management ownership and market valuation an empirical analysis we investigate the relationship between management ownership and market valuation of the firm as measured by tobin s q in a 1980 cross section of 371 fortune 500 firms we find evidence of a significant nonmonotonic relationship tobin s q first increases then declines and finally rises slightly as ownership by the board of directors rises for older firms there is evidence that q is lower when the firm is run by a member of the founding family than when it is run by an officer unrelated to the founder

antitakeover charter amendments and stockholder wealth abstract many large corporations have recently adopted antitakeover charter amendments which make the transfer of corporate control more difficult this paper develops and tests competing theoretical explanations for the passage of these amendments in one view antitakeover provisions are adopted because incumbent management seeks job protection at stockholders expense the alternative hypothesis is that antitakeover provisions benefit stockholders perhaps by extracting greater payment in exchange for corporate control although inconclusive the evidence provides weak preliminary support for the hypothesis that antitakeover amendments are best explained as a device for managerial entrenchment

estimating markups and market conduct with multidimensional product attributes we demonstrate how to estimate a model of oligopoly pricing when products are multi dimensionally differentiated we provide an empirical counterpart to recent theoretical work on product differentiation using specifications informed by economic theory we estimate price cost margins for products differentiated in many dimensions

the design of securities abstract this paper investigates the determinants of security design we consider the assignment of both cash flows and voting rights focusing on corporate control we postulate that a conflict of interest exists between contestants for control and outside investors the conflict arises because private benefits of control give contestants an incentive to acquire control even when this reduces firm value security design is a tool for resolving these conflicts and maximizing firm value our main result is that a single voting security is optimal

optimal security design how should new securities be designed traditional theories have little to say on this the literature on capital structure and general equilibrium theories with incomplete markets take the securities firms issue as exogenous this paper explicitly incorporates the transaction costs of issuing securities and develops a model where the instruments that are traded are chosen optimally and the economy s market structure is endogenous among other things it is shown that the firm s income stream should be split so that in every state all payoffs are allocated to the security held by the group that values them most this abstract was borrowed from another version of this item

indirect taxation and cournot equilibrium we analyse a cournot model of oligopoly in an industry which is subject to indirect taxation we consider value added as well as excise taxes we allow for various types of demand and cost conditions as well as cost differences across firms as the tax is raised two types of outcomes can prevail on the one hand the net price can increase which is shown to lead to an increase in market share of high cost firms on the other hand the net price can fall in which case efficiency is rewarded in that low cost firms gain market share this latter outcome which accords with intuition will obtain in most instances it is more likely to occur i with vat rather than with an excise tax ii with concave rather than convex demand and iii with decreasing rather than increasing marginal cost finally we show that an increase in vat can lead to higher profits for low cost firms provided cost differences across firms are large enough

state regulation of takeovers and shareholder wealth the case of new york s 1985 takeover statutes past studies of takeover regulations have found that such rules increase the premiums paid to the shareholders of successfully acquired targets jarrell and bradley argue that these higher premiums harm shareholders by discouraging takeover activity and protecting inefficient managers bebchuk argues that the higher premiums do not significantly reduce the number of takeovers so that shareholders benefit on average from the higher premiums paid in successful acquisitions this article uses the event study method to measure the net effect of two takeover statutes passed by the new york state legislature in 1985 the results support the conclusion of jarrell and bradley that despite the higher premiums paid to successfully acquired target shareholders ex post these laws on average harm shareholders ex ante

state intervention in the market for corporate control abstract this study investigates the impact of pennsylvania senate bill 1310 on the share prices of pennsylvania corporations considered the most severe of the second generation antitakeover laws the statute limits the ability of shareholders to challenge management through the proxy process and eliminates the traditional fiduciary obligation of directors to promote shareholders interests we find that pa sb1310 significantly decreased share values and estimate the loss to shareholders of pennsylvania firms at 4 billion however firms with antitakeover charter amendments already in place were less affected and firms that exempted themselves from pa sb1310 recovered a portion of shareholders wealth

foreign investment vertical integration and local equity requirements the paper presents a spatial model in which a foreign firm and local government behave strategically in setting a local equity requirement ler contrary to simple intuition larger equity requirements may increase economic efficiency but this conclusion is highly sensitive to the vertical structure of the foreign firm when the foreign firm has monopoly power in both foreign upstream and domestic downstream markets the optimal equity requirement is zero surprisingly the introduction of domestic competition upstream causes the government to adopt a ler which lowers economic efficiency

