The Distributional Impact of Selected Commonwealth Outlays and Taxes and Alternative Commonwealth Grant Allocation Mechanisms

This article examines the redistributive impact of Commonwealth outlays and taxes (including outlays directed through and to the States)and two possible alternative systems of distributing Commonwealth funding amongst the States.     

Network externalities and long-run market shares

We study a dynamic duopoly model with network externalities. The value of the product depends on the current and past network size. We compare the market outcome to a planner. With equal quality products, the market outcome may result in too little standardization (i.e. too many products active in the long run) but never too much. The potential inefficiency is non-monotonic in the strength of the network effect, being most likely for intermediate levels. When products differ in quality, an inferior product may dominate even when the planner would choose otherwise, but only if the discount factor is sufficiently large     

Estimating Bargaining Effects in Hedonic Models: Evidence from the Housing Market

Bargaining is common in markets for heterogeneous goods and differences in bargaining power between buyer and seller affect the negotiated transaction price. Previous research has found systematic evidence in the housing markets that weak buyers pay higher prices and weak sellers receive lower prices for their homes. Earlier work has modeled the bargaining effect as a parallel shift in the hedonic function, implicitly assuming that attribute shadow prices were unaffected by the bargaining process. In this paper, we use a sample of home sales where the seller's bargaining power is weakened by the fact that the home is vacant at the time of sale to test whether the effect of bargaining is best captured by a shift in the hedonic constant or whether the attribute shadow prices vary as well. The question is significant for property valuation where estimation of the marginal value of an attribute is commonly used to adjust comparable sales data. We find strong confirmation that bargaining power influences the negotiated price. We also find evidence that bargaining power alters attribute prices, although we do not find a consistent pattern across markets.     

The outsourcing of R&D through acquisitions in the pharmaceutical industry

We examine the performance of 160 pharmaceutical acquisitions from 1994 to 2001 and find evidence that on average acquirers realize significant positive returns. These returns are positively correlated with prior acquirer access to information about the research and development activities at target firms and a superior negotiating position. A unique Desperation Index is employed to determine the current status of a firm's internal productivity. We find that firms experiencing declines in internal productivity or which are more desperate are more likely to engage in an outsourcing-type acquisition in an effort to replenish their research pipelines.     

Anxiety of dependency in international joint ventures? An empirical study of drivers and consequences of relationship insecurity

This research introduces and delineates the concept of insecurity in IJV relationships. We define relationship insecurity as a parent firm's concerns about the continuance of the alliance arrangement and its partner's future provision of need satisfaction. According to interdependence theory, exchange partners that experience high dependence inevitably experience this ‘anxiety of dependency’, and the emergence of insecurity can destabilize the working relationship from within. We develop a conceptual model of the drivers and consequences of relationship insecurity in IJVs. Our survey results from 125 IJVs indicate that focal firm dependence and partner firm dependence both negatively affect insecurity, though the former is the dominant predictor. This surprising finding implies IJV partners experience ‘anxiety of low dependency’. The results suggest insecurity not only reduces directly IJV performance, but also lowers the quality of interpartner communication, which in turn dampens performance. Implications of these results are discussed.     

Interest rate rules and price determinacy: The role of transactions services of bonds

Interest rate rules have been associated with price indeterminacy when they do not respond aggressively enough to inflation. Price indeterminacy is typically associated with indeterminacy of real bond balances, suggesting that the missing element is a meaningful role for government bonds. We assume that government bonds provide arbitrarily small transactions services and show that this can dramatically change the local and global determinacy conditions. In particular, the specification of fiscal policy affects the aggressiveness with which monetary policy must respond to inflation to deliver local determinacy—a range of passive monetary policies, even an interest rate peg, may yield determinacy.     

The consequences to analyst involvement in the IPO process: Evidence surrounding the JOBS Act

The JOBS Act allows certain analysts to be more involved in the IPO process, but does not relax restrictions on analyst compensation structure. We find that these analysts initiate coverage that is more optimistically biased, less accurate, and generates smaller stock market reactions. Investors purchasing shares following these initiations lose over 3% of their investment by the firm's subsequent earnings release. By contrast, issuers, analysts, and investment banks appear to benefit from this increased bias, as optimism is more positively associated with proxies for firm visibility and investment banking revenues when analysts are involved in the IPO process.     

THE EFFECTS OF MUTUAL FUNDS ON M&A COMPENSATION

Motivated by shareholders’ interest in combating executive wealth expropriation through the merger and acqusition (M&A) process, we study how mutual funds influence firm behavior around an acquisition through votes against management proposals. We find that mutual funds reduce the chief executive officer's ability to extract rents during the M&A process by voting against management‐sponsored compensation proposals after the acquisition, thus lowering both excess compensation and increasing pay‐for‐performance sensitivity. Furthermore, mutual fund voting magnifies the impact on negatively performing firms and firms with a larger amount of the mutual fund's holdings in the firm.