the birth of a new industry entry by start ups and the drivers of firm growth the case of encryption software the paper analyses the birth of the encryption software industry esi a new niche in the software industry using a chandlerian perspective this work reports the main facts about fir entry and growth with a particular focus on start up strategies and actions since scale economies do not play a major role in esi the paper investigates the different sources of fir competitive advantages this work shows that innovation and product differentiation along with investments in co specialised assets are variables strongly correlated to young fir probability to survive and grow in doing so we have collected highly detailed information on product introduction us patents granted worldwide alliances and biographical data of fir founders 2004 elsevier b v all rights reserved jel classificatio m13 l86 o32

convertible debt corporate call policy and voluntary conversion this paper examines why in contrast to the predictions of finance theory firms do not call convertible debt when the conversion price exceeds the call price the empirical results suggest that the principal reason is because some firms enjoy an advantage of paying less in after tax interest than they would pay in dividends were the bond converted this cash flow incentive is the inverse of an investor s incentive to convert voluntarily if the converted dividends are greater than the bond s coupon because of taxation however the decisions by investors and firms are not symmetric and there exist bonds which the firm may not call and an investor will not convert the results also find that voluntary conversion is significantly related to both the conversion price and the differential between the coupon and the dividends on the converted stock

stock returns before and after calls of convertible bonds ofer and natarajan 1987 report negative statistically significant cumulative average abnormal returns over five years following convertible bond calls we show that these results are obtained only if returns preceding the call dates are used for market model parameter estimation returns preceding calls tend to be positive and unusually large this means that predicted post call returns based on pre call parameter estimates are biased upward consequently the corresponding abnormal returns are biased downward we also discuss a corrected test statistic we conclude that the evidence does not indicate market inefficiency in the stock price reaction to convertible calls

measuring the pricing error of the arbitrage pricing theory this article provides an exact bayesian frame work for analyzing the arbitrage pricing the ory apt based on the gibbs sampler we show how to obtain the exact posterior distributions for functions of interest in the factor model in particular we propose a measure of the apt pricing deviations and obtain its exact posterior distribution using monthly portfolio returns grouped by industry and market capitalization we find that there is little improvement in reduc ing the pricing errors by including more factors beyond the first one as an important extension of the asset pricing model of sharpe 1964 and lintner 196 5 ross 1976 1977 derived the arbitrage pricing theory apt which addresses a fundamental problem in finance to char acterize the expected return on a security the apt implies that the expected return is approximately a

clearly irrational financial market behavior evidence from the early exercise of exchange traded stock options this paper analyzes the early exercise of exchange traded options by different classes of investors over the 1996 to 1999 period a large number of exercises are identified as clearly irrational without invoking any model of market equilibrium customers of discount brokers and customers of full service brokers both engage in a significant number of irrational exercises while traders at large investment houses exhibit no irrational early exercise behavior rational and irrational exercise is triggered for discount and full service customers by the underlying stock price attaining its highest level over the past year and by high returns on the underlying stock it is well known that in the absence of market frictions it is irrational to exercise american call options early except in some circumstances just before the underlying stock goes ex dividend even in the presence of market frictions it is possible to identify without the imposition of any model of market equilibrium call exercises that are clearly irrational in this paper we employ a previously unavailable data set to analyze the rationality of early exercises of chicago board option exchange cboe calls over the 1996 to 1999 period by customers of discount brokers discount customers customers of full service brokers full service customers and traders at large investment houses trading for their firms own accounts firm proprietary traders our first main finding is that there are a large number of early exercises that can be definitively identified as irrational and irrational exercise activity is not evenly distributed across the investor classes discount customers and full ser

warrant valuation and exercise strategy abstract this paper demonstrates that warrant valuation and exercise strategy differ fundamentally from call option valuation simultaneous exercise of warrants is shown to be suboptimal and a monopolist owning all warrants can achieve a higher value unless warrants are perfectly divisible no satisfactory equilibrium exists for the valuation and exercise of widely held warrants the problems encountered appear to be quite general and stem from necessary assumptions about future corporate dividend policy and capital structure such assumptions are necessary for any model of corporate security valuation

warrant exercise and bond conversion in competitive markets abstract we develop a theory of warrants held by competitive warrantholders not constrained to exercise their warrants as one block the theory also applies to convertible bonds held by competitive bondholders not constrained to convert their bonds as one block we prove that the warrant bond price in each of the competitive equilibria is less than or equal to the price in an economy with the block constraint and for at least one competitive equilibrium the warrant bond price equals the warrant bond price in the block constrained economy we illustrate the paths of competitive warrant exercise and bond conversion and conclude that under realistic assumptions they can be long

a strategic analysis of sinking fund bonds abstract unlike most securities the pricing of sinking fund bonds is influenced by the distribution of ownership which summarizes the extent to which the market is cornered the effect of the distribution of ownership on the pricing of sinking fund bonds is examined by an explicit game in which the price obtained for bonds sold can depend upon the size of the investor s position this framework is used to contrast the valuation of sinking fund bonds with the valuation of amortizing bonds and straight debt we show that it is generally incorrect to view sinking fund bonds as being equivalent to serial bonds

businesses without glamour an analysis of resources on performance by size and age in small service and retail firms abstract research on factors influencing performance in new and small companies is extensive earlier work found that strategies e g cost quality differentiation etc affected performance contingent on industry conditions the environment and the entrepreneur s background although this work provides a solid basis for understanding differences in entrepreneurial performance some firms are limited in their choices of strategy due to size age or industry often these firms are in industries where entry barriers are low and competitive advantages are easily imitated small service and retail businesses operate in sectors where these conditions are apparent comprising more than 50 of all small firms they require minimal start up investments but face intense competition lacking the glamour of high innovation high growth firms service and retail companies are at the end of the value chain their fortunes rising and falling as a result of the direct influence of the owner founder hence performance variation may be better explained by the capabilities of the firm or individual competencies of the owner founder that is the resource base and resource combinations rather than strategy the strategic importance of an organization s resources and capabilities is the foundation of resource based theory resources are tangible and intangible assets tied to the firm in a relatively permanent fashion their combinations are heterogeneous and form the basis for product market strategies studies of resources strategies and performance are emerging in the entrepreneurial area research shows that various resources in concert with different strategy types can lead to above average performance over the business life cycle and that combinations of resources are related to survival yet the vast majority of work focuses on high growth high tech or manufacturing businesses less is known about the relationships of resources to performance in less glamorous sectors in these small service and retail businesses we speculate that resources in particular human and organizational resources may play a greater role in explaining performance than strategy further as other authors have suggested it is expected that the combinations of these resources will vary across age and size this study examines the influence of human and organizational resources on performance in a sample of 195 service and retail firms operating in central new jersey using a structured questionnaire all companies utilized a focus strategy either focused cost or focused differentiation and employed a minimum of 3 to a maximum of 100 employees all measures had theoretical and or empirical precedent and were tested statistically for reliability we used factor analysis to reduce the independent variables to two human resource variables owner resources and commitment one organizational resource variable comprised of planning systems and staff skills and one strategy variable focused cost and focused differentiation control variables were business age business size environmental benignness and industry growth the dependent variable performance was measured in two ways net cash flow and log of growth in employees over 3 years the study first examined whether strategy or resources had a greater influence on performance results showed that strategy influenced performance less than human and organizational resources both individually and interactively the influence of owner resources background and attitudes on net cash flow was stronger than on growth where the only significant variable was industry market growth to analyze effects of resources on performance by size we divided the sample by size groupings selecting the smallest maximum five employees and largest quartiles minimum 16 employees which were comprised of 55 and 50 companies respectively these analyses showed that owner resources commitment and organizational resources contributed positively to net cash flow in very small firms however interactive effects of these resource combinations were negative for instance owner resources and organizational resources together and organizational resources and commitment together resulted in less positive cash flow than when analyzed separately this implies that different resource combinations can have negative influences in these very small firms we examined age effects in the same manner as size dividing the sample into age group quartiles and conducting an analysis only for very young fewer than 5 years and very old minimum 19 years groups which comprised 54 and 52 companies respectively these analyses showed that although growth was more rapid among the youngest firms there were no distinctive resource based correlates to growth in either age group substantive increases in formalized systems and procedures were not apparent among the oldest of these companies compared with the youngest contrary to previous work showing the evolution of these over business life cycles results of this study are applicable only in the context of service and retail firms and readers should note this sample was nonrandom and geographically concentrated our purpose was not to predict but describe associations between resources and performance this study shows that for firms in competitive industries at the end of the value chain type of strategy is less important than resource combinations for certain types of performance human and organizational resources are associated with more positive cash flow whereas industry and market factors are related to growth these results imply that firms seeking growth are best served by selecting and entering growth markets and industries on the other hand if strong positive cash flows are the primary objective attention to combinations of resources is more important for instance owner founders having a strong business and managerial background and industry experience will need less formalized systems whereas those owner founders with weaker managerial resources might benefit from more formalized procedures and skilled staff

