Notes on Multiperiod Valuation and the Pricing of Options

A mean-variance risk-return tradeoff relationship is derived for the diffusion process limiting case of a state-preference model, with aggregate consumption serving as a pivotal variable. The model is compared to other recent models along the dimensions of generality and tractable implementation. The incorporation of stochastic interest rates in general equilibrium and arbitrage-based valuation models is examined, and an extension to earlier methods is discussed, in connection with the implementation of “robust” general valuation procedures.     

Market Sidedness: Insights into Motives for Trade Initiation

We infer motives for trade initiation from market sidedness. We define trading as more two-sided (one-sided) if the correlation between the number of buyer- and seller-initiated trades increases (decreases), and assess changes in sidedness (relative to a control sample) around events that identify trade initiators. Consistent with asymmetric information, trading is more one-sided before merger news. Consistent with belief heterogeneity, trading is more two-sided before earnings and macro announcements with greater dispersion in analyst forecasts, and after news with larger announcement surprises. We examine the codeterminacy of sidedness, bid-ask spread, volatility, number of trades, and order imbalance.     

Information Complementarities and the Dynamics of Transparency Shock Spillovers

We show that information complementarities play an important role in the spillover of transparency shocks. We exploit the revelation of financial misconduct by S&P 500 firms, and in a “Stacked Difference-in-Differences” design, find that the implied cost of capital increases for “close” industry peers of the fraudulent firms relative to “distant” industry peers. The spillover effect is particularly strong when the close peers and the fraudulent firm share common analyst coverage and common institutional ownership, which have been shown to be powerful proxies for fundamental linkages and information complementarities. We provide evidence that increase in the cost of capital of peer firms is due, at least in part, to “beta shocks.” Disclosure by close peers—especially those with co-coverage and co-ownership links—also increases following fraud revelation. Although disclosure remains high in the following years, the cost of equity starts to decrease.     

Buyer–Supplier Relationships and the Stakeholder Theory of Capital Structure

Firms in bilateral relationships are likely to produce or procure unique products—especially when they are in durable goods industries. Consistent with the arguments of Titman and Titman and Wessels, such firms are likely to maintain lower leverage. We compile a database of firms' principal customers (those that account for at least 10% of sales or are otherwise considered important for business) from the Business Information File of Compustat and find results consistent with the predictions of this theory.     

Legislación laboral,participación salarial y desempleo en seis países de la OCDE entre 1970 y 2010

Los autores analizan el impacto de la legislación laboral sobre el desempleo y sobre la participación salarial en la renta nacional en Alemania, Estados Unidos, Francia, Japón, Reino Unido y Suecia de 1970 a 2010. Su modelo dinámico de datos de panel estima los efectos a corto y a largo plazo de los cambios normativos. No se observa una relación consistente entre el desempleo y las leyes de protección del empleo, pero estas correlacionan positivamente con la participación salarial. Las leyes sobre tiempo de trabajo y representación colectiva parecen favorecer la eficiencia empresarial y la igualdad de ingresos.     

The Effect of Tax Convexity on Corporate Investment Decisions and Tax Burdens

This paper examines the effect of convexity in the corporate tax schedule on corporate investment decisions and tax burdens. Using a contingent‐claims model, we show that greater tax convexity results in (i) earlier exit, (ii) delayed investment (except for small entry cost), and (iii) reduced corporate risk taking (except for small entry cost and unfavorable operating conditions). Also, the effective tax burden is an increasing function of tax convexity. The convexity of the tax schedule has a nontrivial impact on corporate investment decisions and investment levels. These results are relevant for economic growth, which depends (at least partly) on investment levels, and tax policy makers should be aware of these effects when making adjustments that might impact the convexity of the corporate tax schedule.     

On Timing and Selectivity

The dichotomy between timing ability and the ability to select individual assets has been widely used in discussing investment performance measurement. This paper discusses the conceptual and econometric problems associated with defining and measuring timing and selectivity. In defining these notions we attempt to capture their intuitive interpretation. We offer two basic modeling approaches, which we term the portfolio approach and the factor approach. We show how the quality of timing and selectivity information can be identified statistically in a number of simple models, and discuss some of the econometric issues associated with these models. In particular, a simple quadratic regression is shown to be valid in measuring timing information.     

Analyst Coverage and Financing Decisions

We provide evidence that analyst coverage affects security issuance. First, firms covered by fewer analysts are less likely to issue equity as opposed to debt. They issue equity less frequently, but when they do so, it is in larger amounts. Moreover, these firms depend more on favorable market conditions for their equity issuance decisions. Finally, debt ratios of less covered firms are more affected by Baker and Wurgler's (2002) “external finance‐weighted” average market‐to‐book ratio. These results are consistent with market timing behavior associated with information asymmetry, as well as behavior implied by dynamic adverse selection models of equity issuance.     

The Response of Canadian Business Schools to Consumerism

Of the major issues dominating the public interest in recent times, perhaps consumerism is by far the most vital one. Reaching the forefront during the second half of the past decade, consumerism has drawn considerable attention from virtually all groups having a stake in the performance of the market place. The interest of the academic community in consumerism is no exception. For business educators, the prevalence of consumer protests and dissatisfaction with the market behavior yields a number of compelling but, nonetheless, crucial issues. For instance, should a business school try to improve its existing image—that of preparing its student to be a shrewd businessman with one pervasive criterion in mind, namely, profit maximization? Or, should business schools adopt the concept of training its graduate to be an enlightened businessman who attempts to maximize the profit of his firm, but in the context of what is best for the whole society? Should a business school play the role of a mediator between consumers and the business sector at large? It is to these and similar questions that the present investigation is directed.