Income dispersion and counter-cyclical markups

Recent advances in measuring cyclical changes in the income distribution raise new questions: How might these distributional changes affect the business cycle itself? We show how counter-cyclical income dispersion can generate counter-cyclical markups in the goods market, without any preference shocks or price-setting frictions. In recessions, idiosyncratic labor productivity shocks raise income dispersion, lower the price elasticity of demand, and increase imperfectly competitive firms’ optimal markups. The calibrated model explains not only many cyclical features of markups, but also cyclical and long-run patterns of standard business cycle aggregates.     

Auditors' Efficiency Motivated Evaluation

This paper proposes an evaluation approach - “Efficiency Motivated Evaluation” (EME hereafter) - that auditors use in response to increased efficiency demands. EME is defined as discounting (emphasizing) negative (positive) audit evidence and making favorable assessments as the demands for efficiency increase. We propose that increased time pressure will exacerbate auditors' use of EME but that experience will mitigate this tendency. We conduct an experiment in which 83 auditors differing in experience evaluated internal control effectiveness under high or low time budget pressure. Consistent with expectations based on EME, auditors assess overall internal control effectiveness higher, and positive information about controls as more relevant, under high (compared to) low time budget pressure. Moreover, we find that less (compared to more) experienced auditors under high time budget pressure rate negative information about controls as less relevant. The results suggest the importance of assigning experienced staff to high time budget pressure engagements.     

One Man Two Hats: What's All the Commotion!

We examine performance in publicly listed U.K. companies over a period that encompasses the issuance of the Cadbury Committee's Code of Best Practice, which calls for the abolition of the combined CEO/COB position. We find that companies splitting the combined CEO/COB position to conform to the Code's requirement did not exhibit any absolute or relative improvement in performance when compared to various peer‐group benchmarks. We do not necessarily scoff at mandated board structures, but the evidence suggests that this particular legislature coerced the abandonment of the combined CEO/COB position and appears to be wide of the mark.     

EFA Keynote Speech: “Corporate Governance and Corporate Social Responsibility: What Do Investors Care about? What Should Investors Care about?”

This article is the keynote address from the Eastern Finance Association meeting in New Orleans in March 2007 with updated references and examples. In this keynote address, I discuss what we can learn about institutional investors' views on corporate governance and corporate social responsibility from research and surveys.     

Curvilinearity in the diversification–performance linkage: an examination of over three decades of research

While an extensive literature examines the diversification‐performance relationship, little agreement exists concerning the nature of this relationship. Both theoretical and empirical disagreements abound. This study synthesizes findings from three decades of research to address major theoretical issues that remain open to debate. We derive three competing models from the literature and empirically assess these using meta‐analytic data drawn from 55 previously published studies. The results of our tests indicate that moderate levels of diversification yield higher levels of performance than either limited or extensive diversification. Thus, we provide support for the curvilinear model; that is, performance increases as firms shift from single‐business strategies to related diversification, but performance decreases as firms change from related diversification to unrelated diversification. The results also indicate major effects from variation in diversification and performance operationalizations. Copyright © 2000 John Wiley & Sons, Ltd.     

Absorptive capacity and R&;D tax policy: Are in-house and external contract R&;D substitutes or complements?

Firms fund research and development (R&;D) to generate commercializable innovations and to increase their ability to understand and absorb knowledge from elsewhere. This dual role and opposed incentive structure of internal R&;D create a significant question for both theory and R&;D policy: Is internal R&;D a complement or substitute for external R&;D? We develop a model and novel technique for empirically estimating R&;D substitution elasticities. We focus on bio-pharmaceutical and software industries in California and Massachusetts, where tax credit rates changed differently over time for the two types of R&;D, creating a natural experiment. The effective tax prices for the two R&;D types differ from type to type, firm to firm, state to state, and year to year. This allows us to examine changes in the composition of firms’ R&;D budgets between in-house R&;D and external basic research when the relative tax prices of each category of research change. We find evidence of a substitute relationship both for a sample comprising exclusively small firms as well as for a more general distribution of firm sizes.     

The effects of consumer perceived value and subjective norm on mobile data service adoption between American and Korean consumers

The effects of consumer perceived value and subjective norm on using mobile data services between American and Korean consumers were examined to explain the differences and similarities in consumer mobile data service adoption behavior in this study. The antecedent effects of four dimensions of consumer perceived value showed different behavioral intention to use mobile data services between the two countries. Emotional value was found to be the most significant effect on using mobile data services for consumers in the two countries. Subjective norm was a significant antecedent of attitude and behavioral intention to use mobile data services for American consumers, but it was not evident for Korean consumers.