International Evidence on the Value of Corporate Diversification

The valuation effect of diversification is examined for large samples of firms in Germany, Japan, and the United Kingdom for 1992 and 1994. We find no significant diversification discount in Germany, but a significant diversification discount of 10 percent in Japan and 15 percent in the U.K. Concentrated ownership in the hands of insiders enhances the valuation effect of diversification in Germany, but not in Japan or the U.K. For Japan, only firms with strong links to an industrial group have a diversification discount. These findings suggest that international differences in corporate governance affect the impact of diversification on shareholder wealth.     

AUCTIONS: AN INTRODUCTION

Abstract. This is a detailed introduction to auction theory. It begins with a simple analysis of standard auctions and then uses a strikingly simple general solution of symmetric private values auctions to prove the payoff equivalence of many auction rules. The basic framework is then modified to admit risk aversion, multi-unit and repeated auctions as well as collusion. Then follows an introduction to optimal auctions, with and without stochastic entry, and to common value auctions and the winner's curse problem. The survey closes with a sample of applications, from the regulation of natural monopolies to price competition in oligopoly and the government securities market.     

Is the EU's labour market threatened by a wave of immigration?

As the accession negotiations continue between the European Union and the Central and Eastern European Countries, Germany in particular fears that granting free movement of labour to these countries might generate a wave of new entrants that could overwhelm its labour market. The following article uses migration determinants and draws on previous experience of integrating countries into the EU in an attempt to reach conclusions about migration patterns that may result from the forthcoming eastward enlargement.     

A Sealed-Bid Auction That Matches the English Auction

This paper analyzes a two-stage sealed-bid auction that is frequently employed in privatization, takeover, and merger and acquisition contests. This auction format yields the same expected revenue as the open ascending (English) auction, yet is less susceptible to preemptive bidding and collusion. Journal of Economic Literature Classification Number: D44.     

Reputation and Imperfectly Observable Commitment: The Chain Store Paradox Revisited

This paper reconsiders Selten's famous chain store paradox and its solution by Kreps and Wilson, which is based on entrants' uncertainty concerning the incumbent monopolist's predisposition to fight entry. Following Milgrom and Roberts, we interpret the predisposition to fight entry as the result of a rationally chosen commitment. However, commitment is imperfectly observable. Other assumptions are maintained. We show that a rational monopolist never fights entry, even if he may commit himself to an aggressive course of action. Entry occurs in all markets and is never fought. Hence, Selten's chain store paradox comes back in full force.     

License auctions with royalty contracts for (winners and) losers

This paper revisits the licensing of a non-drastic process innovation by an outside innovator to a Cournot oligopoly. We propose a new mechanism that combines a restrictive license auction with royalty licensing. This mechanism is more profitable than standard license auctions, auctioning royalty contracts, fixed-fee licensing, pure royalty licensing, and two-part tariffs. The key features are that royalty contracts are auctioned and that losers of the auction are granted the option to sign a royalty contract. Remarkably, combining royalties for winners and losers of the auction makes the integer constraint concerning the number of licenses irrelevant.     

The Value Relevance of Mandatory Non‐GAAP Earnings

This paper examines the value relevance of earnings components where there is a mandatory requirement to report generally accepted accounting principles (GAAP) earnings and non‐GAAP earnings, and where the items to be eliminated from GAAP earnings are defined in detail. The setting is different from non‐GAAP earnings disclosures presented in the United States and elsewhere, where managers have discretion over whether to report a non‐GAAP earnings number, and what to exclude from GAAP earnings. Our mandatory setting enables us to report value relevance results that are not confounded by managers' discretionary choices regarding non‐GAAP earnings exclusions. We use price‐level regressions, based on the Ohlson (1995) model, to test for incremental and relative value relevance. The results show that non‐GAAP earnings reported under a mandatory regime have higher value relevance than GAAP earnings. The disaggregation of these items is useful to investors in a setting where managerial motivations are minimized.     

Outsourcing via reverse auction with a built-in menu of change orders

Many firms invent and design products while outsourcing their production to independent contractors. We consider a dominant strategy mechanism that selects a contractor using a reverse auction, combined with a menu of permitted change orders from which the contractor can choose after updated cost information has become available. That mechanism maximizes the gain from trade, allows the firm to extract the second highest surplus, and induces the contractor to make efficient adjustments to output after updated cost information has emerged.