The pricing of initial public offerings: tests of adverse-selection and signaling theories

We test the empirical implications of several models of IPOunderpricing. Consistent with the winner's-curse hypothesis,we show that in markets where investors know a priori that theydo not have to compete with informed investors, IPOs are notunderpriced. We also show that IPOs underwritten by reputableinvestment banks experience significantly less underpricingand perform significantly better in the long run. We do notfind empirical support for the signaling models that try toexplain why firms underprice. In fact, we find that (1) firmsthat underprice more return to the reissue market less frequently,and for lesser amounts, than firms that underprice less, and(2) firms that underprice less experience bigger earnings andpay higher dividends, contrary to the models' predictions.     

Modeling Overnight Recreation Trip Choice: Application of a Repeated Nested Multinomial Logit Model

In this paper we apply the repeated nested multinomial logit model, a version of a random utility model (RUM), to estimate the choice of an overnight versus single day recreation trip, along with the other usual choice of which of the sites to visit, and less typically, the choice of whether to participate (in our application – to fish) at all. We also find statistically significant income effects in the empirical results. The application is to Atlantic Salmon fishing and the data set is for Maine resident angler's fishing trips to rivers in Maine and Canada.     

Service Sector Protection: Considerations for Developing Countries

The inclusion of services in the Uruguay Round of multilateraltrade negotiations has focused attention on the protection ofdomestic service suppliers against competition from foreignsuppliers. Issues arising from these negotiations, however,may obscure another and more important issue: the case for unilateralliberalization. This article first surveys methods of protectionin the service sector, and then examines the likely cost ofprotection. Particular attention is given to developing countries.What evidence there is suggests that the costs of protectionmay be high. The article also discusses economic principlesthat could guide a review of policy toward international transactionsin the service sector. Quantitative restrictions or bans onforeign service suppliers—whether they wish to supplythrough trade or establishment—cannot easily be defendedin economic terms, and provide an obvious first target.     

The Industrial Relations Journal and the European Community

British entry into the European Community creates the conditions in which, for good or ill, the country's political, economic and social arrangements could be transformed. This observation applies at least as strongly to industrial relations as to other aspects of the national life. Indeed, it may even be argued that change in industrial relations in itself not only encompasses and reflects the broader patterns of socio-cultural and economic change occurring in society as a whole, but also, on occasion, is instrumental in initiating far-reaching changes outside the immediate concerns of industrial relations. Hence, the study of industrial relations could reasonably be seen as a study of society itself, in that both are concerned with the myriad of adjustments, large and small, which need to be made in the continuous task of reconciling, or providing a framework for reconciling, conflicting interests. Certainly, the study of industrial relations in a European Community context offers academics a practical and definable way of understanding the processes of integration in the organization of which Britain is now an important member. As far as managements and trade unions are concerned, short of some unusual catastrophe befalling multinational corporations, there must increasingly be a need to understand industrial relations systems and ideologies in countries other than our own for the severely practical business of negotiating viable agreements. In short, for the purposes of academic work and the requirements of the practitioner, industrial relations needs increasingly to be researched and discussed in a transnational as well as a national context, even though the latter must remain a large part of the reality for a long time to come.     

Selling to the moneyed masses

Over the past decade, the distribution of household incomes has shifted so much that a much larger proportion of consumers now earn significantly higher-than-average incomes--while still falling short of being truly rich. As a result, what used to be a no-man's-land for new product introductions has in many categories become an extremely profitable "new middle ground." How can marketers capitalize on this new territory? The key, say the authors, is to rethink the positioning and design of offerings and the ways they can be brought to market. Take, for instance, how Procter & Gamble redefined the positioning map for tooth-whitening solutions. A decade ago, dental centers were popularizing expensive bleaching techniques that put the price of a professionally brightened smile in the 400 dollars range. At the low end, consumers also had the choice of whitening toothpastes that cost anywhere from 2 dollars to 8 dollars. P&G wisely positioned itself between the two ends, successfully targeting the new mass market with its 35 dollars Whitestrips. In product categories where it's clear the middle ground has already been populated, it's important for companies to design or redesign offerings to compete. An example is the Polo shirt. How do you sell a man yet another one after he's bought every color he wants? Add some features, and call it a golf shirt. Here, marketers have introduced designs based on the concept of "occasional use" in order to stand out. Finally, companies wishing to reach the "almost rich" can change how they go to market. Perhaps no mass retailer has made a stronger bid for the mass affluent than Target Stores, which has pioneered a focus the company itself characterizes as upscale discount. The strategy has made Target an everyday shopping phenomenon among well-heeled urbanites and prosperous professionals.     

The Disciplining Role of Accounting in the Long-Run

One role of accounting is to discipline softer (more manipulable) sources of information. We use a principal-agent model of hidden actions and hidden information to study this role. In our model, there is both a verifiable signal (a publicly observed output) and an unverifiable signal (a productivity parameter privately observed by the agent). In a one-period setting, the optimal contract does not make use of the agents report on the private signal. However, when the output is tracked over two periods, the agents communication can be valuable. This reversal of results suggests uncovering the disciplining role of accounting may require a long-term perspective.JEL Classification: D82, M41     

Long-run returns following open market share repurchases

Past studies find abnormal returns to buying after repurchase program announcements. We analyze the profitability of trading after both program announcements and individual repurchase trade publication using different trading strategies – market and limit orders. The analysis of trades is possible because of a unique Canadian data set. The highest abnormal returns are earned by companies on their own repurchase trades which benefits the non-tendering shareholders. For the public investor, we find no strategies that, in practice, would earn abnormal returns to buying after program announcements. However, there is qualified evidence of abnormal returns to a limit order strategy following publication of individual repurchase trades.