risky debt investment incentives and reputation in a sequential equilibrium the agency relationship of corporate insiders and bondholders is modeled as a dynamic game with asymmetric information the incentive effect of risky debt on the investment policy of a levered firm is studied in this context in a sequential equilibrium of the model a concept of reputation arises endogenously resulting in a partial resolution of the classic agency problem of underinvestment the incentive of the firm to underinvest is curtailed by anticipation of favorable rating of its bonds by the market this anticipated pricing of debt is consistent with rational expectations pricing by a competitive bond market and is realized in equilibrium some empirical implications of the model for bond rating debt covenants and bond price response to investment announcements are explored

pricing warrants an empirical study of the black scholes model and its alternatives this paper uses a sample of over 25 000 daily warrant prices to empirically investigate potential problems with the commonly used warrant pricing model proposed by black and scholes as an extension of their call option model one problem seems to be especially important the constant variance assumption of the dilution adjusted blackscholes model appears to cause biases in model prices for almost all warrants and over the entire sample period we show that more accurate price forecasts are obtained with a specific form of the constant elasticity of variance model since the derivation of the black scholes model financial economists have speculated on its usefulness for warrant valuation in their pathbreaking paper black and scholes 1973 claim that in many cases their model can be used as an approximation to give an estimate of the warrant value however black and scholes 1973 warn that

information revelation through option exercise in many real world situations agents must formulate option exercise strategies with imperfect information in such a setting agents may infer the private signals of other agents through their observed exercise strategies the building of an office building the drilling of an exploratory oil well and the commitment of a pharmaceutical company toward the research of a new drug all convey private information to other market participants this article develops an equilibrium framework for option exercise games with asymmetric private information many interesting aspects of the patterns of equilibrium exercise are analyzed in particular informational cascades where agents ignore their private information and jump on the exercise bandwagon may arise endogenously article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

pricing convertible bonds abstract convertible bonds are an important segment of the corporate bond market although their pricing is compromised by the presence of complex option features and difficulty in measuring the risk factors needed as inputs to standard valuation models using a unique sample of pure u s convertible bonds devoid of other optionality we show that underpricing is affected mainly by the degree of underlying asset volatility and liquidity convertible bonds with a greater debt component more credit sensitive longer time to maturity and lower quality credit ratings are also found to be more underpriced the global financial crisis gfc is an episode with high underlying asset volatility and one subject to short selling constraints during this period there was deep convertible bond discounting which highlights the importance of market conditions and the temporal rather than systematic nature of the pricing errors

a stage contingent model of design and growth for technology based new ventures abstract stage of growth developmental models have traditionally been used to enhance our understanding of the organizational creation and growth process until recently most of this literature has been primarily conceptual and descriptive this paper presents a stage of growth model theorized to hold for technology based new ventures the model consists of four stages conception and development commercialization growth and stability and views each stage of growth as a reflection of the dominant problems faced over the course of growth by the venture the model predicts that the organization of a venture will be a function ofthe dominant problems that define a stage of growth more specifically it is argued that a technology based venture s rate of growth depends in part on the consistency or fit between its stage of growth and certain structural features of its organization including decision making centralization and formalization and functional specialization in the areas of marketing and sales manufacturing and engineering technology data were collected from 105 technology based ventures in the electronics computer and peripherals industries to test the model the results were generally consistent with the theory and showed that centralization of decision making decreased as the firms moved to higher stages while formalization of decision making increased in higher stages specialization of roles in the functional areas of manufacturing and marketing also increased by stage however specialization in the engineering and technology functions remained high across all stages the contingency hypothesis was also supported indicating that technology based ventures growth is partially attributable to the fit between a venture s stage of growth and aspects of its structure these findings indicate that different patterns of decision making and functional specialization are required at each stage if growth is to be achieved as such this research validates a long standing but untested belief in the venture management field that performance of new ventures depends upon

liquidity costs and stock price response to convertible security calls firms announcements to call in the money convertible securities for redemption essentially force their conversion into common stock and such announcements are generally met with significant reductions in the calling firms equity values an explanation based on liquidity costs is advanced and tested the explanation implies that investors who choose to sell their shares early in the conversion period bear liquidity costs by selling at reduced prices consistent with the explanation the average share price decline is short lived lasting most of the conversion period thus a component of the call announcement effect appears to be due to liquidity costs copyright 1992 by university of chicago press

stock reaction to dividend savings of convertible preferred calls free cash flow or price pressure effects abstract calls of in the money convertible preferred stock typically induce dividend savings for the firm since preferred dividends exceed common stock dividends prior research finds that these savings are negatively related to stock returns at call announcement and argues that the market expects managers to abuse the increased free cash flow this paper finds that dividend savings are closely related to call size suggesting other explanations larger calls experience a more negative announcement reaction consistent with temporary liquidity effects there is a price reversal during the conversion period which is greater for larger calls

dynamic implications of absence behaviour this paper analyses the absence behaviour of workers in the context of a two period model the theoretical results that emerge highlight the potential benefits of analysing absenteeism within a multi time period model as opposed to a single time period model which has generally been adopted by the theoretical models of absenteeism to date workers are employed under a two period contract which is characterized by an experience rated sick pay scheme the theoretical results of the model indicate that if a worker faces such a sick pay scheme the theoretical results of the model indicate that if a worker faces such a sick pay scheme then the probability of absence in the current period is reduced the empirical analysis explores the absence rates observed from a set of workers who face an experience rated sick pay scheme the empirical results present some support in favour of the predictions which arise from the theoretical model

