Perceived conduct and professional ethics among marketing faculty

This paper describes the results of a mail survey to the educator membership of the American Marketing Association. Data were collected regarding beliefs about both the frequency of occurrence and severity of 59 ethical issues facing marketing faculty. The research questions examined include: What unethical practices are believed to most commonly occur? What practices are most severe? How do these beliefs vary by faculty rank and size and type of school? Implications for both the improvement of marketing education and for future research are provided.     

Medical insurance with rank-dependent utility

Summary. A well-known result in the medical insurance literature is that zero co-insurance is never second-best for insurance contracts subject to moral hazard. We replace the usual expected utility assumption with a version of the rank-dependent utility (RDU) model that has greater experimental support. When consumers exhibit such preferences, we show that zero co-insurance may in fact be optimal, especially for low-risk consumers. Indeed, it is even possible that the first-best and second-best contracts are identical. In this case, there is no “market failure”, despite the informational asymmetry. We argue that these RDU results are in better accord with the empirical evidence from US health insurance markets. Received: February 26, 2001; revised version: October 4, 2002 RID="*" ID="*"The authors would particularly like to thank Simon Grant, John Quiggin, Peter Wakker and an anonymous referee for valuable comments and suggestions on earlier drafts. The paper has also benefitted from the input of seminar audiences at The Australian National University, University of Auckland, University of Melbourne and University of Sydney. Ryan also gratefully acknowledges the financial support of the ARC, through Grant number A000000055. Correspondence to:R. Vaithianathan     

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     

Pricing mortgage-backed securities in a multifactor interest rate environment: a multivariate density estimation approach

Multivariate density estimation (MDE) suggests that mortgage-backedsecurity (MBS) prices can be well described as a function ofthe level and slope of the term structure. We analyze how thisfunction varies across MBSs with different coupons. An importantfinding is that the interest rate level proxies for the moneynessof the option, the expected level of prepayments, and the averagelife of the cash flows, while the term structure slope controlsfor the average rate at which these cash flows should be discounted.     

Why do security prices change? A transaction-level analysis of NYSE stocks

This article develops and tests a structural model of intradayprice formation that embodies public information shocks andmicrostructure effects. We use the model to analyze intradaypatterns in bid-ask spreads, price volatility, transaction costs,and return and quote auto-correlations, and to construct metricsfor price discovery and effective trading costs. Informationasymmetry and uncertainty over fundamentals decrease over theday, although transaction costs increase. The results help explainthe U-shaped pattern in intraday bid-ask spreads and volatility,and are also consistent with the intra-day decline in the varianceof ask price changes.     

Do corporate insiders circumvent insider trading regulations? The case of stock repurchases

We use calculated values of standardized abnormal insider trading activity to investigate for patterns of unusual insider activity around fixed-price and Dutch auction repurchase announcements. Firms are classified according to whether the repurchase is signaling information about future cash flows, about the distribution of excess free cash flows, or about management's attempts to maintain control in the presence of a takeover. We find below normal levels of sales well before the event and above normal levels of sales after the event. This tendency is strongest for fixed-price offers and for firm's conveying information about future cash flows, and is absent for firms involved in takeovers. No evidence exists of abnormal levels of purchases before or after the event. We interpret the evidence as consistent with insiders successfully circumventing policies and regulations designed to prevent the exploitation of private information by timing the pattern of their security sales.     

The Relevance of Stock and Flow-Based Reporting Information In Assessing the Likelihood of Emergence from Corporate Financial Distress

A number of recent studies have shown that earnings information is less useful and value relevant when firms are financially troubled. This finding has given rise to the consideration of alternatives. In this paper, we examine the contributions of book value-based proxies (normal earnings and abandonment value) and flow-based proxies (earnings and operating accruals) to the assessment of the likelihood of emergence from financial distress. Our prior reasoning is that while book value-based proxies may provide information about potential future cash resources, flow-based proxies, because they capture the progress of reorganization efforts underway, as opposed to mere potential, should be relatively more useful in assessing the likelihood of emergence from distress. Our findings are consistent with this explanation. We document that the primary predictors of emergence are flow-based proxies—in particular, cash from operations, net of earnings.     

Relative accuracy and predictive ability of direct valuation methods, price to aggregate earnings method and a hybrid approach

In this paper, we assess the relative performance of the direct valuation method and industry multiplier models using 41 435 firm‐quarter Value Line observations over an 11 year (1990–2000) period. Results from both pricing‐error and return‐prediction analyses indicate that direct valuation yields lower percentage pricing errors and greater return prediction ability than the forward price to aggregated forecasted earnings multiplier model. However, a simple hybrid combination of these two methods leads to more accurate intrinsic value estimates, compared to either method used in isolation. It would appear that fundamental analysis could benefit from using one approach as a check on the other.     

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.