The not-so-secret-agent: Professional monitors,hierarchies and implementation

Abstract. It is well-known that, when agents in an organization possess private information that is unverifiable by an outside party, games where agents simply announce their information can have multiple equilibria that may impede the successful implementation of the organization's objectives. We show that the introduction of a professional monitor (e.g. auditor, regulator, supervisor) can help to destroy the “bad' equilibria when agents have private information but have incomplete info rmation about others' information. Received: 21 May 1998 / Accepted: 26 May 2000     

Improving inventory management in the retail store: The effectiveness of RFID tagging across product categories

While there is a growing body of evidence that Radio Frequency Identification (RFID) tagging can be effective in improving inventory management in the retail store, retailers have little guidance on best practices for implementation. One important unresolved issue is whether tagging is equally effective across different product categories, and if there is a way to predict which categories are better candidates for deployment. We conduct a field experiment comparing the improvement in inventory record accuracy before and after implementing RFID-enabled adjustments to the inventory management system. We find evidence that the effectiveness of RFID tagging is not homogenous for all products. Reductions in the percentage of stockouts ranged from 21% to 36%, depending on category. Categories that are most likely to see a decrease in stockouts, thanks to RFID, have a greater turnover, greater sales volume, greater product variety, lower item cost, and greater inventory density. We draw inferences for retail supply chains which are considering how best to allocate their resources in the most effective manner.     

Excess demand and price formation during a Walrasian auction

We conduct a detailed analysis of the relationship between excess demand and the convergence of price to equilibrium during a real-world Walrasian auction, paying special attention to the size and speed of the price adjustment. Using data from the Tokyo Grain Exchange (TGE), we first show that because auctions for the various futures contracts occur sequentially, information becomes more evenly dispersed across traders as an auction sequence progresses. Then we show that excess demand is positively correlated with both the eventual price change and the speed with which price adjusts. As information becomes more evenly dispersed, the strength of these relationships weakens. Finally, though excess demand explains a large proportion of the variability of the change in price, it explains only a small proportion of the variability of the speed of adjustment.     

Banking deregulation and innovation

We document empirical support for a key micro-level channel—innovation by young, private firms—through which financial sector deregulation affects economic growth. We find that intrastate banking deregulation, which increased the local market power of banks, decreased the level and risk of innovation by young, private firms. In contrast, interstate banking deregulation, which decreased the local market power of banks, increased the level and risk of innovation by young, private firms. These contrasting effects on innovation also translated into contrasting effects on economic growth. Our study suggests that the nature of financial sector deregulation crucially affects its potential benefits to the real economy.     

The Predictive Value of Earnings, Cash flows and Accruals in the Period Surrounding the Asian Financial Crisis: Evidence from Hong Kong, Malaysia, Singapore and Thailand

This paper examines the predictive value of earnings, operating cash flows and accruals in Hong Kong, Malaysia, Singapore and Thailand for the period 1994–2001. We also examine the impact of the Asian financial crisis of 1997 on the predictive power of the accounting performance measures. We regress future cash flows and future excess returns on earnings (or cash flows and accruals) for the periods 1994–1996 (pre‐crisis period), 1997–1998 (crisis period) and 1999–2001 (post‐crisis period). Our findings indicate that the accounting measures have explanatory power for 1‐year ahead cash flows. Our analyses of 1‐year ahead excess returns indicate that investors may have undervalued the accounting measures in the pre‐ and post‐crisis periods, and overvalued the measures during the crisis period.     

A threshold model for respondent heterogeneity

Continuous models of respondent heterogeneity assume the existence of a response function where variables of interest are continuously related to explanatory variables. In many situations this assumption may not be true. In this paper we propose an approach of modeling respondent heterogeneity that identifies abrupt changes in the distribution of response coefficients around a threshold specification. Our model differs from traditional threshold models by introducing the threshold effect to describe across-unit behavior as opposed to within-unit behavior. We illustrate our proposed Bayesian threshold model for survey data from a large national retail bank that examines the effects of service wait times on customer satisfaction. We find evidence of a threshold effect where long in-process wait times are associated with bank branches characterized by weak associations between service quality drivers and overall perceptions of service quality. Branches with wait times below the threshold are found to have much stronger associations.     

CAPITAL FORMATION AND THE INTERNET

The Internet is expected to play a significant role in the capital-raising process. Internet investment banks like Wit Capital and WR Hambrecht are supposed to make the IPO process more equitable by giving retail investors access to deals and pricing deals more accurately, thereby leaving less "money on the table" and lowering the cost of going public.
This article argues that the Internet will not replace, but will likely "supplement," the current system. The certification function provided by traditional investment banks and their relationships with institutional investors will continue to be important determinants of a successful offering. Thus, although Internet banks will get pieces of IPO transactions, the lead managers of such deals will continue to be older firms with well-established reputations and ties with institutions.
Nevertheless, the Internet is expected to play a larger role in the case of public bond offerings. Because the issuance of bonds is a repetitive business and the pricing is much simpler, the authors predict that the Internet will significantly reduce the costs of issuing bonds and perhaps limit the role of traditional investment banks in this process.     

Pricing on the Internet

It is often claimed that e-commerce has created a more competitiveenvironment by encouraging the entry of new online firms andby enabling buyers to search easily for the lowest prices. Thelimited evidence that exists paints a mixed picture. Many onlinemarkets are advertising- and technology-intensive, creatinga tendency towards growing concentration. Price search is imperfectand firms can dampen price competition by increasing productheterogeneity and switching costs. In many sectors, online firmsmay come to acquire some market power. We look at the formsof pricing that are likely to emerge in such markets, includingthe greater use of price discrimination and auction-like tradingarrangements.     

The impact of regulation FD on the information environment: evidence from the stock market response to stock split announcements

This paper examines the information environment effects of regulation fair disclosure (Reg FD). We investigate the stock market response to stock splits in the pre- and post-regulation periods. We find that abnormal returns around split announcement are positive in both periods, but the magnitude of the returns is smaller in the post-FD period relative to the pre-FD period. The difference between the pre- and post-FD period abnormal returns persists even after we control for factors that may affect split announcement returns. We also find that the magnitude of the association between announcement returns and the unexpected portion of the split factor has increased post-regulation. Our analysis of performance trends for split firms reveals that patterns of profitability and changes in profitability in the years around stock splits are similar in the pre- and post-FD periods. However, we find that announcement returns are associated with lagged profitability changes in the pre-FD period, but with future profitability changes in the post-FD period. Collectively, our results imply that Reg FD has reduced information asymmetry and improved price efficiency.