The Information Content of Guidance and Earnings

I compare the information content of quarterly earnings guidance and quarterly earnings by examining their associations with current and future stock returns when the two signals are bundled at earnings announcements. At the bundled announcement, I find a significantly stronger association between announcement returns and guidance news. From the day after the bundled announcement through the next earnings announcement, both signals generate abnormal return drifts of about 200 basis points. However, the timing of the post-announcement returns differs considerably. For guidance, about 50% of the post-announcement drift occurs at the next earnings announcement. In contrast, for earnings, about 20% of the preceding drift reverses at the next earnings announcement. Investor ignorance of the drift following guidance news coupled with a fixation on post-earnings announcement drift potentially explains this surprising difference in the timing of the post-announcement returns. Overall, this study indicates that bundled quarterly earnings guidance contains more information than quarterly earnings and that investors incorrectly overweight the earnings news and underweight the guidance news during the post-announcement period until the next earnings announcement.     

A pre-diffusion growth model of intentions and purchase

In this paper, we investigate whether information on the history of purchase intentions is useful in predicting actual purchase behavior. The research is motivated by two factors. The first factor is the empirical finding in the literature that measuring intentions just prior to purchase provides better predictions of actual purchase as compared to when these intentions are measured earlier. The second factor is the role of the timing of the formation of intentions prior to purchase. While one stream of literature based on preference fluency predicts that early formation of intentions is more likely to lead to actual purchase, the other stream based on the memory-based “recency” effect predicts that formation of intentions just prior to purchase is more likely to lead to actual purchase. Together, these two factors motivate the potential need to account for the entire history of intentions prior to purchase. A canonical example of a market where intention histories are tracked is the movie industry, where “first choice” movie watching intentions are tracked up to (and in some cases beyond) the time of release. Accommodating the history of intentions in an econometric model that predicts actual box office performance is challenging due to the differing numbers of observations for the movies, the large numbers of observations for certain movies, as well as the role of various time-invariant and time-varying covariates influencing intentions. We propose a two-part model where the first part involves a hierarchical growth model that summarizes the trajectories of intentions via “growth factors.” These growth factors also reflect the role of the various covariates. The second part is a regression of the box office performance on the growth factors and other covariates. The models are simultaneously estimated within a Bayesian framework. Consistent with the previous literature, we find that including information on intentions improves our ability to predict behavior, with the recent intentions being the most informative. Importantly, when the history of intentions is accounted for, our results indicate that the data support the “recency” literature—intentions grow over time leading up to purchase, and this growth has a positive impact on opening box office performance. While a linear growth model performs best for most movies, there exists a subset of movies for which the quadratic growth model better captures the “spike” in intentions just prior to purchase. Further, accounting for information on the history of intentions dramatically improves model fit and forecasting performance relative to when only the intentions at one point in time (e.g., the ones just prior to purchase) are accounted for.     

The (hidden) costs of political instability: Evidence from Kenya's 2007 election crisis

This paper studies the microeconomic impacts of the political crisis and civil conflict that immediately followed the December 2007 presidential election in Kenya. Income, expenditures, and consumption dramatically declined for a broad segment of the rural population for the duration of the conflict. To make up for the income shortfall, women who supply transactional sex engaged in higher risk sex both during and after the crisis. While this particular crisis was likely too short for these behavioral responses to seriously increase the risk of HIV or other STIs for these women, such responses could have long-term repercussions for health in countries with longer or more frequent crises. Overall, our results suggest that social unrest can be an important channel through which political instability can affect long-term outcomes such as health.     

Entrepreneurship,Austrian Economics,and the Quarrel Between Philosophy and Poetry

I consider whether entrepreneurship is a distinct category within economic theory. More generally, I consider the links between discussions of entrepreneurship and philosophic debates over the nature of the aesthetic. For instance, Kant's attempt to elevate the category of the aesthetic has much in common with Kirzner's attempt to elevate the concept of the entrepreneur. Shackle's theory of choice refers very directly to the notion of the aesthetic. Theories of the aesthetic and theories of the entrepreneur have common strengths and weaknesses.     

The cost of diabetes and obesity in Australia

Aims: To assess and compare the direct healthcare and non-healthcare costs and government subsidies by body weight and diabetes status.

Methods: The Australian Diabetes, Obesity and Lifestyle study collected health service utilization and health-related expenditure data at the 2011–2012 follow-up surveys. Costing data were available for 4,409 participants. Unit costs for 2016–2017 were used where available or were otherwise inflated to 2016–2017 dollars. Age- and sex-adjusted costs per person were estimated using generalized linear models.

