equity valuation using multiples we examine the valuation performance of a comprehensive list of value drivers and find that multiples derived from forward earnings explain stock prices remarkably well pricing errors are within 15 percent of stock prices for about half our sample in terms of relative performance the following general rankings are observed consistently each year forward earnings measures are followed by historical earnings measures cash flow measures and book value of equity are tied for third and sales performs the worst curiously performance declines when we consider more complex measures of intrinsic value based on short cut residual income models contrary to the popular view that different industries have different best multiples these overall rankings are observed consistently for almost all industries examined since we require analysts earnings and growth forecasts and positive values for all measures our results may not be representative of the many firm years excluded from our sample

union rents as a source of takeover gains among target shareholders this paper tests the hypothesis that the substantial gains enjoyed by shareholders in target firms during the corporate acquisition boom of the 1980s reflected in part shareholders recouping of the value of rents in the form of wage premiums higher fringe benefits and constraints on managerial authority held by unionized labor analyzing data on the merger and acquisition experience of nearly 300 large publicly traded target firms during the period 1982 86 the author finds consistent with that hypothesis that shareholders average returns from takeover activity were higher in unionized target firms 41 than in nonunion target firms 35 for unionized workers these effects are equivalent to an annualized employee loss approaching 8 of annual earnings or 50 of the wage premium conventionally associated with union coverage

agent based computational transaction cost economics this article explores the use of agent based computational economics ace for modelling the development of transactions between firms transaction cost economics neglects learning and the development of trust ignores the complexity of multiple agents and assumes rather than investigates the efficiency of outcomes efficiency here refers to minimum cost or maximum profit we model how co operation and trust emerge and shift adaptively as relations evolve in a context of multiple interacting agents this may open up a new area of application for the ace methodology a simulation model is developed in which agents make and break transaction relations on the basis of preferences based on trust and potential profit profit is a function of product differentiation specificity of assets economy of scale and learning by doing in ongoing relations agents adapt their trust in a partner as a function of his loyalty exhibited by his continuation of a relation they also adapt the weight they attach to trust on the basis of realized profit the model enables an assessment of the efficiency of outcomes relative to the optimum as a function of trust and market conditions we conduct a few experiments to illustrate this application of ace

growth and value hybrid valuation model based on mean reversion abstractthis article proposes a novel valuation model growth and value hybrid model to estimate the stock price this proposed model combines the essence of the asset based approach the income based approach and the principle of mean reversion to develop the theoretical closed form formula consisting of three coefficients value coefficient value support coefficient and growth coefficient regression analysis is employed to fit market data to determine these coefficients moreover this study proposes the double sorting method to build the quantile regression models of the formula to estimate the stock price at a specific quantile the results show that the predictive capability of the hybrid valuation model is superior to the model without using value support coefficient which supports the assumption that the pbr is not associated with the roe when the roe is less than a threshold in different time periods of the stock market no significant difference exists on the value support coefficient howe

valuation of bankrupt firms this study compares the market value of firms that reorganize in bankruptcy with estimates of value based on management s published cash flow projections we estimate firm values using models that have been shown in other contexts to generate relatively precise estimates of value we find that these methods generally yield unbiased estimates of value but the dispersion of valuation errors is very widethe sample ratio of estimated value to market value varies from less than 20 to greater than 250 cross sectional analysis indicates that the variation in these errors is related to empirical proxies for claimholders incentives to overstate or understate the firm s value

source versus residence based taxation with international mergers and acquisitions this paper analyses tax competition and tax coordination in a model where capital flows occur in the form of mergers and acquisitions rather than greenfield investment in this framework we show that differences in residence based taxes do not necessarily distort international ownership patterns moreover tax competition yields globally efficient levels of source based corporate income taxes if residence based taxes on capital income are absent in contrast in the presence of residence based taxes on dividends source based corporate income taxes are inefficiently high the widespread view that tax coordination is less urgent if residence based taxes are available may therefore be misguided

farm costs and food miles an assessment of the full cost of the uk weekly food basket changes in both farm production and food transport have resulted in the imposition of new levels of environmental costs this study analyses the full costs of foods in the average weekly uk food basket by calculating the costs arising at diverent stages from farms to consumers plates of the 12 commodities assessed livestock produce contributes the most costs per kg the external cost of uk agriculture up to the farm gate is estimated to be 1 51 bn yr i1 it is calculated that a switch to organic production could lead to avoided costs of 1 13 bn yr i1 agricultural and food produce accounts for 28 of goods transported on uk roads currently imposing estimated external costs of 2 35 bn yr i1 the contribution made by sea and air transport is currently trivial owing to low volumes however road transport to carry food from the shop to home is estimated to impose a further 1 28 bn yr i1 to total external costs subsidies not targeted at environmental improvements cost consumers 2 88 bn yr i1 thus the real cost of the per capita uk food basket 24 79 is calculated to be 2 91 more per person wk i1 11 8 if externalities and subsidies are included with farm externalities 81 p domestic road transport 76 p government subsidies 93 p and shopping transport 41 p contributing the most we assess a variety of scenarios for adoption of organic farming localised food systems and sustainable transport to indicate the substantial potential to reduce environmental costs in the uk food system 2005 elsevier ltd all rights reserved

optimal capital structure and bankruptcy choice dynamic bargaining versus liquidation abstract we model a firm s optimal capital structure decision in a framework in which it may later choose to enter either chapter 11 reorganization or chapter 7 liquidation creditors anticipate equityholders ex post reorganization incentives and price them into the ex ante credit spreads using a realistic dynamic bargaining model of reorganization we show that the off equilibrium threat of costly renegotiation can lead to lower leverage even with liquidation in equilibrium if reorganization is less efficient than liquidation the added option of reorganization can actually make equityholders worse off ex ante even when they liquidate on the equilibrium path

