The Effect of New Product Announcements and Preannouncements on Stock Price

Previous event studies which deal with new products do notdistinguish between preannouncements (made in advance of a new productintroduction into the marketplace) and new product announcements (made closeto the time when the new product is introduced). Methodologically, eventstudies implicitly assume that information is homogeneous; that is, they donot consider the amount of information contained in the news release or thetype (e.g., whether detailed or not). This paper argues that new productevent studies should distinguish between announcements and preannouncementsbecause both types of information release events (IRE) are strategicallydistinct and convey different information signals to the marketplace.Methodologically, event studies should allow for informationalheterogeneity. We analyze a large sample of IREs from the 1980–1989period for firms whose stock is publicly traded, distinguishing betweenpreannouncements and announcements. We use content analysis to classify IREsaccording to the type and amount of information provided. The results showthat it is incorrect to jointly analyze announcements and preannouncements.On average, only preannouncements have a significant positive effect onstock prices. However, the signaling effect of preannouncements on stockprice is industry-specific. In particular, the results support Klein andLefflers theory (1981) that preannouncements in the manufacturing industryare effective strategic tools. We also investigate the impact of IREs onthe market risk (i.e., the risk that stockholders cannot diversify away) ofthe announcing and preannouncing firms. The results show that firm-specificand informational variables do not have any effect on market risk,regardless of the type of IRE (i.e., announcement or preannouncement).     

Tax compliance and obedience to authority at home and in the lab: A new experimental approach

In most experimental studies of tax evasion, participants are instructed that they may report any amount of income from zero up to the amount they actually earned or received. This amounts to an invitation to gamble. In contrast, real-world tax authorities unambiguously demand compliance. We develop two new settings for conducting tax experiments. Both involve an explicit demand for compliance. Thus, we can determine whether knowing that the experimental authority would regard evasion as wrongful disobedience will influence compliance decisions. We demonstrate that simply telling people that they are required to pay a “participation fee” analogous to a tax produces remarkably high compliance rates and less sensitivity to changes in economic variables than in the earlier experimental literature using invitation-to-gamble language. This suggests that many people pay taxes despite the financial attraction of non-compliance because they are strongly inclined towards obeying authority. Furthermore, we show that giving participants a week to make their reporting decisions at home without an authority figure physically present overcomes the inclination to obey for some people, significantly lowering compliance rates. However, the majority still complies, even after the audit rate falls from 25% to 1%, which would make non-compliance extremely attractive if it were viewed only as a simple matter of risk and expected return. Electronic Supplementary Material Supplementary material is available in the online version of this article at . JEL Classification C91, H26     

Word Power: The Impact of Negative Media Coverage on Disciplining Corporate Pollution

Globalization is multifaceted and involves the interaction among businesses, services, governments, and societies beyond national borders. As a result, the flow of foreign direct investment (FDI), international trade in goods and services, and the economic interdependence of the nations of the world have been increasing. At the same time, much attention has been paid to the effect of corruption prevalent within many cultures and societies, and its impact on the economies, especially developing economies. This paper examines the relationship between human capital investment, the level of national corruption, and the global economic integration (GEI) of a nation in developing countries. Based on the data collected from over 60 countries, and building on the FDI and human capital theories, it was found that human capital investment and corruption are related to GEI. It was also found that the level of corruption moderates the relationship between human capital investment and GEI of developing economies. The findings of the study can help to deepen our understanding of GEI and have practical implications for developing countries in terms developing human capital, which plays a critical role in today’s knowledge-based economy.     

Do consumer perceptions matter in measuring choice variety and variety seeking?

This research marries scanner panel choice data of consumers in single member households to their survey-based perception data and draws upon behavioral and modeling research to contribute to the variety seeking literature. It presents a new consumer-based measure of choice variety based on inter-product similarity perceptions and illustrates that others-based (i.e., researchers, managers, and retailers) measures of choice variety such as number of brand switches underestimate choice variety. Moreover, incorporating the consumer-based measure instead of others-based measures in latent class models improves their efficiency of classifying households into high versus low variety seeking. The consumer-based measure of choice variety is valid in terms of its positive relationship with consumer's intrinsic or trait-based variety seeking tendency. Theoretical (market structure, consideration set) and managerial implications (targeting of price promotions to reduce spending, product design, cross-price elasticity) of the findings are offered.     

A comparative analysis of differential consumer response across supermarket and specialty store in the candy category

Retailing industry has undergone tremendous change in its complexity and sophistication over the past few years. Globally we are witnessing the evolution of retailing industry from traditionally micro-managed small retail formats like mom and pop store to modern corporate-managed large retail formats like supermarkets. Consumers are also shopping across these various store formats even for the products in similar categories. In this research, we posit that consumer purchases in the similar categories may very well be characterized by differential responses to marketing mix across different store formats. The proposed model accounts for the influences that these diverse response parameters and preferences have on one another as well as consumer heterogeneity. Our results show that sensitivities to marketing mix as well as correlations in preferences do indeed vary across formats for consumer purchases in similar categories.     

Bondholder-Stockholder Conflict: Contractual Covenants vs. Court-Mediated Ex-Post Settling-Up

Bondholders have failed to respond to corporate restructurings by demanding more protective provisions; in fact, the trend has been toward fewer rather than more restrictive covenants. In this article, we model the use of contractual covenants as a trade-off between contract implementation costs and deadweight efficiency losses. We find that the current lack of restrictive covenants is arguably consistent with rational investor behavior. The key to this conclusion is the recognition that there is an implicit ex-post settlement component to debt contracts, which is enforced by the courts. A look at the behavior of the courts and of bondholders supports our point of view.     

Econometric models based on count data. Comparisons and applications of some estimators and tests

This paper deals with specification, estimation and tests of single equation reduced form type equations in which the dependent variable takes only non-negative integer values. Beginning with Poisson and compound Poisson models, which involve strong assumptions, a variety of possible stochastic models and their implications are discussed. A number of estimators and their properties are considered in the light of uncertainty about the data generation process. The paper also considers the role of tests in sequential revision of the model specification beginr ing with the Poisson case and provides a detailed application of the estimators and tests to a model of the number of doctor consultations.