agricultural price instability a survey of competing explanations and remedies there are two explanations for agricultural price dynamics one follows cobweb logic and models fluctuations driven by expectation errors but emphasises that these expectations create complex dynamics and possibly chaos the other stems from the rational expectations tradition of dynamics driven by real shocks the empirical evidence tends to support the latter but is not conclusive the rational expectations model generates an optimal dynamic path from which no improvement can be expected from public intervention however if we take account of all the potential market failures in agricultural markets and especially in developing countries this conclusion might require some qualifications although an appropriate policy design for stability has still to be achieved this paper surveys the positive and normative literature on agricultural prices highlighting empirical evidence and identifying remaining unresolved issues

complex dynamics in a cobweb model with adaptive production adjustment abstract chaos occurs in a nonlinear cobweb model with normal demand and supply naive expectations and adaptive production adjustment the model differs from existing ones in that it includes adaptive production adjustment instead of adaptive expectations the model exhibits observable chaos strange attractors as well as topological chaos horseshoes associated with homoclinic points as numerical simulations show the faster suppliers adjust their production and the more inelastic demand is the more likely the market behaves chaotically

dynamics of the cobweb model with adaptive expectations and nonlinear supply and demand the price quantity dynamics of the cobweb model with adaptive expectations and nonlinear supply and demand curves is analysed we prove that chaotic dynamical behaviour can occur even if both the supply and demand curves are monotonic the introduction of adaptive expectations into the cobweb model leads to price quantity fluctuations with a smaller amplitude however at the same time the price quantity cycles may become unstable and chaotic oscillations may arise we present a geometric explanation why chaos can occur for a large class of nonlinear monotonic supply and demand curves

executive incentives and the horizon problem an empirical investigation abstract this paper investigates the hypothesis that ceos in their final years of office manage discretionary investment expenditures to improve short term earnings performance we examine the behavior of r d expenditures for a sample of firms in industries that have significant ongoing r d activities the results suggest that ceos spend less on r d during their final years in office however we find the reductions in r d expenditures are mitigated through ceo stock ownership there is no evidence that the reduced r d expenditures are associated with either poor firm performance or reductions in investment expenditures that are capitalized for accounting purposes

an empirical examination of the relation between debt contracts and management incentives abstract prior research on the factors influencing the use of debt covenants restricting dividends and additional borrowing is extended by considering management incentives when alternative incentive variables are considered separately we find covenants have a significant negative relation to ceo cash compensation an insignificant relation to the value of ceo equity held and significant positive relations to both the ratio of the value of ceo equity holdings to cash compensation and the fraction of equity held by the ceo in two stage simultaneous equations models only the latter is significant when jointly considered with each of the other incentive variables

the effect of bond rating changes on common stock prices abstract the evidence in this paper suggests that downgrades by both moody s and standard and poor s are associated with negative abnormal stock returns in the two day window beginning the day of the press release by the rating agency significant negative abnormal performance can still be detected after eliminating observations containing obvious concurrent potentially contaminating news releases there is little evidence of abnormal performance on announcement of an upgrade significant abnormal returns are associated with announcements of additions to the standard and poor s credit watch list if either a potential downgrade or a potential upgrade is indicated

a cobweb model with local externalities abstract this paper considers an extension of the standard cobweb model in a market with local externalities in contrast with the standard cobweb model firms must forecast both prices and local quantities we develop new constructive stability and existence conditions for equilibria with positive outputs we find evidence of clusters of firms whose output behavior is correlated as equilibrium is reached we also show that an appropriately defined representative agent model with a global externality exhibits the same mean or second order properties of aggregate output as the more complex model with local externalities

the use of accounting flexibility to reduce labor renegotiation costs and manage earnings abstract we investigate the determinants of discretionary sfas 106 choices of non regulated firms we find that more unionized firms are more likely to use immediate recognition consistent with incentives to reduce labor renegotiation costs immediate recognition is more prevalent among post adoption plan modifiers particularly if their transition obligation is large consistent with incentives to increase future reported earnings immediate recognition together with post adoption benefit plan reduction frees future income from the transition obligation amortization expense and adds a positive component as negative prior service costs are amortized immediate recognition is less prevalent among firms with higher potential debt contracting costs

