Can Employee Stock Options Contribute to Less Risk-Taking?

The executive compensation literature presumes that shareholders offer risk-averse managers stock options to entice them to take on more risk, resulting in riskier investment decisions and thus a greater return on investment. However, recent empirical work challenges this assumption, and theoretical research even argues that high levels of option-based compensation for generally under-diversified managers may actually lead to greater risk aversion. We evaluate the incentive structure of employee stock options by examining the level of R&D investment and the return on that investment conditional on the portfolio “vega,” which captures the sensitivity of option value to stock price volatility. Our results suggest that both investment in R&D and the return on R&D, as measured by future earnings and patent awards, varies concavely with vega. That is, low to moderate levels of vega correspond to increasing investment in and returns on R&D, consistent with vega inducing more profitable investments, but marginal returns decline as vega increases. Collectively, these results, bolstered by several supplemental analyses, suggest that this surprising relation between vega and risky investment is driven by greater risk aversion at higher levels of vega. Overall, our results imply that employee stock options may not always align the incentives of managers and shareholders.     

Consumer structure in the emerging market for electric vehicles: Identifying market segments using cluster analysis

This paper presents results from a segmentation analysis of the emerging market for Electric Vehicles (EVs). Data has been sourced through the application of a self-completion household questionnaire distributed over two cities in the United Kingdom (UK). A two stage cluster analysis methodology has been followed to identify market segments in a dataset of UK drivers. Five unique segments have been identified in the analysis and are characterised by their preferences for EVs, socio-economic characteristics, current car details, and psychographic profiles. These segments hold a range of different EV preference levels, from those who appear unwilling to adopt an EV to those which are clearly attracted to EVs. Moreover, the features of these segments suggest that segments might be attracted to or repelled from EVs for different reasons. These results demonstrate that a significant degree of consumer stratification is present in the emerging market for EVs, with the possible implication being that policy interventions at the segment as opposed to market, level may prove more effective due to their ability to cater for the nuances of important segments.     

Pricing in the sharing economy: a hedonic pricing model applied to Airbnb listings

ABSTRACT

This paper examines the impact of a variety of variables on the rates published for Airbnb listings in five large metropolitan areas in Canada. The researchers applied a hedonic pricing model to 15,716 Airbnb listings. As expected, the results show that physical characteristics, location, and host characteristics significantly impact price. Interestingly, more reviews are associated with a drop in price. This information is useful to hosts who are forming a pricing strategy for their listings as well as for Airbnb, who needs to support them. The paper raises important questions about pricing in the sharing economy and suggests avenues for future research in this area.     

Appealing to men and women using sexual appeals in advertising: In the battle of the sexes,is a truce possible?

Sexual appeals remain a very popular advertising technique yet questions regarding their use remain, including how they can be used to appeal to men and women simultaneously. Literature examining what men and women find sexually appealing and the body language used to signal relationship status guided development of two appeal types: ‘Intimate’ portrayed a couple in an intimate stable relationship, whereas ‘Objectified’ showed them as sexual objects. These were combined with different levels of nudity and product relevance and studied experimentally. As expected, both genders preferred intimate appeals though they only rated low nudity intimate adverts for relevant products positively.     

PURCHASING AND ENVIRONMENTAL MANAGEMENT: INTERACTIONS,POLICIES AND OPPORTUNITIES

The mechanisms are examined by which environmentally informed business practices and technologies may diffuse through industry as a result of the ‘greening’ of purchasing and supply. The efforts of official bodies in the UK to raise environmental awareness among industrial purchasers are reviewed. It is then argued that the supply chain model is an important way of interpreting the industrial landscape from a green perspective and that it is in some ways a more hopeful and positive starting point for achieving industrial transformation. The results of an analysis of some UK companies practices in using their purchasing policies to ‘green’ their supply chains are presented and opportunities for further research indicated.     

The effect of religion on Muslims’ charitable contributions to members of a non‐Muslim majority

We investigate the effects of religion on charitable contributions of Muslims who are in a minority to non‐Muslims who are in a majority and to fellow Muslims. We find that religious thinking leads to significantly more charitable giving by 10%. The effect of religious thinking is dependent on the ethnic identity of the recipient. We find a significant effect on giving behavior toward relatively more privileged out‐group members (Han Chinese), but a small and generally insignificant effect toward in‐group members (fellow Muslims). With religious thinking, prosocial behavior toward out‐group members is significantly higher by 14%, which is mainly explained by the religiosity of Muslims. Our results have implications for our understanding of the influence of Islamic rules on Muslims’ attitudes and behavior toward non‐Muslims and for the design of fundraising mechanisms in Muslim communities.     

What matters in a price negotiation: Evidence from the U.S. auto retailing industry

While there is a great deal of theoretical and experimental literature on what factors affect bargaining outcomes, there is little empirical work based on data from real markets. In this paper we analyze negotiations for new cars, a $340 billion industry in the United States in 2010. Our results suggest that search costs, incomplete information, and bargaining disutility have an economically significant effect in real-world negotiations: we estimate that relative to an uninformed consumer, a consumer with basic information about the seller’s reservation price and his own outside options captures 15% of the average dealer margin from selling an automobile. We also find that a buyer’s search cost and bargaining disutility have significant effects on bargaining outcomes. Finally, our results show that while search is common, there remains a substantial group of consumers who do not engage in any of the search behaviors we measure. We hypothesize that these buyers are not aware of how easy and effective certain activities in improving negotiation outcomes can be.     

The effect of the summer doldrums on the market reaction to earnings announcements

Hong and Yu (2009) document a significant decrease in trading volume and returns during the summer months. Given the tendency of noise traders to buy shares following both positive and negative earnings surprises (Lee, 1992), we hypothesize that reduced trading activity by noise-traders results in less of an earnings announcement premium during the summer. Consistent with our hypothesis, we find lower abnormal returns surrounding summer earnings announcements compared to non-summer announcements. We also find lower abnormal returns in the ten days prior to the announcement, consistent with less front-running by sophisticated investors. Finally, we show that these summer effects are stronger in recent years characterized by more online trading and greater noise trader participation.     

Richard Coopey, ed. Information and Technology Policy: An International History. New York: Oxford University Press, 2004. xvi + 346 pp. ISBN 0-19-924105-8, $99.50 (cloth).

Richard Coopey’s Information and Technology Policy isan edited volume featuring an impressive array of scholars whoprovide nuanced accounts of national governmental policies relatedto the computer and (to a lesser extent) software industries.As Coopey writes in his introduction, the post–World WarII period is remembered as a time of American political, economic,and technological ascendancy. In the design, manufacture, anddistribution of computers, the United     

The Relation Between SFAS No. 95 Cash Flows From Operations and Credit Risk

This study examines the relevance of Financial Accounting Standards (SFAS) No. 95 operating cash flow disclosures for assessing a primary component of firm risk, namely credit risk. We find that SFAS No. 95 operating cash flows is an important determinant of credit risk, measured by debt ratings, incremental to other profitability and risk–related information. We also find that operating cash flows have a stronger incremental relation to credit risk for firms with a larger proportion of long–term debt and larger firms with lower operating uncertainty. Interestingly, cash flows appear to have less incremental importance for firms in high tech and regulated industries.