employment protection and takeovers labor restructuring is a key driver of takeovers and the associated synergy gains worldwide in a difference in differences research design we show that major increases in employment protection reduce takeover activity by 14 27 and the combined firm gains synergies by over half consistent with the labor channel behind these effects deals with greater potential for workforce restructuring show a greater reduction in volume number and synergies the reforms do impede layoffs and the associated wage costs match the magnitude of synergy losses offer prices are not fully adjusted with both bidders and targets exhibiting lower returns following the reforms

deep impact geo simulations as a policy toolkit for natural disasters adverse post natural disaster outcomes in low income regions like elevated internal migration levels and low consumption levels are the result of market failures poor mechanisms for stabilizing income and missing insurance markets which force the affected population to respond and adapt to the shock they face in a spatial environment with multiple locations with independent but inter connected markets these transitions quickly become complex and highly non linear due to the feedback loops between the micro individual level decisions and the meso location wise market decisions to capture these continuously evolving micro meso interactions this paper presents a spatially explicit bottom up agent based model to analyze natural disaster like shocks to low income regions the aim of the model is to temporally and spatially track how population distributions income and consumption levels evolve in order to identify low income workers that are food insecure the model is applied to the 2005 earthquake in northern pakistan which faced catastrophic losses and high levels of displacement in a short time span and with market disruptions resulted in high levels of food insecurity the model is calibrated to pre crisis trends and shocked using distance based output and labor loss functions to replicate the earthquake impact model results show how various factors like existing income and saving levels distance from the fault line and connectivity to other locations can give insights into the spatial and temporal emergence of vulnerabilities the simulation framework presented here leaps beyond existing modeling efforts which usually deals with macro long term loss estimates and allows policy makers to come up with informed short term policies in an environment where data is non existent policy response is time dependent and resources are limited

loss aversion and managerial decisions evidence from major league baseball i introduction and motivation previous research indicates that management changes are important events for organizations partly because they lead to reversals of poor prior decisions 1 however this research begs the question of why it may be necessary to replace the manager in order to bring about such changes in this article we test for evidence of loss aversion and distinguish between loss aversion and agency costs as explanations for why managers hang on to poorly performing assets or employees they were instrumental in acquiring or hiring the study contributes to the literature on managerial decisions and to the sports economics literature it may be necessary to replace managers if their investment decisions are affected by loss aversion as aronson wilson and akert 2010 point out avoiding admission of mistakes is a common human trait once we have committed time or energy to a cause it seems to be nearly impossible to convince us that the cause is unworthy psychological aversion to admitting mistakes is related to loss aversion and reflects a cognitive bias the manager fails to see the problem or discounts negative experience as non representative agency costs provide an alternative explanation for why it may be necessary to replace managers to rectify prior mistakes agency costs arise when an agent e g a manager acts in his her own interest but not in the interest of the principal e g the firm owner in the presence of asymmetric information managers may have incentives to disguise or conceal poor decisions to avoid negative consequences such as reduced marketability as a manager demotion or termination this concern with career and reputation can lead to overlooking inefficiencies including asset underperformance and overpayment for the underperforming assets using three decades of data on managerial and player turnover in major league baseball mlb we 1 estimate the tendency of incumbent managers to hold on to low performing players rather than divest them 2 test the hypothesis that new managers unwind the mistakes of previous managers and 3 distinguish between loss aversion and agency costs as alternative explanations for retention of poor performing players our empirical analysis focuses on poor performing players who were hired by previous managers this is because either loss aversion or agency cost may have induced the prior manager to hang onto poor performing players new managers can be expected to move quickly to address these types of problems hence we can use new manager retention decisions to determine if the decisions are affected by whether or not the poor performer was hired by a previous manager failure of the acquiring manager to divest poor performing players could be consistent with either the manager s aversion to loss a cognitive bias or the manager s unwillingness to admit mistakes agency costs in the form of career concerns to distinguish between these we follow the career concerns literature and reason that experienced managers are less likely to suffer reputational harm if they terminate poor performers whom they hired loss aversion in contrast does not suggest a relationship between managerial experience and failure to terminate poor performers there are several advantages to using baseball data for this study the empirical design holds industry and competitive conditions constant and allows us to directly observe the performance of acquired assets players and how managers react to their performance once it is revealed we are able to identify the manager who made the acquisition decision and can measure the performance of individual players we also observe the player retention decisions of the subsequent manager the manager who did not acquire the player hence we can evaluate how the acquiring manager s behavior differs from that of the manager who inherits poor performing players some who were acquired by the prior manager and others who were hired by even earlier managers

valuing and pricing ipos abstract this paper investigates how underwriters set the ipo firm s fair value an ex ante estimate of the market value using a unique dataset of 228 reports from french underwriters these reports are issued before the ipo shares start trading on the stock market and detail how underwriters determined fair value we document that underwriters often employ multiples valuation dividend discount models and discounted cash flow dcf analysis to determine fair value but that all of these valuation methods suffer from a positive bias with respect to equilibrium market value we also analyze how this fair value estimate is subsequently used as a basis for ipo pricing we report that underwriters deliberately discount the fair value estimate when setting the preliminary offer price part of the intentional price discount can be recovered by higher price updates we find that controlling for other factors such as investor demand part of underpricing stems from this intentional price discount

do bad bidders become good targets this paper empirically examines one motive for takeovers to change control of firms that make acquisitions that diminish the value of their equity firms that subsequently become takeover targets make acquisitions that significantly reduce their equity value and firms that do not become takeover targets make acquisitions that raise their equity value within the sample of acquisition by targets the acquisitions that reduce equity value the most are those that are later divested either in bust up takeovers or restructuring programs to thwart the takeover this evidence is consistent with theories advanced by marris manne and jensen concerning the disciplinary role played by takeovers