women and absenteeism health or economics full time workers in the united states lost 3 5 percent of scheduled work time due to unscheduled work absences in 1978 nearly 7 out of 100 workers experience at least one spell of absence a week however u s absentee rates have remained fairly constant over the past several years and are generally well below the rates of western europe for example west germany lost 11 percent of scheduled work time to unscheduled work absences holland lost 10 percent and italy lost 15 percent in 1972 73 part of the higher absentee rates in western europe is thought to be caused by the high prevalence of sick leave availability in these countries work loss from unscheduled absences is substantially higher among female workers than among male workers in the united states in may 1978 women lost 4 3 percent of scheduled work time compared to 3 1 percent for men absence incidence rates are also higher for women 8 6 percent of women workers experience a spell of absence during a typical work week compared to 5 4 percent of men workers the large majority of unscheduled work absences are due to illness and injury the average female worker lost 5 4 days from work for health reasons compared to 4 7 days for the average male worker in 1979 there have been several recent research efforts on the causes and consequences of worker absenteeism steve allen 1981 found evidence that observed differences in absentee rates between the sexes could be accounted for by differences in marginal earnings and the flexibility of the work schedule my 1978 study found that women generally lost fewer days from work than men for most common illnesses there has been little research to date on gender differences in work loss due to illness that takes into account differences in the occupational distribution of workers and differences in marginal earnings as well as variations in health status this paper reports on an empirical investigation of the determinants of gender differences in illness related absentee rates in this investigation labor market characteristics such as differences in earnings and occupational mix between men and women differences in health status and the impact of family are analyzed using a regression framework

networking and growth of young technology intensive ventures in china abstract more often than not new ventures lack established products known technologies longstanding customer relations experienced managerial teams sufficient capital and strong reputations almost by definition small new firms lack the resources of many larger established firms the task of an infant firm and a measure of its success is to make a transition from being resource weak to being resource strong how can resources that are critical for profitable growth be acquired for the resource weak new venture researchers have found that entrepreneurs can gain access to valuable resources and they can seek to achieve competitive advantage through networking activities forming and utilizing available relationships with external organizations can allow entrepreneurs to build credibility gain advice financing and customer access build a positive image and obtain resources at below market prices and obtain channel access information and innovations business relationships with other organizations allow an entrepreneur to achieve desired business results through asset parsimony a favorable view toward networking for new ventures leaves a number of unanswered questions however relevant research questions might include who should the entrepreneur seek as a business partner are all inter organizational relationships equal or are some types more valuable to new ventures than other relationships do firms relying on high levels of networking activities actually outperform firms that less actively seek resources through external organizational relationships the present study provides a specific understanding of the concept of networking for entrepreneurs we propose that networking can be understood in terms of range the number of external relationships to obtain resources and of intensity the frequency of contact of and amount of resource obtained from these relationships this research project evaluates the range and intensity of networking among high growth and low growth entrepreneurial ventures extensive interviewing with managers of six young technology oriented firms in the people s republic of china prc affirmed the importance of entrepreneurial networking managers in the three high growth firms reported greater range and intensity of business networking than did managers of three low growth firms matched by industry and age moreover the relationship between networking activities and growth transcended the stage of firm development where networking range and intensity are deemed important in the growth process new venture success may call for entrepreneurs to reach out deliberately to external organizations to capture needed resources to a certain extent such networking activities run counter to important entrepreneurial motivations of independence and autonomy the concept of networking and the results of this study imply that entrepreneurs need to combine the spirit of independence with the reality of resource dependence and they need to balance personal autonomy with strategic business relationships this study also contributes to the understanding of entrepreneurship in our increasingly global economy particularly in the prc business relationships between the united states and the prc have been expanding rapidly in the last decade many foreign businesses seek license agreements joint venture partners equity participation or channel relationships with young ventures in that country do the same rules of networking apply in the prc as the literature suggests apply in the united states new ventures in this study were found to engage in processes of networking activities consistent with those in the west although networking activities may have different cultural roots firm success appeared influenced by the same principles of networking

tax shields sample selection bias and the information content of conversion forcing bond calls the information content of conversion forcing bond calls depends on the after tax cash flow to bondholders if the dividend after conversion exceeds the after tax coupon but is less than the before tax coupon the call reveals unanticipated decreases in dividends and or earnings that reduce the tax shield from interest payments in contrast a call when the dividend is less than the after tax coupon reveals the timing of an anticipated shift from exceptional firm specific positive growth to the industry norm efforts to document properties of convertible calls are subject to sample selection bias because calls are disproportionately associated with positive pre call firm specific growth brennan and schwartz 1977 1980 and ingersoll 1977a show that if capital markets are perfect the optimal policy is to call and force conversion the first time the bond s conversion value exceeds its cash redemption value however ingersoll 1977b 1 and constantinides and grundy 1987 provide evidence that firms delay calling convertible debt and mikkelson 1980 1981 ofer and natarajan 1987 and singh cowan and nayar 1990 document a statistically significant negative return to equity at the call announcement to explain these results which are inconsistent with the optimal call policy and its predicted effect on equity value in a perfect capital market several asymmetric information hypotheses have been put forth mikkelson 1981 1985 hypothesizes that the negative market reaction results from the market inferring that management expects a decline in the present value of the debt s tax shield possibly due to a decline in future earnings this suggests that managers refrain from calling due to the tax shields provided by the debt harris and raviv 1985 present a signaling model in which a

an empirical test of a stage of growth progression model this paper presents a stage of growth model for technology based new ventures tbnvs tbnvs are postulated to evolve through four discrete stages of growth conception and development commercialization growth and stability based on a longitudinal sample of 71 ventures in the computer and electronics industries the hypothesis that tbnvs progress according to this model is tested using the del procedure for prediction analysis of cross classification tables the hypotheses are supported although not all firms progressed as expected these results suggest that some variation in interstage transition patterns are due to a progression imperative

nonparametric estimation of american options exercise boundaries and call prices abstract unlike european type derivative securities there are no simple analytic valuation formulas for finite lived american options even when the underlying asset price has constant volatility the early exercise feature considerably complicates the valuation of american contracts the strategy taken in this paper is to rely on nonparametric statistical methods using market data to estimate the call prices and the exercise boundaries a comparison is made with parametric constant volatility model based prices and exercise boundaries the paper focuses on assessing the adequacy of conventional formulas by comparing them to nonparametric estimates we use daily market option prices and exercise data on the s p100 contract the most actively traded american option contract we find large discrepancies between the parametric and nonparametric call prices and exercise boundaries we also find remarkable similarities of the nonparametric estimates before and after the crash of october 1987

a quantitative content analysis of the characteristics of rapid growth firms and their founders a group of firms that is attracting attention are rapid growth firms these firms are of particular interest because rapid growth is an indication of market acceptance and firm success by studying rapidgrowth firms researchers can help all firms better understand the attributes associated with firm growth despite these positive outcomes however rapid firm growth is difficult to achieve and maintain this study adds to the literature through a quantitative content analysis of the narrative descriptions of 50 rapid growth firms and a comparison group of 50 slow growth companies the purpose of the study was to draw from the narratives a list of empirically grounded growth related attributes that are associated with rapid growth firms the findings of the study resulted in the advancement of a conceptual model of the attributes of rapid growth firms in four areas founder characteristics firm attributes business practices and human resource management hrm practices

convertible debt valuation and conversion in complex capital structures abstract the impact of conversion strategies on the value of convertible debt is examined it is shown that for capital structures comprised of multiple classes of convertible debt the optimal conversion policy for a given bond class is affected by the decisions of other bond classes using this optimal conversion strategy closed form solutions for bond prices are derived

is a convertible bond call really bad news we test and reject the hypothesis that managers call in the money convertibles when they view a decline in the value of the firm as likely inconsistent with this view we find that insiders generally buy equity before conversion forcing calls also analysts tend to raise their earnings forecasts following a call thus our evidence supports the alternative hypothesis that the price decline immediately following conversion forcing calls is a purely transitory decline caused by the anticipated increase in the supply of equity indeed our evidence confirms that the initial price decline is reversed in the weeks following the announcement

