The Market Reaction to Canceled Equity Offerings

Investors appear to respond to both an investment-opportunity signal and a valuation signal when an equity offering is announced or canceled. While prices fall in response to equity offers and rise when offers are withdrawn, the price changes are greater for offers used to reduce debt than for offers used for capital expenditures. Consistent with asymmetry theory, offerings and withdrawals of convertible debt and utility stock cause less price change when compared to industrial stock offers. Finally, the reaction to cancellations made because of market conditions, indicating undervaluation, are similar to the reaction to cancellations made for other reasons.     

MATHEMATICAL MODELLING AND STOCHASTIC SIMULATION OF ACCOUNTING ALTERNATIVES

Computer-based simulation has been widely used to study the effects of alternative accounting procedures. For simple scenarios, mathematical modelling can also reveal the consequences of employing different accounting methods. This paper uses stochastic simulation to build a complex model which cannot be solved analytically, and compares this approach directly with mathematical modelling of a simplified version of the same accounting problem.     

Factors Affecting New Product Forecasting Accuracy in New Firms

This study identifies factors that seem to influence a new firm's ability to accurately forecast new product sales. William Gartner and Robert Thomas present a conceptual model and develop hypotheses that specify antecedent factors prior to new product launch, such as the founder's expertise and the marketing research methods used, as well as environmental factors occurring after product launch, such as competitive factors and market volatility, that influence new product forecasting accuracy. The hypotheses were tested with data collected from a survey of 113 new U.S. software firms. Some tentative guidelines for improving sales forecast accuracy among new firms are offered. Directions for future research are discussed.     

Now Read This: Book Reviews How to enhance European moral reflection

Brian Harvey, Henk van Luijk and Horst Steinmann (editors), European Casebook on Business Ethics, Prentice Hall, London, 1994, pp. xiv + 226, £18.95, ISBN 0-13-298242-0     

Purchasing Power Parity When Prices Are I(2)

This paper examines the purchasing power parity (PPP) hypothesis over the modern float using data on 15 OECD currencies. Evidence is presented that suggests the price levels evolve as second-difference stationary processes, i.e., integrated of order two ( P₁– I (2)). A necessary condition for PPP when prices are I (2) is that prices are cointegrated across countries to an I (1) relative price. In general this relative price is not the same as the simple price ratio. For some of the relationships examined, this relative price level is cointegrated with the exchange rate, implying a long-run equilibrium between nominal exchange rates and prices.     

Network Externalities and Standardization: A Classroom Demonstration

This paper presents a classroom game that can be used to demonstrate network externalities, standardization, and switching costs. In the basic game, students independently choose a technology whose value depends on the total number of students choosing that technology. In the next round, sequential decision making is allowed that quickly leads to standardization. Introducing imperfect information and switching costs into subsequent rounds can lead to the real-world phenomenon of an inferior technology becoming the standard. This exercise can be used in principles of economics classes to teach these important concepts without requiring mathematical models. In more advanced classes, construction of the mathematical model behind the game may be assigned.