antitrust policy and mergers the wealth effect of supreme court decisions many believe that antitrust policy has had a dramatic impact on merger strategies in the united states for this to be true enforcement of antitrust laws must affect a wide range of firms not just those firms whose mergers are contested this study tests whether or not firms engaged in uncontested mergers are affected by antitrust enforcement as signalled by supreme court decisions using event study methodology we find that antitrust policy against mergers was binding during the 1960s and 1970s as it ulowered the value of targets in ucontested ongoing mergers

shareholder wealth maximization business ethics and social responsibility the primary objective of this article is to develop a framework for analyzing the ethical foundations and implications of shareholder wealth maximization swm distinctions between swm and the more widely examined construct of profit maximization are identified the most significant being the central role played in swm by the market mechanism for pricing the corporation s securities it is argued that empirical tests concerned with evaluating the ethical implications of swm will almost surely involve a joint hypothesis a number of recent empirical studies aimed at testing hypotheses with explicit ethical content are reviewed

the effect of capital structure on a firm s liquidation decision abstract a firm s liquidation can impose costs on its customers workers and suppliers an agency relationship between these individuals and the firm exists in that the liquidation decision controlled by the firm as the agent affects other individuals the customers workers and suppliers as principals the analysis in this paper suggests that capital structure can control the incentive conflict problem of this relationship by serving as a pre positioning or bonding mechanism appropriate selection of capital structure assures that incentives are aligned so that the firm implements the ex ante value maximizing liquidation policy

what s wrong with the fundamental existence and welfare theorems abstract the definition of walrasian competitive equilibrium on which the fundamental existence and welfare theorems rest assumes that all trading in decentralized exchange economies takes place at the final equilibrium prices which further implies that at equilibrium prices the value of each agent s equilibrium commodity bundle is equal to the value of her endowment and equal treatment of agents with the same preferences technology and endowment the logic of the theorems supports the conclusion that in competitive economies prices the allocation of commodities and the distribution of income and material welfare are determined by the preferences technology and endowments of the agents in real world markets however agents can discover equilibrium prices only by making mutually advantageous transactions at disequilibrium prices any sequence of such transactions leads stably to an exchange equilibrium at which the offer prices of all agents are close to each other and which exhausts all private opportunities to realize economic surpluses the exchange equilibrium set however is in general a continuum and the exact equilibrium reached depends on the path of transactions in general exchange equilibria do not treat agents with the same preferences and endowments equally and the exchange equilibrium allocation of commodities does not conserve the values of individual agent endowments existence and stability of exchange equilibrium are transparent consequences of the logic of voluntary exchange but because of transaction path dependence equilibrium prices allocations of commodities and the distribution of wealth and economic welfare are not determined by agents preferences and endowments

the equity performance of firms emerging from bankruptcy this study assesses the stock return performance of 131 firms emerging from chapter 11 using differing estimates of expected returns we consistently find evidence of large positive excess returns in 200 days of returns following emergence we also examine the reaction of our sample firms equity returns to their earnings announcements after emergence from chapter 11 the positive and significant reactions suggest that our results are driven by the market s expectational errors not mismeasurement of risk the results provide an interesting contrast but not a contradiction to previous work that has documented poor operating performance for firms emerging from chapter 11 with large corporate bankruptcies being commonplace during the late 1980s and early 1990s there has been a notable increase in the number of firms emerging from bankruptcy altman 1991 1993 when firms emerge from bankruptcy they often cancel the old stock and distribute an entirely new issue of common stock the stocks of firms emerging from a chapter 11 bankruptcy are often called orphan equities among practitioners and there have been reports in the popular press about spectacular returns in this market for example as sandler 1991 p cl states

the role of esops in takeover contests this article examines both the shareholder wealth effects of employee stock ownership plans esops announced by firms subject to takeover pressure and the takeover incidence of targets with and without esops although we do not find that defensive esops significantly reduce shareholder wealth on average we identify two factors the change in managerial and employee ownership due to the esop and the simultaneous announcement of other defensive tactics that are associated with negative stock price reactions we find that esops are strong deterrents to takeover esop targets that are acquired earn higher returns than targets without esops but the difference is not statistically significant copyright 1994 by american finance association

taxing away m a capital gains taxation and acquisition activity abstract capital gains taxation distorts the market for corporate control by imposing a cost on selling shareholders in acquisitions this lock in effect increases premiums required for deal completion preventing some m as from taking place at all we estimate the effect of capital gains taxation on the quantity of realized m a deals and compute the deadweight loss related to taxing these transactions we find that a one percentage point increase in the capital gains tax rate reduces acquisition activity by around 1 annually for the united states this implies unrealized synergy gains of 9 3 billion each year due to capital gains taxes

how do mergers create value a comparison of taxes market power and efficiency improvements as explanations for synergies there is little evidence in the literature on the relative importance of the underlying sources of merger gains prior literature suggests that synergies could arise due to taxes market power or efficiency improvements based on value line forecasts we estimate the average synergy gains in a broad sample of 264 large mergers to be 10 03 of the combined equity value of the merging firms the detailed data in value line projections allow for the decomposition of these gains into underlying operating and financial synergies we estimate that tax savings contribute only 1 64 in additional value while operating synergies account for the remaining 8 38 operating synergies are higher in focused mergers while tax savings constitute a large fraction of the gains in diversifying mergers the operating synergies are generated primarily by cutbacks in investment expenditures rather than by increased operating profits overall the evidence suggests that mergers generate gains by improving resource allocation rather than by reducing tax payments or increasing the market power of the combined firm

buyer exuberance and price premium it has been demonstrated that the real estate market disciplines irrational price premiums however the persistence of price premiums begs the question of what causes price premiums in the first place this paper seeks to examine two explanations for price premiums the conventional information asymmetry explanation and the buyer exuberance explanation as motivated by behavioural studies the results show that information asymmetry explains price premiums and this finding is robust across two sub hypotheses tested namely information differences arising from market familiarity and product characteristics in addition we find that price premiums are also caused by buyer exuberance specifically exuberance arising from representativeness purchasing power and anchoring effects