new evidence on the valuation effects of convertible bond calls this study examines the wealth effects of convertible bond call announcements on stock holders straight bondholders and called and non called convertible debtholders we docu ment that forced conversions are associated with a significant loss in firm value the results suggest that convertible call announcements can trigger both negative signal and wealth transfer effects we show that at least part ofthe negative effect on stock prices results from wealth transfer to straight bondholders our analysis also lends empirical validity to the common contention that called convertible bondholders suffer wealth expropriation due to the elimination ofthe premium the wealth effect on non called convertible debtholders is insignificant cross sectional analysis reveals that the negative signal effect is important in explaining bond stock and firm excess returns finally we present evidence that refutes the notion that bonds are called to relieve the firm from restrictive debt covenants

routine microprocesses and capability learning in international new ventures drawing on the distinction between the ostensive aspects abstract patterns and performative aspects specific actions of organizational routines the paper offers a micro level explanation of capability learning in international new ventures invs that is firms that internationalize actively from inception the paper argues that variability in the performative aspects of internationalization routines is associated with improvisational learning and new capability development whereas variability in the ostensive aspects is associated with trial and error learning and existing capability improvement furthermore psychic distance moderates these relationships low psychic distance facilitates both improvisation and trial and error learning high psychic distance frustrates learning of both types moderate psychic distance makes the success of both learning forms more likely but only for more experienced invs the paper also argues that social capital may mitigate the negative effects of high psychic distance it contributes to the extant literature by providing a micro level explanation of how invs accomplish capability learning and avoid wasteful learning efforts and by theorizing the moderating effects of psychic distance on the relationships between routine microprocesses and capability learning

moral hazard and sickness insurance abstract we study if the replacement level in the swedish national sickness insurance which replaces foregone earnings due to temporary illnesses affects work absence behavior we use micro data and estimate the effects of a major reform whereby the replacement level during the first 90 days in each absence spell was reduced on work attendance to separate out the effect of the reform from any trend in work absence we distinguish between the implications on the incidence of work absence i e the frequency of spells and the duration of the spells we also use a regression discontinuity approach to estimate the effects on the prevalence of work absence finally we estimate elasticities with respect to the replacement level in the sickness insurance

board of director gender and corporate tax aggressiveness an empirical analysis this study examines the impact of board of director gender diversity on corporate tax aggressiveness based on a sample of 418 u s firms covering the 2006 2009 period 1672 firm year observations our ordinary least squares regression results show a negative and statistically significant association between female representation on the board and tax aggressiveness after controlling for endogeneity our results are consistent across several measures of tax aggressiveness and additional robustness checks

facilitators of organizational innovation the role of life cycle stage abstract one of the most serious challenges facing an entrepreneurial company particularly a high technology firm is knowing how to manage innovation as the organization evolves macro level facilitators inhibitors of innovation i e organizational and environmental conditions of a firm that promote or restrain innovation such as the structure of an organization its incentive system resources provided by its environment or its ways of analyzing firm external information and their relationship to the innovativeness of the firm are considered in this study two basic arguments have been put forward previously as to why the innovativeness of an organization may change as it evolves first it has been suggested that facilitators of innovation change over time and so will firm innovativeness that is the relationship between the facilitator and innovation stays unchanged but the facilitator itself is transformed causing changes in firm innovativeness as it develops for instance it has been suggested that mature firms become less innovative because their structure becomes overly formalized to perform other functions more efficiently which then stifles innovative processes second other researchers have proposed that the relationship between a facilitator and innovation changes as firms evolve for instance a formal structure may support innovation in a younger firm because it allows the entrepreneur to focus her energy whereas it may suppress innovation later since it inhibits an innovator s interaction with other environments the results of our analysis using data from 326 u s firms in different stages of their development and involved in many kinds of high tech industries support the second theory however the results for the relationships of the individual facilitators to innovation were not always as expected we found that formally structured young firms were less innovative than informal ones and that in older organizations formalization had no negative impact on innovation this finding possibly can be explained with micro level facilitators of innovation younger firms may have more entrepreneurial personnel whose ability for innovation is more inhibited through a formal structure than the more seasoned employees in older larger firms however this finding implies that the concern for formal structures with respect to firm innovativeness does not necessarily apply as typically assumed of similar significance was our finding with respect to the relationship between financial incentives and innovation it has been suggested that younger rather than older firms use incentives such as equity to encourage an innovative environment results of this research however show that innovation is associated with stock incentives especially in older firms this may be an indication for older firms to use differentiated incentives that reflect the individual s contribution to the firm to retain innovative personnel whereas start ups might rely on the excitement of working in a new venture as an incentive for innovative behavior more in line with expectations were the results for how firms process external information environmental scanning and data analysis were positively associated with innovation and this more so in older firms presumably because they have become more remote from developments outside the organization this result confirms the notion that much innovation by a firm is initiated externally however the results also indicate that the conditions of the environment itself are of lesser importance to firm innovativeness than the firm s active pursuit of information from its environment an often discussed implication of these findings is that the boundaries of a firm must be permeable at least from the outside in and systematic information gathering from customers competition research institutions etc may be necessary to the success of a firm that depends on its product development this seems especially important for older firms as expected the centralization of power in an organization also affected innovation centralization correlated positively with innovation in new ventures and negatively in older firms this indicates the importance of the entrepreneur and strong leader in a start up it also suggests though that as the firm matures this person has to give up some of her control and may have to relinquish the job at the head of the organization to someone else finally there are some more general implications of this work to managers involved with organizational innovation first reliance on past experience may be detrimental to future performance whereas a firm evolves through different stages means that have facilitated innovation earlier may be detrimental to it now or tomorrow and vice versa second copying successful strategies for innovation from other firms may not necessarily work not because their implementation was worse but because the conditions of the other firm for instance its evolutionary stage or its micro level facilitators were different researchers who study innovation should consider including life cycle stage as a potential moderating variable factors that facilitate innovation at some point during an organization s evolution actually hinder it in another also factors that were unimportant to innovation at the inception of a firm may facilitate it in later stages this study supports the conclusion that the consideration of contingency factors such as life cycle stage may enhance the development of a theory of organizational innovation

debt financing under asymmetric information the authors analyze the optimal design of debt maturity coupon payments and dividend payout restrictions under asymmetric information they show that if the asymmetry of information is concentrated around long term cash flows firms finance with coupon bearing long term debt that partially restricts dividend payments if the asymmetry of information is concentrated around near term cash flows and there exists considerable refinancing risk firms finance with coupon bearing long term debt that does not restrict dividend payments finally if the asymmetry of information is uniformly distributed across dates firms finance with short term debt

