high risk low return and vice versa the effect of product innovation on firm performance in a transition economy common wisdom suggests that high risk strategies will be associated with high expected returns and vice versa focusing on the effect of new product development on firm performance in this paper

is firm specific innovation associated with greater value appropriation the roles of environmental dynamism and technological diversity abstract this paper extends the resource based theory of the firm to examine the contingencies that either intensify or reduce the relationship between firm specific innovation and value appropriation based on a large scale analysis of a sample of us manufacturing firms we found that greater innovation rents appropriation is associated with an increase in firm specificity of its innovative knowledge but the positive relationship between firm specific innovations and firm value appropriation tends to decrease when the product or technology market is highly dynamic further under high environmental dynamism firms should increase the diversity in their knowledge composition in order to mitigate the risk of value erosion associated with firm specific innovations

attitudes toward risk and the risk return paradox prospect theory explanations this study attempted to explain bowman s risk return paradox in terms of recent research in behavioral decision theory and prospect theory the research emphasized the role of reference or target

prospect theory and the risk return association another look abstract in a seminal study fiegenbaum 1990 attempted to set down parameters of relationship between risk and return for firms and related it to two piece von neumann morgenstern utility function first explored empirically by fishburn and kochenberger 1979 i re examine the estimated relationship specifically i perform a meta analysis of the above and below median returns to show that the relationship between risk and return is weaker above median than below median i also show that the relationship between below median returns and above median returns is very small exhibiting compartmentalization of decision making by the firms similar to individual decision makers

business risk and return a test of simultaneous relationships bowman 1980 found an unexpected and paradoxical negative relationship between risk and return in many firms and for about a decade various researchers have attempted to explain the paradox this article summarizes some of those explanations and shows that industry conditions and business strategies are likely to influence both risk and return the relationships are depicted in a simultaneous model where business return risk and debt are endogenously determined the model is tested with 132 nondiversified firms in 8 disparate industries ols estimates of the parameters of the model show the risk return relationship to be significantly negative as many past researchers have found however 3sls estimates of the parameters of the simultaneous model reveal no significant relationship between risk and return the tentative conclusion is that many of the studies in the line of research concerned with bowman s 1980 paradox may have used an improperly specified model and that when a more realistic sim

uk directors trading the impact of dealings in smaller firms this paper reasesses the u k results of significant abnormal returns from directors trading for a new sample of directors trades 1984 86 and finds that abnormal returns tend to be concentrated in smaller firms when an appropriate benchmark portfolio is used it is found that the significance of the abnormal returns is substantially reduced with the implication that directors trading does not yield particularly high profits to either the directors themselves or to an outside investor mimicking those trades coauthors are john matatko ian tonks and richard purkis copyright 1994 by royal economic society

evading the use tax on cross border sales abstract a use tax is similar to a sales tax except that it is imposed on purchases made from out of state firms historically the use tax has been widely evaded this paper uses a spatial model to analyze the welfare effects of such evasion the analysis shows that the ability of consumers to evade the use tax alters their behavior in a way that leads firms to charge lower prices this reduces the welfare loss created by the sellers market power and implies that evasion can increase welfare even when tax rates are adjusted to offset the effect of evasion on tax revenue

business group affiliation and firm search behavior in india responsiveness and focus of attention this paper investigates the effects of organizational form on problemistic search we contrast how indian firms affiliated with business groups and unaffiliated firms evaluate performance and react by adjusting their internal technology search and external market search we propose that compared with unaffiliated firms business group affiliated bg affiliated firms are more externally oriented in setting aspiration levels and more likely to respond to low performance in the market domain we find support for an external orientation of bg affiliated firms and find that group affiliation determines the responsiveness to performance feedback in different search domains the findings suggest a need to add considerations of organizational form and governance to the theory of organizational search

financial risk perception are individuals variance averse or loss averse abstract finance theory tends to see risk as related to variance in expected returns whereas the psychology literature tends to link risk to probability or size of potential losses this paper investigates whether individuals perceptions of risk are linked to variance aversion or loss aversion and finds that a link to loss aversion is supported

trading on inside information evidence from the share structure reform in china abstract we examine stock trading activities in days before chinese listed firms made public announcement to start share structure reform there is significant evidence that relative to a benchmark period institutional investors bought more event firms shares in the last two trading days prior to announcement randomization tests show significant differences in institutional trading activities between event firms and matched control firms which suggests that some institutions had inside information moreover large trades account for a significant proportion of daily stock price changes in the last 2 days the evidence is consistent with the prediction by holden and subrahmanyam 1992 that when multiple informed investors acquire the same piece of information they will trade aggressively we also find that over the reform period the median share value change of event firms is 6 higher than that of control firms our findings have important implications for enforcement of insider trading regulations in china

a behavioral theory of r d expenditures and innovations evidence from shipbuilding i base an integrated model of innovation development and launch on the behavioral theory of the firm this model specifies that research and development expenses are increased when low performance causes problemistic search and when excess resources cause slack search innovations generated by search are launched if low performance gives managers high risk tolerance using data from shipbuilding firms i show that high performance reduces r d intensity and innovation launches and high slack increases r d intensity as predicted

strategic group formation and performance the case of the u s pharmaceutical industry 1963 1982 the focus of this paper is on three major questions 1 what is the theoretical rationale for the strategic group concept 2 does strategic group membership have performance implications and 3 are strategic groups and membership in strategic groups stable characteristics of industries a statistical procedure is proposed to longitudinally identify strategic groups the empirical setting is the u s pharmaceutical industry over the period 1963 82 while performance differences are found in terms of market share profitability differences between groups are not observed neither are differences found in terms of risk and risk adjusted performance these results are attributed to the existence of performance variation within each strategic group a dynamic model of competitive repositioning is proposed which helps integrate the findings from the study

investor protection prospect theory and earnings management an international comparison of the banking industry this paper raises three issues related to the earnings management em of banks across 48 countries first does earnings management of banks exist in all 48 countries second what is the incentive of banks to manage earnings third why does em vary across countries to answer these three questions two thresholds viz a threshold of zero earnings and a threshold of zero earnings change are employed the answer to the first question above is that banks in more than two thirds of the 48 countries sampled are found to have managed their earnings with respect to the second question prospect theory is used to provide an answer the relationship between return and risk is positive for high earnings groups but is negative for low earnings banks finally as to the last question stronger protection of investors and greater transparency in accounting disclosure can reduce banks incentives to manage earnings also higher real gdp per capita decreases the degree of earnings management it is seen that stronger enforcement of laws can counter intuitively result in stronger earnings management however this effect appears in low income countries only and not in high income countries

