Dynamic Volume-Return Relation of Individual Stocks

We examine the dynamic relation between return and volume ofindividual stocks. Using a simple model in which investors tradeto share risk or speculate on private information, we show thatreturns generated by risk-sharing trades tend to reverse themselves,while returns generated by speculative trades tend to continuethemselves. We test this theoretical prediction by analyzingthe relation between daily volume and first-order return autocorrelationfor individual stocks listed on the NYSE and AMEX. We find thatthe cross-sectional variation in the relation between volumeand return autocorrelation is related to the extent of informedtrading in a manner consistent with the theoretical prediction.     

Customer response capability in a sense-and-respond era: The role of customer knowledge process

An organization’s customer response capability, its comptence in satisfying customer needs through effective and quick responses, is critical for sustained success. In this article, the authors examine how customer knowledge process influences customer response capability. They highlight two dimensions of customer response capability, customer response expertise and customer response speed. It is observed that apart from its direct positive association with customer response expertise and speed, the customer knowledge process also diminishes the positive association between risk propensity and these dimensions of customer response capability. The influence of customer response expertise and speed on performance is also examined. The hypotheses are tested using survey data collected from a sample of retailing firms and the findings triangulated using qualitative data collected through depth interviews with managers. The results highlight the importance of customer knowledge in enhancing customer response capability. Satish Jayachandran is with the Department of Marketing at the University of South Carolina. His research interests are in the area of marketing strategy, specifically market responsiveness of firms and the impact of organizational performance on subsequent managerial and firm behavior. His research has been published in theJournal of Marketing and theJournal of the Academy of Marketing Science. He was a recipient of the Harold H. Maynard award for 2001 from theJournal of Marketing. Kelly Hewett is with the Department of Marketing at the University of South Carolina. Her research focuses on the management of relationships between buyers and sellers, as well as between headquarters and foreign subsidiaries in managing the marketing function globally. Her research has been published in theJournal of Marketing, theJournal of International Business Studies, theJournal of the Academy of Marketing Science, and theJournal of International Marketing, among others. Peter Kaufman is with the Department of Marketing at Illinois State University. His research focuses on buyer-seller relationships, retailing, and distribution issues. He received an Honorable Mention in the Marketing Science Institute’s 2003 Alden G. Clayton Doctoral Dissertation Proposal Competition.     

Do people with disabilities believe the ADA has served their consumer interests?

In recent years, numerous changes in the retail sector have been made to create accessibility for people with disabilities and to establish compliance with the Americans with Disabilities Act (ADA). This paper examines the responses of 1,000 people with disabilities taken from the 1998 National Organization on Disability/Harris Survey of Americans with Disabilities. These data enable us to examine whether the consumer interests of people with disabilities have been served by this legislation from the perspective of the people whom the law was designed to protect. The findings indicate that (1) respondents who are aware of the ADA are significantly more likely than those unaware of the ADA to believe that things have gotten better since the enactment of the ADA; however, a clear majority of those who are aware still believe that the ADA has made no difference; (2) respondents believe perceived access is related to disabilities and to environmental factors; (3) respondents who perceive fewer access problems spend more time in the marketplace; and (4) greater life satisfaction is related to greater perceptions of marketplace access and more frequent participation in the marketplace. In general, the results show that respondents believe their consumer interests have been served by the ADA, but the results also show there is more to be done.     

Behavioral Economics,Federalism, and the Triumph of Stakeholder Theory

Stakeholder theorists distinguish between normative stakeholders, those who gain moral standing by making contributions to the firm, and derivative stakeholders, those who can constrain the corporate association even though they make no contribution. The board of directors has the legal authority to distinguish among these stakeholder groups and to distribute rights and obligations among these stakeholder groups. To be sure, this stakeholder formulation appropriately seizes on the firm’s voluntary, associative character. Yet, the firm’s constituents contribute assets and incur risks to participate in market, economic activities. And, as such, the firm’s “stakeholders” must share an imperfect language to assist in making two key economic decisions: (1) who are the legitimate and who are the derivative stakeholders; and (2) who should sit on the board? Still, stakeholder theorists have good reason to be skeptical of neoclassical economics. Its assumptions that all act opportunistically and that all can calculate rationally and fully hardly correspond to studies on the managerial experience of corporate coordination. However, advances in behavioral law and economics now provide a cogent economic logic that readily fits into a stakeholder mode. In brief, we argue that (1) the firm’s economic purpose designates legitimacy to core stakeholders, to those who add value, assume unique risk, and can incur harm; (2) the board serves as the principal who coordinates these core stakeholders to sustain competitive advantage and new wealth creation; and (3) state incorporation law, Delaware in particular, reinforces the board’s function. These, in turn, supply selection criteria for board membership. We aim to synchronize concepts from behavioral law and economics with stakeholder theory.     