technology based adolescent firm configurations abstract managers and stakeholders of entrepreneurial firms have an obvious vested interest in understanding those factors that contribute to the success or failure of such firms insight into strategic and contextual factors related to success for 162 adolescent 5 12 years old firms competing within a variety of rapidly changing technology based industries results from this study analyses focus on pinpointing patterns of strategy context and performance in the first stage of analysis six nonmutually exclusive dimensions of strategy were identified 1 technology product leader 2 product market breadth 3 marketing sales expertise 4 quality service 5 customer alliances and 6 specialization second cluster analysis was conducted to group the firms on their overall pattern of strategic emphasis six groups clusters were identified each group corresponded with one of the following four strategy quadrants 1 defenders k specialists 2 entrepreneurs r specialists 3 analyzers k generalists and 4 prospectors r generalists subsequent analysis of variance demonstrates significant differences across the six clusters on three contextual variables environmental instability stage of product development and firm age and on six outcomes rd direct sales and support these firms compete on their reputation in their targeted market segment their ability to find and sell to a narrow range of customers and customer service this strategy occurred in relatively stable and mature industries and resulted in high performance in operating efficiency market development financial stability and overall performance sales growth was average cluster 2 n 12 spin offs reliant on contracts with original employers these firms represent an outsourcing opportunity for larger companies not desiring to develop in house expertise in a product area they are the youngest and the smallest and have products in the earliest stage of development their environment is relatively stable given the dependence of their large customers for their product they are average performers except for having relatively high operating efficiency they trade high performance for the security of long term arrangements with major clients cluster 3 n 39 marketing and sales expertise targeted at narrow market these firms likely assemble and package others technological products or if they manufacture follow the technological developments of their competitors they create value through their marketing and sales expertise and effort and through customer service support they face average environmental instability and stage of product development this strategy however creates insufficient value added for the long term viability of the firms they have low performance on sales growth market development operating efficiency and financial stability and also have low expectations for their future prospects cluster 4 n 23 technology leaders with a high degree of specialization quality and service these firms differentiate their products based on technology leadership in a specialized product domain where high quality and service are emphasized they compete in relatively unstable environments attributable to rapid technological change and are in an early stage of product development they are relatively small consistent with their narrow product domain they have the highest performance on r d results sales growth and future prospects and are very high on overall performance cluster 5 n 24 lacking in a clear strategic profile these firms lack any clear pattern of strategic activity although faced with average environmental instability these firms compete in the most mature product areas therefore while other firms are becoming more entrenched in their competitive positions advantages these firms are floundering they are poor performers and lack long term viability they score low on sales growth market development r d results operating efficiency and overall performance cluster 6 n 46 broad and aggressive product market reach with relatively high quality and service these firms pursue a full line of products sold through a wide variety of methods this approach evolved in a highly unstable environment due to rapid change and growth yet has a large number of growth opportunities they are highly successful in market development sales growth and financial stability they are also highly optimistic about their future prospects this identification of firm configurations can help managers and stakeholders recognize the relationships among strategy context and performance for young technological firms this should lead to more effective managerial decisions on strategic and contextual issues leading to better performance

the interaction between the financial and investment decisions of the firm the case of issuing warrants in a levered firm abstract in this paper we analyze the value of warrants and stock in a firm that has both equity and debt in its capital structure and assume that the proceeds from exercising the warrants are reinvested in the firm the effect of potential future scale investment on the firm s stock debt and warrants are investigated the warrants in our analysis are european in this framework there are two sources for the nonstationarity of the rate of return on any kind of financial claim the first stems from changes in the firm s capital structure and the second is due to the potential scale increase in the value of the firm should the warrants be exercised the effect of a potential transfer of wealth from equity holders to debt holders at time of exercise is analyzed when warrants are exercised and the proceeds are reinvested in a scale expansion project the probability of default may decrease it follows therefore that ceteris paribus debt is likely to appreciate in value at the expense of equity the method of pricing by arbitrage as proposed by harrison and kreps is used to derive values for claims on the firm problems associated with measuring the volatility of equity are discussed

relation of dominant problems to stages of growth in technology based new ventures two studies investigating the growth patterns of new ventures are presented in the first study a stage of growth model theorized to apply specifically to technology based new ventures was develop

option exercise games an application to the equilibrium investment strategies of firms under the standard real options approach to investment under uncertainty agents formulate optimal exercise strategies in isolation and ignore competitive interactions however in many real world asset markets exercise strategies cannot be determined separately but must be formed as part of a strategic equilibrium this article provides a tractable approach for deriving equilibrium investment strategies in a continuous time cournot nash framework the impact of competition on exercise strategies is dramatic for example while standard real options models emphasize that a valuable option to wait leads firms to invest only at large positive net present values the impact of competition drastically erodes the value of the option to wait and leads to investment at very near the zero net present value threshold copyright 2002 oxford university press

corporate earnings and financings an empirical analysis this article examines the long term behavior of corporate earnings around three corporate financing events sales of common stock convertible bonds and straight bonds the article shows that earnings declined for all issuers and that more capital is raised the larger the earnings decline these findings indicate that external financings are motivated by earnings declines no evidence is found of a relationship between the size of the subsequent earnings downturn or the amount of capital raised and stock price reactions to the financing announcements these findings suggest that security sales did not systematically provide new information about either the magnitude of subsequent earnings downturn or the amount of financing copyright 1990 by the university of chicago

absenteeism in a medium sized manufacturing plant 1991 absenteeism in a medium sized manufacturing plant applied economics vol 23 no 1 pp 161 166

patterns of growth competitive technology and financial strategies in young ventures abstract young independent technology based ventures have an increasingly complex array of strategic choices about how they can grow while simultaneously competing on the basis of their technological capacity and skills in their markets given the central importance of these choices to the success of the venture there should be a close integral relationship among them similarly financial strategy choices also enter this relationship growth and competition place tremendous resource demands on the young technology based venture and financial strategy choices therefore must also be factored into the choice taking process the choice taking perspective is basic to this inquiry as other researchers have pointed out young entrepreneurial ventures typically do not utilize highly formalized strategic planning processes robinson and pearce 1983 strategy formation in such firms tends to be informal and episodic strategy may be revealed best through the pattern or set of choices taken at a point in time and over time from a choice taking perspective then the critical questions become the following a are there identifiable patterns of growth technology and financial choices b what factors shape or determine which choices are taken and c are these patterns related to venture performance these questions were explored by using data from a survey of 100 ceos of young independent technology based firms across three industries the results generally support the idea that patterns of choices can be identified several of these patterns are related to the ventures demographic characteristics such as form of ownership and scope of sales importantly stage of development was not related to those patterns nor to the performance of the ventures the highest performing ventures were found to be pursuing internal innovation through r d for product breakthroughs this finding is surprising since young ventures at the stage at which most were found in this sample would traditionally be expected to emphasize product extensions and modifications we need to better understand why young ventures would choose to innovate internally for breakthroughs in their growth stages and how well they are able to do so a major implication of this research is that the ceos of young technology based ventures are being presented with a much larger menu or array of choices at many points in time than conventional stage based models of venture development have postulated one explanation of this possibility is that the firm life cycle is being compressed by relatively new conditions such as the availability of more and earlier capital through joint venturing and alliances and shorter product life cycles indeed a follow up survey a year later with 77 ceos from this sample confirmed that joint ventures and alliances were the number one choice being pursued to gain access to distribution channels and new markets what is troubling about this possibility is that the skills and capacities of these young ventures may be limited in comparison with the richness and complexity of the available choices in the follow up survey the sources of information that were by far the most relied upon for strategic decision making were other internal senior managers and board members outsiders such as lawyers ranking distantly behind the leaders of these ventures need to be fully supported in evaluating negotiating and managing these often highly complex relationships

revisiting optimal call policy for convertibles when a company calls its convertible bonds it typically must give the bondholders a notice period of approximately 30 days to decide whether to convert the bonds this important institutional detail substantially affects the optimal call policy for convertible bonds when the company calls the bonds it fixes the price at which bondholders can redeem them effectively giving bondholders a 30 day put option the optimal time to call the convertibles minimizes the value of the conversion option net of the put option this optimization problem is solved here and a simple decision rule for the company results this solution contains those of previous researchers as a special case

founded in adversity operations based survival strategies of ventures founded during a recession abstract we examine the survival of 404 new ventures founded during the 2008 recession we find that industry explains a significant but small percentage of variance in survival 2 81 percent and therefore focus on which operations related actions could enhance ventures odds of survival we find marginally significant support for our hypotheses that a venture founded during a recession is more likely to survive if it increases its production efficiency increases both its production efficiency and variable costs or increases both its production efficiency and fixed costs in property plant and equipment our findings demonstrate that operational decisions are key determinants of survival for ventures founded during a recession

