Exit Options in Corporate Finance: Liquidity versus Incentives

This paper provides a first study of the optimal design of active monitors'exit options in a problem involving a demand for liquidity and costly monitoring of the issuer. Optimal incentives to monitor the issuer may involve restricting the monitor's right to sell her claims on the firm's cash-flow early. But the monitor will then require a liquidity premium for holding such an illiquid claim. In general, therefore, there will be a trade off between incentives and liquidity. The paper highlights a fundamental complementarity between speculative monitoring in financial markets (which increases the informativeness of prices) and active monitoring inside the firm: in financial markets where price discovery is better and securities prices reflect the fundamentals of the issuer better, the incentive cost of greater liquidity may be smaller and active monitoring incentives may be preserved. The paper spells out the conditions under which more or less liquidity is warranted and applies the analysis to shed light on common exit provisions in venture capital financing.     

Do interventions in foreign exchange markets modify investors' expectations? The experience of Japan between 1992 and 2004

The purpose of this paper is to analyze the impact of the Bank of Japan's official interventions on the JPY/USD parity during the period 1992–2004. The novelty of our approach is to combine two recent advances of the empirical literature on foreign exchange interventions: (i) drawing on over-the-counter option prices to characterize more precisely the distribution of market expectations; (ii) redefining interventions in terms of events as they tend to come in clusters. Moreover, in order to deal with the features of the data (small sample size, non-standard distribution), we use bootstrap tests.We show that interventions have a significant impact on the mean expectation (the forward rate). The results are more ambiguous for variance. Additionally, we find that the effect of interventions on skewness is significant, robust to different definitions of skewness, and consistent with the direction of interventions. On the contrary, our results clearly show that kurtosis is not affected by interventions. We finally show that: (i) coordination increases effectiveness of interventions; (ii) results are not altered when controlling for other economic and political news.     

Demand fluctuations and capacity utilization under duopoly

Summary.  This paper studies the impact of uncertain demand on firms’ capacity decisions when they operate in an oligopolistic environment. We define a two-stage game where firms choose capacity in the first stage without knowing which state of Nature is going to realize, and output levels in the second, knowing which state is realized. We prove the existence of a symmetric subgame perfect equilibrium at which firms are in excess capacity compared with the capacity they would choose in the Cournot certainty equivalent game. Received: May 17, 1996; revised version July 31, 1996     

Price Competition When Consumersare Uncertain About Which Firm Sells Which Quality

In this paper we analyze the properties of price equilibria in a duopoly market where firms sell vertically differentiated products, consumers being uncertain about which firm sells which quality. Both existence and properties of price equilibria are characterized by the beliefs of the consumers' population about the distribution of quality between firms.     

Assessing Applied Protection across the World*

This paper presents MAcMap–HS‐6, a database providing a consistent, ad valorem equivalent measure of tariff duties and tariff rate quotas for 163 countries and 208 partners, at the six‐digit level of the Harmonized System (5111 products), accounting for all preferential agreements. We describe the methodology used to compute and aggregate an ad valorem equivalent of applied protection. Emphasis is placed on minimizing the endogeneity bias in the aggregation procedure, while acknowledging structural differences in export specialization. The resulting quantitative assessment is illustrated by giving an overview of applied protection across the world in 2001, in terms of average as well as distribution.     

Opportunistic tendencies in IJVS with the Japanese: The effects of culture,shared decision making,and relationship age

This study investigated how partners' self-reported opportunism and shared decision making varied by culture in international joint ventures (IJVs) with the Japanese. Data were gathered by a mail survey of senior officials in IJVs located in 11 host countries. Significant differences were found between partners from Western cultures and the Japanese, but not between other Asians and the Japanese. Indirect effects suggest that shared decision making neutralizes cultural tendencies toward opportunism. Results indicated that opportunistic tendencies did not diminish as the IJV relationship aged, and that shared decision making did diminish as the relationship aged.     

New Evidence on the Performance Advantages of Multihospital Systems

This study analyzes the performance effects of proprietary, multihospital systems. It is shown that the organizational structure of these systems may affect the operating costs of member hospitals. Estimating a cost function for Florida hospitals and controlling for other factors, the average costs of HUMANA hospitals are empirically about 17 percent lower, while the costs of other leading chains are about 12 percent lower than not-for-profit institutions. These results contrast with earlier studies that found no such differences. Furthermore, the cost differential that exists between system and non-system hospitals can be largely attributed to technical efficiencies arising from chain ownership.     

Organizational capabilities in e-commerce: An empirical investigation of e-brokerage service providers

E-commerce not only has tremendous potential for growth but also poses unique challenges for both incumbents and new entrants. By examining drivers of firm performance in e-commerce from a capabilities perspective, the authors conceptualize three firm capabilities that are critical for superior firm performance in e-commerce: information technology capability, strategic flexibility, and trust-building capability. The extent and nature of market orientation is conceptualized as a platform for leveraging e-commerce capabilities. The authors test the effects of e-commerce capabilities on performance (e.g., relative profits, sales, return on investment) using data from 122 e-brokerage service providers. The results indicate that information technology capability and strategic flexibility affect performance given the right market orientation. Amit Saini (asaini2@unl.edu) is an assistant professor of marketing at University of Nebraska-Lincoln. He conducts research in the area of marketing strategy, technology-marketing interface, e-commerce strategy, and customer relationship management. He has presented papers at major conferences, and his research appears in theJournal of the Academy of Marketing Science and American Marketing Association—Marketing Educator’s Conference Proceedings. His industry experience includes sales management and quantitative market research. Jean L. Johnson (Johnsonjl@wsu.edu) is a professor of marketing at Washington State University. Her research includes partnering capabilities development in, and management of, interfirm relationships and management of international strategic alliances. Her research appears in journals such as theJournal of Marketing, the Journal of International Business Studies, theJournal of the Academy of Marketing Science, and theInternational Journal of Research in Marketing. She serves on the editorial boards of theJournal of Marketing, theJournal of the Academy of Marketing Science, the Journal of Retailing, theJournal of Business and Industrial Marketing, and reviews for others. She spent several years in the advertising industry and has lived, taught, and conducted research in France and Japan. She has been selected to cochair the 2006 winter American Marketing Association (AMA) conference.     

Multivariate volatility forecasts for stock market indices

Volatility forecasts aim to measure future risk and they are key inputs for financial analysis. In this study, we forecast the realized variance as an observable measure of volatility for several major international stock market indices and accounted for the different predictive information present in jump, continuous, and option-implied variance components. We allowed for volatility spillovers in different stock markets by using a multivariate modeling approach. We used heterogeneous autoregressive (HAR)-type models to obtain the forecasts. Based an out-of-sample forecast study, we show that: (i) including option-implied variances in the HAR model substantially improves the forecast accuracy, (ii) lasso-based lag selection methods do not outperform the parsimonious day-week-month lag structure of the HAR model, and (iii) cross-market spillover effects embedded in the multivariate HAR model have long-term forecasting power.