multinationality portfolio diversification and asymmetric mne performance the moderating role of real options awareness the field of international business is fundamentally concerned with the implications of managerial actions that affect multinational risk and performance outcomes while portfolio diversification and real options theory are often used to describe the outcomes of multinational investment existing work often confuses the actions and predictions proposed by these theories this is concerning as the two theories emphasize different causal mechanisms managerial actions and conceptions of risk and performance whereas portfolio theory argues that passive management affects symmetric outcomes such as variance in returns by attaining a well diversified portfolio real options theory posits that managers actively shift subsidiary resources to affect asymmetric outcomes such as upside potential or downside risk by monitoring and responding to environmental changes affecting the portfolio this paper disentangles these two theories by focusing on unique predictions from real options theory that geographic dispersion of mne activities is associated with asymmetric outcomes that this association is contingent on management being aware of real options logic and that these effects are moderated by the degree of market uncertainty our findings confirm these predictions and suggest differences in the types of managerial strategies and actions required to effectively implement these distinct theories of the mne

risk premiums for decision regret some people find decision making under uncertainty difficult because they fear making the wrong decision wrong in the sense that the outcome of their chosen alternative proves to be worse than could have been achieved with another alternative these people may be willing to pay a premium to avoid consequences that produce this decision regret this paper continues an earlier investigation into the normative implications of decision regret and looks at situations where the joint probability distribution of consequences between alternatives is not specified at the time of the decision it includes a discussion of cases where the outcomes produced by alternatives not chosen are never resolved a consequence of this model of preferences for risky situations is that two components of risk aversion may be identified decreasing marginal value and regret aversion

variable risk preferences in new firm growth and survival we outline and test a decision making theory of new venture growth and survival building upon research in entrepreneurship and decision making under risk we hypothesize that entrepreneurs attention to survival and aspiration reference points changes based on venture age experience based learning size differences in decision complexity and performance decision domain examining a panel of 14 760 new ventures in the professional services sector our findings show how risk preferences change as a venture ages and increases in size this approach offers a more nuanced view of decision making under risk and provides a theoretical explanation for the common patterns of new ventures probability of exit and growth diminishing with age and size

measuring organizational downside risk despite widespread incorporation of risk measures in strategy research there is little consensus regarding the meaning and measurement of risk in contrast to the variability measures widely used in strategy studies this paper draws from behavioral decision theory finance and management theory to present an alternative perspective on organizational risk downside risk the paper explains three categories of organizational downside risk measures based on the concept of lower partial moments the latter sections of the paper present considerations involved in specifying operational measures of downside risk and an empirical comparison of alternative downside risk measures

too risky to hold the effect of downside risk accumulated equity wealth and firm performance on ceo equity reduction although the alignment effect of equity ownership is often studied with emphasis on changes in firm strategy the exposure of ceos firm specific wealth to firm risk is more easily controlled by changing their level of equity holdings than by changing firm strategic risk we rely on prospect theory and the behavioral theory of the firm to examine the antecedents of ceo equity reduction and investigate whether it serves to decouple ceo wealth from firm risk given its central role in loss avoidance we underline the effect of the firm s downside risk and distinguish the total loss potential on equity holdings from the loss potential due to firm specific factors allowing for own performance referents we also consider firm performance and the value of a ceo s equity holdings in the analysis based on a sample of 208 u s ceos for the years 1997 1999 we find empirical support for the role of downside risk and firm performance in ceo equity reductions implications on incentive alignment through equity ownership are presented

relativity rank and the utility of income relative utility has become an important concept in several disjoint areas of economics i present a cardinal model of income utility based on the supposition that agents care about their rank in the income distribution and that utility is subject to adaptation over time utility levels correspond to the leyden individual welfare function while utility differences yield a version of the prospect theory value function thereby providing a new and shared derivation of each i offer an explanation of some long standing paradoxes in the wellbeing literature and an insight into the links between relative comparisons and loss aversion

self preservation as a foundation of rational behavior under risk abstract this paper derives an expected utility theorem from the principle of self preservation thus providing a new interpretation of the notion of rationality underlying the von neumann morgenstern theory self preservation is defined as the maximization of the probability of survival in a finite horizon model where in each period the decision maker must choose a risky prospect from a feasible set of such prospects and becomes extinct if his accumulated fortune becomes non positive it is shown that the choice of the optimal strategy may be regarded as an expected utility maximizing behavior and that violations of the independence axiom e g allais paradox imply that decision makers choose a probability of survival smaller than the maximum possible given the set of acts furthermore according to this approach rational attitudes toward risk are also derived from the model

currency unions and international integration this paper characterizes the integration patterns of international currency unions such as the cfa franc zone we empirically explore different features of currency unions and compare them to countries with sovereign monies by examining the criteria for mundellos concept of an optimum currency area we find that members of currency unions are more integrated than countries with their own currencies for instance we find that currency union members have more trade and less volatile real exchange rates than countries with their own monies business cycles are more highly synchronized across currency union countries than across countries with sovereign monies

prospect theory and the risk return association an empirical examination in 85 industries a new sample of 85 industries about 3 300 firms defined in terms of homogenous products provides strong evidence that prospect theory can explain the tradeoff between two of the most researched parameters in evaluating organizations namely risk and return in particular organizations below their target level are found to be risk takers hl while organizations above their target level are risk averters h2 moreover the below target tradeofl was generally steeper than the above target with a median below to above slope ratio of about 3 l h3 risk and return are probably the two single parameters most researched by the various and related disciplines of economics finance and management although each one of them has looked at these two parameters from different aspects and for different purposes they have provided a wide understanding of these two factors in the contest of the theory of the firm the purpose of this study is to look closely at the relationship between these two important parameters in order to understand firm s competitive behavior using the recent development in behavioral decision theory namely prospect theory kahneman and tversky 1979 although march 1988 has criticized the discipline of management for its later adaptation in considering risk elements for evaluating organization performance and decision making processes recent studies e g bettis 1981 rumelt 1974 singh 1986 jemison 1987 and baird and thomas 1986 have paid considerable attention to risk aspects in evaluating the performance of firms in general these studies have concluded that the characteristics of the firms environment strategy and implementation processes have significant and important influence on the firm s risk level and its associated rate of return bowman 1980 has looked closely at 85 u s industries and explored the

firm capabilities technological dynamism and the internationalisation of innovation a behavioural approach we develop a behavioural framework of bounded rational decision making under uncertainty to analyse the role of technological dynamism in the firm s environment for its decision to internationalise innovation applying prospect theory we argue that technological uncertainty in the firm s environment affects its risk preferences differently depending on its technological capabilities a key prediction is that firms with low capabilities will internationalise innovation when faced by technological uncertainty while firms with high capabilities will concentrate their innovation at the home base we also argue that our behavioural approach based on prospect theory is not a stand alone programme but benefits from the integration with traditional concepts in ib in particular we make a case that organisational measures fostering absorptive capacity such as intensive personnel exchange between headquarters and subsidiaries can help to attenuate the high capability firms tendency to concentrate innovation at the home base when faced by high uncertainty we corroborate the predictions of our framework based on data from the german part of the community innovation survey