tobin s q and the gains from takeovers this paper analyzes the relation between takeover gains and the q ratios of targets and bidders for a sample of 704 mergers and tender offers over the period 1972 1987 target bidder and total returns are larger when targets have low q ratios and bidders have high q ratios the relation is strengthened after controlling for the characteristics of the offer and the contest this evidence confirms the results of the work by lang stulz and walkling and shows that their findings also hold for mergers and after controlling for other determinants of takeover gains in a recent paper lang stulz and walkling lsw 1989 document that the abnormal returns in tender offers are related to the tobin s q ratios of the targets and the bidders in particular they find that target bidder and total returns are higher when takeover targets have high q ratios and bidders have low q ratios where one is used as a cutoff point to separate high q firms from low q firms in fact bidders with high q ratios have significant positive abnormal returns when they engage in a takeover while bidders with low q ratios have significant negative abnormal returns the best takeovers in terms of value creation are those where a high q firm takes over a low q firm the opposite scenario holds for the worst case takeovers low q firms taking over high q firms if q is interpreted as a measure of managerial performance these findings imply that better performing firms also make better acquisitions and that more value can be created from taking over poorly performing companies while the results of lsw are insightful they leave a number of questions unanswered their sample consists only of tender offers several studies have documented that the returns to targets in mergers are smaller than those in tender offers see jensen and ruback 1983 and huang and walkling 1987 it would therefore be useful to see whether the lsw 1989 results hold for a larger sample which includes both mergers and tender offers previous research has also shown that the characteristics of the takeover hostile versus friendly and single versus multiple bidder the form of payment cash versus securities the time period before 1968 1968 1980 1981 and later and the relative size of target and bidder are important determinants of the magnitude of takeover gains and their distribution

the rationale behind interfirm tender offers information or synergy this paper investigates the rationale behind interlirm tender offers by examining the returns realized by the stockholders of lirms that were the targets of unsuccessful tender offers and lirms that have made unsuccessful offers our results suggest that the permanent positive revaluation of the unsuccessful target shares documented by dodd and ruback 1977 and bradley 1980 is due primarily to the emergence of and or the anticipation of another bid that would ultimately result in the transfer of control of the target resources we also find that the rejection of a tender offer has differential effects on the share prices of the unsuccessful bidding firms depending upon whether the tender offer process results in a change in the control of target resources on the basis of these results we conclude that acquisitions via tender offers are attempts by bidding firms to exploit potential synergies not simply superior information regarding the true value of the target resources

on corporate governance a study of proxy contests abstract this paper examines a sample of firms experiencing proxy contests for seats on their board of directors dissident shareholders usually fail to obtain a majority of board seats nevertheless they capture some seats via mechanisms such as cumulative voting in over half of the sample contests regardless of proxy contest outcome positive and statistically significant share price performance is associated with the contest that finding is predicted by the standard economic analysis of proxy contests in which the challenges benefit shareholders by improving corporate performance the finding runs counter to the claim of berle 1962 that the economists view of proxy contests is a wholly imaginary picture a portion of the positive share price changes taking place in the early stages of some proxy contests is not permanent however and as suggested by manne 1962 is at least partially attributable to temporary increases in the market value of the vote attached to corporate shares

the dynamics of general equilibrium in walras original description of general equilibrium walras 1954 1874 market clearing was effected by a central authority this authority which has come to be known as the auctioneer remains today because no one has succeeded in producing a plausible decentralised dynamic model of producers and consumers engaged in market interaction in which prices and quantities move towards market clearing levels only under implausible assumptions can the continuous auctioneer dynamic be shown to be stable fisher 1983 and in a discrete model even these assumptions gross substitutability for instance do not preclude instability and chaos in price movements saari 1985 bala and majumdar 1992 1 moreover contemporary analysis of excess demand functions suggests that restrictions on preferences are unlikely to entail the stability of t sonnenschein 1972 1973 debreu 1974 kirman and koch 1986 it has been a half century since debreu 1952 and arrow and debreu 1954 provided a satisfactory analysis of the equilibrium properties market economies yet we know virtually nothing systematic about walrasian dynamics this suggests that we lack understanding of one or more fundamental properties of market exchange this article provides an agent based model of the walrasian economy an agentbased model is a computer simulation of the repeated play of a game in which a large number of agents are endowed with software encoded strategies governing both how they play the game and how they gather information and update their behaviour the disequilibrium behaviour of agents in our agent based models is governed by a replicator dynamic taylor and jonker 1978 in which over time successful agents tend in darwinian fashion to increase in frequency at the expense of unsuccessful agents we describe the process of shifting from lower to higher payoff strategies as imitation

are mergers beneficial to consumers evidence from the market for bank deposits the general conclusion of the empirical literature is that in market consolidation generates adverse price changes harming consumers previous studies however look only at the short run pricing impact of consolidation ignoring effects that take longer to materialize using a database that includes detailed information on the deposit rates of individual banks in local markets for different categories of depositors we investigate the long run price effects of mergers we find strong evidence that although consolidation does generate adverse price changes these are temporary in the long run efficiency gains dominate over the market power effect leading to more favorable prices for consumers jel g21 g34 l1

competing bids target management resistance and the structure of takeover bids we examine the structure of initial takeover bids and the frequency of observing competing bids and target management resistance we find the use of cash is not consistently correlated with the frequency of competition or resistance and that the cost of acquiring information about a target is associated with the likelihood of competition and resistance a high bid premium appears to deter competing offers and is also associated with a lower likelihood of resistance finally target management resistance is associated with an increased likelihood of a competing offer arising and a larger increase in target shareholder wealth between the initial public announcement and outcome dates relative to the not resisted subsample for both successful and unsuccessful acquisition proposals article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

