Voting Rights and Market Reaction to Dual Class Common Stock Issues

This paper examines the return of the original class of common stock around the announcement of the creation of a second class of stock. As in previous studies, this one finds a generally ambiguous market reaction on the first public announcement. However, this paper offers new evidence that both the voting rights and the compensation for loss of voting rights are important determinants of the market's reaction. Specifically, it demonstrates that a second class stock issue that contains no compensation for the lost voting rights results in negative returns. When the original stockholders are compensated for lost voting rights, they experience positive abnormal returns.     

Equilibrium Effects of Superstition in the Housing Market

We investigate the interaction of product quality differentiation and consumer preference heterogeneity in durable goods markets, focusing on the effects of secondary market liquidity and consumer heterogeneity on equilibrium prices. We build an infinite‐horizon dynamic model of the apartments housing market that captures the above features. Some apartments are considered lucky, and some consumers are superstitious. Lucky apartments are valued more highly than non‐lucky ones only by superstitious consumers. Results show that the difference between the lucky apartment price and the non‐lucky apartment price becomes smaller when the secondary market becomes less liquid and when consumers’ preference heterogeneity becomes more persistent as opposed to time‐varying.     

Does Advertising Overcome Brand Loyalty? Evidence from the Breakfast‐Cereals Market

In differentiated product markets where consumer preferences are characterized by brand loyalty, an important role for advertising may be to overcome brand loyalty by encouraging consumers to switch to less familiar brands. Using a scanner panel dataset of breakfast-cereal purchases, I find evidence consistent with the hypothesis that advertising counteracts the tendencies of brand loyalty toward repeat purchasing. Equivalently, advertising reduces switching costs in this market. Furthermore, counterfactual experiments demonstrate that in markets with brand loyalty, advertising is an attractive and effective option—relative to alternative promotional activities, such as price discounts—of stimulating demand for a brand .     

DISCRETE CHOICE AND RATIONAL INATTENTION: A GENERAL EQUIVALENCE RESULT

This article establishes a general equivalence between discrete choice and rational inattention models. Matějka and McKay (2015) showed that when information costs are modeled using the Shannon entropy, the choice probabilities in the rational inattention (RI) model take the multinomial logit form. We show that, for one given prior over states, RI choice probabilities may take the form of any additive random utility discrete choice model (ARUM) when the information cost is a Bregman information, a class defined in this article. The prior information of the rationally inattentive agent is summarized in a constant vector of utilities in the corresponding ARUM.     

Did corporate governance safeguard investor interest in the global financial crisis? Evidence from Hong Kong SAR

The global financial crisis of 2008 aroused renewed interest in the effectiveness of corporate governance mechanisms to safeguard investor interests. In this paper, we measure the effects of the crisis from 2008 to 2009 on the share performance of 976 companies listed on the Hong Kong Stock Exchange in the Hong Kong SAR and examine the link between share performance and corporate governance mechanisms. Our results present evidence that firms with a higher proportion of independent directors and a greater concentration of ownership had lower share performance, but lower price volatility, during the global financial crisis. These results suggest that no single corporate governance mechanism is fit for all economic environments and time frames. To strengthen investors' confidence, companies should enhance the efficiency and adaptability of their governance mechanisms in turbulent times.     

Relative Liquidity,Fund Flows and Short‐Term Demand: Evidence from Exchange‐Traded Funds

We show that highly liquid Exchange‐Traded Funds (ETFs), especially those that are more liquid than their underlying basket of securities (i.e., positive relative liquidity), are particularly attractive to investors. Using three definitions of liquidity, we find that relative liquidity predicts net fund flows, as well as inflows and outflows positively and significantly. We further document a liquidity clientele among institutional investors: (i) relative liquidity is significantly more important for short‐ than for long‐term investors; and (ii) relative liquidity is inversely related to investors’ average holding duration in the ETFs. These two findings provide evidence that relative liquidity encourages short‐term demand.     

Increasing Competition and the Winner's Curse: Evidence from Procurement

We assess empirically the effects of the winner's curse which, in common–value auctions, counsels more conservative bidding as the number of competitors increases. First, we construct an econometric model of an auction in which bidders' preferences have both common– and private–value components, and propose a new monotone quantile approach which facilitates estimation of this model. Second, we estimate the model using bids from procurement auctions held by the State of New Jersey. For a large subset of these auctions, we find that median procurement costs rise as competition intensifies. In this setting, then, asymmetric information overturns the common economic wisdom that more competition is always desirable.     

Superstition and “lucky” apartments: Evidence from transaction-level data

Using a sample of apartment transactions during 2004–2006 in Chengdu, China, we investigate the impact of superstitions in the Chinese real estate market. Numerology forms an important component of Chinese superstitious lore, with the numbers 8 and 6 signifying good luck, and the number 4 bad luck. We find that secondhand apartments located on floors ending with “8” fetch, on average, a 235 RMB higher price (per square meter) than on other floors. For newly constructed apartments, this price premium disappears due to uniform pricing of new housing units, but apartments on floors ending in an “8” are sold, on average, 6.9 days faster than on other floors. Buyers who have a phone number containing more “8”’s are more likely to purchase apartments in a floor ending with “8”; this suggests that at least part of the price premium for “lucky” apartments arises from the buyers’ superstitious beliefs.     

Durable‐goods oligopoly with secondary markets: the case of automobiles

We study the effects of durability and secondary markets on equilibrium firm behavior in the car market. We construct a dynamic oligopoly model of a differentiated product market to incorporate the equilibrium production dynamics that arise from the durability of the goods and their active trade in secondary markets. We derive an econometric model and estimate its parameters using data from the automobile industry over a 20‐year period. Our estimates are used to provide a measure of the competitive importance of the secondary market.     

Estimating a tournament model of intra-firm wage differentials

We consider the estimation of a tournament model with moral hazard (based on Rosen (1986), AER)) when only aggregate data on intra-firm employment levels and salaries are available. Equilibrium restrictions of the model allow us to recover parameters of interest, including equilibrium effort levels in each hierarchical stage of the firm. We illustrate our estimation procedures using data from major retail chains in the US. We find that only a fraction of the wage differential directly compensates workers for higher effort levels, implying that a large portion of the differentials arises to maintain incentives at lower rungs of the retailers.