Not All Financial Crises Are Alike!

The United States has experienced many financial crises, but the Great Depression, the prolonged thrift crisis of the 1980s, and the most recent Great Recession stand out. In this paper, the focus is on the differences the three crises exhibited in terms of the economic environment leading up to each crisis, the effects on financial institutions and financial markets, and the policy responses and how those responses evolved. The post-World War I macro environment leading up to the Great Depression was radically different than either the inflation environment of the 1970s and early 1980s or the housing collapse and role that subprime lending played in the Great Recession. Additionally, the financial institution failure experience was different in all three crises, as were the regulatory and legislative responses that followed. Perhaps most striking are two important differences. In the Great Depression, many very small rural banks failed. In the 1980s, the first round of failures hit mainly thrifts followed by largely smaller regional and community banks. In the Great Recession, the nation’s largest institutions were the main ones affected. Second, the runs on the institutions were also significantly different.     

Finding your innovation sweet spot

Most new product ideas are either uninspired or impractical. So how can developers hit the innovation sweet spot--far enough from existing products to attract real interest but close enough that they are feasible to make and market? They can apply five innovation patterns that manipulate existing components of a product and its immediate environment to come up with something both ingenious and viable, say the authors. The subtraction pattern works by removing product components, particularly those that seem desirable or indispensable. Think of the legless high chair that attaches to the kitchen table. The multiplication pattern makes one or more copies of an existing component, then alters those copies in some important way. For example, the Gillette double-bladed razor features a second blade that cuts whiskers at a slightly different angle. By dividing an existing product into its component parts--the division pattern--you can see something that was an integrated whole in an entirely different light. Think of the modern home stereo--it has modular speakers, tuners, and CD and tape players, which allow users to customize their sound systems. The task unification pattern involves assigning a new task to an existing product element or environmental attribute, thereby unifying two tasks in a single component. An example is the defrosting filament in an automobile windshield that also serves as a radio antenna. Finally, the attribute dependency pattern alters or creates the dependent relationships between a product and its environment. For example, by creating a dependent relationship between lens color and external lighting conditions, eyeglass developers came up with a lens that changes color when exposed to sunlight.     

The HR/IR Teaching Conference

This article summarizes and analyzes the 1996 Innovative Teaching in Human Resources and Industrial Relations (HR/IR) Conference. It deals with the (1) origins, content, and format of the conference; (2) key trends, ideas, and themes that emerged from the conference; and (3) implications from the analysis for the next HR/IR teaching conference (scheduled for June 1999). Special attention is paid to the different disciplinary approaches to teaching HR/IR, newer nontraditional methods for teaching HR/IR, and practitioner influence on HR/IR teaching and research. © 1999 John Wiley & Sons, Inc.     

When the Underwriter Is the Market Maker: An Examination of Trading in the IPO Aftermarket

This paper examines aftermarket trading of underwriters and unaffiliated market makers in the three-month period after an IPO. We find that the lead underwriter is always the dominant market maker; he takes substantial inventory positions in the aftermarket trading, and co-managers play a negligible role in aftermarket trading. The lead underwriter engages in stabilization activity for less successful IPOs, and uses the overallotment option to reduce his inventory risk. Compensation to the underwriter arises primarily from fees, but aftermarket trading does generate positive profits, which are positively related to the degree of underpricing.     

Signaling safety

Contrary to signaling models’ central predictions, changes in the level of cash flows do not empirically follow changes in dividends. We use the Campbell (1991) decomposition to construct cash-flow and discount-rate news from returns and find the following: (1) both dividend changes and repurchase announcements signal changes in cash-flow volatility (in opposite directions); (2) larger cash-flow volatility changes come with larger announcement returns; and (3) neither discount-rate news, nor the level of cash-flow news, nor total stock return volatility change following dividend changes. We conclude cash-flow news—and not discount-rate news—drive payout policy, and payout policy conveys information about future cash-flow volatility.