Expected utility theory and the experiments

The experimental evidence against expected utility theo or unconvincing. When one modifies the experiments to mi tends to support traditional theory.Dewey H. Johnson Professor of Economics, Department of Economics, College of Business Administration, University of South Carolina. I am grateful for comments from seminar participants at the University of Melbourne, University of South Carolina, University of Stockholm, and the University of Western Ontario. John Hey provided a firm, but sympathetic, editorial hand.     

A mechanism implementing the proportional solution

We consider the problem of a commonly owned technology which transforms a single input into a single output. We are interested in implementing a social choice rule called theproportional solution. We introduce a mechanism which implements the proportional solution in Nash, strong (Nash) and undominated Nash equilibria. In the mechanism each agent announces only two numbers which can be interpreted as the total output and her share of the total input-output combination. This paper was originally titled "Doubly implementing the proportional solution." I would like to thank my advisor William Thomson for his detailed comments and suggestions. I would also like to thank Jeffrey Banks and Sung-Whee Shin for their comments. Two anonymous referees and an editor’s comments improved this paper substantially.     

Optimal growth and cycles in overlapping generations models

Summary This paper investigates the dynamical properties of optimal paths in one-sector overlapping generations models without assuming that the utility function of the representative agent is separable. When the utility function is separable, the optimal growth paths monotonically converges toward the modified golden rule steady state. In the non-separable case, we show that the optimal growth path may be oscillating and optimal two-period cycles may exist. Applying these results to the model with altruism, we show that the condition of operative bequest is fully compatible with endogeneous fluctuations provided that the discount factor is close enough to one. All our results are illustrated using Cobb-Douglas utility and production functions.We thank C. Blackorby, J. Blot, P. Cartigny and one anonymous referee for helpful comments and suggestions which generally improved the exposition of the paper. We would also like to thank the participants of the Population and demography session of the European Economic Association 10th Annual Congress (Prague, The Czech Republic, September 1–4, 1995).     

"10+3"成员国直接税协调的研究

本文介绍了“1O 3” 合作机制的特点、成员国税制和直接税的概况。文中指出,“10 3”成员国政府应高度重视国内税收政策协调问题;尽早建立非官方的税收研究委员会,对各成员国国内税收政策协调问题进行研究;并对企业所得税和个人所得税政策的协调提出建议。     

Capitalization versus Expensing: Evidence on the Uncertainty of Future Earnings from Capital Expenditures versus R&D Outlays

We propose and implement a new method to estimate the relation between R&D investments and the uncertainty of future benefits from those investments. The empirical analysis compares the relative contributions of current investments in R&D and PP&E to future earnings variability using a sample of roughly 50,000 firm-year observations from 1972–1997. Evidence is strongly consistent with the hypothesis that R&D investments generate future benefits that are far more uncertain than benefits from investments in PP&E. Our results should help the current discussion on accounting for R&D and the methodology might be helpful in standard setting in other contexts as well.     

The effect of management incentives and cross-listing status on the accounting treatment of R&D spending

This paper investigates the effect of management incentives and cross-listing status on the accounting treatment of research and development (R&D) spending for a sample of Canadian hi-tech and biopharmaceutical firms. U.S. GAAP adopts an immediate expensing rule for all R&D spending except for software development costs for which technological feasibility has been established. Contrary to the U.S., Canadian and international standard setters recommend capitalization if development costs meet certain criteria. Because those criteria are largely based on management judgment, capitalization of R&D spending is an accounting choice that can be used for income manipulation or signaling.Using a logit model, we examine how the decision to capitalize R&D spending is influenced by the cross-listing status and several other key firm characteristics that are well documented in the accounting literature. We find that the probability of capitalizing R&D spending increases for cross-listed and non-cross-listed firms in the software industry. The probability of capitalizing R&D spending also increases for firms that are more leveraged, more mature, and have higher level of cash flows from operations. However, the probability of capitalizing R&D spending decreases for larger corporations, firms with more concentrated ownership and highly profitable firms. Overall our results indicate a preference for Canadian firms in the software industry to emulate U.S. accounting practices for R&D spending. They also suggest that firms use the decision to capitalize or expense R&D spending as an earning management tool to either meet debt covenants or to smooth income.     

R&D Progress, stock price volatility, and post-announcement drift: An empirical investigation into biotech firms

I investigate the effects of R&D progress on the dynamics of stock price volatility and the post announcement drift to provide insights into whether or not and how capital markets react to corporate R&D progress in the context of the biotech industry. I find both stock price volatility and the post announcement drift decrease in R&D progress. More importantly, the decrease is proportional to the increase in the drug development success rate driven by R&D progress. Findings suggest that R&D progress conveys useful risk-relevant information, and plays an important role in explaining stock price volatility change and market anomalies.     

IPO anomalies and innovation capital

Innovation capital are typically expensed and/or unrecognized as assets under current generally accepted accounting principles. This results in accounting-related information asymmetry. This paper examines the association of innovation capital (as measured here by the proxies of R&D expenditures and granted patents) and initial public offerings (IPO) anomalies. These anomalies include initial IPO underpricing, duration of honeymoon (a distinct feature of the Taiwanese IPO environment), and long-term performance. The theoretical model underlying this research is a signaling model. The results indicate that more innovative firms are more likely to be underpriced, and have longer honeymoon periods than less innovative firms. Further, the more innovative firms have positive and growing long-term market-adjusted returns. This stands in contrast to the declining long-term stock performance of initial public offering firms that is evidenced in the literature. We conclude that pre-IPO research and development expenditures disclosed in the IPO prospectus, official monthly reports of newly developed patents released to the public, and the frequency of patent citations significantly signal both underpricing and future market performance of IPO firms in Taiwan.     

Should business groups be dismantled? The equilibrium costs of efficient internal capital markets

We analyze the relationship between conglomerates’ internal capital markets and the efficiency of economy-wide capital allocation, and we identify a novel cost of conglomeration that arises from an equilibrium framework. Because of financial market imperfections engendered by imperfect investor protection, conglomerates that engage in winner-picking (Stein, 1997 [Internal capital markets and the competition for corporate resources. Journal of Finance 52, 111–133]) find it optimal to allocate scarce capital internally to mediocre projects, even when other firms in the economy have higher-productivity projects that are in need of additional capital. This bias for internal capital allocation can decrease allocative efficiency even when conglomerates have efficient internal capital markets, because a substantial presence of conglomerates might make it harder for other firms in the economy to raise capital. We also argue that the negative externality associated with conglomeration is particularly costly for countries that are at intermediary levels of financial development. In such countries, a high degree of conglomeration, generated, for example, by the control of the corporate sector by family business groups, could decrease the efficiency of the capital market. Our theory generates novel empirical predictions that cannot be derived in models that ignore the equilibrium effects of conglomerates. These predictions are consistent with anecdotal evidence that the presence of business groups in developing countries inhibits the growth of new independent firms because of a lack of finance.     

The outsourcing of R&D through acquisitions in the pharmaceutical industry

We examine the performance of 160 pharmaceutical acquisitions from 1994 to 2001 and find evidence that on average acquirers realize significant positive returns. These returns are positively correlated with prior acquirer access to information about the research and development activities at target firms and a superior negotiating position. A unique Desperation Index is employed to determine the current status of a firm's internal productivity. We find that firms experiencing declines in internal productivity or which are more desperate are more likely to engage in an outsourcing-type acquisition in an effort to replenish their research pipelines.