toward a model of risk in declining organizations an empirical examination of risk performance and decline scholars who study organizational decline have argued that declining organizations reduce or eliminate their riskier activities such as innovation further they cite reduced risk taking as a primary contributor to further decline scholars with an interest in risk per se come to the opposite conclusion low performing firms often take more risks than other firms and such risks reduce subsequent performance this study attempts to resolve these conflicting views by examining the risk of firms in decline our model based on cyert march s cyert r m j g march 1963 a behavioral theory of the firm prentice hall englewood cliffs nj behavioral theory of the firm includes six basic variables 1 performance 2 slack 3 aspirations 4 expectations 5 risk income stream uncertainty and 6 organization size as a measure of decline the estimated model includes prior levels of risk and performance in the risk and performance equations respectively as controls this study uses data on 34

aspiration level effects an empirical investigation abstract theories of aspiration level effects predict that decisions under uncertainty will depend on whether performance is above or below some target level of performance a sample of 5000 quarterly earnings announcements by publicity held companies listed on the compustat and crsp data bases is examined to test this hypothesis four models from the current accounting literature are used as alternative estimates of the target level of earnings for these firms when earnings are announced the difference between actual and forecast earnings here called a forecast error can be computed the data indicate that the relationship between valuation and forecast error differs conditional on the sign of the forecast error

the effects of economic status and recent experience on innovative behavior under environmental variability an experimental approach we build and empirically test a model that predicts the display of innovative behavior as a function of environmental change with recent experience and economic status acting as moderators we start with the model developed by slevin 1971 which evolved from the so called innovation boundary this is the threshold beyond which the display of innovative behavior becomes attractive we show how environmental change creates uncertainty about the position of the innovation boundary however this uncertainty is reduced by recent experiences furthermore economic status serves as both an enhancer and an inhibitor of innovation our model was tested and largely confirmed in two experiments one conducted in a laboratory setting and one conducted as a discrete choice experiment currently experiments are rarely conducted in the field of innovation studies by presenting this evidence we also hope to encourage more authors to conduct experiments in their work

strategic reference point theory how can executives achieve a match between expected external environmental conditions and internal organizational capabilities that facilitates improved performance this paper argues that a firm s choice of reference points can help achieve strategic alignment capable of yielding improved performance and potentially even a sustainable competitive advantage building upon prospect theory and other relevant theoretical perspectives the strategic reference point srp matrix is developed a firm s srp consists of three dimensions internal capability external conditions and time a theory is developed which posits an optimal srp structure and propositions are offered which articulate the expected relationships between the srp strategic choice behavior and firm performance the paper closes with some suggestions for using strategic reference points in both research and practice

the survival of international new ventures international new ventures invs are a popular mode of entry into foreign markets invs those companies that enter foreign markets at inception often suffer the two liabilities of newness and foreignness which may increase the odds of their failure this paper empirically examines the survival of invs by comparing them with other sequential modes of international operations e g acquisitions data from 275 british firms show that invs have lower unconditional survival probabilities than other modes of foreign market entry our analyses also show that differences in survival probabilities disappear when the firms competitive strategies are considered

from m p to ma p multinationality alignment and performance rather than searching for a universal optimal level of multinationality for all firms we argue that firm specific attributes should result in firm specific optimal levels of multinationality specifically we draw upon transaction cost and internalization theory to argue that there will be different optimal levels of multinationality for individual firms and if firms internalize foreign operations to an extent less than or greater than their individual optimal levels transaction costs will increase and performance will decrease to test this idea we use transaction cost models in the context of large us law firms during the time period from 1986 through 2008 to estimate firm specific optimal multinationality next we test relationships between alignment with or deviations from firm specific optimal levels of multinationality and performance ma p consistent with the ma p hypothesis insufficient and excessive levels of multinationality are both negatively related to financial performance in addition excessive multinationality is positively associated with downside performance risk one key implication is that an ma p approach may offer greater theoretical validity and clarity than traditional multinationality and performance m p approaches

investment and the behavioral theory of the firm evidence from shipbuilding investment in production assets is a strategic decision that results from organizational search and risk taking the behavioral theory of the firm predicts that performance below the aspiration level and slack resources initiate organizational search risk theory predicts that performance below the aspiration level increases risk tolerance this paper integrates these theories to form a theory of problem and slack driven strategic change and applies it to the growth of production assets the predictions are tested by analyzing the growth of production assets in the japanese shipbuilding industry yielding clear evidence that high performance causes low asset growth but no effect of slack copyright 2003 oxford university press

does insider trading raise market volatility this paper studies the role of insider trading in explaining cross country differences in stock market volatility it introduces a new measure of insider trading the central finding is that countries with more prevalent insider trading have more volatile stock markets even after one controls for liquidity maturity of the market and the volatility of the underlying fundamentals volatility of real output and of monetary and fiscal policies moreover the effect of insider trading is quantitatively significant when compared with the effect of economic fundamentals

in a world without borders the impact of taxes on internet commerce the rapid rise in sales over the internet and the fact that most internet buyers pay no sales tax has ignited a considerable debate over taxes and the internet this paper uses new data on the purchase decisions of approximately 25 000 online users to examine the effect of local sales taxes on internet commerce the results suggest that controlling for observable characteristics people living in high sales taxes locations are significantly more likely to buy online the results are quite robust and cannot be explained by unobserved technological sophistication shopping costs or other alternative explanations the magnitudes in the paper suggest that applying existing sales taxes to internet commerce might reduce the number of online buyers by up to 24 percent

the relation between aggregate insider transactions and stock market returns a vector autoregressive var model is used to examine the relation between aggregate insider transactions and stock market returns consistent with the extant literature there is some predictive content associated with aggregate insider transactions but its magnitude is slight in contrast market returns have substantial influence on the aggregate purchases and sales of corporate insiders the findings suggest that 1 the degree of mispricing observed by insiders is small 2 very little of the mispricing is associated with unanticipated macroeconomic factors and 3 investors cannot use aggregate insider transactions to profitably predict future market returns over the following eight weeks