how to tax a spatial monopolist abstract this paper models the interaction of a government that maximizes tax revenue and a spatial monopolist that maximizes profit the government has two tax instruments a per unit output tax and a transport tax and the monopolist can strategically alter its location and the mode of transport if allowed only one tax instrument then the government chooses the output tax which generates inefficient strategic choices by the monopolist in order to avoid profit losses since the inefficiency is greater than with the transport tax this isolates a new tradeoff between government tax revenue and economic efficiency

voting power in the proxy process abstract the likelihood that a firm will enact a management sponsored antitakeover charter amendment depends on ownership structure this implies that the adoption of antitakeover amendments may be anticipated then announcement returns provide a biased estimate of wealth effects an estimator that corrects for the bias induced by anticipation indicates that the enactment of an antitakeover amendment is associated with a statistically significant decrease in shareholder wealth the voting power of employee stock ownership plans and the chief executive officer plays a prominent role in determining whether a firm will adopt this type of takeover defense

market structure and pricing strategy of china s automobile industry in this study using market level data on quantities prices and automobile characteristics from 1995 to 2001 we conduct a market analysis of the chinese automobile industry under imperfect competition on the demand side we apply a nested multinomial logit model to the national market share data in order to ascertain the demand features of china s automobile market on the supply side we assume bertrand behavior to uncover the markups set by automobile manufacturers our empirical results suggest that some large automobile manufacturers set high markups indicating their strong market power in china s automobile market however their declining markups in the late 1990 s imply a reduction in market control by the major producers

the effect of poison pill securities on shareholder wealth abstract this paper examines empirical evidence about the effect of poison pill takeover defenses on shareholder wealth i find evidence that announcements of the most restrictive forms of the pill defense are associated with stock price declines also the most restrictive forms of the pill defense are associated with abnormally high rates of defeat of unsolicited tender offers although this evidence is consistent with managerial entrenchment the evidence implies that on average poison pill defenses have seemingly had only a modest effect on firm valuation

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

price ceilings as focal points to reach price uniformity evidence from a chinese gasoline market abstract this paper studies the price uniformity in the chinese gasoline market using station level data of hohhot city inner mongolia we first document that the mode prices of the gasoline stations are consistent with the price ceilings set by the government implying that the price ceiling regulation in the chinese gasoline market may serve as a focal point for the gasoline stations to reach price uniformity we corroborate the focal point hypothesis by providing evidence showing that some stations would jump to the ceilings as their prices approach the ceilings also we find that local market structure distance between stations station capacity market characteristics and past pricing behavior could affect the probability of gas stations to price at the ceilings moreover a higher price ceiling would reduce the probability that stations reach price uniformity our results provide another piece of evidence to the literature regarding the unintended effect of price ceiling regulation

managerial share ownership and the stock price effects of antitakeover amendment proposals studies that test for an average stock price effect of antitakeover amendments present different results disagreeing with respect to both the significance and the direction of the effect this study determines whether effects can be identified when managerial share ownership and amendment type are considered results suggest a negative relation between managerial share ownership and the stock price reaction to all but fair price amendment proposals managerial control over voting rights has been the focus of recent studies in the finance literature for example dann and deangelo 1988 present evidence on managerial actions taken to enhance voting control while stulz 1988 suggests ways that managers can increase control of voting rights by adopting antitakeover amendments or dual classes of common stock that reduce the voting power of outside shareholders since antitakeover amendments may be one way to effectively increase managerial control over voting rights this paper investigates the relation between managerial share ownership the type of antitakeover amendment proposed and the stock price reaction to the amendment proposal this study is motivated partially by existing evidence regarding the stock price effect of antitakeover amendments empirical studies are inconclusive regarding the amendments effects on shareholder wealth disagreeing with respect to both significance and direction deangelo and rice 1983 find statistically insignificant negative abnormal returns surrounding the amendment proposals while linn and mcconnell 1983 find statistically significant positive abnormal returns jarrell and poulsen 1987 find a statistically insignificant negative reaction to amendment proposals for exchange listed firms while mcwilliams 1988 finds an insignificant positive reaction at proposal announcement these results

competition and collusion in the american automobile industry the 1955 price war movements in total quantity and in quality adjusted price suggest a supply side shock in the american automobile market in 1955 this paper tests the hypothesis that the shock was a transitory change in industry conduct a price war the key ingredients of the test are alternative equilibrium models of oligopoly under product differentiation in nonnested cox tests of hypotheses a collusive solution is sustained in 1954 and in 1956 while a competitive solution holds in 1955 the result does not appear to be an artifact since it is robust in tests against alternative specifications copyright 1987 by blackwell publishing ltd