value creation and corporate diversification the case of sears roebuck co abstract we provide clinical evidence of corporate restructuring at sears roebuck co beginning with the firm s 1981 diversification into financial services by acquiring coldwell banker co and dean witter reynolds inc the initial purchases resulted in a wealth gain to shareholders of approximately 400 million anticipated synergies did not materialize however and sears retail performance deteriorated coincident with pressure from institutional investor activists in 1992 sears announced the divestiture of financial services and a refocusing on retail operations this led to a 1 113 billion gain for shareholders despite more than 1 5 billion in gains over the entire diversification divestiture period sears shareholders suffered a significant opportunity loss when compared with a portfolio of focused firms

clustering of initial public offerings information revelation and underpricing abstract by providing an analysis of sequential going public decisions the paper outlines conditions under which hot issue markets arise i e under which the likelihood of a second initial public offering increases after a first firm has gone public two effects can trigger the rise of hot issue markets in a setting with asymmetric and costly information about both firm quality and industry prospects the risk averse entrepreneur can be subject to risk induced selling pressure because of uncertain industry prospects conveyed by a first ipo in the industry also investors can free ride on the industry news and increase their valuation for a second firm by abstaining from further costly information production finally the model offers an explanation for the empirical finding that hot issue markets exhibit a higher degree of underpricing than cold issue markets

industry divestiture waves how a firm s position influences investor returns because of the opaque nature of divestitures investors face considerable uncertainty in evaluating divestiture decisions and thus may look to a firm s social context defined in terms of the per

chaotic price behavior in a non linear cobweb model abstract the cobweb model for the evolution of prices is considered with backward bending supply curves and multi valued demand curves these deterministic non linear dynamical systems are shown to exhibit a broad spectrum of complex time behavior including stable periodic cycles of arbitrary order and chaos

a measurement approach to conservatism and earnings management this paper formalizes a two step representation of accounting measurement and uses it to formalize a general rationale for conservatism as a measurement principle a transaction s economic substance manifests itself in characteristics of the transaction and an accounting rule is a mapping from transaction characteristics to an accounting report managers who have stakes in the accounting report are able to influence transaction characteristics such earnings management is ex post rational for managers but ex ante inefficient to safeguard against such ex post opportunism the optimal ex ante accounting rule is conservative in the sense that it requires more verification of the transaction characteristics favorable to managers thus this rationale for conservatism is as general as the managers ability and incentive to inflate transaction characteristics by opening the black box of accounting measurement the two step representation also formalizes some classic accounting concepts such as relevance reliability verifiability verification and accounting motivated transactions

caution implies profit abstract the paper illustrates by simple cobweb models that under certain circumstances fluctuations in perpetual disequilibrium may not only be viable but also preferable to a competitive equilibrium from the long run perspective

chief executive officer equity incentives and accounting irregularities this study examines whether chief executive officer ceo equity based holdings and compensation provide incentives to manipulate accounting reports while several prior studies have examined this important question the empirical evidence is mixed and the existence of a link between ceo equity incentives and accounting irregularities remains an open question because inferences from prior studies may be confounded by assumptions inherent in research design choices we use propensity score matching and assess hidden omitted variable bias within a broader sample in contrast to most prior research we do not find evidence of a positive association between ceo equity incentives and accounting irregularities after matching ceos on the observable characteristics of their contracting environments instead we find some evidence that accounting irregularities occur less frequently at firms where ceos have relatively higher levels of equity incentives