robustness of option like warrant valuation abstract this paper presents a methodology for arriving at the unobserved asset value and its volatility of a firm with outstanding warrants this enables us to price warrants correctly and to examine the robustness of option like warrant valuation where the dilution that occurs when warrants are exercised is ignored our analysis helps to justify the frequent simplifying option like warrant valuation furthermore we examine 50 960 daily prices for 37 american type warrants written on 16 german stocks over the period 1979 1990 the empirical results confirm our theoretical analysis there is virtually no dilution related pricing bias of the american constant variance diffusion model with the stock price as the state variable

the rationality of early exercise decisions evidence from the s p 100 index options market this study provides a comprehensive empirical analysis of the early exercise bistoty of sp but we show that a substantal number of these decisions are clearly irratonal since it would bave been possible to realize a larger riskless net cash jlow by seuling unlike p us studies of early exercise our tests of efflciency and the rationat decions tbatpresumably lead to eficient markets are model independet we also provide evidence concerning the relatve significance of dividends and the wild card to index optonpricing models and introduce and document the importance of the opton to exercise and avoid the indirect costs oftbe spread we alsofind evidence of a significant day of tbe week exercise effect and present some likely explanations for that effect

employee stock options equity valuation and the valuation of option grants using a warrant pricing model we investigate the use of a warrant pricing approach to incorporate employee stock options esos into equity valuation and to account for the dilutive effect of esos in the valuation of option grants for financial reporting purposes our valuation approach accounts for the jointly determined nature of eso and shareholder values the empirical results show that our stock price estimate exhibits lower prediction errors and higher explanatory powers for actual share price than does the traditional stock price estimate we use our valuation approach to assess the implications of dilution on the fair value estimates of eso grants we find that the fair value is overstated by 6 if we ignore the dilutive feature of esos furthermore this bias is larger for firms that are heavy users of esos small and r d intensive and for firms that have a broad based eso compensation plan

earnings management through transaction structuring contingent convertible debt and diluted earnings per share in this article we examine whether firms structure their convertible bond transactions to manage diluted earnings per share eps we find that the likelihood of firms issuing contingent convertible bonds cocos which are often excluded from diluted eps calculations under statement of financial accounting standard sfas 128 is significantly associated with the reduction that would occur in diluted eps if the bonds were traditionally structured we also document that firms use of eps based compensation contracts significantly affects the likelihood of coco issuance and find weak evidence that reputation costs measured using earnings restatement data play a role in the structuring decision these results are robust to controlling for alternative motivations for issuing cocos including tax and dilution arguments in addition an examination of announcement returns reveals that investors view the net benefits and costs of cocos as offsetting one another our results contribute to the literature on earnings management diluted eps financial reporting costs and financial innovation

taxes and capital structure evidence from firms response to the tax reform act of 1986 while the theoretical relation between taxes and capital structure has been extensively analyzed the empirical evidence on this issue has thus far been inconclusive one of the main difficulties confronting previous empirical studies of the cross sectional relationship between taxes and leverage was the control of intervening variables the tax reform act of 1986 tra which drastically changed the tax regime provides a unique opportunity to assess the interaction between taxes and leverage decisions in a controlled environment the authors test the relationship between leverage and certain tax related variables for a large sample of companies in the years surrounding the enactment of tra the results support the tax based theories of capital structure the findings indicate that there exists a substitution effect between debt and nondebt tax shields and that both corporate and personal tax rates affect leverage decisions coauthors are dan givoly aharon r ofer and oded sarig article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

voluntary conversion of convertible securities and the optimal call strategy abstract we provide an explanation of why convertibles are called long after the conversion value exceeds the call price delaying the call benefits the firm if enough investors are expected to delay their voluntary conversions consistent with this theory we document that a substantial number of investors do not voluntarily convert when the common dividend exceeds the convertible s dividend plus its premium over conversion value we find that firms would not have increased common stock returns by switching to the strategy of calling to force conversion as soon as possible surprisingly we find that convertible preferreds frequently sell below conversion value

the ethical context of entrepreneurship proposing and testing a developmental framework the aim of this study is to increase our understanding of the ethical climate of entrepreneurial firms as they grow and develop a developmental framework is introduced to describe the formal and informal ethical structures that emerge in entrepreneurial firms over time factors influencing where firms are within the developmental framework are posited including the entrepreneur s psychological profile lifecycle stage of the business and descriptive characteristics of the venture it is also proposed that the implementation of ethical structures will impact perceptions of the clarity and adequacy of the ethical standards of the firm and the firm s preparedness to deal with ethical challenges as they arise results are reported of a cross sectional survey of small firms at different stages of development the findings indicate the existence of four distinct clusters of firms based on their formal and informal ethical structures superlatives core proponents pain and gain and deficients evidence is also provided of statistically significant relationships between the proposed antecedent and outcome variables implications are drawn from the results and priorities are established for future research

gone fishing reported sickness absenteeism and the weather i introduction the principal agent problem of contracting employee work effort that is imperfectly monitored arises in a number of areas of economic theory including models of remuneration by seniority lazear 1979 involuntary unemployment e g shapiro and stiglitz 1984 performance based pay macleod and malcomson 1998 and labor hoarding depken redmount and snow 2001 given the importance of this mechanism in the theoretical work the empirical research on the agency problem is remarkably scant in part this reflects the limited availability of personnel data as baker and holmstrom argue in their review article internal labour markets too many theories too few facts 1995 but more fundamentally it reflects the inherent difficulty of empirically capturing the employee effort levels that underlie the models using direct measures of employee or firm level productivity is unquestionably the preferred approach but these measures are notoriously problematic and the studies that use them tend to be case studies introducing external validity issues it is also unlikely to isolate the type of malfeasant shirking behavior that concerns variants of the models where the employee effort decision entails disciplinary risk to inform employee incentives to engage in malfeasant behavior economists have relied on two measures employee disciplinary rates e g cappelli and chauvin 1991 ichino and maggi 2000 and absenteeism rates e g arai and thoursie 2005 bradley green and leeves 2007 ichino and riphahn 2005 the difficulty is that disciplinary rates capture only shirking activity that is identified by employers not that which goes undetected while reported absenteeism particularly sickness absenteeism rates may be entirely legitimate one can therefore never be sure whether differences in these rates across workers facing different shirking costs reflect actual shirking activity as opposed to differences in employers willingness or ability to detect and punish shirkers or differences in employee health that may be correlated with these costs in this paper we identify a different type of shirking activity that potentially addresses both of these shortcomings employees misreporting health in order to exploit weather conditions favorable to high utility outdoor recreation 1 we begin by considering a shirking model of sickness absenteeism in which employees marginal utility of outdoor leisure is increasing in the interaction of two state dependent parameters health and outdoor weather quality the intuition being that ideal weather conditions for engaging in outdoor recreation are valued more when one is physically and perhaps also mentally healthy this assumption leads to two main propositions first increases in sickness absenteeism associated with marginal improvements in weather quality reflect the decisions of the inframarginal workers those workers who in the absence of the weather improvement would be present at work who are the healthiest implying an increase in absenteeism that is unambiguously illegitimate second comparing across workers marginal weather improvements should have the largest impact on sickness absenteeism where shirking costs are highest the reason is that where existing incentives to misreport health are the weakest such as where sick pay is not offered or job protection is weak existing sickness absenteeism levels will be lowest and the inframarginal workers will be the healthiest thereby benefitting most from the weather improvement we examine the empirical relevance of these propositions using a two step approach first we construct an index of weather preferences by linking temperature relative humidity precipitation wind speed and cloud cover data to time use data identifying the weekend and weekday evening outdoor recreational activities of employees with regular daytime work schedules we then examine the empirical relation between the resulting index of the recreational quality of the weather hereafter referred to simply as weather quality and the incidence of short term spells of sickness absenteeism reported in survey data comparing the magnitude of this relation across workers facing different levels of sick pay job protection and job finding rates