rumor has it sensationalism in financial media the media has an incentive to publish sensational news we study how this incentive affects the accuracy of media coverage in the context of merger rumors using a novel dataset we find that accuracy is predicted by a journalist s experience specialized education and industry expertise conversely less accurate stories use ambiguous language and feature well known firms with broad readership appeal investors do not fully account for the predictive power of these characteristics leading to an initial target price overreaction and a subsequent reversal consistent with limited attention overall we provide novel evidence on the determinants of media accuracy and its effect on asset prices

computer simulation for supply demand interaction the most basic result in economics is that for perfect competition equilibrium price and quantity are determined by the intersection of aggregate demand and supply curves how this equilibrium is achieved and the adjustment process have received less attention the adjustment process may be based on aggregate demand and supply curves only via the imaginary actions of an auctioneer or a tatonnement process or on modeling of price and excess aggregate demand interaction such models are less plausible because they assume agents have perfect information about a unique price at which all transactions are concluded alternative assumptions necessitate explicit modeling of individual agents and their search behaviour which increases greatly the level of complication of the model though it is possible to deal with such models analytically stigler 1961 rothschild 1973 fisher 1973 mcafee and mcmillan 1988 special assumptions are needed to obtain desired results lesourne 1992 studies many of these models mostly in a descriptive manner in the framework of self organizing systems dynamic models which explicitly include multiple interacting agents contain many details that are difficult to handle without computers computer simulation makes it possible to include almost any assumption about individual agents and their interactions and to find out the consequences of these assumptions on the path toward equilibrium one of the few examples of such simulation is the work by albin and foley 1992 which deals with geographically dispersed agents with costs of communication applications of computer simulation to other areas of economics can be found in forrester 1961 witt 1986 and orcutt 1990 the current paper describes a computer simulation system that has been organized to enable simulation of interaction using a wide range of assumptions regarding agents search and samples so that the consequences

decentralized dispersed exchange without an auctioneer abstract we stimulate exchange among geographically dispersed agents who face real costs of communication along with bounds to rationality and calculation exchange is entirely decentralized it is initiated by individual agents who broadcast costly messages indicating their interest in trade it is accomplished by bilateral bargaining between pairs of agents agents use the information gained from previous attempts at local trade to calculate their search strategies for succeeding rounds this decentralized mechanism can achieve a substantial improvement in the allocation of resources and the average welfare of agents in comparison with a randomized initial endowment but in comparison with walrasian equilibrium agents who begin with endowments of equal value end up with substantially unequal wealth although the initial inequality of utility is reduced

corporate takeover bids methods of payment and bidding firms stock returns this study explores the role of the method of payment in explaining common stock returns of bidding firms at the announcement of takeover bids the results reveal significant differences in the abnormal returns between common stock exchanges and cash offers the results are independent of the type of takeover bid i e merger or tender offer and of bid outcomes these findings supported by analysis of nonconvertible bonds are attributed mainly to signalling effects and imply that the inconclusive evidence of earlier studies on takeovers may be due to their failure to control for the method of payment recent studies on corporate takeovers provide inconclusive results on the valuation effects of acquisitions on the common stock of bidding firms 1 substantial differences are reported between the studies that analyze acquisitions initiated as tender offers and those that confine their samples to merger proposals the existence of mixed empirical findings for the bidding firms makes it difficult to interpret existing evidence and to draw conclusions about the managers acquisition motivations nevertheless the reason for the substantial difference between empirical findings on mergers and tender offers still remains an unresolved issue it is observed however that mergers are usually common stock exchange offers whereas tender offers are usually cash offers given that different methods of financing a project have different signalling implications myers and majluf 39 the differential stock returns of bidders in mergers and tender offers may be due to the method of acquisition financing

hedging and vertical integration in electricity markets this paper analyzes the interactions between competitive wholesale spot retail and forward markets and vertical integration in electricity markets we develop an equilibrium model with producers retailers and traders to study and quantify the impact of forward markets and vertical integration on prices risk premia and retail market shares we point out that forward hedging and vertical integration are two separate mechanisms for demand and spot price risk diversification that both reduce the retail price and increase retail market shares we show that they differ in their impact on prices and firms utility because of the asymmetry between production and retail segments vertical integration restores the symmetry between producers and retailers exposure to demand risk whereas linear forward contracts do not vertical integration is superior to forward hedging when retailers are highly risk averse we illustrate our analysis with data from the french electricity market this paper was accepted by wei xiong finance

the complexity of exchange the computational complexity of two classes of market mechanisms is compared first the walrasian interpretation in which prices are centrally computed by an auctioneer recent results on the computational complexity are reviewed the non polynomial complexity of these algorithms makes walrasian general equilibrium an implausible conception second a decentralised picture of market processes is described involving concurrent exchange within transient coalitions of agents these processes feature price dispersion yield allocations that are not in the core modify the distribution of wealth are always stable but path dependent replacing the walrasian framing of markets requires substantial revision of conventional wisdom concerning markets

optimal priority structure capital structure and investment we study the interaction between financing and investment decisions in a dynamic model where the firm has multiple debt issues and equityholders choose the timing of investment jointly optimal capital and priority structures can virtually eliminate investment distortions because debt priority serves as a dynamically optimal contract examining the relative efficiency of priority rules observed in practice we develop several predictions about how firms adjust their priority structure in response to changes in leverage credit conditions and firm fundamentals notably financially unconstrained firms with few growth opportunities prefer senior debt while financially constrained firms with or without growth opportunities prefer junior debt moreover lower rated firms are predicted to spread priority across debt classes finally our analysis has a number of important implications for empirical capital structure research including the relations between market leverage book leverage and credit spreads and tobin s q the influence of firm fundamentals on the agency cost of debt and the conservative debt policy puzzle the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

