A consistent nonparametric test of affiliation in auction models

We propose a new nonparametric test of affiliation, a strong form of positive dependence with independence as a special, knife-edge, case. The test is consistent against all departures from the null of affiliation, and its null distribution is standard normal. Like most nonparametric tests, a sample-size dependent input parameter is needed. We provide an informal procedure for choosing the input parameter and evaluate the test’s performance using a simulation study. Our test can be used to test the fundamental assumptions of the auctions literature. We implement our test empirically using the Outer Continental Shelf (OCS) auction data.     

An efficient approximation method for American exotic options

The authors suggest a modified quadratic approximation scheme, and apply this scheme to American barrier (knock‐out) and floating‐strike lookback options. This modified scheme introduces an additional parameter into the quadratic approximation method, originally suggested by G. Barone‐Adesi and R. Whaley (1987), to reduce pricing errors. When the barrier is close to the underlying asset's current price, the approximation formula is more accurate than lattice methods because the optimal exercise boundary is independent of the underlying asset's current price. That is, the proposed method overcomes the “near‐barrier” problem that occurs in lattice methods. In addition, the pricing error decreases when the underlying asset's volatility is high. This approximation scheme is more efficient than B. Gao, J. Huang, and M. Subrahmanyam's (2000) method. As a second application of the modified approximation scheme, the authors provide an approximation formula for American floating‐strike lookback options which is the first approximation formula ever suggested in the literature. Compared to S. Babbs' (2000) binomial approach, our approximation method is more efficient after controlling for pricing errors, and is more accurate after controlling for computing time. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:29–59, 2007     

A Note on Testing the Nested Structure in Multivariate Regression Models

In this article we propose a simple method of identifying, at an earlier stage of analysis, the nested structure among the coefficient matrices in multivariate regression models. When the limiting distribution of the estimators of the coefficient matrices are jointly normal, the Wald type statistics based on the proposed method is asymptotically a chi-squared random variable. A numerical example that arises in cointegration analysis is provided to illustrate the method and a small simulation study is provided to illustrate its effectiveness.     

Product Design Innovation and Customer Value: Cross‐Cultural Research in the United States and Korea

Innovation is one of the key drivers of success that a firm must utilize to develop a competitive advantage. The ability to innovate is especially important for a firm's survival in dynamic, changing environments. Customer demands are constantly changing, and more purchases are made when a firm's product design incorporates what customers perceive as cutting‐edge innovations. Satisfying customer demands is a distinct challenge for product designers because firms must develop a clear understanding of what aspects of design the customer wants. Although the importance of design has increased, very little research has been done to explain the relationship between product innovation and product design. Studies indicate that design innovation may create greater customer value through improvements in design value. Previous research has been limited and has not provided a clear concept of design innovation or defined the relationship between design innovation and marketing competencies. This paper seeks to offer a conceptual definition of design innovation, and to define the link between design innovation and marketing competencies. This paper utilizes cross‐cultural research to discover how these concepts differ due to cultural differences between the United States and Korea. This research contributes substantially to our understanding of the relationship between design innovation and customer value.     

An Empirical Analysis of Exchange Ratio Determination Models for Merger: A Note

This paper examines the empirical validity of two exchange ratio determination models for merger, the Larson and Gonedes (LG) PE model and the Yagil dividend growth model. These two models formulate exchange ratios as a function of a different factor: expected post-merger price-earnings multiple and expected post-merger dividend growth, respectively. While the LG model has been tested in previous studies, the Yagil model has yet been subject to empirical testing. This paper finds empirical support for the LG model but finds weak support for the Yagil model. In particular, the results show that the number of stock mergers that result in wealth gains for both acquiring and target firms and hence conform to the rationality assumption of each model is substantially greater for the LG model than for the Yagil model. Regression analysis provides confirmatory evidence on the empirical validity of the LG model that PE-related variables play a more significant role in explaining the actual exchange ratios than growth-related variables.     