shareholder wealth effects of directors liability limitation provisions the adoption of liability limitation provisions llps is associated with insignificant stock price reactions for all firms but with positive stock price reactions for poorly performing firms this result is consistent with the hypothesis that the net benefit of llps is larger for financially troubled firms than for other firms because outside directors are valuable to the distressed firm and llps substantially affect experts expected costs of serving as directors

the role of demandable debt in structuring optimal banking arrangements demandable debt finance by banks warrants explanation because it entails costs of bank suspension liquidation and idle reserve holdings an explanation is developed in which demandable debt provides incentive compatible intermediation where the banker has comparative advantage in allocating investment funds but may act against the interests of uninformed depositors demandable debt attracts funds by giving depositors an option to force liquidation its usefulness in transacting follows from information sharing between monitors and nonmonitors copyright 1991 by american economic association

delivered pricing and merger with demand constraints i introduction studies of merger activity in models of spatial price discrimination conventionally assume that pricing by firms is not constrained by demand instead the only constraints on the discriminatory prices charged are the cost structures of the adjacent rivals the issue of demand constraints has received attention by wang and yang 1999 in related literature but not in examining the consequences of a spatial merger we demonstrate that when discriminatory prices are constrained by willingness to pay demand the conclusions of existing models must be substantially modified first although introducing a demand constraint does not alter firm locations in the absence of merger it does alter firm locations in the presence of merger second the demand constraint results in equilibrium locations that depend on transport cost which is not the case in previous models transport cost plays an important role in spatial models and its absence to date from models of spatial merger is unrealistic moreover the dependence of location on transport costs invites the possibility that a tax on transport costs can change locations in an efficient fashion third introducing a demand constraint reverses previous results relating to the merger paradox in particular in the absence of a demand constraint models of spatial price discrimination provide instances in which the parties to a merger gain profit and the excluded firms lose profits there are no such instances in the presence of demand constraints in what follows the second section places our work within the literature and highlights the issue of demand constraints the third section presents the model contrasting it with earlier models the fourth section identifies the equilibrium locations that arise when there is the prospect of merger and contrasts these locations with those that arise in the absence of demand constraints the section also demonstrates that when demand is constrained the model of spatial price discrimination yields no cases that resolve the merger paradox a result contrasting with that offered by the model in which demand constraints are absent the fifth section demonstrates that a tax on transport can increase welfare indeed the optimal tax often completely eliminates spatial price competition by creating local monopolies the sixth section considers the full range of cases in which some but not all firms may face constrained demand and also proves that in the fully constrained case considered earlier the entire market will be served a seventh section considers a partially constrained case and the eighth section concludes ii spatial price discrimination and constrained demand spatial models have proven especially useful in capturing aspects of competition in horizontally differentiated markets as emphasized by tirole 1988 in particular they provide a general method for examining markets in which an ordered product characteristic differentiates output 1 among the more popular models is that of discriminatory pricing in which the price a firm is able to charge depends upon how close it is to its rivals thisse and vives 1988 show that such pricing is the preferred alternative when firms are able to adopt it lederer and hurter 1986 demonstrate that under such pricing rivals locate symmetrically along a linear market thus minimizing total transport costs early studies of merger in a model of spatial discrimination assumed that location choices do not anticipate the merger reitzes and levy 1995 show that such a merger increases the prices and profits of the participants but leaves those of all other firms unchanged gupta et al 1997 show that an anticipated horizontal merger alters the locations of spatially discriminating duopolists and increases transport cost thereby reducing efficiency rothschild et al 2000 confirm this finding in the case of two firms merging in a three firm market and also examine the effects of merger on the excluded rival

a model of monopoly with strategic government intervention abstract a formal model of firm government interaction is developed in which the firm chooses the producer price and the government chooses the ad valorem tax rate to maximise revenue collection this game is then embedded as the second stage of a two stage game where in stage 1 the firm gets to choose its technology and therefore its cost function the main results of the paper are i to characterise the nash and stackelberg equilibria of the government firm game ii to demonstrate that strategic inefficiency i e the choice of high cost technologies when lower cost options are available is pervasive in these models whenever the government uses ad valorem taxes and iii to show that if the government s choice between ad valorem tax and specific or per unit tax is endogenised then in a perfect equilibrium the government will in fact choose the ad valorem system

collusion or competition interfirm relationships in the chinese auto industry the chinese passenger vehicle industry contains a large number of manufacturers some of them are members of big corporate groups centered around state owned enterprises these corporate relationships may facilitate collusion this paper applies the non nested hypothesis test methodology to data on passenger vehicles to identify whether price collusion exists within corporate groups or across groups our empirical results support the assumption of bertrand nash competition in the chinese passenger vehicle industry we find no evidence for within or cross group price collusion our policy experiments show that indigenous brands will gain market shares and profits if within group companies merge

