Information,sell-side research,and market making

The interaction between an investment bank's research and market making arms may have important implications for the trading of a firm's stock. We investigate the impact that research has on the liquidity provided by the bank's market maker. Utilizing a large sample of Nasdaq firms, we show that market makers whose banks also provide research coverage provide more liquidity and contribute more to price discovery than do market makers without such research coverage. Finally, we show that such “affiliated” market makers are less affected by uncertainty following earnings announcements. Our results provide new evidence on the sources of liquidity improvements for Nasdaq firms, and suggest that the information produced by banks in the sell-side research process is beneficial to their market makers.     

The Kornai effect with partial bailouts and taxes

The model examines Kornai's observation that in the presence of bailouts, firms' demand for inputs will be greater than would otherwise be the case. This conjecture is examined in a model in which both revenue and cost uncertainty are present and in which firms making losses are partially subsidized and firms making positive profits are partially taxed. The Kornai effect is more prevalent the greater the subsidy rate, the smaller the tax rate and the greater the variance of the random variables through which uncertainty manifests itself. In the case of strongly positively correlated cost and revenue uncertainty, the absolute incidence of the Kornai effect is small.     

The Only Fund in Town? Geographic Segmentation in the US Mutual Fund Industry

We find that mutual funds located in regions with more competing funds charge lower management fees, but higher fees related to sales and distribution (12b‐1 fees), sales loads, and other nonmanagement fee expenses. There is some evidence that funds in more competitive regions have higher total expense ratios than similar funds in less competitive regions. Our results indicate that while increased competition drives down fund profits, it creates a negative externality by way of increased sales expenses. Overall, our results suggest the mutual fund industry is characterized by monopolistic competition determined at the local level.     

Equity grants to target CEOs during deal negotiations

I investigate the determinants and consequences of granting equity to the target's Chief Executive Officer (CEO) during deal negotiations. These negotiation grants likely reflect information about the acquisition, benefit from the deal premium, and provide more timely bargaining incentives. I find that CEOs are more likely to receive equity during negotiations when they negotiate for the target, particularly when the target has more bargaining power. This suggests that boards use equity to enhance bargaining incentives for CEOs with the most influence over deal price. I find limited evidence that negotiation grants are used as compensation and no evidence that they have a material adverse effect on shareholders.     

How many singularities are near and how will they disrupt human history?

This paper reviews a large number of approaches that have been used for considering technologically driven profound societal change. We agree with Vinge's suggestion for naming events that are “capable of rupturing the fabric of human history” (or leading to profound societal changes) as a “singularity”. This is a useful terminology especially since a mathematically rigorous singularity seems impossible for technological and related societal change. The overview of previous work is done within the context of a broader look at the role of technological change within human history. The review shows that a wide variety of methods have been used and almost all point to singularities in the present century particularly in the middle of the century. The diversity of the methods is reassuring about the potential robustness of these predictions. However, the subjectivity of labeling events as singularities (even well studied past events) is a concern about all of the methods and thus one must carefully pause when relying in any way on these predictions. The general lack of empirical research in this area is also a concern.Quantitative considerations (by proponents and opponents) about past singularities or future singularities often confound two types of metrics. The first type is essentially related to diffusion of technologies (or bundles of technologies) where the logistic curve is empirically well established as the proper time dependence. The second type of metric is for technological capability where hyper-exponentials are empirically well established for their time dependence. In this paper, we consider two past singularities (arguably with important enough social change to qualify) in which the basic metric is alternatively of one type or another. The globalization occurring under Portuguese leadership of maritime empire building and naval technological progress is characterized by a metric describing diffusion. The revolution in time keeping, on the other hand, is characterized by a technological capability metric. For these two cases (and thus robust to the choice of metric type), we find that:

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  People undergoing profound technologically-driven societal change do not sense a singularity.

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  The societal impacts depend in complicated ways on human needs, institutional variables and other more uncertain factors and thus are particularly hard to project;

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  The societal impact is apparently not determined by the rate of progress on either type of metric or by projections to mathematical points with either kind of metric. This finding supports the existing concept that social change due to technology is a more holistic phenomenon than can be characterized by any technical metric.

In the final section, we use these empirical findings as the basis for exploring the possibilities for and nature of future singularities. In this we speculate that the potential for a future strong singularity based upon computational capability does not appear particularly probable but that one may already be occurring and is not fully noticed by those (us) going through it. Other possible 21st century singularities (life extension and fossil fuel elimination are two examples considered) may also be already underway rather than waiting for the predicted mid-century changes.     

Walk the talk: ESG mutual fund voting on shareholder proposals

Review of Accounting Studies - We document that U.S. mutual funds with investment objectives designated as “Sustainable Investment Overall” by Morningstar (ESG funds) are more likely...     

Implementing ABC: An Australian Feasibility Study

Activity-based costing systems have been one of the most important innovations in accounting practice in recent years, yet we know little about the practical difficulties associated with the design and implementation of such systems. This study examines the objections put forward in the management accounting literature, which suggest that costs outweigh benefits in ABC implementations. The arguments are developed in the context of an Australian feasibility study. Encouraging lessons from the study suggest that a systematic approach to the implementation of ABC will yield significant benefits.