resolving the agency problems of external capital through options this paper investigates the role of stock options in resolving the agency problems of external capital as originally identified by jensen and meckling 1976 these problems are precipitated by managerial incentives a to consume excessive non pecuniary benefits or perquisites beyond the optimal level for sole ownership and b to engage in risk shifting in productive decisions so as to transfer wealth from external capital contributors these incentive problems can be resolved through a strategy that judiciously combines call and put options retained by the owner manager and external financiers respectively the resolution of the agency problems through this mechanism provides an economic rationale for the existence of managerial stock options and convertible debt the work by jensen and meckling 7 has brought more realism to the theory of the firm in their paper jm address agency problems in the context of a firm which is viewed as a nexus of contracts among various factors of production the contractual relationships involve incentive conflicts arising from the pursuit of self interest by limiting themselves to an entrepreneur or owner manager who retains complete control of the firm jm have demonstrated that financing through the issuance of common stock or debt to outsiders engenders costs these costs are precipitated in part by the manager s propensity to consume nonpecuniary benefits or perquisites perks by employing certain resources in excess of their optimal usage 1 and by his propensity to engage in high risk investment projects so as to transfer wealth from bondholders to stockholders 2

warrant exercise dividends and reinvestment policy in this paper we examine sequential exercise strategies by warrantholders and the gain from hoarding warrants we analyze several obstacles to acquiring large blocks in order to exploit sequential strategies first we identify several reinvestment policies for which sequential exercise is not advantageous thereby eliminating the gain from hoarding however sequential exercise strategies may be advantageous for monopoly or oligopoly warrantholders even absent dividends because using exercise proceeds to repurchase stock or to expand the firm s scale increases the riskiness of an equity share second oligopoly warrantholders can receive a smaller warrant value than perfectly competitive warrantholders suggesting a potential cost to unsuccessful hoarding

age order of entry strategic orientation and organizational performance abstract this paper proposes an empirical test of several hypotheses linking age order of entry and strategic orientations to a firm s performance three strategies are defined cost leadership strategy innovative differentiation and marketing differentiation the aim is to show that the impact on performance of both age and each of the three strategic orientations may differ according to a firm s order of entry into an industry following lieberman and montgomery s 1998 evaluation of their major contribution on first mover advantage we emphasize three points first we develop and test hypotheses related to early and late followers strategic orientations broadening the scope of traditional studies on pioneers second the model combines the dimensions of a firm s age order of entry and strategic orientations as well as industry conditions stage of the industry environmental unpredictability and technology diffusion to establish a contingent model of performance analysis finally the empirical study deals chiefly with organizational performance and not market share which is considered a typical advantage accruing to pioneers in addition the scope of the study 582 french manufacturing firms provides the means to fill a void in empirical studies because it is a broad cross sectional test on non u s data the firms are mainly private small to medium sized and single or dominant business firms therefore our assumptions must be understood as particularly applicable to this type of firm the results reveal important lessons for practitioners first we did not find a first mover advantage in terms of organizational performance in addition pioneers organizational performance is enhanced by the cost leader strategy contrary to our assumption emphasizing innovative differentiation for these firms second early followers performance benefits from innovative differentiation and marketing differentiation finally late entrants developing a cost leader strategy have a significantly higher performance all groups considered late followers are the firms most sensitive to environmental uncertainty and age effects our study clarifies the impact of a firm s age and strategic orientations on its performance depending on the firm s order of entry the implications of these results are particularly relevant for practitioners and entrepreneurs first a cost leadership strategy seems to be a guarantee for a pioneer to increase its organizational performance new ventures should therefore take into consideration the fact that newness and innovative differentiation might not be the best strategic orientations for high performance in the long run second as a second mover however developing a superior product and being able to market it efficiently appear to be the enhancing factors of firm performance third for both pioneers and early followers age does not significantly reduce their performance however the longer a firm waits before entering the greater is the negative effect of age on its performance this is due to the difficulty of resisting competitive erosion because pioneers and early followers drive the changes in the industry the identification of these effects should help managers and stakeholders to make more effective entry decisions to sustain a firm s advantage leading to better performance and higher probability of survival

warrant pricing jump diffusion vs black scholes this paper investigates the warrant pricing abilities of dilution adjusted versions of the black scholes and jump diffusion option pricing models because of the typically long lives of warrants their pricing is hypothesized to benefit from use of the jump diffusion model which relaxes the black scholes restriction against stock price jumps empirical results indicate that while the black scholes model almost uniformly provides more efficient estimates the jump diffusion model generally provides less biased estimates of market value particularly for the valuation of out of the money warrants and warrants on stocks with a history of large and or frequent jumps the jump diffusion model may be preferred

warrant pricing is dilution a delusion the textbook treatment of warrants takes as a state variable the total equity value of the firm and makes explicit allowance for the effects of equity dilution when warrants are exercised warrant pricing however could just as well be based on the process the stock price follows this approach leads to a much simpler pricing model into which dilution does not enter and in fact a warrant has a value identical to that of the corresponding option moreover valuations based on stock prices are fully consistent with those obtained using the standard equity value approach in fact when the comparison is made in a consistent fashion the warrant prices obtained using the stock price method are identical to the results arising from the textbook method

pricing options with extendible maturities analysis and applications many common types of financial contracts incorporate options with extendible maturities this paper derives closed form expressions for options that can be extended by the optionholder and presents a number of applications including the valuation of american options with stochastic dividends junk bonds and shared equity mortgages we also derive closed form expressions for writer extendible options and discuss the writer s economic incentives for extending an out of the money option we apply these results to show that corporate debtholders have a strong incentive to extend the maturity of defaulting debt if there are liquidation costs we model and solve the debtholders optimal extension problem and show that the possibility of an extension can induce shareholders in highly levered firms to accept negative npv projects many common types of financial contracts and contingent claims incorporate options with extendible maturities for example a growing number of firms in many cases firms involved in leveraged buyouts are issuing bonds with maturities that can be extended at the firm s option options on real estate often allow the optionholder to extend the expiration date by paying an additional fixed amount to the option writer corporate warrants frequently give the issuing firm the right to unilaterally extend the life of the warrants a right that is often exercised in general any financial contract that could involve a rescheduling of payments a renegotiation of terms an early call or exercise provision or some similar type of flexibility over the timing of cash flows could be viewed as including an option with an extendible maturity this paper derives valuation expressions for extendible options examines the analytical properties of these prices and presents a wide variety of applications and examples in this analysis we distinguish between options that can be extended by the optionholder and options that are extended by the option writer since they differ fundamentally in their pricing implications focusing on the

the network dynamics of international new ventures this study uses multi site case research to advance a set of propositions regarding the network dynamics of early stage international new ventures the investigative approach builds on arguments that network theory and analysis are fundamental to international entrepreneurship in the spirit of cross disciplinary research perspectives from the entrepreneurship literature are embraced to help inform our understanding of international new venture networks

investment incentives debt and warrants abstract this paper models and characterizes investment incentive problems associated with debt financing the decision problem of residual claimants is explicity formulated and their investment policies are characterized the paper also analyzes the use of conversion features and warrants to control distortionary incentives these claims reverse the convex shape of levered equity over the upper range of the firm s earnings and this mitigates the incentive to take risk it is shown that under certain conditions such claims can be constructed to restore net present value maximizing incentives and simultaneously meet the financing requirements of the firm

