Valuing the Option to Purchase an Asset at a Proportional Discount

I analyze the value of a nonstandard call option that allows the holder to purchase an underlying asset at a discount proportional to the asset's market price. Several applications for this type of option exist, including its use in employee compensation contracts. I derive the value of this option for a dividend-paying asset and for an option whose exercise price reflects a time-varying discount factor. The derived value incorporates the optimal time at which the option should be exercised. One application of this option relates to a residential real estate program in China.     

From T-Bills to Stocks: Seasonal Anomalies Revisited

This paper employed eleven data series which consist of stocks, bonds, bills, equity premiums, term premiums, and various default premiums to investigate whether January seasonality reported in existing literature is robust across different states of the economy as this has important trading implications. For the periods 1926–1990, small stocks, small stock premiums, low grade bonds, and default premiums (spread between high grade, low grade and government bonds) reveal January seasonality and that the seasonality is robust across different states of the economy except for low grade bond returns and default premiums. January seasonality for low grade bond returns and low grade bond default premiums are primarily driven by results found during periods of economic expansion. Overall, January seasonality is more evident during the economic expansion periods although the magnitude of default premiums is larger during periods of economic contraction. Furthermore, prior findings of strong summer equity returns are primarily driven by the results found during the periods of economic contraction. It is also found that equity returns are generally higher during periods of economic expansion.     

The Resale Price Maintenance Struggle

A bstract Bills introduced in the 100th and 101st Congresses would amend the Sherman Act in regard to retail competition Their two key provisions would seek to (1) alter the standard of proof currently used for the establishment of illicit vertical price arrangements and (2) codify into law the judicially-established per se rule against resale price maintenance agreements The first provision seeks to overcome the effect of the establishment by the Supreme Court , in its Monsanto decision, of what is viewed as an illogical and impossible burden of proof on plantiffs seeking damages in resale price maintenance cases The second merely incorporates into statutory law the court's declarations in the Dr Miles case of the per se illegality of resale price maintenance agreements Arguments for and against this legislation are discussed and recent developments are examined     

Rising marginal cost and concavity of the production function

Suppose a production function, f, is continuous, quasi-concave and weakly monotone on the non-negative orthant of Euclidean n-space. Let c(·, ·) be the associated cost function. Then it is shown that f is concave if and only if for each w, c(w, ·) is convex.     

The effects of funding source and management ownership on the productivity of R&D

This study investigates the influence of the source of R&D funds and management ownership on R&D productivity. The lagged effect of the source of R&D funds on R&D output is investigated for a sample of US manufacturing firms in five industries over the 1996–99 period. Estimates based on 779 firm-years show that R&D productivity increases with the proportion of stock held by managers and directors of firms primarily in the Other Electronics industry. The estimates also show that recipients of government-sponsored R&D funds in the Chemicals industry have lower levels of output (sales) for each dollar committed to R&D. In addition, output for firms in the Chemicals industry worsens as management stockholding increases, implying an agency cost rationale for the observed difference in output. The implication is that firms with high manager-owner content are less productive with government-sponsored R&D than with company-financed R&D. The reported results suggest that potential agency costs should be incorporated in government-sponsored R&D contracts. It also suggests that the source of R&D funds should be disclosed and incorporated into the valuation of intangible assets attributable to research and development.     

Knowledge Synthesis and Innovative Logistics Processes: Enhancing Operational Flexibility and Performance

Research results are presented providing an empirical examination of the impact of knowledge synthesis and innovative logistics processes on operational flexibility. The research is theoretically grounded in the resource‐based view of the firm, augmented with the knowledge‐based view. Knowledge synthesis and innovative logistics processes are proposed as key resources in the development of an important logistics capability: operational flexibility. A structural model analysis of survey data collected from logistics executives supports the proposed relationships and indicates that innovative logistics processes can lead to greater operational flexibility. Operational flexibility is also shown to lead to higher levels of logistics performance.     

Impact of firm size and age on the export behaviour of small locally owned firms: Fresh insights

This paper analyses the impact of size and age on small firms’ export behaviour. A review of the literature reveals that the extant conclusions are fragmented, inconclusive and limited in geographical scope. This study aims to address these limitations by analysing small, locally owned firms’ export behaviour from a novel location that has never been studied in the extant literature. The study draws on data from Jamaica, a small, open Caribbean economy. The statistical analysis revealed that size, not age, has a significant impact on export behaviour. Furthermore, other factors such as the owner’s previous international job experience and foreign travel experience also play an important role. These findings have implications for future research on the export behaviour of small firms, especially those from emerging environments. In addition, they provide export policy makers who are engaged in export stimulation among small, locally owned firms, with profile of firms that have a greater proclivity to export.     

Developing tomorrow's leaders—Evidence of global talent management in multinational enterprises

Organizations are becoming relentless in managing and developing their key talent. This is a view, however, largely based on anecdote rather than reliable empirical evidence. Utilizing data from 260 multinational enterprises (MNEs), this paper helps redress this deficit. Specifically, this paper explores the extent to which MNEs engage in global talent management (GTM) and deciphers some of the factors which may explain the use and non-use of GTM practices. In so doing, we find that although a significant number of MNEs have systems and mechanisms in place to strategically identify and develop their talent many more seemingly adopt an ad hoc or haphazard approach. For instance, less than half of all MNEs have both global succession planning and formal management development programs for their high-potentials. Consequently it seems that there is a considerable distance yet to be travelled to arrive at a universal appreciation of the need to strategically manage one's key employees. We find the size of the MNE has a significant effect on GTM system usage—larger MNEs are more likely to undertake GTM. Other significant, positive influences include whether products or services are standardized regionally or globally, and if the MNE has a global human resources policy formation body. Of considerable interest is the finding that MNEs operating in the low-tech/low-cost sectors are significantly more likely to have formal global systems to identify and develop high-potentials.     

Are Investment Banks Special Too? Evidence on Relationship‐Specific Capital in Investment Bank Services

The question of whether optimal provision of these services comes mainly from established relationships between banks and client firms or can result from arms'‐length market transactions has been the topic of considerable recent debate. This discussion has paralleled the debate in the commercial banking literature on the “specialness” of banks and whether lending can and should be relational or purely transactional. Whether the provision of investment bank services is relationship‐based or transactional is especially relevant now thanks to recent trends that have blurred the distinction between commercial and investment banks, and changed the competitive landscape for investment bank services. In their study summarized in this article, the authors examine whether investment bank‐client relationships create valuable relationship‐specific capital using stock market evidence from the period surrounding the collapse of Lehman Brothers. Specifically, they studied the effect of the Lehman collapse on companies that used Lehman for (1) underwriting equity offerings, (2) underwriting debt offerings, (3) advice on mergers and acquisitions, (4) analyst research services, and (5) market‐making services. The study addressed two specific questions. First, which investment bank services, if any, are associated with the creation of relationship‐specific capital; and second, what are the value drivers of this relationship capital? The authors report finding that companies that used Lehman as lead underwriter for public equity offerings experienced significantly negative abnormal stock returns in the days surrounding Lehman's bankruptcy announcement. By contrast, they find no significant reaction to the announcement for Lehman's debt underwriting clients or any of the other client categories they examine. While most of these investment bank services have at least the potential to create relationship‐specific capital, the authors' findings suggest that except for equity underwriting, all the other investment bank services appear to be transactional rather than relationship‐based, at least in the average case. Moreover, the authors report significant differences even among different groups of Lehman's equity underwriting clients. An equity underwriting relationship with Lehman appears to have been especially valuable for smaller, younger, and more financially constrained firms—those firms which presumably had a high degree of dependence on Lehman to access the capital market.