SECURITY PRICE REACTIONS AROUND PRODUCT RECALL ANNOUNCEMENTS

This study presents an empirical, event-time analysis of the financial impact of product recall announcements on the equity holders of affected firms. Product recalls convey relevant information to the market at the time the announcement is reported in The Wall Street Journal. Further, security prices continue to react significantly to product recall announcements for approximately two months following the initial news release. No relation between the firm's equity decline and the direct costs of the recall is found, indicating the importance of indirect costs such as litigation or a reduction in future corporate sales due to reputation damage.     

AUTOMOTIVE RECALLS AND INFORMATIONAL EFFICIENCY

This study provides an empirical test of the informational efficiency of the stock market by exploring the stock price and volume patterns exhibited by Chrysler, Ford, and General Motors around the time of announcement of severe automotive recall campaigns. Because information concerning automotive recalls is released to the public via two distinct methods, which differ only with respect to the number of market participants notified of the recall campaigns, a differential performance analysis of stock returns and trading volume around both events provides evidence of the degree of informational aggregation in the stock market for three closely followed U.S. firms. The results of the study fail to support the definitional notion of informational efficiency with respect to the first public release date of severe recalls, as the vast majority of the stock market's response to recall announcements does not occur until the information is reported to all market participants. Further, tests of differential trading volume around the announcements suggest that some members of the financial community may be trading securities on the basis of the information contained in the first public announcement.     

The Interactions between the Investment, Financing, and Dividend Decisions of Major U.S. Firms

This paper uses 114 responses to a June 1988 mail questionnaire survey of the financial managers of the 1,000 largest U.S. firms to examine Modigliani and Miller's “separation principle”. The opinions of practicing financial managers were found to be consistent with Modigliani and Miller as well as with the work of other empirical researchers. Almost without exception, the direction of causality between investment and financing decisions was found to run from the former to the latter, and dividend decisions were found to be driven by profits and prior year's dividends rather than by the firm's investment and financing actions. Clearly, the beliefs of practicing financial managers seem to reflect acceptance of Modigliani and Miller's “separation principle.”     

Now Read This: How Gendered Are Organizations?

Mike Savage & Anne Witz, eds., Gender and Bureaucracy , Blackwells, Oxford, 1992, pp. 282, pb, £13.99, ISBN: 0631-85283.     

The Impact of the Reduction in Tick Increments in Major U.S. Markets on Spreads,Depth, and Volatility

This study presents an analysis of the impact of the introduction of quotes in sixteenths of a dollar on the AMEX, Nasdaq, and NYSE in mid-1997 on select market characteristics such as spreads, effective spreads, quoted depth, and volume. The findings of the study document reductions in the bid-ask spread, effective spread, and a statistically significant increase in the number of quotes. Interestingly, we find that liquidity, as measured by the total depth at the bid and ask, declines significantly on the AMEX and NYSE, but increases on the Nasdaq. Trading volume increases on the NYSE, but remains unchanged for the AMEX and Nasdaq. We also find that the proportion of even-increment quotes is a relevant factor affecting percentage spreads for Nasdaq both before and after and for the NYSE only after the change in quoting increments.     

Market responses to publicly-provided information: the case of automative safety

Over the last 25 years the federal government has become increasingly involved in the provision of information on automobile quality and safety. Its release of National Highway Traffic Safety Administration data on occupant crash survivablity is a prominent example. This paper examines the impact of the agency's crash test results on the sales growth of tested automobile lines. Finding no impact, the crash data is then compared to privately collected insurance industry data on actual bodily injury claims by car line. these data sets show little consistency. based on these findings, we conclude that consumers's apparent disregard of government crash test data may well be rational.     

The valuation of patents using third-party data: the Ocean Tomo 300 Patent Index

This study is the first investigation of the ability of the financial marketplace to value patent assets via exploiting the informational content of a widely quoted stock market patent index known as the Ocean Tomo 300 Patent Index (OT 300). The results suggest that the OT 300 ‘works,’ in the sense that the index generates buy-and-hold returns economically and statistically in excess of those of the market as a whole as well as a specially created 300-firm benchmark portfolio composed of other very liquid patent-holding firms.