rational expectations may lead to complex dynamics in a muthian cobweb model with heterogeneous agents abstract starting from a muthian cobweb model we extend the profit based evolutionary setting in hommes and wagener 2010 by assuming that in addition to pessimistic optimistic and unbiased fundamentalists the market is populated by rational producers which correctly anticipate the next period price thanks to their introduction we find that differently from the framework in hommes and wagener 2010 the map governing the dynamics is no more monotonically decreasing hence if on the one hand adding rational agents enlarges the local stability region of the steady state on the other hand their consideration opens the door to complex dynamic outcomes characterized by chaotic attractors and rich multistability phenomena that we investigate along the paper

the emergence of chaos from classical economic growth this paper shows how fluctuations of an erratic and unstable nature can emerge from the classical deterministic economic growth process implications of the analysis would appear to be at least two first pronounced changes in the way an economy behaves need not cause us to reject our understanding of how it works second we need not seek in exogenous forces an explanation as to why behavioral patterns change and why it may be so difficult to anticipate future events from the profile of past experience

price stabilization using buffer stocks abstract the price stabilization problem is stated and solved for a nonlinear cobweb model with government stocks it is shown that if the storage capacity for the commodity is sufficiently large then there exists a simple stabilization policy called the keep supply at equilibrium kse policy such that the equilibrium price is a global attractor for the corresponding closed loop system in addition it is shown that if the government approximates the equilibrium supply with the average supply stabilization is guaranteed we refer to this policy as keep supply at average ksa

memory and market stability the case of the cobweb abstract when optimizing agents use their memories in a non linear cobweb model it will be asymptotically stable instability and chaos cannot occur this contrasts with the results when agents are forgetful however short run fluctuations are erratic and sensitive to initial conditions

irregular growth cycles this paper uses the familiar neoclassical theory of capital accumulation to show how complex behavior can emerge from quite simple economic structures indeed when sufficient nonlinearities and a production lag are present the interaction alone of the propensity to save and the productivity of capital can lead to growth cycles that exhibit a wandering sawtooth pattern not unlike those observed in reality these fluctuations need not converge to a cycle of any regular periodicity so they are not quasi periodic because such chaotic trajectories are unstable errors of estimation in parameters or initial conditions however tiny will accumulate rapidly into substantial errors of forecast moreover periods of erratic cycling can be interspersed with periods of more or less stable growth evidently the future behavior of a model solution cannot be anticipated from its patterns in the past a situation that seems to mimic experience apparent structural change and unpredictability is explained in the present theory by a deterministic single equation model random shocks play no role so the reader can visualize just what it is we are are talking about a noteworthy simulation is presented in figure 1 for gnp in a growth model that is described below in section iii a period of relatively rapid growth is followed by a period of cycles then remarkably for a considerable time about twenty periods apparently steady state growth occurs wandering cycles however emerge another brief period close to the steady state appears again toward the end of the series i establish conditions of savings and productivity that lead to results of this kind this analysis makes use of the mathematical theory of chaos which in the form exploited here originated in the work of edward lorenz a formal definition of chaos and sufficient conditions for chaotic trajectories were provided in a seminal paper by t y li and james yorke a survey of these related contributions is found in yorke and evelyn yorke this theory was introduced into economics by jess benhabib and myself 1981 where we showed that sequences of rational choices can be erratic when preferences depend on experience in a certain way by michael stutzer who provides a detailed analysis of trygve haavelmo s growth model by benhabib and myself 1980 in an application of the overlapping generations model and in my forthcoming study of the classical growth model

divestiture market valuation and strategy an empirical study of 78 divestitures examines the relationship between type of divestiture and financial market valuation it was found that divestitures linked to corporate or business level stra

the investment opportunity set and accounting procedure choice abstract this paper provides evidence on the cross sectional relation between firms investment opportunities their debt and compensation contracts their size and financial leverage and their accounting procedure choices this evidence is important because previous studies hypothesize that the link between firms investment opportunities and their accounting choices helps explain extant results on the size debt equity and bonus plan hypotheses however while i find that firms investment opportunities do affect the nature of their contracts i also find that the traditional explanations for accounting choice are important after controlling for the effects of the investment opportunity set