Results: The annual total direct cost ranged from $1,998 per person with normal weight to $2,501 per person with obesity in participants without diabetes. For those with diabetes, total direct costs were $2,353 per person with normal weight, $3,263 per person with overweight, and $3,131 per person with obesity. Additional expenditure as government subsidies ranged from $5,649 per person with normal weight and no diabetes to $8,085 per person with overweight and diabetes. In general, direct costs and government subsidies were higher for overweight and obesity compared to normal weight, regardless of diabetes status, but were more noticeable in the diabetes sub-group. The annual total excess cost compared with normal weight people without diabetes was 26% for obesity alone and 46% for those with obesity and diabetes.

Limitations: Participants included in this study represented a healthier cohort than the Australian population. The relatively small sample of people with both obesity and diabetes prevented a more detailed analysis by obesity class.

Conclusion: Overweight and obesity are associated with increased costs, which are further increased in individuals who also have diabetes. Interventions to prevent overweight and obesity or reduce weight in people who are overweight or obese, and prevent diabetes, should reduce the financial burden.     

Customer capabilities,switching costs,and bank performance

Customers develop switching costs when they invest time and effort to develop capabilities required to optimally use a given product. Such capabilities are likely to be firm specific and cannot be transferred perfectly to competitors' product offerings. Customers who face switching costs are likely to remain with the same firm and consume complementary products that meet their needs. Thus, firms can achieve competitive advantage by exploiting customers' switching costs. In this paper, we hypothesize that the extent to which firms can benefit from customers' switching costs is contingent upon the firms' internal cross‐selling capabilities. We use online banking data to test our hypotheses and find that customers' switching costs contribute to banks' profitability only in the presence of high levels of internal cross‐selling capabilities. Copyright © 2012 John Wiley & Sons, Ltd.     

Repeat‐Sales Indexes: Estimation without Assuming that Errors in Asset Returns Are Independently Distributed

This article proposes an alternative specification for the second stage of the Case‐Shiller repeat‐sales method. This specification is based on serial correlation in the deviations from the mean one‐period returns on the underlying individual assets, whereas the original Case‐Shiller method assumes that the deviations from mean returns by the underlying individual assets are i.i.d. The methodology proposed in this article is easy to implement and provides more accurate estimates of the standard errors of returns under serial correlation. The repeat‐sales methodology is generally used to construct an index of prices or returns for unique, infrequently traded assets such as houses, art and musical instruments, which are likely to be prone to exhibit serial correlation in returns. We demonstrate our methodology on a data set of art prices and on a data set of real estate prices from the city of Amsterdam.     

An integrated tax-subsidy policy for carbon emission reduction

A carbon tax is often cited by economists as an effective instrument to mitigate greenhouse gas emissions, but there is little political interest in the United States. In light of this political unpopularity, we develop and examine a net-revenue constrained carbon tax and subsidy program. The optimal revenue constrained tax and subsidy schedule based on our utility maximization model taxes energy sources with high emissions to energy price ratio, and subsidizes sources with low emissions to energy price ratios. This approach may be more palatable than a traditional carbon tax because it can change the relative price of low and high emissions energy sources while providing a mechanism to limit net tax increases and energy price increases. We find that a constrained tax/subsidy program provides welfare gains relative to a no-tax scenario. Welfare gains are estimated to be 1% and 36% of the welfare gains from a Pigouvian tax for the motor fuels industry and electric power industry, respectively. In contrast, subsidies for low-emitting energy sources funded from general tax funds rather than from high-emission energy tax revenues lead to welfare decreases substantially below our proposed tax/subsidy policy approach.     

Place in Entrepreneurial Storytelling: A Study of Cultural Entrepreneurship in a Deprived Context

We extend the cultural entrepreneurship perspective by investigating how entrepreneurs in deprived contexts gain legitimacy by leveraging proprietary and public places in their entrepreneurial storytelling. Inspired by the sociology of place, we present a longitudinal study of ten new venture journeys over four years in Kasoa, Ghana. We identify three distinct ways places are used in entrepreneurial narratives: projective significance of place, connective significance of place, and authoritative significance of place. We show how impoverished entrepreneurs construct and communicate places in diverse ways, not only as locations, but also as material and symbolic resources that provide legitimacy for their venturing activities. Drawing from our findings, we generate a model of place-based cultural entrepreneurship and elaborate place as a central resource in cultural entrepreneurship and new venture creation in deprived contexts.