risk taking of executives under different incentive contracts experimental evidence classic financial agency theory recommends compensation through stock options rather than shares to counteract excessive risk aversion in agents in a setting where any kind of risk taking is suboptimal for shareholders we show that excessive risk taking may occur for one of two reasons risk preferences or incentives even when compensated through restricted company stock experimental ceos take large amounts of excessive risk this contradicts classical financial theory but can be explained through risk preferences that are not uniform over the probability and outcome spaces and in particular risk seeking for small probability gains and large probability losses compensation through options further increases risk taking as expected we show that this effect is driven mainly by the personal asset position of the experimental ceo thus having deleterious effects on company performance

local fiscal competition an application to sales taxation with multiple federations abstract local sales tax rates influence the location of retail activity this paper develops a theory and empirical identification strategy for studying sales tax competition with multiple federations as exemplified by multiple counties each containing several cities in addition to strategic interactions with nearby cities and a city s own county city tax rates are influenced by the tax rates of neighboring counties cities react heterogeneously to own county sales tax rates depending on distance to the county border using data on the driving time to county borders and a comprehensive cross section of local sales tax rates i exploit variation in proximity to county borders to identify vertical fiscal competition cities located near county borders react more intensely to their county s tax rate in comparison to towns at the interior an increase in the neighboring county tax rate raises city tax rates in nearby counties

executive stock options as mixed gambles revisiting the behavioral agency model conceiving of stock options as providing ceos with cues for the possibility of both greater prospective wealth and losses to current wealth we revisit predictions of the behavioral effects of equity based pay using the behavioral agency model bam we refine the bam s original formulation and provide an explanation for previous conflicting empirical results by theorizing that the anticipation of prospective wealth attenuates the negative effect of accumulated current equity wealth upon ceo strategic risk taking in doing so we offer an advancement of the dialectic between 1 classical agency scholars arguing that equity based pay leads to more risk taking and 2 behavioral scholars arguing that equity wealth creates risk bearing leading to less risk taking we also suggest that the influences of prospective wealth and current wealth on strategic risk taking depend on the extent to which agents can manage the risk inherent in their compensation package and agent vulnerability to losses formal hypotheses to test these expectations are made by focusing on equity based compensation our findings offer strong support for these theoretical expectations

efficiency of the market for racetrack betting many racetrack bettors have systems since the track is a market similar in many ways to the stock market one would expect that the basic strategies would be either fundamental or technical in nature fundamental strategies utilize past data available from racing forms special sources etc to handicap races the investor then wagers on one or more horses whose probability of winning exceeds that determined by the odds by an amount sufficient to overcome the track take technical systems require less information and only utilize current betting data they attempt to find inefficiencies in the market and bet on such overlays when they have positive expected value previous studies and our data confirm that for win bets these inefficiencies which exist for underbet favorites and overbet longshots are not sufficiently great to result in positive profits this paper describes a technical system for place and show betting for which it appears to be possible to make substantial positive profits and thus to demonstrate market inefficiency in a weak form sense estimated theoretical probabilities of all possible finishes are compared with the actual amounts bet to determine profitable betting situations since the amount bet influences the odds and theory suggests that to maximize long run growth a logarithmic utility function is appropriate the resulting model is a nonlinear program side calculations generally reduce the number of possible bets in any one race to three or less hence the actual optimization is quite simple the system was tested on data from santa anita and exhibition park using exact and approximate solutions that make the system operational at the track given the limited time available for placing bets and found to produce substantial positive profits a model is developed to demonstrate that the profits are not due to chance but rather to proper identification of market inefficiencies

sics as delineators of economic markets the standard industrial classification sic is often used to divide firms into homogeneous markets firms classified into the same n 1 digit sic are thought to be more homogeneous than firms sharing only the same n digit sic this study measures how well the sic succeeds at combining firms into homogeneous economic markets assuming that firms in more similar economic markets should display more similar sales changes profit rates or stock price changes than firms in less similar economic markets the author finds that the sic is not successful at identifying firms with such similar characteristic variables copyright 1989 by the university of chicago

solar power investment in north africa reducing perceived risks abstract climate protection targets for mid century imply a need to scale up european renewable power production to a level that may exceed the available land area within europe s borders one attractive solution from a cost and feasibility perspective is the development of large scale concentrating solar power plants in north africa and the middle east however these developments are seen by many people as risky in terms of both european energy security and in terms of the risks faced by project developers in this paper we focus on the latter of theses issues first we examine the risks that project developers are most concerned about and identify these as being associated not with terrorism and rogue state behavior but rather with corruption and inefficient and unpredictable bureaucracies second we identify a range of policy approaches that can reduce these risks either by mitigating their consequences or by seeking to eliminate their underlying causes third we investigate the financial benefits of taking such steps to reduce or eliminate investment risks we find the potential savings to european electricity consumers to exceed 200 billion

modeling opec behavior theories of risk aversion for oil producer decisions abstract theories of opec such as price leadership cartel or game theoretic models suggest an incentive for opec members to expand their production capacity well above current levels in order to maximize revenues yet individual opec members consistently explore for and develop oil fields at a level well below their potential the cause of low oil exploration and development efforts among opec members and even some non opec members may have to do with risk aversion this paper describes an alternative theory for opec behavior based on risk aversion using a two piece non neumann morgenstern utility function similar to fishburn and kochenberger 1979 decision science 10 503 518 and friedman and savage 1948 journal of political economy 56 the model shows possible low oil production behavior

insider trading stock return volatility and the option market s pricing of the information content of insider trading abstract we find strong evidence that net insider selling is positively associated with future stock return volatility consistent with insider selling increasing outside investors uncertainty the positive effect of net insider selling is significantly stronger when the volatility is measured around the earnings announcement apparently option prices do not fully reflect the information content of insider trading for future volatility more specifically we find no evidence that option traders adjust the implied volatility for the insider trading effect in a timely manner consequently net insider selling is significantly associated with future option straddle returns and delta neutral returns

diversification and the risk return trade off the article presents information on a study which investigated the risk return trade off at the level of individual firms with both accounting and market based measures of risk the author describe

fixed versus variable reference points in the risk return relationship abstract researchers using prospect theory in explaining bowman s risk return paradox have typically assumed a single fixed reference point normally the industry median in defining two decision contexts gain and loss our findings suggest this reference point is elevated above industry median performance and varies over time and across industries independent of industry performance consistent with the prospect theory firms above this reference point were risk averse and those below it were risk seeking we found no evidence of a second survival reference point for firms in trouble

performance feedback and firm risk taking the moderating effects of ceo and outside director stock options we contribute to the behavioral theory of the firm and the behavioral agency model by developing a theoretical framework that predicts the differential interaction effects of performance feedback and values of stock option grants of multiple agents on firm risk taking we explain how chief executive officers ceos versus outside directors awarded with stock option grants perceive negative or positive deviations from prior performance we argue that in a negative attainment discrepancy context high values of option grants will increase the risk aversion of ceos who already bear excessive employment and compensation risks resulting in less risk taking however it will enhance the risk taking propensity of influential outside directors who increase monitoring and support for risky projects because their risk preferences are better aligned with those of shareholders in a positive attainment discrepancy context high values of option grants will amplify risk aversion in both ceos and outside directors who