Dynamic Analysis of Income and Independence Effect of African American Female Labor Force Participation on Divorce

Despite a continuous increase in dissolution of marriages among African American females over time, no researchers have documented and published dynamic linkages among factors that cause African American family disruption. Using a contemporary time-series methodology, the study explores the dynamic impacts of African American female labor force participation rates (LFPR), incomes, and birth rates on divorce rates or vice versa. The study found that African American female divorce rates increase permanently as labor force participation rates increase, documenting a dominant independence effect of African American LFPR on divorce rates. The study also found that as more African American females participate in the labor market, birth rates decline over times.      

Consolidating Corporate Control: Divisional Versus Whole-Company Leveraged Buyouts

We examine the empirical relation between firm characteristics and the likelihood of choosing a restructuring choice between two types of leveraged buyouts: a whole‐company leveraged buyout (WLBO) and a divisional leveraged buyout (DLBO). Our findings suggest that firm characteristics such as volatility of cash flow and growth potential play an important role in determining a firm's restructuring choice between a WLBO and a DLBO. In particular, firms with greater volatility of cash flow and/or greater future growth potential are more likely to adopt a DLBO than a WLBO as their restructuring choice. These results are consistent with the notion that although low‐growth, high‐cash‐flow firms would create the most value for stockholders by paying out cash and tying future cash flows to the firm's debt service through a WLBO, high‐growth, low‐cash‐flow firms would be better off by selling assets if those assets would be better managed under a DLBO.     

The organizational ecology of retailing: A historical perspective

Little empirical research has been done on how to help retailing firms survive recessions. Using the “natural experiment” of the Great Depression and the theoretical lens of organizational ecology, we explore survival of retailers during 1929-1939 to test whether strategic competitive advantages related to human capital, the liability of newness, organizational form, and legitimacy facilitated survival through this upheaval. Consistent with theory from organizational ecology, survival was positively influenced by the average wage paid in the population, the average age of the population, chain store penetration, and an interaction of level of chain store penetration and age. The study offers recommendations for research and practice to retailers. The most important application for retailing managers is that high wage employees, presumably of higher quality, help retailers survive recessions better than low wage employees.     

Evaluating guarantee fees for loans to small and medium-sized enterprises

Governments all over the world regard loan guarantee schemes (LGS) as one of the most regularly used and relatively effective mechanisms to support small and medium-sized enterprises (SMEs) financially by facilitating their access to debt capital. Due to its nature of involving implicit indirect subsidization, a LGS is mostly evaluated in terms of the economic and social benefits created, such as generation of export revenues and creation of employment opportunities. Although most government-sponsored programs do not set up clear-cut definitions for how to evaluate those benefits and what targets should be achieved, they do have an initial aim of self-financing. Since guarantee fees (premiums) represent the largest cash inflow for a guarantor and the most critical index to indicate a borrower’s credit status, this paper proposes a methodology that specifically aims for this self-financing target by meeting at least default costs with income from premiums. This is done by actuarially determining a guarantee fee for each loan based on market-based information and risk-neutrality concepts. Empirical evidence shows that real cash outflows (costs of honoring defaults) are very close to estimated cash inflows (total guarantee fees), which indicates that the objective of meeting budget constraints is achieved.     

When the going gets tough,ads become straightforward but multi-appealed: The influence of the recession on financial services advertising appeals

Although many scholars and researchers have contributed to the sizeable literature on the relationship between advertising and society, few have examined economic circumstances as a meaningful force shaping advertising. This study provides the empirical evidence that changes in economic conditions, the recession in particular, can transform advertising appeals. The analysis of 1488 financial services ads placed in two popular US magazines showed that the patterns of appeals have turned to direct assertive styles in the wake of the economic crisis of the period 2008–2009. At the same time, however, ads during this recession period have used a far wider variety of strategic and tactical appeals than those in pre-recession era.