an analysis of the implications of uncertainty and agency problems on the wealth effects to acquirers of private firms abstract extensive empirical work shows that bidders do not gain from the acquisition of publicly traded targets but experience positive excess returns in the acquisition of privately held firms this study investigates how two important differences between private and public firms namely informational uncertainty and ownership characteristics impact the returns to acquirers a sample of targets that were acquired shortly after filing for an ipo was collected to circumvent the lack of information on private firms in spite of the special characteristics of these targets the listing effect is still prevalent in this sample the results of the analysis are consistent with the hypothesis that acquirers gain in the acquisition of private firms because these targets have a relatively weaker bargaining position due to informational and agency problems and costly access to external capital markets to finance growth opportunities

inferring shortfall costs and integrating environmental costs into optimal production levels for an all you care to eat food service operation abstract this study examines how optimal food production policies at an all you care to eat aycte facility would change were life cycle cost estimates of embodied co2 included in the disposal costs associated with overproduction in an aim to study production planning possibilities in a situation that places increased emphasis on the environmental impacts of overproduction aycte operations exhibit a lack of revenue associated with each item served since there is no per item lost sales value incurred when demand exceeds supply accordingly the second objective of this research is to present a novel method for estimating shortfall costs in a setting with no marginal revenue per satisfied unit of demand we examine empirical data from aycte operations at the university of missouri s campus dining services cds to infer the per item shortfall costs that are implied by cds management s historical production decisions consistent with cds management s stated aversion to shortfalls we estimate shortfall values which are between 1 6 and 2 7 times larger than the procurement cost and between 30 and over 100 times larger than the disposal cost utilizing published estimates of life cycle co2 and the social cost of carbon we identify a per portion environmental cost we incorporate the environmental costs associated with wasted overproduction and the inferred shortfall cost estimates into a newsvendor model formulation to identify new optimal production levels illustrating this approach with application to a set of food items served by cds we find that optimal production levels are decreased significantly 18 25 for food items with high environmental impacts such as beef and reduced less for foods with less embodied co2

the outsourcing of r d through acquisitions in the pharmaceutical industry abstract we examine the performance of 160 pharmaceutical acquisitions from 1994 to 2001 and find evidence that on average acquirers realize significant positive returns these returns are positively correlated with prior acquirer access to information about the research and development activities at target firms and a superior negotiating position a unique desperation index is employed to determine the current status of a firm s internal productivity we find that firms experiencing declines in internal productivity or which are more desperate are more likely to engage in an outsourcing type acquisition in an effort to replenish their research pipelines

the value of creditor control in corporate bonds this paper introduces a measure that captures the premium in bond prices that is due to the value of creditor control we estimate the premium as the difference in the bond price and an equivalent synthetic bond without control rights that is constructed using credit default swap cds contracts we find empirically that this premium increases as firm credit quality decreases and around important credit events such as defaults bankruptcies and covenant violations the increase is greatest for bonds most pivotal to changes in control changes in bond and cds liquidity do not appear to drive increases in the premium

do tender offers create value new methods and evidence abstract conventional techniques of estimating takeover value improvements measure only a fraction of the total gain and include revelation about bidder stand alone value to address these biases we develop the probability scaling method which rescales announcement date returns and the intervention method which uses returns at intervening events perceived value improvements are larger than traditional methods indicate we cannot reject the hypothesis that bidders on average pay fair prices combined bidder target stock returns are higher for hostile offers lower for equity offers and lower for diversifying offers these effects reflect revelation about bidder stand alone value not differences in gains from combination

asset volatility and capital structure evidence from corporate mergers we exploit cross sectional variation in the predictable changes in asset volatility following corporate acquisitions to identify the effect of business risk on capital structure we find that postm

ceo compensation in financially distressed firms an empirical analysis this paper studies senior management compensation policy in 77 publicly traded firms that filed for bankruptcy or privately restructured their debt during 1981 to 1987 almost one third of all ceos are replaced and those who keep their jobs often experience large salary and bonus reductions newly appointed ceos with ties to previous management are typically paid 35 less than the ceos they replace in contrast outside replacement ceos are typically paid 36 more than their predecessors and are often compensated with stock options on average ceo wealth is significantly related to shareholder wealth after firms renegotiate their debt contracts however managers compensation is sometimes explicitly tied to the value of creditors claims

the real product market impact of mergers i document sources of value creation in mergers by analyzing novel data on the quality and price of goods sold by merging firms when two competitors in a product market merge their products converge in quality and prices fall relative to the competition these effects take two to three years to be fully realized and are stronger in mature industries prices do not fall however when the acquirer is diversifying into a new product market this direct evidence of real changes induced by merger activity is consistent with consolidation by related merging firms to achieve operational efficiencies and lower costs

optimal production planning utilizing leftovers for an all you care to eat food service operation abstract food service operations in an all you care to eat environment need to consider two conflicting objectives a desire to reduce overproduction food waste and its corresponding environmental impacts and an aversion to shortfalls in which some customer demands go unsatisfied a particular challenge in such buffet style operations is the absence of any lost marginal revenue associated with lost sales that can be used to measure the shortfall cost complicating any attempt to determine a minimum cost solution this research presents a multi criteria optimization approach to identify the efficient frontier of points lying between the minimum waste and minimum shortfall solutions in particular we identify optimal production adjustments relative to demand forecasts demand thresholds for utilization of leftovers and percentages of demand to be satisfied by leftovers considering two alternative metrics for overproduction waste mass and greenhouse gas emissions to account for the embodied chemical usage during farming transportation and landfill decomposing of overproduced food waste a statistical analysis of the changes in decision variable values across each of the efficient frontiers can then be performed to identify the key variables that could be modified to reduce the amount of wasted food at minimal increase in shortfalls or alternatively to reduce the amount of shortfalls at minimal increase in waste we illustrate our approach with an application to empirical data from campus dining services operations at the university of missouri our analysis suggests that targeted production level modifications rather than blanket increases or decreases can allow food service providers to reduce overproduction food waste without significant increases in demand shortfalls