the role of time value in convertible bond call policy abstract since the seminal work of ingersoll 1977b the optimal time in which a firm should redeem its outstanding convertible bonds has received large attention by the financial literature several studies have put forward a number of possible costs and benefits for a firm if it interrupts the life of its convertible bonds prior to their contractual maturity however in this paper we argue that the managerial decision to call back a convertible bond is mainly driven by a fundamental variable almost neglected up until now the time value extraction from bondholders conversion option accordingly we propose a measure for the effective convenience of calling which we define as net time value advantage and we show using a survival analysis that it is more effective than previously proposed measures in explaining the firms observed call policy

convertible call policies an empirical analysis of an information signaling hypothesis abstract this paper tests an information signaling hypothesis as a potential explanation for corporate convertible bond call policies and for the negative share price reaction to the announcement of the calls we test this hypothesis by trying to ascertain whether the information signaled is realized our results show an unexpected decline in the firm s performance subsequent to the call we also find significant negative cumulative returns during a sixty month period following the calls

networks and local environmental characteristics in the survival of new firms this study seeks firstly to clarify which networks at start up situation and early in life influence the survival of new firms secondly the study examines regional differences in the success of new firms the subjects were firms which had closed down during their fourth to sixth year of operations and they were compared with firms continuing in business the results indicate firstly that it is networks internal to firm that create competitive advantage innovation and efficiency secondly management based on working in groups was emphasized in the firms that continued in business in a typical family enterprise ownership management and family are united in a single entity in other types of firms networks are seen as participating in the strategic management of the firm thirdly close downs were often caused by uncontrolled risks a firm which fails after a successful start up often tends to grow rapidly in the beginning leaning on its product idea but this rate of growth is too high from the viewpoint of the financing and the management of the firm in firms which closed the growth objectives were too ambitions compared with the resources of the entrepreneur

using founder status age of firm and company growth rate as the basis for distinguishing entrepreneurs from managers of smaller businesses abstract this article examined the empirical implications of definitions that distinguish entrepreneurs from managers of smaller businesses based on their founder nonfounder status and their firms ages and growth rates the best distinctions were created using 1 founders 2 younger companies and 3 the combination of founders and younger companies growth indicators did not discriminate well the two founder based distinctions shared a profile of entrepreneurs as running smaller companies with higher return on assets roa than nonentrepreneurial managers having shorter tenure in their positions having previous work experience in the same industry and having higher risk taking propensity the distinction based on age of firm also showed strong ability to discriminate among respondents the field of entrepreneurship has few longer standing controversies than the one surrounding the question of what distinguishes entrepreneurs from nonentrepreneurial managers in trying to separate entrepreneurs from managers of smaller businesses in particular questions exist concerning the key defining differences definitions of entrepreneurship have utilized founder versus nonfounder status company age and company growth rates as distinguishing elements entrepreneurs have been defined by one or more of the following elements being a company founder running a young company and running or desiring to run a high growth company this article tests these elements to see if they provide a clearly differentiated profile of entrepreneurs it uses the founder nonfounder distinction for example to see if this distinction functions well in identifying a number of company financial and personal attributes that associate with founders rather than nonfounders the approach advocated here borrows from configurational theory as it has emerged in the fields of strategic management and organizational theory meyer tsui and hinings 1993 to look for a constellation of variables that group together in depicting entrepreneurs if founder status company age and growth rate are useful definitions of entrepreneurship they should point to a configuration of factors that together comprise a profile of an entrepreneur in predicting what configuration of factors will emerge this article adopts a strategic adaptation perspective low and macmillan 1988 to argue that differences between entrepreneurs and nonentrepreneurs spring from divergent thought processes and personal attributes of individuals who face the question of whether and how to enter business for themselves using the founder nonfounder distinction we view individuals who decide to start a new business rather than buy or manage an existing one as more likely to have previously founded a business have experience in the same industry be higher in risk taking show more type a behavior and be more growth oriented findings from a sample of ceos in the smaller business association of new england indicated that neither of the two tests based on high growth as a definition of entrepreneurial firms proved adept at creating a distinct entrepreneurial profile distinctions based on founder status younger firm status and founder of a younger firm status on the other hand proved effective in creating such profiles dimensions shared by the two founder based definitions of entrepreneurship included company attributes of smaller size and higher roa and ceo attributes of shorter tenure on the job previous experience in the same industry and higher risk taking propensity additional attributes showed in the younger company founder group including company attributes of lower liquidity and higher sales growth and personal attributes of having previously founded a business ranking roa as a high priority and external locus of control the distinction based on younger firm status performed well in discriminating among respondents in this study in addition to sharing several variables with the founder based distinctions it alone identified younger firms ceos as having lower education and type a tendencies and higher expectations of children succeeding them in the business as one implication of these findings knowledge of the profiles may help people who deal with these groups to have a better sense of how to interact with and respond to them the young company founder profile for example presents a picture of a relatively small company experiencing high rates of sales growth squeezing all it can from its assets in the face of high comparative liabilities because the company is young its founder has relatively short tenure but may well have had previous experience in the industry and have previously founded a company personally the founder is a risk taker who is external in locus of control and places high priority on roa if this configuration holds firm in future research those who deal frequently with entrepreneurs such as bankers venture capitalists consultants accountants and lawyers will be able to use a few identifying factors such as founder status and age of firm to draw reasonable inferences about a host of other characteristics of their clients the attempt to profile the entrepreneur in recent years thought to be futile may yet prove viable

strategic analysis of the competitive exercise of certain financial options abstract warrants and convertible bonds are claims on the firm which change the outstanding number of common stock shares when exercised or converted exercise of such claims in competitive circumstances is modeled here as a noncooperative game played by a continuum of players first equilibria of the game are shown to exist by applying results of schmeidler second the game s equilibria are compared to outcomes that come about when one individual controls the exercise of all the claims but is constrained to exercise them in one block the results are analogues of earlier results by one of the authors on the competitive pricing of such claims

calls of warrants timing and market reaction this paper examines the timing of and reaction to calls of callable warrants three main findings emerge first unlike convertible bonds or preferred stock callable warrants are called almost as soon as possible second there is a negative price reaction of about 3 percent when a call is announced finally at the completion of a call the stock price rebounds by an average of 7 percent the total reaction from announcement through completion of the call is a positive excess return of about 4 percent since 1980 several hundred firms have issued callable warrants typically these warrants become callable only after a predetermined date and only when the price of the underlying stock exceeds a minimum price for a prespecified number of days if the company then calls warrantholders are allotted a notice period usually 30 days to decide whether to exercise their warrants or accept a nominal call price this paper is the first to study market reaction to calls of warrants and to see if firms delay calls the results indicate that warrants are called almost as soon as exercise can be forced at the announcement of a call stock prices fall about 3 percent however they rebound by about 7 percent around the last day that warrants can be exercised because this date is known in advance this result is not expected in an efficient market the investigation of calls of warrants may provide insights into calls of convertible bonds and preferred stock both calls of warrants and calls of convertibles transfer wealth to stockholders by reducing the life of the other securityholder s options so if management tries to maximize shareholder wealth management s incentive to call warrants may resemble their incentive to call convertible securities 1 however in contrast to the results pre

derivative pricing 60 years before black scholes evidence from the johannesburg stock exchange we obtain daily data for warrants traded on the johannesburg stock exchange between 1909 and 1922 and for a broker s call option quotes on stocks from 1908 to 1911 we use this new data set to test how close derivative prices are to black scholes 1973 prices and to compute profits for investors using a simple trading rule for call options we examine whether investors exercised warrants optimally and how they reacted to extensions of the warrants durations we show that long before the development of the formal theory investors had an intuitive grasp of the determinants of derivative pricing