when risk generates chaos abstract with risk averse producers the traditional linear cobweb model becomes nonlinear the currently produced quantity is an homographic function of previous years quantities this may result in the market generating chaotic price and quantity series especially if demand is rigid hedging facilities are unable to reduce the magnitude of fluctuations which are socially detrimental especially from the consumers point of view this might justify public intervention on markets such as staple food commodities or health cares

discussion of acquisition profitability and timely loss recognition by j francis and x martin abstract francis and martin 2009 test whether accounting conservatism induces managers to make better acquisition decisions this discussion highlights three main issues first the hypothesized links between conservatism and future investments are potentially incomplete in particular the possibility that conservatism can have dysfunctional outcomes if acquisition decisions are based on anticipated earnings effects is ignored second the evidence is insufficient to infer a causal relation between conservatism and acquisition profitability third the hypothesis development fails to indicate whether timely loss recognition or the asymmetric timeliness of loss versus gain recognition is the more appropriate measure of conservatism given the context

real investment implications of employee stock option exercises this paper examines a real cost of awarding employee stock options based on the observation that managers are extremely concerned about earnings per share dilution in equity related compensation we predict and find that firms experiencing significant employee stock option eso exercises shift resources away from real investments towards the repurchase of their own stocks we further find weak evidence of a decline in subsequent firm performance as measured by return on assets for several years following the cut in discretionary investments as a result of stock option exercises though this result is sensitive to the metric used to measure performance collectively our findings indicate that eso exercises potentially impose a real cost on the firm in terms of foregone investment opportunities

discussion of the implications of unverifiable fair value accounting evidence from the political economy of goodwill accounting abstract ramanna 2007 the implications of unverifiable fair value accounting evidence from the political economy of goodwill accounting journal of accounting and economics provides interesting and novel evidence on how firms use contributions from their political action committees pacs to members of congress as a means of lobbying for preferred positions on the two exposure drafts that led to sfas 141 and sfas 142 my discussion raises some concerns about his main conclusion that pooling firms lobbied the fasb to obtain a fair value based impairment rule to facilitate their ability to manipulate financial statements i offer a more benign explanation and make some other observations about how this line of research could proceed in the future

exchange rate speculation and chaos inducing intervention abstract we show that in a market characterized by high volatility transactions designed to have a stabilizing effect may inadvertently induce chaos in the foreign exchange market for example excessive interventions by a central bank may lead to an increase in erratic behavior rather than to the calming of exchange rate movements

learning from the behavior of others conformity fads and informational cascades learning by observing the past decisions of others can help explain some otherwise puzzling phenomena about human behavior for example why do people tend to converge on similar behavior why is mass behavior prone to error and fads the authors argue that the theory of observational learning and particularly of informational cascades has much to offer economics business strategy political science and the study of criminal behavior

agency costs and innovation abstract stylized facts indicate that small firms are responsible for a disproportionate share of innovative research there are many possible explanations for this fact the paper seeks to understand this phenomenon as the outcome of an optimal assignment of tasks across individuals and organizations it is shown that incentive costs associated with a given task depend on the total portfolio of tasks that an individual or an organization undertakes mixing hard to measure activities innovation with easy to measure activities routine is particularly costly since it will either lead to misallocation of attention across tasks or to misallocation of risk larger firms are at a comparative disadvantage in conducting highly innovative research because of the costs associated with managing a heterogeneous set of tasks it is further argued that optimal organizational responses to coordination and control of routine tasks will lead to bureaucratization within the firm and to financial constraints imposed by capital markets both of which are hostile to innovation

on cross sectional analysis in accounting research abstract this paper examines cross sectional analysis procedures common to many market based accounting research papers both the economic and econometric properties of levels and returns studies are discussed topics covered include the relations between the accounting studies and cash flow valuation models the role of expectations of accounting variables deflators spurious inference risk adjustment and its relation to growth size and leverage residual dependence dependence among explanatory variables and the effect of scale differences across firms major conclusions are that market value is the correct deflator in returns studies and that levels and returns studies are economically but not econometrically equivalent

