

Problems solved and problems unaddressed by the Civil Rights Act of 1991 with respect to the use of statistical evidence in the proof of discrimination

Paper presented at the annual meetings of the Association for Social Economics, New Orleans in January 1992.     

A Markov analysis of social learning and adaptation

A number of recent contributions to the literature have modelled social learning and adaptation in an economic context. Understanding the processes driving these models is important in order to explain and predict the behaviour of the economy. In this paper, we analyze the economic applications for a class of adaptive learning models with bounded rational agents. The dynamics of these economies can be thought of as arising from discrete-time Markov chains. In particular, conditions for uniqueness of equilibria, convergence and stability in the economic systems follow from the accessibility and communication structures of these Markov chains. We establish a correspondence between absorbing states of the Markov chains and economic equilibria, whether stable or unstable, and develop theorems giving conditions for absorption and recurrence. Furthermore, we develop practical applications of these theorems using a cobweb model. We use a genetic algorithm, operating under election, as an example of a well known adaptive learning process.     

Perceptions of IMC and organisational change among agencies in South Africa

This paper reports on the development of Integrated Marketing Communications (IMC) in an emerging market, South Africa. It also deals with the organisation of advertising agencies in an IMC environment. A brief overview of IMC is given as well as a review of the organisation of agencies. The study consisted of in-depth interviews of 20 senior advertising agency executives. The results indicate that most agencies are developing their IMC strategies and that it is growing in importance in South Africa. Some recommendations are proposed to enable agencies to become more effective in future.     

Misleading Inferences from Panel Unit-Root Tests with an Illustration from Purchasing Power Parity

Simulations demonstrate that when unit-root behavior is rejected in a Levin and Lin panel test, it is incorrect to infer that all series are stationary. Recent tests proposed by Im, Pesaran and Shin, and by Sarno and Taylor, are also incapable of determining the mix of I (0) and I (1) series in a panel setting. This paper introduces a new unit-root test that allows the researcher to discern which series are I (0) and which ones are I (1). The test has double to triple the power of single-equation augmented Dickey–Fuller tests.     

Risk,rent seeking and the social cost of monopoly power

Some recent empirical studies that have estimated the social cost of monopoly power have included in these estimates observed monopoly rents as a proxy for the unobserved value of the resources expended by rent seekers. This has involved adding these estimates of resources wasted by rent seekers to estimates of deadweight welfare loss triangles so as to produce an overall estimate of the social cost of monopoly. The present paper points out that each firm seeking a monopoly rent flow not only may be uncertain about obtaining the flow but also about retaining it in future periods. It is shown that this is likely to cause the proportion of the rent flow converted into social cost to be well below 100% regardless of whether the rent sought is small relative to initial wealth and regardless of whether rent seekers are risk-neutral or risk-averse. These findings demonstrate that large errors are likely to be made in monopoly welfare loss studies if observed monopoly rents continue to be employed as a measure of the value of resources used in rent-seeking activities.     

Problem bank loans, conflicts of interest, and institutions

I consider problem bank loans as the outcome of decisions made by banks in the dual role they serve as financial intermediaries. This dual role necessarily introduces conflicts of interest that can lead to bank mismanagement and consequently problem bank loans. Because bank activities take place within the tangible and intangible structure of institutions, institutions may affect the quality of bank loans. I consider legal, political, sociological, economic, and banking institutions and explore their contribution to problem bank loans. I find support that a variety of institutions impact the share of bank assets that are non-performing.     

Female audit committee members and their influence on audit fees

We test the relationship between female representation on the audit committee and audit fees for 624 Australian companies in the year 2011. A positive relationship is found, leading to the conclusion that female presence on audit committees influences the quality of the external audit. Further, we find that gender is the significant audit committee characteristic in predicting audit quality and that women on the audit committee strengthen the positive relationship between firm size and audit fees, and between risk and audit fees. Conversely, we find that female representation dampens the positive relationship between complexity and audit fees.     

Did the goodwill accounting standard impose material economic consequences on Australian acquirers?

This research explores the empirical association between takeover bid premium and acquired (purchased) goodwill, and tests whether the strength of the association changes after the passage of approved accounting standard AASB 1013 in Australia in 1988. AASB 1013 mandated capitalization and amortization of acquired goodwill to the income statement over a maximum period of 20 years. We use regressions to assess how the association between bid premium and acquired goodwill varies in the pre‐AASB and post‐AASB 1013 periods after controlling for confounding factors. Our results show that reducing the variety of accounting policy options available to bidder management after an acquisition results in a systematic reduction in the strength of the association between premium and goodwill.