Quantitative Restrictions in the Presence of Cost-Based Informational Asymmetries

This study introduces a cost-based informational asymmetry into a two-period model where a domestic (incumbent) firm's behavior in the first period affects the entry decision of a foreign firm in the second period. The effects of import quota policy within this environment are examined and compared to the standard, full-information effects. When quota quantities are set exogenously, the standard effects of quota policy may be significantly altered depending on whether or not policy induces the domestic firm to signal cost structure. For example, higher quotas may discourage foreign entry because of the induced signaling effects of quota policy.     

LIABILITY RISK MANAGEMENT AND CORPORATE SOCIAL PERFORMANCE

Reputations travel fast and far. Poor corporate citizenship anywhere in the world is increasingly likely to be reported everywhere in the world. Human rights abuses and environmental accidents and pollution have put many well-known companies on the defensive, and once in the spotlight, all actions tend to be carefully scrutinized.
Corporations risk losses due to fines and lawsuits stemming from poor citizenship, but even more significant is the potential loss of reputation—a significant portion of most companies' value. A damaged corporate reputation can hurt sales and damage employee morale.
The ensuing financial losses expose executives and boards of directors to shareholder derivative lawsuits for not having policies in place to protect the corporation from such scandals. As providers of liability insurance, insurance companies have a direct interest in these losses.
Corporate adoption of effective environmental and social accountability program—which are likely to prevent scandals in the first place, will limit the liability of corporations and their officers if a scandal does occur.     

Forecasting the Discounts of Market Prices from Appraised Values for Real Estate Limited Partnerships

A vexing problem for the appraisal industry has been estimating an appropriate discount for the value of real estate limited partnerships (RELPs) relative to their appraised value. This research develops a linear regression model that explains over 80% of the cross-sectional variation in discounts across 60 RELPs using characteristics of each partnership. Among a holdout sample of 41 RELPs, the model provides forecasts of discounts that are superior to assuming no discount or applying a mean discount to all partnerships. Discounts are greatest for RELPs with low current yields, low leverage and high trading ranges for their market prices.     

On the Behavioral Foundations of the Law of Supply and Demand: Human Convergence and Robot Randomness

This research builds on the work of D.K. Gode and Shyam Sunder who demonstrated the existence of a strong relationship between market institutions and the ability of markets to seek equilibrium—even when the agents themselves have limited intelligence and behave with substantial randomness. The question posed is whether or not market institutions account for the operation of the law of supply and demand in markets populated by humans with no role required of human rationality. Are institutions responsible for the operations of the law of supply and demand or are behavioral principles also at work? Experiments with humans and simulations with robots both conducted in conditions in which major institutional and structural aids to convergence were removed, produced clear answers. Human markets converge, while robot markets do not. The structural and institutional features certainly facilitate convergence under conditions of substantial irrationality, but they are not necessary for convergence in markets in which agents have the rationality of humans.     

Chapter 11: Strategic advantage and social anathema?

The United States is at a crossroad in its treatment of Chapter 11 of the Bankruptcy Code, which deals with reorganization of bankrupt organizations. It is vital that the issues surrounding the debate be properly framed. This paper attempts to do just that by reviewing the evolution of bankruptcy law, assessing the impact of Chapter 11 leniency on societal stakeholders, considering bankruptcy as a strategic option, and addressing the ethical and societal issues that arise from the use of Chapter 11 to avoid massive litigation or to abrogate labor contracts. Serious threats to the underlying fibers of the American system of enterprise are exposed and an assessment of these threats is offered.Brad Johnson is a consultant with FLR Health Resources, Dallas, Texas. His recent research has addressed health care strategic management, societal consequences of health care systems changes, and competitiveness of NFP organizations. B. R. Baliga is Assistant Professor in Business Policy and International Business at the College of Business Administration at Texas Tech University. He has written two books on Strategies of Multinational Corporations and several articles, which have appeared in Strategic Management Journaland Journal of International Business Studies. John D. Blair is Associate Professor of Management at the College of Business Administration at Texas Tech University. He is also Associate Professor of Health Organization and Management at the School of Medicine at Texas Tech University. He has written two coauthored books: The All-Volunteer Force: A Study of Ideology in the Military(University of Michican Press, 1977) and Leadership on the Future Battlefield(Pergamon Press, 1984).     

Systematic noise

We analyze trading records for 66,465 households at a large discount broker and 665,533 investors at a large retail broker to document that the trading of individuals is highly correlated and persistent. This systematic trading of individual investors is not primarily driven by passive reactions to institutional herding, by systematic changes in risk-aversion, or by taxes. Psychological biases likely contribute to the correlated trading of individuals. These biases lead investors to systematically buy stocks with strong recent performance, to refrain from selling stocks held for a loss, and to be net buyers of stocks with unusually high trading volume.     

Derivative use,fund flows and investment manager performance

Prior literature which examines the use of derivatives by investment managers does not discern between different types of derivative trading strategies. This study is the first to examine and gather data on a particular type of derivative trading strategy undertaken by investment managers. We examine the extent to which equity fund managers use index futures to manage fund flows and the effect this has on their alpha and market timing measures of performance. Our results show that funds that do not use derivatives exhibit lower returns and negative market timing skills when they experience fund flow. The performance of funds that use derivatives, however, is independent of investor’s liquidity demands. In fact, the unconditional performance of the average user fund is statistically equivalent to the performance of the average non-user fund conditional on zero fund flow. Our results provide evidence that derivatives can be beneficial for mutual fund holders under certain conditions.     

Managing impressions using distorted graphs of income and earnings per share: The role of memory

This study investigates the role that memory plays in interpreting and using distorted graphs that mislead the user of the financial information. It draws upon the literatures concerning memory, impression management and effective graph design. In order to examine whether reliance on memory for distorted graphs leads to different impressions of the data, we conduct an experiment in which we manipulate the type of graph distortion and whether memory of the graph is required by the decision. We present evidence that individuals receiving misleading graphs are more likely to misinterpret underlying data trends and that memory moderates the effect depending upon the type of distortion used to mislead the individual. The resulting data interpretation errors lead to more positive judgments and investment decisions than would otherwise be warranted. Thus our findings suggest that graph distortions mislead users into incorrect conclusions about the underlying data and that these interpretation errors persist in memory and affect judgments and investment decisions. We extend the prior literature, which has not considered the direct effects of graph interpretation or the effects of memory, and provide a baseline for investigating the effects of memory on impression management.