Incentives for voluntary disclosure

Rule l0b-5 of the 1934 Securities and Exchange Act allows investors to sue firms for misrepresentation or omission. Since firms are principal–agent contracts between owners – contract designers – and privately informed managers, owners are the ultimate firms’ voluntary disclosure strategists. We analyze voluntary disclosure equilibrium in a game with two types of owners: expected liquidating dividends motivated (VMO) and expected price motivated (PMO). We find that Rule l0b-5: (i) does not deter misrepresentation and may suppress voluntary disclosure or, (ii) induces some firms to adopt a partial disclosure policy of disclosing only bad news or only good news.     

Characterization of a class of moral-hazard, adverse selection games

Studying a principal-agent game in which the agent alone observes the state of the world and reports it, but the moral hazard is not reducible, shows that, if the principal uses all signals, then no solution exists, i.e. there is no contract that elicits truth-telling and motivates the agent to exert effort. When the principal does not use signals on the state of the world that seem irrelevant, a solution exists in which some of the ex post signals on outcome are not used, even though they obey the informativeness condition of Holmstrom (Bell Journal of Economics, 1979, 10, 74–91).     

Observable Consequences of Trading Structure Differences: On the Use of Variance Ratios in Microstructure Studies

This paper examines the variance ratio tests in studies of transitory volatility and concludes that the variance ratio is an appropriate test of trading structure differences only under certain assumptions regarding the evolution of underlying stock prices and the autocorrelation structure of returns. This result raises caution as to the interpretation of results bases upon the 24-hour variance ratio methodologies in studies of transitory volatility and trading structure effects. A numerical example indicates that errors in inferences can be severe.     

Piecewise linear incentive scheme and participative budgeting

This paper studies the economic incentives of participative budgeting through the design of incentive schemes within the agency theory framework. In particular, a piecewise linear incentive scheme (PLIS), an optimal version of Weitzman's New Soviet Incentive Scheme (NSIS), is derived. The characteristics of PLIS are: first, unlike NSIS, the bonus (penalty) rates of the optimal PLIS vary according to the agent's type in order to improve the principal's welfare, second, a penalty may be imposed on the overfulfillment of the agent's performance in order to maintain incentive compatibility, and finally, it is shown that if the coefficients are constant as in NSIS, there is no need for participative budgeting. Also, PLIS is compared with a quadratic incentive scheme. Both incentive schemes achieve the optimal solution, but each incentive scheme has its own advantage over the other depending on the situation.     

On the Rationality of the Post-Announcement Drift

This paper demonstrates that a post-announcement earnings drift, which is often advanced as an example of market irrationality, can arise even if traders act rationally on their information. Specifically, we show that in the presence of share supply variations which are unrelated to information, there is a positive correlation between the unexpected component of current public signals and future price changes. Such a correlation arises from the fact that while prices reveal private information that cannot be found in public signals, non-information based trading distorts the information content of prices relative to the implications of both private and public information. Under these circumstances, markets may appear semi-strong inefficient and slow to respond to earnings announcements even though information is processed in a timely and efficient manner. Our findings correspond well with previously documented empirical evidence and suggest that the robustness of earnings-based anomalies may be rational outcomes of varying uncertain share supply.     

Demand for the truth in principal–agent relationships

Consider the following puzzle: If earnings management is harmful to shareholders, why don’t they design contracts that induce managers to reveal the truth? To answer this question, we model the shareholders–manager relationship as a principal–agent game in which the agent (the manager) alone observes the economic outcome. We show that the limited liability (LL) of the agent, defined as the agent’s feasible minimum payment, might explain the demand for earnings management by the principal. Specifically, when the LL level is high (low), a contract that induces earnings management may be less (more) costly than a truth-revealing contract. This finding offers a new explanation of the demand for earnings management.     

Relationships between family communication and consumer activities of adolescents: An exploratory study

This study uses a multitrait, multi-informant approach to examine the relationships between family communication and adolescent involvement in consumer activity using two measures of family communication, one that measures the general quality of communication between parents and adolescents, and another that measures the frequency of consumption-specific communication between parents and adolescents. In addition, the perceptions of mothers, fathers, and adolescents are used in the analysis. Findings show that the two communication constructs are conceptually distinct. Positive relationships between the communication constructs and adolescents’ consumer activities are found; however, the presence of significant relationships depends on which individual family members’ or family member dyads’ perceptions are used in the analysis. On the basis of the findings, several suggestions for future research are discussed. Kay M. Palan is an assistant professor of marketing at the College of Business at Iowa State University. The received her Ph.D. from Texas Tech University. Her research interests include consumer decision-making, adolescent influence in family decision-making, gender effects on consumption and advertising, and philosophy-of-science issues. Her work has appeared in theJournal of Marketing, theJournal of Consumer Research, andPsychology & Marketing.     

‘Managerialism’, ‘ownerism’ and risk

This paper proposes that managers, having the value of their human capital dependent on the performance of the firm they manage, and being unable to diversify away this risk, are expected to attempt to reduce their employment risk internally by project selection or by income smoothing, intended to stabilize the firm's income stream. An empirical investigation shows that manager-controlled firms exercise ‘income smoothing’ to a greater extent than owner-controlled firms, have relatively lower unsystematic risk and perhaps lower systematic risk.     

Reexamining Masculinity,Femininity,and Gender Identity Scales

This research compares and contrasts three gender identity instruments, the Bem Sex Role Inventory (BSRI), the Personal Attributes Questionnaire (PAQ), and the Sexual Identity Scale (SIS), that have been used in previous investigations of various aspects of consumer behavior. Specifically, it examines the dimensionality and internal reliability of each scale, inter-scale correlations, and the relationship of each scale to biological sex. Results indicate that the gender identity scales consist of several dimensions beyond those typically interpreted as masculinity and femininity. The femininity factors emerging in the three scales tended to be highly correlated, and females scored higher than males on the femininity factors. However, the three masculinity factors were not correlated with one another, and were not as strongly associated with biological sex—females identified with typically masculine traits just as much as males. The implications of these results for using gender identity in consumer research are discussed, and future research opportunities are explored.