Equity Risk and the Labor Stock: The Case of Union Contracts

This paper investigates the role of the stock of unionized labor in determining equity investment risk. I estimate a labor stock measure based on expected compensation costs, and use the ratio of labor stock to total assets as a risk proxy. At the median, the labor stock is comparable in magnitude to total assets. Regression estimates show the associations between labor-based risk proxies and equity market risk measures are both economically and statistically significant. In addition, the labor-based measures provide risk information over and above information contained in standard risk proxies such as financial and operating leverage.     

Ownership structure and hospital service costs and fees: A decomposition approach

This paper analyzes hospital characteristics that are associated with higher average costs and charges for venipuncture, computed tomography procedures (computerized axial tomography [CAT] scans), and electrocardiograms (EKG). Using data from a Medicare database, our results indicate that higher wages, larger hospital sizes, and greater service quality are associated with higher procedure costs, whereas system membership is generally associated with lower procedure costs. Blinder‐type decompositions, which are the main focus of this study, suggest (a) that venipuncture costs are about 17% to 19% lower at proprietary hospitals than at nonprofit or government hospitals, (b) CAT scan costs are about 6% to 12% lower at nonprofit hospitals than at proprietary and government hospitals, and (c) that EKG costs are about 3% lower at proprietary hospitals than at nonprofit or government hospitals. Lastly, large portions of each of these differences are found to be due to both differences in mean values of the hospitals' characteristics by ownership type and differences in the mechanism by which the hospitals' characteristics are transmitted to procedure costs.     

The moderating influence of strategic orientation on the strategy formation capability–performance relationship

An effective strategy formation capability is a complex organizational resource—a dynamic capability that should lead to superior performance. Strategy scholars have examined the strategy formation capability from many perspectives. However, no study has examined a comprehensive model of strategy formation in the context of the firm's strategic orientation. We develop and examine such a model. The results show that strategic orientation moderates the relationship between different elements of the strategy formation capability and performance. Copyright © 2006 John Wiley & Sons, Ltd.     

Discretionary and Non-Discretionary Revisions of Loss Reserves by Property-Casualty Insurers: Differential Implications for Future Profitability, Risk and Market Value

We develop and estimate a PC-industry specific model in which proxies for both discretion and non-discretion are used to partition loss reserve revisions into discretionary and non-discretionary components. The use of such proxies enables us to test directional hypotheses about the relations between the revision components and future profitability, risk and market value. We predict and find that discretionary revisions are negatively associated with future profitability, positively associated with firm risk, and negatively associated with market-to-book ratios. We predict and find that non-discretionary revisions are positively associated with future profitability and risk but are not associated with market-to-book ratios.     

The informational relevance of corporate social responsibility: evidence from DS400 index reconstitutions

This study examines the relationship between corporate social responsibility and financial performance by analyzing the intra‐industry wealth impact of additions and deletions to the Domini Social 400 index. Results from the event study analysis indicate that additions to the index generate a positive share price response for the announcement firm and a negative response by rival firms. The opposite reaction is observed for index deletions. Additionally, the share price response is more pronounced for informationally opaque industries. Our study highlights the importance of external monitoring agencies in providing meaningful information that helps resolve investor uncertainty regarding the quality of a firm's relationships with its primary stakeholders. Copyright © 2011 John Wiley & Sons, Ltd.     

Preventing HIV in injection drug users: exploring the tradeoffs between interventions

Injection drug users (IDUs) transmit the human immunodeficiency virus (HIV) via both needle sharing and sex. Available interventions for this population have varying costs and effectiveness and focus on different risk behaviors. In this analysis, we look at two interventions. One is inexpensive, broad-based and provides modest risk reductions (street outreach (SO)); the other is narrowly focused, expensive and relatively effective (methadone maintenance). This analysis explores the effects of population risk behavior, intervention effectiveness, intervention costs, and decision constraints when allocating funds between these two interventions to maximize effectiveness. We develop a model of the spread of HIV, dividing IDUs into susceptibles (uninfected) and infectives, and separately portraying sex and injection risk. We simulate the epidemic in New York City for time periods from the mid-1980s to the early 1990s, and incorporate the behavioral effects of two interventions performed singly or in combination to find the allocation that maximizes the number of infections averted in the IDUs and their noninjecting sex partners, assuming interventions have increasing marginal costs. We find that the optimal allocation nearly always involves spending the maximum allowable amount on SO. This result is largely insensitive to variations in risk parameters, intervention efficacy, or cost. The model's structure, however, makes clear that many factors contribute to this insensitivity, namely the scope of the interventions, the dual drug/sex nature of HIV risk in the population, the asymmetry of sexual risk for men and women, and the potential benefits to nonIDUs.     

The Economic Impact of SFAS NO. 157

Statement of Financial Accounting Standards No. 157, “Fair Value Measurements,” (SFAS 157) defines fair value, establishes a three tiered framework for measuring fair value and expands the required disclosures about fair value measurements. The objective of this study is to examine and evaluate the benefits of the information disclosed by SFAS 157. The results of our study indicated that a large majority of the inputs are observable in that 93.5% of the sample financial assets and 93.1% of the sample financial liabilities were measured by level 1 or 2 criteria. However, we found a mismatch between assets and liabilities subject to the three tiers of fair value measurements. The companies in our sample disclosed $18.8 trillion in total assets, with 51%, or $18.8 trillion in total assets, with 51%, or 9.5 trillion reported at fair value. Whereas, sample company liabilities totaled 16.1 trillion with only16.1 trillion with only 3.7 trillion or 23% reported at fair value.