the consequences of the fasb s 1998 proposal on accounting for stock option repricing abstract we examine repricing activity surrounding the fasb s 1998 announcement regarding accounting for repriced options we find that repricing increases during and decreases after the 12 day window between the announcement and proposed effective dates consistent with firms timing repricings to avoid recording an expense we find that firms experiencing increasing earnings patterns firms with earnings around zero and growth firms are more likely to reprice in the window but having repriced recently decreases the likelihood of doing so the evidence suggests that firms trade off financial reporting benefits against reputation costs in decisions to time repricings to get favorable accounting treatment

how ethical are managers goodwill impairment decisions in spanish listed firms this article provides an analysis of the ethical behavior of managers making goodwill impairment decisions following the adoption of the international financial reporting standard ifrs 3 on business combinations replacing the systematic amortization of goodwill with the impairment only approach has been a highly controversial step although the aim of ifrs 3 was to provide users with more value relevant information regarding the underlying economics of the business it has been criticized for the potential earnings management inherent in impairment testing this study is based on a sample of spanish listed companies between 2005 and 2011 a period that embraces the economic crisis after controlling for the underlying economic factors of the firms the results suggest that managers are exercising discretion in the reporting of goodwill impairment losses and big bath and smoothing strategies are influencing the decisions whether or not to impair goodwill and about the magnitude of the impairment firm size is an attribute that appears significant in the analysis suggesting that the cost and complexity of running the impairment test affect managers decisions additional analyses suggest that the macroeconomic environment influences opportunistic and unethical behaviors

divisional diversity and the conglomerate discount evidence from spinoffs abstract existing literature argues that disparity in investment opportunities within diversified firms can erode firm value we investigate the diversity cost hypothesis of spinoffs by using post spinoff data to 1 reconstruct the diversified firm after the spinoff and assess the aggregate improvement in value and 2 relate any value improvements to changes in diversity we find that improvements in aggregate value depend significantly on changes in both a direct measure of diversity and measures based on industry proxies we conclude that diversification discounts at least partially reflect a value loss due to the diversified nature of the firm itself rather than selection bias or measurement error

the effect of owner versus management control on the choice of accounting methods abstract this paper examines the relationship between the ownership control status of firms and the accounting methods they adopt the arguments of watts and zimmerman s positive theory are integrated with those of managerial economists to generate the prediction that management controlled firms are more likely than owner controlled firms to adopt accounting methods which increase reported earnings this prediction is inconsistent with fama s hypothesis that the market for managerial talent will prevent management controlled firms from acting differently than owner controlled firms this paper compares the depreciation methods used by a sample of management and owner controlled firms for financial reporting purposes the comparison considers and controls for the factors of firm size leverage and the depreciation method used for tax reporting purposes the comparison reveals that there is a significant difference in the depreciation methods adopted by management controlled and owner controlled firms for financial reporting purposes

the implications of unverifiable fair value accounting evidence from the political economy of goodwill accounting abstract i study the evolution of sfas 142 which uses unverifiable fair value estimates to account for acquired goodwill i find evidence consistent with the fasb issuing sfas 142 in response to political pressure over its proposal to abolish pooling accounting the result is interesting given this proposal was due in part to sec concerns over pooling misuse i also find evidence consistent with lobbying support for sfas 142 increasing in firms discretion under the standard agency theory predicts such unverifiable discretion can be used opportunistically

non linearities and partial analysis abstract this paper argues that where there are non linearities the fundamental postulate of partial analysis the principle of the negligibility of indirect effects may be undermined any feedback effects however seemingly negligible may have profound implications

are small firms less vulnerable to overpriced stock offers we show an inverted u relation between targetiveness probability of being targeted and firm size however this pattern describes stock offers and is more pronounced during hot markets characterized by higher stock valuations for cash offers we find a negative and monotonic relation these contrasting patterns suggest that small firms in the bottom nyse size quartile are less vulnerable to overpriced stock offers in addition we find that the stock acquirers of small targets are less overvalued than those of large targets and that the announcement returns are less negative for stock acquirers of small targets than for those of large targets

