Do financial analysts' long-term growth forecasts matter? Evidence from stock recommendations and career outcomes

Prior literature portrays long-term growth (LTG) forecasts as nonsensical from a valuation perspective. Instead, we hypothesize that LTG forecasts signal high effort and ability to analyze firms' long-term prospects. We document stronger market response to stock recommendation revisions of analysts who publish accompanying LTG forecasts. We also hypothesize and find that these analysts are less likely to leave the profession or move to smaller brokerage houses. Consistent with Reg. FD's intention to promote fundamental analysis of long-term earnings prospects, post-Reg. FD observations drive our results. Overall, we identify previously undocumented benefits accruing to analysts who publish LTG forecasts.     

Evidence of a modest price decline in US broadband services

In this paper, we construct a consumer price index for broadband services in the United States using over 1500 service contracts offered by DSL and cable providers from 2004 through 2009. This exercise frames a range of open questions about measuring price changes in a manner that informs policy discussions about US broadband services. We employ approaches used commonly for constructing a consumer price index by using a mix of matched-model methods and hedonic price index estimations to adjust for qualitative improvements. We find a quality-adjusted price decline, but the evidence points towards a modest decline at most. Our estimates of the price decline range from 3% to 10% in quality-adjusted terms for the 5-years period, which is faster than the BLS estimates for the last 3 years. In contrast to other innovative industries that experience rapid price declines, such as computers or integrated circuits, the modest price decline for broadband services raises many questions.     

Combining Formal Controls to Improve Firm Performance

Formal controls are an essential part of organizational design, and are theorized to positively influence organizational performance. Mello and Hunt ([2009] Transportation Journal, 48:20–39) were the first to suggest using formal controls to influence truck drivers' behavior. Extending the salesperson control literature, they documented an underresearched method of formal control that we term technology control, whereby firms use on‐board and communications technology to influence drivers. We build on their work by investigating the contingent effects of formal controls that influence the behavior of truck drivers and thereby influence the operational performance of firms in the U.S. motor carrier industry. Our work integrates the monitoring aspect of agency theory with the theory of operant conditioning and the theory of psychological reactance to develop a rationale for hypothesized contingent effects of formal controls on motor carriers' operational performance. We collected primary data pertaining to the controls used to influence truck drivers' behavior from a large sample of U.S. motor carrier firms. The results of our analyses using nonlinear structural equation modeling suggest a complex set of relationships between formal controls and operational performance. Our results shed light on scenarios where using technology to monitor driver behavior can result in positive and/or negative organizational outcomes.     

Do #AllLivesMatter? An Evaluation of Race and Excessive Use of Force by Police

There is anecdotal evidence showing that African-Americans are more likely to be subjected to excessive use of force by police than are people of other races. The counterargument is that these issues are not related to race and there are other factors at work. There have been several high-profile cases, such as those in Ferguson, Cleveland, and Baton Rouge. In this study, we estimate the effect of race on excessive use of force incidents using a new dataset comprising citizen complaints against the Chicago Police Department. Our findings show that not only does race play a role in excessive use of force complaints, but also that race plays a role in which complaints are sustained. Our study also highlights the importance of having data on which to perform rigorous empirical analysis in order to inform policymakers.     

The Effect of Housing Government-Sponsored Enterprises on Mortgage Rates

We derive a theoretical model of how jumbo and conforming mortgage rates are determined and how the jumbo–conforming spread might arise. We show that mortgage rates reflect the cost of funding mortgages and that this cost of funding can drive a wedge between jumbo and conforming rates. Further, we show how the jumbo–conforming spread widens when mortgage demand is high or core deposits are not sufficient to fund mortgage demand, and tightens as the mortgage market becomes more liquid and realizes economies of scale. Using Mortgage Interest Rate Survey data for April 1997 through May 2003, we estimate that the government-sponsored enterprise funding advantage accounts for about 7 basis points of the 15–18 basis point jumbo–conforming spread.     

The ethical imperative: Myth or reality?

As a result of recent legislative developments and greater ease of accessibility, the Human Resources Manager (HRM) faces the challenge of not only maintaining records but also that of protecting employees from misuse of personal information contained in their individual personnel files. The widespread use of computers for maintaining employee records has resulted in new ethical dimensions and/or challenges for the HRM. Serious questions regarding accessibility to and dissemination of such personal information now confront the HRM. Unless policies are developed by organizations for dealing with such questions, eventually government will mandate such policies in order to protect employee rights.     

A Bayesian operationalization of the resource‐based view

This paper argues that the gap between the theoretical utility and the practical utility of the resource‐based view (RBV) may be narrowed by operationalizing the theory more consistently with Penrose's original framework. The operationalization proposed here is a twofold approach. First, the RBV may be enhanced by the explicit recognition of Penrose's two classes of resources, namely, administrative resources and productive resources. This distinction suggests a focus on the administrative decisions of managers that lead to economic performance. Second, we argue that the RBV is a theory about extraordinary performers or outliers—not averages. Therefore, the statistical methods used in applying the theory must account for individual firm differences, and not be based on means, which statistically neutralize firm differences. We propose a novel Bayesian hierarchical methodology to examine the relationship between administrative decisions and economic performance over time. We develop and explain a measure of competitive advantage that goes beyond comparisons of economic performance. This Bayesian methodology allows us to make meaningful probability statements about specific, individual firms and the effects of the administrative decisions examined in this study. Copyright © 2004 John Wiley & Sons, Ltd.     

Nasdaq Trading Halts: The Impact of Market Mechanisms on Prices, Trading Activity, and Execution Costs

We study the effects of alternative halt and reopening procedures on prices, transaction costs, and trading activity for a sample of news-related trading halts on Nasdaq. For intraday halts that reopen after only a five-minute quotation period, inside quoted spreads more than double following halts and volatility increases to more than nine times normal levels. In contrast, halts that reopen the following day with a longer 90-minute quotation period are associated with insignificant spread effects and significantly dampened volatility effects. These results are consistent with the hypothesis that increased information transmission during the halt results in reduced posthalt uncertainty.     

Understanding the Inputs into Innovation: Do Cities Substitute for Internal Firm Resources?

We examine whether there is a trade-off between employing internal (firm) resources and purchased external (local) resources in process innovation. We draw on a rich dataset of Internet investments by 86,879 US establishments to examine decisions to invest in advanced Internet technology. We show that the marginal contribution of internal resources is greater outside of a major urban area than inside one. Agglomeration is less important for firms with highly capable IT workers. When firms invest in innovative processes they act as if resources available in cities are partial substitutes for both establishment-level and firm-level internal resources.     

Chesapeake Energy Corporation

This case provides a summary of events reported in the proxy statements filed with the SEC by Chesapeake Energy Corporation from its initial public offering in 1993 through 2011. These actual events provide a vehicle for the discussion of corporate governance issues and the means to effect a change in governance practices. Students are asked to perform two tasks. The first is to identify possible governance issues. The second is to suggest actions a shareholder might take. The objective of the first task is to provide students with experience in critically evaluating the governance structure and related actions taken by an actual board of directors. On completion, students should be better prepared to recognize signs of governance weakness beyond commonly discussed structural elements. The second task asks students to create a list of tactics that could be employed to influence corporate policies. The objective is to highlight the limited options available to most investors and to prompt some students to pursue corporate activism or the defenses against activism. The case is intended for use at the graduate level.