adaptation as information restriction the hot stove effect individuals and social systems are often portrayed as risk averse and resistant to change such propensities are characteristically attributed to individual organizational and cultural traits such as risk aversion uncertainty avoidance discounting and an unwillingness to change this paper explores an alternative interpretation of such phenomena we show how the reproduction of successful actions inherent in adaptive processes such as learning and competitive selection and reproduction results in a bias against alternatives that initially may appear to be worse than they actually are in particular learning and selection are biased against both risky and novel alternatives because the biases are products of the tendency to reproduce success that is inherent in the sequential sampling of adaptation they are reduced whenever the reproduction of success is attenuated in particular when adaptation is slowed made imprecise or recalled less reliably the propensity to engage in risky and new activities is increased these protections against the error of rejecting potentially good alternatives on inadequate experiential evidence are costly however they increase the likelihood of persisting with alternatives that are poor in the long run as well as in the short run

monetary policies for developing countries the role of institutional quality abstract weak public institutions including high levels of corruption characterize many developing countries we demonstrate that this feature has important implications for the design of monetary policymaking institutions we find that a pegged exchange rate or dollarization while sometimes prescribed as a solution to the credibility problem is typically not appropriate for countries with poor institutions such an arrangement is inferior to a rogoff style conservative central banker whose optimal degree of conservatism is proportional to the quality of institutions finally we cast doubt on the notion that a low inflationary framework can induce governments to improve public institutions

organizational structure and performance feedback centralization aspirations and termination decisions this study examines the effects of organizational structure and performance feedback on termination decisions in particular product phaseout using quarterly product level data on the major mobile handset manufacturers for the period 2004 2009 we analyze how product level feedback affects product phaseout and how these decisions are conditioned by organizational structure the extent to which decision making is centralized we argue that such structure affects termination in two ways directly through coordination and indirectly by shaping the interpretation of performance feedback our baseline models indicate that as performance increases above aspirations the rate of phaseout decreases we find that as performance declines below aspirations the rate of phaseout decreases but then increases when the product falls below a certain sales threshold we also find evidence that centralization amplifies the feedback effect above aspirations but attenuates it below aspirations this study links two pillars of the carnegie school aspiration levels and hierarchy to explain the complexity of phaseout following perceived success or failure we thereby augment the growing scholarship on performance feedback by considering some important conditional effects imposed by a centralized structure our focus on centralization expands the scope of theory concerning organization design by linking structure and cognition to explain firm behavior especially termination decisions

tax compliance and fiscal externalities evidence from u s diesel taxation abstract fiscal externalities across jurisdictions can arise from tax evasion and avoidance while the tax competition literature has generally focused on base shifting and the resulting positive fiscal externalities we show theoretically and empirically that negative fiscal externalities can dominate when the tax base is apportioned across jurisdictions this can lead to a negative relationship between jurisdiction size and the desired tax rate interstate truckers in the united states owe state diesel taxes based on diesel consumption which is apportioned based on the miles driven in each state we find that own state diesel sales fall when the diesel tax rates of other states rise suggesting that tax base evasion is the predominant source of externalities we then estimate a tax reaction specification finding that the own state tax rate is negatively correlated with the tax rates set in other states and with state size both consistent with the sign of the estimated fiscal externality

habits and the anomalies in intertemporal choice this paper analyzes a model of discounted utility under habit formation habit formation means that utility in each period is determined by the difference between the received outcome and the customary outcome at that point in time preferences are rational in the sense that the decision maker correctly anticipates the habit formation process and behaves in a dynamically consistent manner i e plans are truly carried out the purpose is to demonstrate that this generalization of the discounted utility model accounts jointly and in a meaningful way for the most striking anomalies with respect to classical discounted utility theory the common difference effect is explained first this effect also called decreasing impatience effect has usually been viewed as evidence against exponential discounting then the frequently observed preference for increasing sequences of outcomes is examined such preference under the traditional discounted utility model would be regarded as a paradoxical case of negative discounting a discussion of the descriptive prescriptive and normative values of the model is included

insider trading in a rational expectations economy it is often argued that efficiency considerations require society to freely permit insider trading in this article an opposing efficiency argument is formalized the model incorporates an investment stage followed by a trading stage if outsiders expect insiders to take advantage of them in trading outsiders will reduce their investment the insiders loss from this diminished investor confidence may more than offset their trading gains consequently a prohibition on insider trading may effect a pareto improvement insiders are made better off if they can precommit not to trade on their privileged information govemment regulation accomplishes exactly this jel 022 026 313 the traditional rationale articulated for insider trading regulation and other securities law is that such rules promote confidence in markets indeed president franklin d roosevelt justified the first major u s securities legislation by saying it should give impetus to honest dealing in securities and thereby bring back public confidence similar language is still invoked half a century later in connection with enforcement efforts against insider trading and in proposals for tightened stock

stock price manipulation it is generally agreed that speculators can make profits from insider trading or from the release of false information both forms of stock price manipulation have now been made illegal in this article the authors ask whether it is possible to make profits from a different kind of manipulation in which an uninformed speculator simply buys and sells shares they show that in a rational expectations framework where all agents maximize expected utility it is possible for an uninformed manipulator to make a profit provided investors attach a positive probability to the manipulator being an informed trader article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

interstate commodity tax differentials and the distribution of residents abstract this paper considers the manner in which an unequal distribution of consumers affects the commodity tax policies of neighboring jurisdictions the paper uses a spatial model in which the residents of two states are distributed non uniformly and employs a variety of assumptions about the behavior of governments and firms throughout the paper shows that at a nash equilibrium in tax levels the sparsely populated state imposes a lower tax than does its densely populated neighbor the paper also demonstrates how equilibrium state taxes differ depending on whether firms employ marginal cost or profit maximizing pricing

sticky aspirations organizational time perspective and competitiveness managers evaluate the organizational performance by comparing it with historical aspiration levels and are more likely to make strategic changes when the performance falls below the aspiration level historical aspiration levels can be updated with different speed because a focus on current performance will lead to quickly adjusting aspiration levels where historical performance has low weight while a focus on past performance will lead to slowly adjusting performance levels where the current performance has low weight a simulation model of aspiration level learning and strategic change under uncertainty yields the following findings 1 slow adjustments of an aspiration level gives higher performance across different levels of environmental uncertainty 2 slow adjustments of aspirations will dominate in populations with different adjustment levels if low performing organizations are removed and replaced by organizations of the form currently performing best and 3 stronger selection leads to faster domination by slow adjusters empirical analysis of format changes in radio stations finds slow adjustment of aspiration levels to be prevalent and finds slower adjustment in competitive markets as predicted