agents come to bits towards a constructive comprehensive taxonomy of economic entities abstract mirowski mirowski p 2007 markets come to bits evolution computation and markomata in economic science journal of economic behavior and organization 63 209 242 argues for a constructive approach to economic modeling centered on markets as evolving computational entities this essay counters that a broader constructive approach to economic modeling can and should be taken the recent advent of powerful computer technologies supporting agent based modeling abm renders feasible the computational study of economies modeled as evolving systems of interacting agents in abm an agent refers broadly to bundled data and behavioral methods representing an entity constituting part of a computationally constructed world examples of possible agent referents include individuals social groupings institutions e g markets biological entities such as crops and physical entities such as transportation networks and weather consequently abm provides tremendous opportunities for economists and other social scientists to tailor the breadth and depth of the entities represented in their models to the application at hand a simple abm of a two sector decentralized market economy is used for concrete illustration

varieties of agents in agent based computational economics a historical and an interdisciplinary perspective in this paper we trace four origins of agent based computational economics ace namely the markets origin the cellular automata origin the tournaments origin and the experiments origin along with this trace we examine how these origins have motivated different concepts and designs of agents in ace which starts from the early work on simple programmed agents randomly behaving agents zero intelligence agents human written programmed agents autonomous agents and empirically calibrated agents and extends to the newly developing cognitive agents psychological agents and culturally sensitive agents the review also shows that the intellectual ideas underlying these varieties of agents cross several disciplines which may be considered as a part of a general attempt to study humans and their behavior with an integrated interdisciplinary foundation

the gains to bidding firms from merger abstract this study examines the effect of mergers on the wealth of bidding firms shareholders bidding firms gain significantly during the twenty one days leading to the announcement of each of their first four merger bids these results fail to support the capitalization hypothesis that bidders gains are captured at the beginning of merger programs bidders abnormal returns are positively related to the relative size of the merger partners and the gains during the announcement period are larger for mergers which are successful though the gains are larger prior to 1969 merger bids after 1969 also significantly increase the wealth of bidding firms shareholders the results suggest that the inconclusive findings of the earlier studies may be due to methodological deficiencies the findings of this study are consistent with value maximizing behavior by the management of bidding firms

merger and optimal number of firms an integrated simulation approach in a market where imperfect competition occurs as a result of mergers this study proposes a framework consisting of both efficiency and risk analyses that allow the simulation of pro forma mergers and hence the determination of the optimal number of firms in the industry this is valuable policy information for regulators concerned with possible intervention in the case of competition and anti trust violations and also for business managers seeking acquisition targets the framework is applied to the banking industry in taiwan results reveal the potential for industrial restructuring in a sector where the optimal number of bank holding companies bhcs is between four and six subject to whether partial control is assumed

anticipation acquisitions and bidder returns industry shocks and the transfer of information across rivals we document market anticipation of merger bids and show that less anticipated bids earn significantly higher announcement returns subsequent bidders in the industry experience significant and positive abnormal returns around the time of initial industry bid announcements these results suggest that announcement period returns underestimate the wealth effects of bidding after accounting for anticipation bidding activity is on average a significant wealth creating event moreover bidders pursuing public targets increase shareholder wealth and bidders in stock swaps do not lose these results contradict conventional wisdom our results shed light on the correct magnitude of acquisition returns and on the transfer of information throughout an industry around the time of an economic shock the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

the structure of ownership and the theory of the firm the separation of ownership from control produces a condition where the interests of owner and of ultimate manager may and often do diverge and where many of the checks which formerly operated to limit the use of power disappear in creating these new relationships the quasi public corporation may fairly be said to work a revolution it has divided ownership into nominal ownership and the power formerly joined to it thereby the corporation has changed the nature of profit seeking enterprise 1

toehold strategies takeover laws and rival bidders abstract prior to the announcement of a tender offer the bidding firm is legally allowed to acquire shares in the open market subject to some limitations these pre announcement purchases are known as toeholds this paper presents a simple model that describes the bidder s optimal toehold acquisition strategy within an environment that closely parallels the present legal institutions the model shows that toeholds and bids interact in a complex manner even without the presence of asymmetric information by examining a simple environment the paper provides a useful alternative hypothesis for tests of other presumably more complex models one of the main implications of our model is that if no competing bidders are expected no toeholds should be purchased the paper also demonstrates that the correct specification of an empirical model can be critical for example under some parameter values toehold purchases may exhibit a negative cross sectional correlation with the pre announcement run up in the stock price this occurs even though prices are strictly increasing the size of the toehold several implications concerning various aspects of merger legislation are considered for example we demonstrate that a rule similar to a fair price provision has the desirable property that a second bidder arrives and wins if and only if he places a higher value on the target than the initial bidder

inefficiencies and externalities from opportunistic acquirers abstract if opportunistic acquirers can buy targets using overvalued shares then there is an inefficiency in the merger and acquisition m a market the most overvalued rather than the highest synergy bidder may buy the target we quantify this inefficiency using a structural estimation approach we find that the m a market allocates resources efficiently on average opportunistic bidders crowd out high synergy bidders in only 7 of transactions resulting in an average synergy loss equal to 9 of the target s value in these inefficient deals the implied average loss across all deals is 0 63 although the inefficiency is small on average it is large for certain deals and it is larger when misvaluation is more likely even when opportunistic bidders lose the contest they drive up prices imposing a large negative externality on the winning synergistic bidders

