How long must a firm be great to rule out chance? Benchmarking sustained superior performance without being fooled by randomness

Although sustained superior firm performance may arise from skillful management or other valuable, rare, and inimitable resources, it can also result from randomness. Studying U.S. companies from 1965–2008, we benchmark how long a firm must perform at a high level to be confident that it is something other than the outcome of a time‐homogeneous stationary Markov chain defined on the state space of percentiles. We find (a) the number of sustained superior performers in Compustat, measured by ROA and Tobin's q, exceeds the number of false positives we would expect to be generated by such a process; yet (b) the occurrence of false positives is often enough to fool many observers, so (c) the identification of sustained superior performers requires particularly stringent benchmarks to enable valid study. Copyright © 2011 John Wiley & Sons, Ltd.     

A Review of: BUSINESS COST-BENEFIT ANALYSIS

This paper reports the findings of a survey of 427 large hospitals nationwide. The survey provided information regarding the techniques employed as primary and secondary tools of capital budgeting, the percentage of capital projects formally evaluated, the methods used in capital budgeting, the qualitative factors which influence the capital budgeting decisions and the extent of their impact in determining the acceptance decision, and the nature and frequency of involvement of the medical staff in major capital investment decisions.     

Perpetual American options in incomplete markets: the infinitely divisible case

We consider the exercise of a number of American options in an incomplete market. In this paper we are interested in the case where the options are infinitely divisible. We make the simplifying assumptions that the options have infinite maturity, and the holder has exponential utility. Our contribution is to solve this problem explicitly and we show that, except at the initial time when it may be advantageous to exercise a positive fraction of his holdings, it is never optimal for the holder to exercise a tranche of options. Instead, the process of option exercises is continuous; however, it is singular with respect to calendar time. Exercise takes place when the stock price reaches a convex boundary which we identify.     

The new urban landscape: Developers and edge cities

In this paper we model the decisions of an edge city developer who chooses business district capacity and location strategically to maximize profits. The developer competes against a core city with historically given downtown capacity for employment and, implicitly, residential population. Moving nearer the core city enhances production efficiency by increasing the efficiency of the exchange of information between businesses in the core and edge city. On the other hand, it increases typical residential rents and commuting costs (and hence wages demanded by employees) and weakens the developer's local monopsony power. The developer's choice of location and capacity play out in a complex but fascinating fashion, depending on the historical capacity of the downtown.     

Power and firm profitability in supply chains: french manufacturing industry in 1993

The paper examines the relationships between the power of suppliers and buyers and the profitability of sellers who are situated in supply chains between both sets of firms. A review of the literature on power in exchange relations shows there are several power concepts which may have a different impact on seller profitability and whose impact possibly can offset each other. This may be the source of the conflicting evidence on this topic. A failure to distinguish among the concepts may also lead to an underestimation of industry effects relative to resource effects as drivers of firm profitability. The paper uses a new data base of the Banque de France on French manufacturing industry. The anlayses examine whether different power concepts may be empirically identified and what their relationships are with seller profitability. The findings point to the existence of multiple power concepts and indicate that, in the sample, industry effects are more important than firm effects (as measured by relative market share) in explaining seller profitability. The findings also suggest that buyer power explains a much larger percentage of the variance in seller profitability than supplier power. © 1998 John Wiley & Sons, Ltd.     

Partial liquidation under reference-dependent preferences

We propose a multiple optimal stopping model where an investor can sell a divisible asset position at times of her choosing. Investors have $S$-shaped reference-dependent preferences, whereby utility is defined over gains and losses relative to a reference level and is concave over gains and convex over losses. For a price process following a time-homogeneous diffusion, we employ the constructive potential-theoretic solution method developed by Dayanik and Karatzas (Stoch. Process. Appl. 107:173–212, 2003). As an example, we revisit the single optimal stopping model of Kyle et al. (J. Econ. Theory 129:273–288, 2006) to allow partial liquidation. In contrast to the extant literature, we find that the investor may partially liquidate the asset at distinct price thresholds above the reference level. Under other parameter combinations, the investor sells the asset in a block, either at or above the reference level.