The Impact of Publication of Analysts' Recommendations on Returns and Trading Volume

Publication of security analysts' recommendations in the column “Inside Wall Street,” which is published in Business Week, induces abnormal returns on the publication day and the following day. The abnormal returns are robust to the use of alternative samples and methodologies. The publication increases trading volumes for the securities that are recommended to be purchased, but not for securities that are recommended to be sold. The abnormal returns and trading volumes support the view that stock prices do not adjust instantaneously when new information arrives, and that the time pattern of price adjustment depends on the time pattern of the accessibility of the information. The authors find no statistically significant difference between the average abnormal returns that are induced by recommendations that appear at the beginnings of “Inside Wall Street” columns (and are covered more extensively than others) and the average abnormal returns induced by other recommendations.     

Strategic Decentralization and Channel Coordination

In this paper, we show that under certain conditions, strategic decentralization through the addition of a retailer in the distribution channel can increase a manufacturer's profits. The specific case on which we focus is the quantity coordination (double marginalization) problem for a manufacturer selling durable goods in a two-period setting. We show that the standard solution that coordinates a channel for non-durables does not coordinate the channel for durables. In particular, even though a manufacturer can achieve channel coordination by offering per-period, two-part fees, the equilibrium wholesale price in the first period is strictly above the manufacturer's marginal cost. This is in stark contrast to the two-part solution for non-durables where the equilibrium wholesale price is equal to marginal cost. We also identify a strategy that solves both the channel coordination and the Coase problem associated with durable goods. In this strategy, at the beginning of period 1, the manufacturer writes a contract with the retailer specifying a fixed fee and wholesale prices covering both periods. We show that by adding a retailer and using this contract, the manufacturer makes higher profits than it could if it were to sell directly to consumers.     

Embracing the foreign: Cultural attractiveness and international strategy

Research summary : Prior research focused on cultural differences and their impact on foreign direct investment (FDI), neglecting other potentially relevant variables attesting to the cultural interaction between a multinational enterprise and its host environment. In this article, we draw on interpersonal attraction research to develop a positive approach to cross‐cultural interaction with the cultural attractiveness (CA) construct, whereby members of a focal culture view another culture as desirable. We create a CA measure and establish its predictive validity with country reputation data. Using FDI data for 41 nations from 1985 to 2012 and performance data for 8,519 cross‐border acquisitions (CBA) for 40 nations from 1990 to 2009, we find that CA is a predictor of FDI inflows and CBA outcomes, whose explanatory power is superior to cultural difference measures. Managerial summary : Practitioners have traditionally emphasized potential difficulties of cross‐cultural interaction when dealing with culturally distant countries. In contrast, our study addresses the positive aspects of cultural differences and suggests that a lot can be gained from dealing with attractive cultures, even when they are different. This insight can be helpful, for example, in contemplating/managing international M&As. Managers of acquiring/merging firms can use our approach to identify whether their employees find the partner's culture desirable, and if they do, proceed with the takeover and then adopt the partner's organizational routines during post‐merger integration. This approach can help avoid conflicts, improve performance of home country expatriates, and ultimately, create value for acquiring firms. Copyright © 2016 John Wiley & Sons, Ltd.     

Inflation Uncertainty, Real-Interest-Rate Uncertainty, and the Liquidity Premium on Government Bonds

This paper shows that the components of uncertainty about nominal interest rates, real-rate uncertainty and inflation uncertainty, have different effects on the liquidity premium. An increase in inflation uncertainty should increase the equilibrium liquidity premium because investors reduce the effect of inflation uncertainty on the riskiness of their portfolios by holding more short-term bonds. In contrast, an investor can reduce the effects of uncertainty about future ex-ante real rates on portfolio return by matching more closely the maturity dates of the bonds held with the date on which the portfolio is to be liquidated for consumption purposes. Thus, the effect of an increase in real-rate uncertainty on the equilibrium liquidity premium is ambiguous, depending on the relative magnitudes of long-term and short-term saving and the proportions of short-term and long-term bonds issued by the government.     

Cultural distance,investment flow,and control in cross‐border cooperation

Previous research analyzing the impact of cultural distance on joint venture negotiations has often confounded firm and environment effects. To decouple these effects, the cross‐border cooperation preferences of small and medium‐sized Korean firms were studied, considering simultaneously firms involved in inward and outward investment ventures. While cultural distance showed no significant relationship with the degree of control sought over the cooperative ventures, cultural distance was significantly related with a preference for ventures in domestic or foreign markets. The impact of cultural distance was found to be greater in inward investment than in outward investment. Copyright © 2008 John Wiley & Sons, Ltd.     

An evolutionary edge of knowing less (or: On the ‘curse’ of global information)

Consider a population of farmers who live around a lake. Each farmer engages in trade with his two adjacent neighbors. The trade is governed by a prisoner’s dilemma ‘rule of engagement.’ A farmer’s payoff is the sum of the payoffs from the two prisoner’s dilemma games played with his two neighbors. When a farmer dies, his son takes over. The son decides whether to cooperate or defect by considering the actions taken and the payoffs received by the most prosperous members of the group comprising his own father and a set of his father’s neighbors. The size of this set, which can vary, is termed the ‘span of information.’ It is shown that a larger span of information can be detrimental to the stable coexistence of cooperation and defection, and that in well-defined circumstances, a large span of information leads to an end of cooperation, whereas a small span does not. Conditions are outlined under which, when individuals’ optimization is based on the assessment of less information, the social outcome is better than when optimization is based on an assessment of, and a corresponding response to, more information.     

The effect of leverage on bargaining with a corporation

This paper shows that the choice of a capital structure by a firm affects the bargaining posture of its shareholders vis-a-vis its suppliers of specialized production factors. The pricing of the firm's securities and the choice of a capital structure are analyzed in light of this effect of debt financing.     

A Theory of Migration as a Response to Relative Deprivation

We model migration as a response to relative deprivation. We present a specific configuration of incomes in which the process of migration in response to relative deprivation reaches a steady state. However, for the general configuration of incomes we show that it is impossible to prove the existence of a steady state. We study the social welfare implications of the two cases and show that if individuals are left to pursue their betterment, the resulting state falls short of the best social outcome. We present several implications of the model including federalism and the demand for secession.