antecedents of convergence and divergence in strategic positioning the effects of performance and aspiration on the direction of strategic change this paper investigates drivers of convergence and divergence in strategic positioning in terms of resource allocation decisions the study based on the behavioral theory of the firm suggests two unexplored kinked curve relationships between performance gaps and strategic convergence divergence first the study suggests a negative relationship between a focal firm s performance relative to aspiration levels and strategic convergence divergence where the slope is steeper when performance is above the aspiration level second it suggests a positive relationship between a target firm s performance relative to a focal firm s performance and strategic convergence divergence where the slope is steeper when a target firm s performance is below a focal firm s performance empirical analysis of dyad level data in the u s food processing industry reveals that the direction of a firm s strategic change is shaped by its aspiration level its performance level and the performance gap between it and the firm it selects as a model this study contributes to the current literature by offering preliminary indications of when and how a firm moves closer to or further away from other competing firms in its strategic position

variable risk preferences and adaptive aspirations abstract observations of human decision making indicate that risk preferences depend on the values of possible outcomes relative to levels of aspiration a model of such variable risk preference is specified it suggests that some risk averse behavior may result from a human tendency to focus on targets and from the adaptation of those targets to experience rather than from a fixed trait of risk aversion in addition the model shows how risk preferences varying around adaptive aspirations produce both a greater long run likelihood of survival and a higher average return for survivors than do fixed risk preferences

determinants of firms backward and forward looking r d search behavior this study develops and operationalizes a behavioral forward looking search model by incorporating prospect theory organizational risk literature and the logic of the behavioral theory of the firm with recognition of the bounded rationality of decision makers and the goal directed rule based nature of organizations this model suggests that a comparison between firms performance expectation and performance target translates the cognitive representation of the firms future into their subsequent actions by examining the research and development r d expenditures of u s manufacturing firms from 1980 to 2001 this study explores how performance aspirations expectations and slack affect decision making about firms r d search investments the findings show that both performance feedback and performance prospect are important determinants of firms search behavior after controlling for firm industry and time effects in addition backward and forward looking determinants have interactive effects on search behavior firms problem driven search activity further increases when firms feel unlikely to achieve the performance target for another year in contrast search intensity is reduced when firms expect to improve their performance from an underperforming situation to an outperforming situation the findings suggest that future research on performance feedback and experiential learning should also consider the effect of forward looking prospects on firm behavior

a framework for mapping and comparing behavioural theories in models of social ecological systems formal models are commonly used in natural resource management nrm to study human environment interactions and inform policy making in the majority of applications human behaviour is represented by the rational actor model despite growing empirical evidence of its shortcomings in nrm contexts while the importance of accounting for the complexity of human behaviour is increasingly recognized its integration into formal models remains a major challenge the challenges are multiple i there exist many theories scattered across the social sciences ii most theories cover only a certain aspect of decision making iii they vary in their degree of formalization iv causal mechanisms are often not specified we provide a framework mohub modelling human behavior to facilitate a broader inclusion of theories on human decision making in formal nrm models it serves as a tool and common language to describe compare and communicate alternative theories in doing so we not only enhance understanding of commonalities and differences between theories but take a first step towards tackling the challenges mentioned above this approach may enable modellers to find and formalize relevant theories and be more explicit and inclusive about theories of human decision making in the analysis of social ecological systems

note further tests of aspiration level effects in risky choice behavior this note extends the work reported in payne laughhunn and crum payne j w d j laughhunn r crum 1980 translation of gambles and aspiration level effects in risky choice behavior management sci 26 1039 1060 on the need to incorporate a target return reference point or aspiration level concept in the analysis of risky choice behavior two experiments are reported the first experiment provides a more complete test of the model of reference point effects developed by payne laughhunn and crum a translation of outcomes procedure which adds a constant to all outcomes was used to vary the relationship of pairs of gambles to an assumed target or reference point the results fully support the model the second experiment provides evidence of the conceptual validity of the model by using explicit instructions to vary the target levels of managers while holding gamble values constant

variable organizational risk preferences tests of the march shapira model march and shapira s 1987 1992 model of managers risk preferences allows for shifts in attention between survival and aspiration levels our study provides initial empirical tests of their model

the spatial incidence of local retail taxation this paper examines the effects of local retail taxation in two simple models of spatial competition suppose that a suburb or central city imposes an excise tax or subsidy on a particular commodity such as gasoline liquor restaurant meals or groceries or imposes a general sales tax that affects many commodities simultaneously to what extent does this lead to higher prices within the jurisdiction and in neighboring jurisdictions section ii presents the basic model of spatial competition that forms a component of the fixed locations model of section iii and the entry model of section iv infinitely many stores are located along an infinite line and demand density is completely inelastic and uniform along the line the main endogenous variables of interest are the prices charged by the different stores throughout the paper a nash equilibrium in prices is assumed section iii presents the fixed locations model in which the tax is imposed after stores have already established themselves store locations are fixed due to location specific sunk costs if a suburb containing a single store imposes an excise tax on a commodity the store that is taxed and its first second and third nearest neighbors on each side increase their prices by 57 7 percent 15 5 percent 4 2 percent and 1 1 percent of the tax respectively this result is independent of the spacing of the stores and independent of whether or not they are evenly spaced if a suburb containing several stores imposes an excise tax the changes in price follow directly by adding the effects of taxes on several adjacent stores if a central city taxes all stores on the right half line the results are given by 12 the taxed and untaxed stores closest to the boundary

experiential learning competitive selection and downside risk a new perspective on managerial risk taking it is part of managerial wisdom that managers need to take risks in order to succeed this is in stark contrast to the prominent agent based theories of experiential learning and competitive selection that are known to be biased against risky alternatives in the long run how can the positive managerial view on risk taking prevail given these results qualitative surveys of managers suggest risks to be acceptable if their outcome distribution meets certain criteria we argue in this paper that these criteria are widely congruent with low downside risk using a novel simulation design we analyze the effects of experiential learning and competitive selection on downside risk preferences in an ecology of agents in the long run experiential learning implies weak downside risk seeking whereas competitive selection leads to strong downside risk aversion furthermore competitive selection leads to the prevalence of outcome distributions with low downside risk in an ecology even if they have a significantly higher level of total risk than comparable distributions with more downside risk we draw implications for empirical studies on managerial behavior the online appendix is available at https doi org 10 1287 orsc 2017 1149

