The Effects of Uncertainty on Market Prices: Evidence from Coaching Changes in the NBA

Abstract:  This study examines the effects of uncertainty on market prices. Specifically, we use the National Basketball Association betting market to examine whether uncertainty resulting from midseason coaching changes affects the ability of bettors to accurately set betting lines. We find that uncertainty amid midseason coaching changes results in less accurate pricing, as evidenced by higher volatility and greater overall inaccuracy in betting lines. We also find that uncertainty regarding the ability of the replacement coach and/or his strategies results in less accurate pricing, again evidenced by higher volatility and greater overall inaccuracy in betting lines.     

Market Valuation of Successful versus Non‐successful R&D Efforts in the Pharmaceutical Industry

Abstract:   This paper examines the relationship between a non‐financial measure of successful research and development (R&D) efforts in the pharmaceutical industry and R&D expenditures. I hypothesize that the R&D of successful producers will be valued more by the market than the R&D of non‐successful producers. The regression results support the hypothesis. In the primary model, R&D is not associated with price; however, the coefficient on the interaction between R&D and successful developers is positively related to stock price. This implies that the market values the R&D expenditures of successful developers but not the expenditures of less‐successful developers.     

Do Variations in the Strength of Corporate Governance Still Matter? A Comparison of the Pre- and Post-Regulation Environment

Corporate scandals brought the issue of corporate governance to the forefront of the agendas of lawmakers and regulators in the early 2000s. As a result, Congress, the New York Stock Exchange, and the NASDAQ enacted standards to improve the quality of corporate governance, thereby enhancing the quantity and quality of disclosures by listed companies. We investigate the relationship between corporate governance strength and the quality of disclosures in pre- and post-regulation time periods. If cross-sectional differences in corporate governance policies affect the quality of financial disclosures, the quality of information available to analysts varies with such policies. Specifically, higher quality disclosures, produced as a result of strong corporate governance, should lead to more accurate and less dispersed analysts’ forecasts. Our analysis suggests that voluntary implementation of stronger corporate governance enhanced the quality of disclosures in the pre-regulation period; however, exceeding current corporate governance standards does not appear to result in higher quality disclosures post-regulation. These results suggest that SOX and the stronger regulations enacted by U.S. exchanges were effective in reducing variation in the quality of financial information available to investors.     

The Impact of Institutional Ownership on the Reinsurance Decision

Risk management has a central role in corporate America. Insurance companies frequently manage risk by purchasing reinsurance because it reduces the downside risk (i.e., bankruptcy risk) of an insurer. Because reinsurance is costly, Mayers and Smith (1990, Journal of Business , 63: 19-40) argue that reinsurance purchases should be negatively associated with the diversification of the owners' portfolios. Further, institutional owners play a significant role in equity markets yet we know little about their effect on firm behavior. The purpose of this study is to examine empirically the influence of institutional ownership on reinsurance for a sample of widely held property-liability insurers. We hypothesize that insurers with higher levels of institutional ownership purchase less reinsurance. Using a sample of 45 publicly traded property-liability insurers from 1995 to 1997, we demonstrate that the utilization of reinsurance decreases as the level of institutional ownership increases. This suggests that the diversification of the owners' portfolios is a determinant of the insurers' reinsurance decisions.     

A pragmatic model to estimate journal quality in accounting

This article presents a model to estimate the relative quality of publication outlets based on objective journal characteristics. Our model improves upon the one proposed by Bean and Bernardi [Bean, D. F., & Bernardi, R. A. (2005). Estimating the ratings of journals omitted in prior quality ratings. Advances in Accounting Education, 7, 109–127.] in three important ways. First, we develop a dependent variable that is a composite score based on five prior journal perception studies. Second, our model considers different independent variables; audience, journal availability, inclusion in the Social Sciences Citation Index (an independent measure of quality), and the journal’s submission fee. This combination of variables increases the model’s explanatory power by 21% compared to Bean and Bernardi’s average R². Finally, the results of our model are more consistent with those of prior perception studies. We also apply the model to recent accounting faculty publications, which provides a comparative rating of more than 200 journals. We expect our model for estimating journal quality to help faculty, promotion and tenure committees, and university administrators evaluate the quality of journals where accounting faculty publish, an important aspect of assessing research productivity.