market equilibrium and the environmental effects of tax adjustments in china s automobile industry this paper explores the effects of consumption tax and fuel tax adjustments in the chinese automobile industry applying the model and simulation method of berry levinson and pakes 1995 we conduct a comparative static analysis of equilibrium prices and sales fuel consumption and social welfare before and after tax adjustments for the first time we compare the progressivity of both taxes our empirical findings suggest that the fuel tax is effective in decreasing fuel consumption at the expense of social welfare while the consumption tax does not significantly affect either fuel consumption or social welfare

large shareholders and the monitoring of managers the case of antitakeover charter amendments this paper examines the role of large shareholders in monitoring managers when they propose antitakeover charter amendments we attempt to distinguish between two competing hypotheses the active monitoring hypothesis and the passive voting hypothesis we find a statistically significant positive relation between institutional ownership and the stockholder wealth effects of various types of amendments after controlling for ownership concentration among institutions managerial ownership and firm size our empirical evidence lends support to the active monitoring hypothesis proposed by demsetz 1983 and shleifer and vishny 1986 that the existence of large shareholders leads to better monitoring of managers

takeover threats and managerial myopia this paper examines the familiar argument that takeover pressure can be damaging because it leads managers to sacrifice long term interests in order to boost current profits if stockholders are imperfectly informed temporarily low earnings may cause the stock to become undervalued increasing the likelihood of a takeover at an unfavorable price hence the managerial concern with current bottom line the magnitude of the problem depends on a variety of factors including the attitudes and beliefs of shareholders the extent to which corporate raiders have inside information and the degree to which managers are concerned with retaining control of their firms

event study methodologies and the size effect abstract this study of 862 press recommendations demonstrates that the size effect can distort longer term performance measures and hence event studies relative to similar sized companies post publication performance is neutral however market adjustments the capm and market model with equally or capitalization weighted indexes all produce biased results event studies are most exposed to such bias when the measurement interval is long event securities differ systematically in size or weighting from the index constituents the size effect is large and or volatile and when capm type methodologies are used these distortions are avoided by explicitly controlling for size

an empirical analysis of the reincorporation decision the literature suggests two competing explanations for reincorporations efforts at managerial entrenchment and attempts to improve contractual efficiency the empirical evidence to date is inconclusive to seek further evidence we examine a large sample of firms that changed their state of incorporation over the period 1980 1992 we find that shareholder wealth is decreased by reincorporations that erect takeover defenses but is increased by reincorporations that establish limits on director liability firms that claim they reincorporate to limit the personal liability of their board members and thereby attract better qualified outside directors do in fact expand the outside representation on their boards whereas firms citing other motives do not

forecasting the car penetration rate cpr in china a nonparametric approach with strong economic growth the auto industry has made great breakthroughs in recent years and has become a backbone industry in china while cars play an increasingly important role and are now the principal part of the auto industry both china s government and academic circles take strong interest in the prediction of cpr i e car penetration rate or cars per thousand people which will be the main guidance for the future industry policy we summarize the existing problems in recent research and propose to use nonparametric methods to estimate the cpr and its elasticity with respect to gdp per capita gdppc the results indicate that the nonparametric methods provide a much better fit than the conventional ols method and more importantly it captures the nonlinearity of the elasticity of cpr with respect to gdppc finally we predict future cpr in china

the effect of pre emptive right amendments on shareholder wealth abstract pre emptive rights allow existing shareholders to purchase a new offering of shares before the general public this paper investigates the effect on shareholder wealth of removing pre emptive rights from corporate charters two hypotheses are constrasted 1 shareholder wealth maximization suggests that management uses this extra degree of freedom to pick the least cost method for raising new equity hence the amendment increases shareholder wealth 2 management welfare maximization holds that management will use the passage of the amendment to maximize their own welfare sometimes to the detriment of shareholders hence the amendment decreases shareholder wealth the evidence indicates that the amendment decreases shareholder wealth

strategic behavior downstream and the incentive to integrate a spatial model with delivered pricing abstract this paper highlights not previously examined incentives for vertical integration in a spatial model a downstream monopoly that serves customers on a unit line segment and purchases an input from an upstream monopoly will strategically increase its transport costs such strategic behavior by the downstream firm forces the upstream firm to lower its input price rather than suffer an unacceptable decrease in sales while the lower input price increases downstream profit the unnecessary costs lower overall profit and welfare generating both private and social incentives for vertical integration this incentive is independent of others identified in the literature