strategic risk an ordinal approach strategic management researchers have shown increasing awareness of the importance of the concept of risk at the strategic level in recognition of this interest this research adopts a commonly used conceptualization of risk and shows how this conceptualization leads to a new measure of risk based upon the chance of loss of relative position within a set of firms this framework is shown to be particularly appropriate for strategy research information contained in probability distributions describing the relative positions of sets of firms over time is shown to be partitionable on the basis of gain or loss in position as well as on firm identity leading to the derivation of a new measure of strategic risk for an individual firm this development also provides a hierarchical quantification of risk at the levels of the industry group and individual firm the ordinal risk measure is applied to both hypothetical data for illustration and to data on the u s airline industry

will destination based taxes be fully exploited when available an application to the u s commodity tax system abstract we develop a tax competition model that allows for the setting of both an origin based and a destination based commodity tax rate in the presence of avoidance and evasion in the presence of evasion jurisdictions will give cross border shoppers tax preferential treatment thus not fully exploiting the potential of destination based taxation moreover the divergence between origin based and destination based taxes is stronger when the incentives for consumers tax arbitrage opportunities increase the united states is one example of many such systems while sales taxes are due at the point of sale use taxes are due on goods purchased out of state we document that when able to set both rates a majority of jurisdictions levy destination based use taxes at a lower rate than origin based sales taxes in response to changes in state level policies that increase tax avoidance opportunities the results of the empirical model broadly confirm our theory

a new view of the market structure performance debate ion typically considered in market structure performance studies data on cross sections of firms or industries are unlikely to be sufficiently 2 the question of data selection has been discussed fairly thoroughly by weiss 44 and demsetz i 5 among others although there appears to be little agreement on the direction of bias in the most commonly used samples the question of exogeneity has been less thoroughly discussed although in specific instances e g schmalensee 37 martin 27 it has been dealt with explicitly this content downloaded from 157 55 39 35 on sat 03 sep 2016 05 57 53 utc all use subject to http about jstor org terms 400 james l bothwell thomas f cooley and thomas e hall informative to make such empirical analysis useful it may therefore be more productive to return to industry specific analysis there will undoubtedly be some who are unconvinced by this argument and for them we offer the observation that further empirical studies based on weak deductive foundations are likely to be convincing only to the extent that they account explicitly for the role of prior beliefs and specification uncertainty ii determinants of profitability the conventional market structure conduct performance paradigm has guided vast amounts of empirical research in the field of industrial organization for the past three decades like empirical research in other areas of economics the maintained hypotheses that are considered reflect to a large extent the prior beliefs of the researchers the result is that there is always a suspicion that what is being engaged in is more advocacy than objective empirical analysis in the market structure performance literature the most important alternative prior beliefs maintained hypotheses appear to fall into six categories which we characterize as follows i seller concentration explains profits high rates of return are thought to be caused by monopoly power conferred by high degrees of seller concentration this is the basic collusion specification of bain i 2 seller concentration and entry barriers explain profits high rates of return are thought to reflect monopoly power resulting from both high seller concentration and high barriers to entry this prior comes from the traditional market structure performance paradigm of industrial organization and accounts for the peristence of collusive gains it is prevalent in the work of mann 26 weiss 45 46 comanor and wilson i i qualls 34 1j35 and many other researchers 3 absolute or relative firm size explain profits this prior reflects the demsetz i4 i5 and peltzman 133 notion that high rates of return result from superior firm efficiency or innovativeness and not from oligopolistic collusion and joint profit maximization this prior has also been adopted by others e g shepherd 39 gale i7 who assume that high market shares indicate high barriers to entry 4 risk differentials explain profitability differences this reflects the notion that high rates of return reflect neither monopoly power nor superior efficiency but the payment of positive risk premiums to risk averse investors it underlies much of the work of stigler 4i fisher and hall i6 cootner and holland i3 and many others there are however considerable differences in beliefs about which measure of risk variability of return over time financial leverage or nondiversifiable risk is relevant this content downloaded from 157 55 39 35 on sat 03 sep 2016 05 57 53 utc all use subject to http about jstor org terms the market structure performance debate 40i 5 advertising intensity explains profits this reflects the notion of bloch 4 and others that differences in reported accounting profit rates result from differences in the amounts of omitted intangible capital resulting from advertising expenditures because advertising is assumed by some to be a source of product differentiation this prior also may reflect the belief that the extent of product differentiation is a major determinant of profitability comanor i o schmalensee 13 7 6 growth explains profits this reflects brozen s 6 7 disequilibrium hypothesis that profitability differences result not from monopoly power but from adjustments in capacity lagging behind changes in demand given a particular maintained hypothesis about the most important determinant of profitability there remains uncertainty about the rest of the specification of the model if the results are not robust with respect to uncertainty about the conditioning set of variables then it cannot be concluded that the data are very informative about the hypothesis in question the next section discusses the methodology used to determine whether the results are robust to such specification uncertainty iii specification uncertainty the hypotheses discussed in the previous section all specify the primary determinants of profitability in each case however the investigator must have in mind a set of possible conditioning variables that may or may not belong in the regression although uncertainty about the inclusion or exclusion of such variables is not often explicitly acknowledged it is an inevitable and important aspect of virtually all empirical investigations the primary concern for the problem at hand is the extent to which this specification uncertainty leads to uncertainty in the estimated parameters of primary interest consider the regression model

real options in multinational corporations organizational challenges and risk implications in this study we investigate how multinationality affects firms risk levels our investigation builds on the idea from real options theory that international operations offer switching options to multinational corporations yet we also emphasize different sources of coordination costs that can mitigate the benefits of operational flexibility the findings from tobit models accounting for self selection underscore the importance of unobserved heterogeneity in the relationships between international investments and risk levels consistent with the coordination costs surrounding international operations we find that the relationship between multinationality and downside risk is curvilinear risk first declines and then increases as a firm s portfolio of international investments becomes extensive in addition downside risk is an increasing function of the average cultural distance between a firm s home base and the host countries in which its foreign subsidiaries operate

the regional dimension of mnes foreign subsidiary localization this paper examines the regional effect of mnes foreign subsidiary localization we hypothesize that the number of subsequent foreign subsidiaries in a country is in part determined by a firm s prior foreign subsidiary activity at the regional level we test our hypotheses using data on 1076 japanese mnes that created 3466 foreign subsidiaries 1837 wholly owned fdis and 1629 joint ventures over the period 1996 2001 we use a multilevel negative binomial approach with three levels of analysis localization decisions in a country 49 countries in a region six regions and at the headquarters level in this way we test the regional effects controlling for country and corporate dimensions we also run separate models to differentiate wholly owned and joint venture localization decisions our results strongly support the semi globalization perspective in that the regional level effects are significant and different from the country level effects for all foreign subsidiaries for wholly owned subsidiaries and for jointly owned subsidiaries japanese mnes adopt a regional perspective that complements their decisions at the country and firm levels they seek regional agglomeration benefits and make arbitrage decisions between countries in the same region