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

an analysis of the cobweb model with boundedly rational heterogeneous producers abstract this paper considers the traditional cobweb model with heterogenous risk averse producers whose supply functions involve their estimates of the conditional mean and variance of the future price the producers seek to learn these quantities by applying geometric decay processes gdp to past prices the heterogeneity manifests itself in the lag lengths and memory parameters applied to past prices as well as in risk aversion coefficients we find that each dimension of heterogeneity changes enriches the cobweb dynamics with respect to the case of homogeneous producers

full stock payment marginalization in merger and acquisition transactions the number of merger and acquisition m a transactions paid fully in stock in the u s market declined sharply after 2001 when pooling and goodwill amortization were abolished by the financial accounting standards board did this accounting rule change really have such far reaching implications using a difference in differences test and canada as a counterfactual this study reveals that it did we also report several other results confirming the role of pooling abolishment including i that the decrease in full stock payment relates to ceo incentives and ii that previously documented determinants of the m a mode of payment cannot explain the post pooling abolishment pattern these results are also robust to controls for various factors such as the internet bubble the exclusion of cross border deals the presence of canadian cross listed firms the use of a constant sample of acquirers across the pooling and post pooling abolishment periods the use of europe as an alternative counterfactual and

carl s nonlinear cobweb abstract this essay surveys some of my work on expectations learning and bounded rationality within the classical cobweb model following early inspiring ideas from carl chiarella in particular i focus on the role of nonlinear dynamics learning and heterogeneity within the cobweb framework and how price fluctuations in the cobweb theory fit with observations of individual and aggregate behaviour from laboratory experiments with human subjects

the effect of accounting procedure changes on ceos cash salary and bonus compensation abstract this paper examines the effect of accounting procedure changes on cash salary and bonus compensation to ceos we estimate whether there is an adjustment to the statistical relation between compensation and corporate earnings following changes that lower earnings fifo to lifo inventory valuation and that raise earnings accelerated to straight line depreciation the results indicate that 1 subsequent to these changes salary and bonus payments are based on reported earnings rather than earnings under the original accounting method and 2 the potential compensation effect of the changes is small compared to the effect of economy or industry wide changes in compensation

on the consistency of backward looking expectations the case of the cobweb in dynamic models of economic fluctuations backward looking expectations with systematic forecasting errors are inconsistent with rational behaviour in non linear dynamic models exhibiting seemingly unpredictable chaotic fluctuations however simple habitual rule of thumb backward looking expectation rules may yield non zero but nevertheless non systematic forecasting errors in a chaotic model expectational forecasting errors may have zero autocorrelations at all lags even for rational agents patterns in these forecasting errors may be very difficult to detect especially in the presence of small noise backward looking expectations are then not necessarily inconsistent with rational behaviour we investigate whether simple expectation schemes such as naive or adaptive expectations can be consistent with rational behaviour in the simplest of all non linear dynamic economic models the non linear cobweb model

event studies in management research theoretical and empirical issues we examined the use of event studies in management research and found that there was inadequate attention paid to theoretical and research design issues this lack of attention may lead to false in

