Strategic information revelation when experts compete to influence

We consider a persuasion game between a decision‐maker and a set of experts. Each expert is identified by two parameters: (i) “quality” or his likelihood of observing the state (i.e., learning what the best decision is) and (ii) “agenda” or the preferred decision that is independent of the state. An informed expert may feign ignorance but cannot misreport. We offer a general characterization of the equilibrium. From the decision‐maker's standpoint, (a) higher quality is not necessarily better, (b) extreme agendas are always preferred, and (c) the optimal panel may involve experts with identical (rather than conflicting) agendas.     

Did institutions herd during the internet bubble?

We examine the trading behavior of institutional investors during the internet bubble and crash of 1998–2001, and its impact on stock prices. Similar to some recent findings concerning the trading behavior of hedge funds and NASDAQ 100 stocks, we find that during the bubble all types of institutions herded with great intensity into internet stocks for a comprehensive sample of institutional investors and internet stocks. In addition to this, we present three entirely new results. First, institutional herding was much greater than what can be explained by momentum trading. Second, institutions as a group continued to increase their holdings of internet stocks for two quarters past the market peak during the first quarter of 2000, and three quarters past the peak for individual stock prices, suggesting that institutions were unable to time the price peaks. Finally and most importantly, we find positive abnormal returns contemporaneous with institutional herding and negative abnormal returns (reversals) at the point that herding ceased. This finding suggests that institutions’ trading created temporary price pressures, and may have contributed to the bubble.     

Distortions,endogenous managerial skills and productivity differences

We develop a span-of-control model where managerial skills are endogenous and the outcome of investments over the life cycle of managers. We calibrate this model to U.S. plant-size data to quantify the effects of distortions that are correlated with the size of production units, and how these effects are amplified by managerial investments. We find a quantitatively important role for managerial investments. Distortions that consist of a tax rate of 20% on the top 50% managers reduce steady-state output by about 14.6% in our benchmark model. When skills are exogenous the reduction is about 9.2%.     

The Feasibility of Establishing an International Financial Center in Shanghai

This article examines the feasibility of establishing an international financial center in Shanghai by 2020. It analyzes the national regulations and incentives that need to be implemented and evaluates whether the financial market liberalization measures undertaken so far by China meet the requirements for the success of this strategy. It concludes that elevating Shanghai to a primary international financial center providing multiple financial services to domestic and foreign clients is decades away under the sequential approach to liberalization. However, in the short run, Shanghai can emerge as a regional financial center catering essentially to the funding needs of Chinese businesses.     

Market evidence of misperceived mortality risk

We construct and implement a test of rational consumer behavior in a high-stakes financial market. In particular, we test whether consumers make systematic mistakes in perceiving their mortality risks. We implement this test using data from secondary life insurance markets where consumers with a life-threatening illness sell their life insurance policies to firms in return for an up-front payment. We compare predictions from two models: one with consumers who correctly perceive their mortality risk, and one with consumers who are misguided about their life expectancy, and find that our data are most consistent with the predictions made by the second model.     

Do they do it for the money?

Using a sample of all top management who were indicted for illegal insider trading in the United States for trades during the period 1989-2002, we explore the economic rationality of this white-collar crime. If this crime is an economically rational activity in the sense of Becker (1968), where a crime is committed if its expected benefits exceed its expected costs, “poorer” top management should be doing the most illegal insider trading. This is because the “poor” have less to lose (present value of foregone future compensation if caught is lower for them). We find in the data, however, that indictments are concentrated in the “richer” strata after we control for firm size, industry, firm growth opportunities, executive age, the opportunity to commit illegal insider trading, and the possibility that regulators target the “richer” strata. We thus rule out the economic motive for this white-collar crime, and leave open the possibility of other motives.     

Financial development,industrialization, the role of institutions and government: a comparative analysis between India and China

This research is the first comparative attempt incorporating the role of economic, demographic, sectoral contribution, government and trade in explaining financial development for India and China. Using time-series estimations, we establish that institutional quality and government size impede financial development, whereas urbanization, industrialization and service sector growth help in financial development for both countries. Trade openness also enhances Indian financial development but hinders Chinese financial development. We suggest that the policy advisers should not underestimate the role of urbanization, industrialization and service sector growth in implementing financial development. Finally, we find that the institutions and governments will play a key role for both economies in enhancing finance and growth.     

Remittances and financial development: empirical evidence from heterogeneous panel of countries

Remittances are the second largest source of external finance after foreign direct investment in the developing economies. In this study, we analyse the role of incoming remittances on financial development for 57 highest remittance recipient economies. A long run equilibrium relationship is established between remittances and three alternative indicators of financial development. Estimates from the dynamic system-generalized method of moments reflect lower elasticity values for developing countries compared to the developed ones. Our findings are robust across countries, and highlight the necessity for strengthening institutional set-ups to increase the inflow of remittances, which will enhance financial development across countries. The role of foreign direct investment is found to be significant in most cases.     

International acquisitions and emerging market firms' performance—a structural contingency perspective

Entry modes have impact on firms' performance in international markets. Using an organizational structural contingency perspective, we assert that firms with mechanistic structure can enhance their performance in international markets if they choose acquisitions as an entry mode. Mechanistic structure limits organizations' learning capability, which can be managed through acquisitions but not through other entry modes such as joint ventures. For managing limitations associated with the poor knowledge absorption capability of mechanistically structured organizations, firms should not follow the standard integration procedures associated with acquisitions aiming to achieve economies of scale or scope. Rather, they should provide corporate parenting advantage to the newly acquired unit by (a) granting complete autonomy and (b) contributing required resources for future growth, thus treating the acquired business as a strategic business unit. Since mechanistic structures are more common in emerging markets, we explain our perspective using illustrative caselets from these markets.     

Choosing to keep up with the Joneses and income inequality

We study a variant of the conventional keeping-up-with-the-Joneses setup, in which heterogeneous-ability agents care both about consumption and leisure and receive an utility premium if their consumption exceeds that of the Joneses’. Unlike the conventional setup in which all agents are assumed to want to participate in the rat race of staying ahead of the Joneses, our formulation explicitly permits the option to drop out. Mean-preserving changes in the spread of the underlying ability distribution, via its effect on the economy-wide composition of rat-race participants and drop-outs, have important consequences for induced distributions of leisure and income, consequences that are unobtainable using conventional keeping-up preferences.