product differentiation and oligopoly in international markets the case of the u s automobile industry this paper develops and estimates a model of the u s automobile industry on the demand side a discrete choice model is adopted that is estimated using micro data from the consumer expenditure survey the estimation results are used in conjunction with population weights to derive aggregate demand on the supply side the automobile industry is modelled as an oligopoly with product differentiation equilibrium is characterized by the first order conditions of the profit maximizing firms the estimation results are used in counterfactual simulations to investigate two trade policy issues the effects of the ver and exchange rate pass through

interpreting common stock returns around proxy statement disclosures and annual shareholder meetings numerous studies have analyzed the stock market reaction to information released in proxy statements two possible biases in proxy statement research are suggested frequently misspecification of the return benchmark and a sample selection bias from analyzing only clean events this paper presents evidence that most of the conclusions of existing studies are not affected by these potential biases a significantly positive abnormal return was found around a random sample of shareholder meeting dates the result indicates that interpreting event study results for announcements occurring around annual shareholder meetings must be conducted carefully the results are consistent with the findings of kalay and loewenstein 14 who argue that risk and expected return can increase around predictable information producing events alternatively the study can be viewed as being consistent with several recent studies that find anomalous results using daily return data and large samples

signaling managerial optimism through stock dividends and stock splits a reexamination of the retained earnings hypothesis the retained earnings hypothesis predicts that stock distributions accounted for by reducing retained earnings are a more credible signal of managerial optimism than stock distributions that do not reduce retained earnings this study examines the costs of false signaling that are a necessary precondition for the hypothesis and finds them to be generally very small the absence of the requisite costs of false signaling calls the validity of the hypothesis into question for most firms however prior studies have reported broad based market evidence consistent with the retained earnings hypothesis to resolve this apparent inconsistency this study replicates and extends tests of the retained earnings hypothesis contained in three prior studies it shows that the findings in support of the retained earnings hypothesis can be attributed to specification and measurement choices that bias the results in favor of the hypothesis the support for the retained earnings hypothesis is weaker when the sources of the bias are removed however some support for the hypothesis remains for a limited set of distributing firms

competition of firms discriminatory pricing and location1 two costlessly mobile firms are to be located in a market region a subset of the plane the firms compete by setting locations and delivered price schedules to study this competitive stiuation an appropriate extensive form game is defined along with an appropri ate noncooperative solution concept existence and general properties of the equilibrium are demonstrated among the results are each firm increases its profit by locating so as to decrease total cost to both firms of serving the market firms will never locate coinciden tally if they have identical production costs and transport cost rates or if these are different and the firms are located in a circular market region having a uniform demand distribution this paper studies competition between two profit maximizing firms in space who are costlessly mobile and may discriminate in price we will allow the firms to set locations and delivered price schedules and we will be concerned with the existence and properties of equilibria in location and price starting with hotelling 9 the spatial competition literature has focused on location on bounded linear markets by two or more firms hotelling assumed identical firms that produced a single good with constant cost of production and considered consumers to be uniformly distributed and to have inelastic demand he also assumed that the consumers pay transport cost and purchase the good from the cheapest source hotelling claimed that a nash equilibrium in locations for the two firm market existed and yielded back to back locations at the center of the market many authors most recently d aspremont gabszewicz and thisse 2 have noted that an equilbrium in prices and location does not exist for hotelling s model however if the firms employ identical exogeneously specified prices hotelling s conclusions hold subsequent work by smithies 14 hartwick and hartwick 7 and eaton 3 claimed to show that a nash equi librium in f o b prices and locations can exist in markets with a uniform distribu tion of consumers each of whom have identical elastic demand functions for the two and three firm problems the work of d aspremont et al casts doubt on these conclusions without the adoption of restrictive conditions our work contrasts with these works and related research which has dealt with linear markets with uniform distributions of customers and with identical firms our work will involve markets that are subsets of the plane having nonuniform distributions of customers our firms will be allowed to be different that is have differences in production and transport costs however the fundamental difference in our approach is that our firms will set discriminatory prices and not price f o b in many ways our work will represent the discriminatory pricing

an empirical investigation of the impact of antitakeover amendments on common stock prices abstract antitakeover amendments are amendments to a corporation s charter that impede the ability of an outsider to gain control of the firm a number of individuals and institutions have onjected to such amendments on the grounds that they are not in the best interests of the shareholders of the firms that adopt them this paper employs event time methodology to investigate the impact of antitakeover amendments on the common stock prices of firms that adopt them the results indicate that the announcement of such amendments is associated with a positive revaluation of stock price contrary to the concerns of their critics we conclude that antitakeover amendments are proposed by managers who seek to increase the value of the firm and are approved by stockholders who share that objective