plant closing decisions and the market value of the firm abstract we investigate the underlying causes and the announcement effects of plant closings the closing in our sample do not appear related to takeover activity instead they appear motivated by declining firm profitability firms announcing closings have lower earnings than market or industry medians earnings typically improve slightly after the announcement we find a negative stock market reaction to plant closing announcements

the mode of acquisition in takeovers taxes and asymmetric information we develop a model in which the mode of acquisition conveys information concerning the value of the bidder the model incorporates the possibility that offers containing both cash and stock can be made in a setting consistent with the u s tax code we demonstrate that bidders with unfavorable private information about their equity value choose offers containing some stock to avoid the capital gains tax consequences of cash offers the model yields a number of unique predictions about the construction of acquisition offers we present evidence consistent with the model when one firm acquires another it can pay for the acquisition with cash stock or a combination of the two recent studies find that announcement returns to bidding firms who make cash offers are higher than when stock offers are made models consistent with this evidence note that as in myers and majluf 1984 a bidder with private information about the value of its assets only offers stock when its shares are overvalued by target shareholders recognizing this adverse selection target shareholders reduce their estimate of the bidder s value thus without some benefit in stock over cash as a means of payment a lemons problem arises for stock offers and bidders only choose cash offers our paper advances the use of stock in an offer through its tax advantages in the united states to realize the benefits available in nontaxable offers an offer must contain at least fifty percent stock thus when the bidder has private information about the value of its assets stock off6rs can still occur because of their tax advantage the intuition is as follows target holders can postpone the realization of capital gains when they receive stock in a takeover so other things equal they demand higher prices in cash takeovers while the offer of stock may have tax advantages the shares swapped are valued by the target as if they were offered by the average bidder making a stock offer thus a pool of higher private valuation bidder types choose cash offers in spite of the tax consequences a pool of lower private valuation types

the determinants of bank mergers a revealed preference analysis we provide new estimates of merger value creation by exploiting revealed preferences of merging banks within a matching market framework we find that merger value arises from cost efficiencies in overlapping markets relaxing of regulation and network effects exhibited by the acquirer target matching beyond our findings the revealed preference method has notable advantages that warrant its application beyond the bank merger market notably we show that the method outperforms reduced form alternatives out of sample enables sensible counterfactual experiments and can be used to evaluate private to private mergers which have been understudied because of lack of stock market data data as supplemental material are available at http dx doi org 10 1287 mnsc 2015 2245 this paper was accepted by amit seru finance

firm characteristics and analyst following abstract this paper examines the major determinants of the number of analysts following a firm a simple model of analyst following is proposed and several firm characteristics are suggested that are likely to influence the extent of a firm s analyst following by either affecting the aggregate demand for or supply of analyst services or both for the firm almost all of these characteristics are found to be strongly significant in affecting the extent of analyst following of firms and the empirical results generally accord well with economic intuition

markup pricing in mergers and acquisitions this paper studies the relation between the premiums in takeover bids involving exchange listed target firms from 1975 91 and the pre announcement stock price runups the evidence shows that the pre bid runup and the postannouncement increase in the target s stock price the markup are generally uncorrelated with little substitution between the runup and the markup the runup is an added cost to the bidder this finding has important implications for assessing the costs of insider trading it also raises interesting questions about the role of information from public capital markets in private takeover negotiations

do firms undertake self tender offers to optimize capital structure this study investigates capital structure around 286 self tender offers from 1980 to 1997 firms that undertake self tender offers generally have debt ratios below their predicted levels before the offers the debt ratios following nondefensive self tender offers are close to predicted levels while the ratios following defensive self tender offers are above predicted levels further 20 and 43 of the debt ratings are downgraded following nondefensive and defensive self tender offers respectively finally the increases in debt ratios around the offers are negatively related to the difference from the predicted debt ratio before the offers

life cycle costs and environmental impacts of production and consumption of ready and home made meals consumption of ready made meals is growing rapidly and yet little is known about their economic and environmental impacts this paper focuses on the economic aspects to estimate the life cycle costs value added and consumer costs of ready made meals in comparison with the equivalent meals prepared at home their life cycle environmental impacts are also considered a typical roast dinner is considered consisting of chicken vegetables and tomato sauce different production and consumption choices are evaluated including sourcing of ingredients chilled or frozen supply chains and types of appliance used by the consumer to prepare the meal the estimated life cycle costs of the ready made meal range from 0 61 0 92 per meal and for the home made from 0 68 1 12 the lowest life cycle costs are found for the chilled ready made meal heated in a microwave 11 below the costs of the best home made option the life cycle costs of the frozen meal are similar to the best home made option the chilled ready made meal has the highest value added 2 01 compared to the frozen 1 22 and the home made meal 0 44 however from the consumer perspective the cheapest option is the home made meal 1 17 while the chilled ready made option is most expensive 2 61 if the meal options are compared on both the life cycle costs and environmental impacts the home made meal is the best option overall these findings can be used to inform both producers and consumers on how their choices influence costs and environmental impacts of food

consumption versus expenditure previous authors have documented a dramatic decline in food expenditures at the time of retirement we show that this is matched by an equally dramatic rise in time spent shopping for and preparing meals using a novel data set that collects detailed food diaries for a large cross section of u s households we show that neither the quality nor the quantity of food intake deteriorates with retirement status we also show that unemployed households experience a decline in food expenditure and food consumption commensurate with the impact of job displacement on permanent income these results highlight how direct measures of consumption distinguish between anticipated and unanticipated shocks to income whereas measures of expenditures obscure the distinction

adaptive consumption behavior abstract in this paper we propose and study a theory of adaptive consumption behavior under income uncertainty and liquidity constraints we assume that consumption is governed by a linear function of wealth whose coefficients are revised each period by a procedure that places few informational or computational demands on the consumer we show that under a variety of settings the procedure converges quickly to a set of coefficients with low welfare cost relative to a fully optimal nonlinear consumption function