Resource Allocation Effects of Price Reactions to Disclosures*

Capital market participants collectively may possess information about the valuation implications of a firm's change in strategy not known by the management of the firm proposing the change. We ask whether a firm's management can exploit the capital market's information in deciding either whether to proceed with a contemplated strategy change or whether to continue with a previously initiated strategy change. In the case of a proposed strategy change, we show that managers can extract the capital market's information by announcing a potential new strategy, and then conditioning the decision to implement the new strategy on the size of the market's price reaction to the announcement. Under this arrangement, we show that a necessary condition to implement all and only positive net present value strategy changes is that managers proceed to implement some strategies that garner negative price reactions upon their announcement. In the case of deciding whether to continue with a previously implemented strategy change, we show that it may be optimal for the firm to predicate its abandonment/continuation decision on the magnitude of the costs it has already incurred. Thus, what looks like “sunk‐cost” behavior may in fact be optimal. Both demonstrations show that, in addition to performing their usual role of anticipating future cash flows generated by a manager's actions, capital market prices can also be used to direct a manager's actions. It follows that, in contrast to the usual depiction of the information flows between capital markets and firms as being one way — from firms to the capital markets — information also flows from capital markets to firms.     

The relationship between portfolio diversification and firm value: The evidence from corporate venture capital activity

Corporate venture capital (CVC) activity exposes firms to new technologies and markets. An important but as yet unexplored question is the relationship of the industry diversification profile of the portfolio of venture companies to corporate value creation. Insights from options and diversification perspectives support our hypothesis that diversification of a corporate investor's portfolio of venture companies is related to corporate wealth creation in a U‐shaped relationship. We also propose that a corporate investor's financial constraints moderate the relationship between the diversification profile of its CVC portfolio and value creation. When we tested our hypotheses using a sample of CVC investments across multiple industries, we found support for them, and these findings may inform the CVC activities of corporate investors. Copyright © 2013 John Wiley & Sons, Ltd.     

Managerial Expectations of Synergy and the Performance of Acquiring Firms: The Contribution of Soft Data

This study examines whether the “soft” information present in merger and acquisition (M&A) announcement press releases contains incrementally valuable news relative to traditional “hard” data. Using the methodology of Loughran and McDonald [2011], we construct measures of synergy expectations and managerial optimism for more than 1,200 M&A announcements over the period 1995–2007. We find that synergy expectations are positively related to announcement period returns, longer-run performance, and the market's reaction to quarterly earnings announcements. Managerial optimism is insignificant for explaining a merger's subsequent performance. We conclude that the soft information contained in M&A announcements concerning synergy expectations can provide useful information to investors.     

The Impact of Smokers' Group‐Membership and Activist Gender on Tolerance for Smoking,Receptiveness and Perceived Susceptibility to Anti‐Smoking Messages,and Likelihood of Anti‐Smoking Activism

Using two experiments we demonstrate that people have lower tolerance for smoking and higher anti‐smoking activism likelihood when in‐group versus out‐group members smoke. The likelihood of anti‐smoking activism toward in‐group smokers was greater for men than women. Moreover, as social distance declined, men showed greater anti‐smoking message receptiveness, message susceptibility and activism likelihood, whereas, women displayed no significant differences in tolerance for smoking, message receptiveness, message susceptibility, and activism likelihood. Open‐ended responses indicated generally negative cognitive reactions to smokers, yet a broad unwillingness to confront them. While feelings of personal relevance and caring facilitated anti‐smoking activism intentions, beliefs in the freedom of personal choice and polite interpersonal interactions hindered these intentions.     

A multi-attribute diffusion model for forecasting the adoption of investment alternatives for consumers

This article develops a diffusion model that incorporates potential adopters' perceptions of the relevant innovation attributes in explaining the rate of adoption of an innovation. Data from 14 investment alternatives currently available to consumers are used to develop a multi-attribute diffusion model for forecasting the acceptance of a potential investment alternative. Limitations and further extensions of the proposed model are also discussed.     

Do More Risk-Averse Investors Have Lower Net Worth and Income?

This study examines the relationship between attitude toward risk and both net worth and income. The data are obtained from a financial diary kept by a national, scientifically selected sample of more than 3000 households. Results show that both net worth and income are negatively related to risk aversion.     

International acquisitions in the united states: Evidence from returns to foreign bidders

This paper provides evidence on the minimally explored topic of abnormal returns earned by stockholders of foreign bidders seeking to acquire a target firm in the USA. Four sources of influence on abnormal returns are identified: changes in net wealth of the bidder associated with changes in exchange rates; possible value-destroying managerial discretionary behavior by bidders with excess cash flows, as suggested by Jensen; comparative advantages for foreign bidders domiciled in relatively favorable tax jurisdictions; ownership status of the target, i.e. whether the target is an entire firm and whether it involves divested assets. The study includes 77 firms from 10 countries. The results show that stockholders of foreign bidders earn significant, negative abnormal returns surrounding the announcement of an acquisition in the USA. These abnormal returns become increasingly negative over the 15 days after the announcement of the acquisition, indicating that more information about the acquisition is revealed to investors subsequent to the initial announcement. Cross-sectional regressions indicate that relative exchange rates and cash positions explain variation in abnormal returns. A decline in the value of the dollar increases abnormal returns for the foreign bidder, thus supporting the net wealth hypothesis. The results also show that cash-rich foreign firms tend to enjoy higher abnormal returns when making acquisitions in the USA. The result provides support for the Froot and Stein cash-constrained hypothesis rather than for Jensen's free-cash-flow theory.     

Information and Communication Behaviour of Women Space Technologists

The author has carried out a survey to inquire into the information and communication behaviour of men and women space technologists in India. Members of a population of about 800, of whom about 70 were women, were questioned about their information seeking and transmission activities. The survey showed that on almost all aspects, including time spent on collecting information, number of contacts outside the organization, consultations with library staff, dependence on informal sources of information and so on, there were not significant differences between the sexes. The only important differences were that women used formal sources such as library documentation and consulted internal sources of information more than did men, and were much less likely to be gatekeepers. But women space technologists appeared to have low information potential in the sociometric analysis of informal contacts of the respondents as they were less likely to be chosen for discussion, advice and information by respondents than were men space technologists.