a risk return model with risk and return measured as deviations from a target return two attribute risk and return models are very popular in the economics and finance literature for analyzing decisions under uncertainty their popularity stems primarily from the intuitive appeal of the dichotomy into risk and return and from the ease with which the concepts can be diagrammed in two dimensions the most commonly used risk return model is the mean variance model in which risk is measured as the variance and return by the mean of the probability distribution over outcomes the mean variance model has a number of shortcomings which are widely known but of particular concern here are the facts that 1 mean variance dominance is neither necessary nor sufficient for second degree stochastic dominance 2 unless the form of the probability distribution is restricted mean variance is consistent with von neumann morgenstern utility theory only if the utility function is quadratic and 3 as peter fishburn has noted

a behavioral theory of market expansion based on the opportunity prospects rule what explains organizational search and choice when multiple opportunities are available to the decision makers drawing on the behavioral view of the firm and on the attention based view this study proposes a theoretical model centered on the opportunity prospects rule to explain market expansion defined as the extent how many and the selection which of multiple available opportunities that are actually pursued by competing firms we test our model using longitudinal fine grained data on commercial banks undertaking more than 1 300 opportunity choices the findings show that firms do use the opportunity prospects rule when exercising market expansion choices and that slack and performance feedback moderate the effects of opportunity prospects this paper contributes to organizational decision making research and to the behavioral view of the firm by showing the importance of considering an opportunity driven approach by demonstrating the relevance of simplifying rules to explain the search for the consequences of alternatives by extending recent efforts to provide a more forward looking perspective to model organization behavior and by showing when slack and performance feedback moderate the effects on market expansion of the opportunity prospects rule

the validity of roi as a measure of business performance business performance at the corporate level is widely assessed by the return through changes in the price of the stock and dividends to shareholders however corporate level performance analysis whether for strategic or public policy purposes is inappropriate in many instances because of the heterogeneity of the corporation s operations the strategic business units sbus comprising a corporation are often very diverse profitability analysis grouping these entities together yields few of the insights needed for strategic or public policy decision making because of this heterogeneity profitability analysis is often advocated and undertaken at the sbu level the absence of an equity market at the sbu level means that a measuring instrument other than that based on stock price must be used to assess profitability due to the lack of alternatives the performance of an sbu is almost always based on accounting data in particular the accounting measure return on investment roi is widely regarded as the most useful measure and ultimate bottom line test of business performance james reese and william cool 1978 it is used both as an objective of management and as a dependent criterion variable to evaluate the effect of various factors on performance despite its widespread use roi has been extensively criticized as being a totally inadequate indicator of economic rate of return g c harcourt 1965 ezra solomon 1971 franklin fisher and john mcgowan 1983 roi most typically defined as net income total assets 1 does not properly relate the stream of profits to the investment that produced it the earnings numerator is a consequence of investment decisions made in the past but the assets denominator can be expected to have had influence on not only past and current earnings but also to have influence on future earnings because of this failure to produce an accurate mapping roi has been criticized as being so seriously flawed that it bears little if any resemblance to the crucial concept of internal or economic rate of return the shortcomings of roi are said to be so severe that its cross sectional variations can be completely explained by the inappropriateness of the measure due to a lack of proven validity empirical investigations using roi have been labeled by fisher and mcgowan as totally misleading enterprises and by george benston 1985 as of doubtful value those making use of accounting roi argue that the noise created by the accounting distortions need not be expected to drown out the underlying signal of economic return contained in roi and therefore roi is still appropriate for use in analysis f m scherer 1979 and william long and david ravenscraft 1984 this paper examines the validity of roi as a measure of economic rate of return by ascertaining the existence and extent of the association of corporate level accounting roi with stock return a widely accepted indicator of business performance the null hypothesis for the analysis is that roi has no validity as a measure of business performance and as such will not exhibit an association with stock return while the tests provide direct evidence on the validity of corporate level roi the same underlying theorized inadequacies of accounting roi are also present at the sbu level 1 conclu

using privileged information to manipulate markets insiders gurus and credibility access to private information is shown to generate both the incentives and the ability to manipulate asset markets through strategically distorted announcements the fact that privileged information is noisy interferes with the public s attempts to learn whether such announcements are honest it allows opportunistic individuals to manipulate prices repeatedly without ever being fully found out this leads us to extend sobel s 1985 model of strategic communication to the case of noisy private signals our results show that when truthfulness is not easily verifiable restrictions on trading by insiders may be needed to preserve the integrity of information embodied in prices

the impact of financial leverage on risk of equity measured by loss oriented risk measures an option pricing approach abstract we investigate how financial leverage influences the risk of equity in companies with limited liability in our study the risk is measured by loss oriented risk measures var downside deviation etc also the dependence of the risk premium on risk is under consideration var based and downside risk measures are considered in similar frameworks and risk premium is introduced which is symmetrical to these risk measures the value of equity is modeled by the price of a call option in most cases there is a positive relationship between the level of leverage measured by the debt ratio and the risk measured by the loss oriented risk measures however there exist exceptions the risk premium is not a linear function of the risk still for a reasonable range of leverage the dependence of the risk premium on risk is approximately linear in most cases

process innovation and environmental sustainability engagement an application on technological firms abstract this study makes a contribution to the current literature by analysing how an internal strategic decision process innovation interacts with some features of the external environment to explain environmental sustainability engagement by companies drawing on economic and institutional rationales three hypotheses are proposed to examine the relationship between process innovation and environmental sustainability engagement considering the role played by the competitive and institutional context in which the firm operates the hypotheses are tested using a sample of 239 companies in high tech sectors operating in spanish science and technology parks using a non parametric test the results show that companies that perform process innovation are more engaged in environmental sustainability based on hierarchical regression models further results show that performing process innovation more than competitors is related to higher environmental sustainability engagement however when time is considered in the model as an explanatory factor the effect exerted by the institutional environment fades away furthermore the results show that as companies accumulate years operating in a science and technology park the relationship between process innovation and environmental sustainability engagement even becomes negative these findings suggest that there is a strong link between process innovation and sustainability engagement companies tend to satisfy both economic restrictions posed by their competitive environment and institutional pressures exerted by their stakeholders albeit in a manner that is not evenly distributed over time similarly firms devote more attention to institutional pressures at the beginning and to economic requirements in later stages of their evolution within science and technology parks

testing a causal model of corporate risk taking and performance the determinants of organizational risk taking and its impact on economic performance are critical issues in strategic management using a model that included risk performance performance expecta