sequential sales learning and cascades when ipo shares are sold sequentially later potential investors can learn from the purchasing decisions of earlier investors this can lead rapidly to cascades in which subsequent investors optimally ignore their private information and imitate earlier investors although rationing in this situation gives rise to a winner s curse it is irrelevant the model predicts that 1 offerings succeed or fail rapidly 2 demand can be so elastic that even risk neutral issuers underprice to completely avoid failure 3 issuers with good inside information can price their shares so high that they sometimes fail 4 an underwriter may want to reduce the communication among investors by spreading the selling effort over a more segmented market consider a scenario in which an issuer is selling a new security of uncertain value for example an ipo initial public offering of stock or high yield debt through an underwriter the s e c has banned variable price sales while the value of this new security is highly uncertain to individual market participants investors hold perfectly accurate information when aggregated moreover there are many potential investors and a small number of these investors can jointly determine the value of the firm or its project with high precision it would seem that in this scenario underpriced offerings would succeed and overpriced offerings would fail nevertheless this paper shows that if the distribution channels of invest ment banks are limited underpriced offerings can fail and overpriced offer ings can succeed with limited distribution channels it takes the under writer time to approach interested investors therefore later investors can observe how well an offering has sold to date or at least how successful it has sold relative to offerings previously undertaken by this underwriter

adaptive learning and roads to chaos the case of the cobweb abstract we investigate the dynamics of the cobweb model with adaptive expectations a linear demand curve and a nonlinear s shaped increasing supply curve both stable periodic and chaotic price behaviour can occur we investigate how the dynamics of the model depend on the parameters both infinitely many period doubling and period halving bifurcations can occur when the demand curve is shifted upwards the same result holds with respect to the expectations weight factor

an analysis of value destruction in at t s acquisition of ncr abstract at t s 7 5 billion acquisition of ncr decreased the wealth of at t shareholders by between 3 9 billion and 6 5 billion and resulted in negative synergies of 1 3 to 3 0 billion we find that at t paid a documented 50 million and possibly as much as 500 million to satisfy pooling accounting thus boosting eps by roughly 17 but leaving cash flows unchanged we conclude that at t s decision to acquire ncr in what the market perceived as a value destroying transaction was related at least in part to the 1984 consent decree with the department of justice that led to the break up of at t

the significance of sell off profitability in explaining the market reaction to divestiture announcements abstract previous research on asset sales has emphasized the divestment motivation and the use of the proceeds from the sale as determinants of selling firm value gains in contrast this paper explores the extent to which the relevant information necessary to evaluate sell offs is embodied in the profitability of the sale i e the price received by the seller over the value in use of the divested assets where the latter is a function of past operating earnings and book value our empirical results show that sell off profitability is substantially more significant in explaining the market reaction to divestiture announcements than the previous literature has suggested we provide strong evidence of a positive relation between selling firm abnormal returns during sell off announcements and profit on the sale which remains significant after controlling for the motivation behind the sell off the use of the proceeds from the sale and the presence of agency costs of managerial discretion we conclude that sell off profitability explains a major portion of selling firm abnormal returns and is one of the most significant determinants of the market reaction to divestiture announcements

partial equilibrium analysis in a noisy chaotic market abstract we investigate the validity of partial equilibrium analysis in a nonlinear chaotic market model subject to small noise despite the sensitivity to market parameters in a chaotic economy partial analysis can still detect both qualitative and quantitive features of price fluctuations which are robust against small noise and market interdependencies

event studies in economics and finance the event study is an important research tool in economics and finance the goal of an event study is to measure the effects of an economic event on the value of firms event study methods exploit the fact that given rationality in the marketplace the effects of an event will be reflected immediately in security prices thus the impact can be measured by examining security prices surrounding the event in this paper event study methods are described including some of the potential complications an example is included to illustrate the approach

real effects of accounting rules evidence from multinational firms investment location and profit repatriation decisions we analyze survey responses from nearly 600 tax executives to better understand corporate decisions about real investment location and profit repatriation our evidence indicates that avoiding financial accounting income tax expense is as important as avoiding cash income taxes when corporations decide where to locate operations and whether to repatriate foreign earnings this result is important in light of the recent research about whether financial accounting affects investment and in light of the decades of research on foreign investment that examines the role of cash income taxes but heretofore has not investigated the importance of financial reporting effects our analysis suggests that financial reporting is an important factor to be considered in the policy debates focused on bringing investment to the united states