Alliances and corporate governance

We study the link between a firm's quality of governance and its alliance activity. We consider alliances as a commitment technology that helps a company’ Chief Executive Officer overcome agency problems that relate to the inability to ex ante motivate division managers. We show that well-governed firms are more likely to avail themselves of this technology to anticipate ex post commitment problems and resolve them. The role of governance is particularly important when the commitment problems are more acute, such as for significantly risky/long-horizon projects (“longshots”) or firms more prone to inefficient internal redistribution of resources (conglomerates), as well as in the absence of alternative disciplining devices (e.g., low product market competition). Governance also mitigates agency issues between alliance partners; dominant alliance partners agree to a more equal split of power with junior partners that are better governed. An “experiment” that induces cross-sectional variation in the cost of the alliance commitment technology provides evidence of a causal link between governance and alliances.     

Locked and crossed markets on NASDAQ and the NYSE

The NBBO for an average active stock is non-positive (locked or crossed) 10.58% and 4.05% of the time on, respectively, the NASDAQ and the NYSE inter-markets. Locks and crosses are frequent fleeting events that usually accompany significant price changes. Non-positive NBBOs arise because of (i) simultaneous and (ii) tardy quote updates, (iii) electronically unreachable quotes, (iv) reluctance to trade against autoquotes, (v) order transit considerations, and (vi) ECN liquidity attraction efforts. Most locks and crosses result from competitive trading practices in contemporary fragmented markets.     

Information transfers and learning in financial markets: Evidence from short selling around insider sales

We document significant increases in short positions on days when company insiders sell their firms’ shares. Short selling increases before insider sales are publicly reported and often before insiders finish selling. Furthermore, the magnitude of short selling activity is consistent with short sellers’ knowledge of the insider’s rank (e.g., CEO, CFO, or a lower-ranked manager) and with knowledge of the unobservable size of the insider’s trading position. We show that short sellers’ superior timing is consistent with (i) monitoring of order flow and (ii) obtaining price-relevant information from brokerages that execute insider sales. Some of our results extend to insider purchases.     

Risky products in movies: a special type of the embedded message requiring special treatment?

• The appearance of risky products such as alcohol, tobacco and firearms, as well as their brand imagery, in movies can be supported by product manufacturers. This article discusses the argument for a disclosure advising consumers about the persuasive intent behind the appearance of some risky products in movies, drawing upon the ethical implications of product placement. Such a disclosure would protect consumers against the impact of promotional messages and allow moviemakers to separate their artistic activities from promotion of risky products.

Copyright © 2012 John Wiley & Sons, Ltd.     

Quote Competitiveness, 100‐share Quotes,and Decimalization

The finance literature documents a significant post‐decimalization decline in intermarket quote competitiveness. We show that this result is due primarily to the decline in 100‐share NBBO‐matching quotes posted by NASDAQ. After decimalization, such quotes decline by more than 90%. At that time, the intermarket trading system (ITS) regards 100‐share quotes as meaningless; these quotes are exempt from the trade‐through rule and are generally ignored by ITS participants. We therefore argue that the major decline in quote competitiveness observed by previous research is largely nominal, and that decimalization had a much lesser impact on quote competitiveness than previously believed.     

Projections of pension fund solvency under alternative valuation regimes

This paper examines the impact of three alternative valuation regimes on perceived pension fund solvency. Deterministic valuation assumes smoothed valuation of assets and liabilities. National valuation is based on market valuation of assets and on smoothed valuation of liabilities. International valuation marks assets and liabilities to market values. Using closed-form methods based on the funding ratio return, we exemplify the dramatic effect that the choice of valuation approach has on long-horizon solvency projections.