corporate philanthropic disaster response and ownership type evidence from chinese firms response to the sichuan earthquake this article examines whether the charitable giving amount and likelihood of firm response to catastrophic events relate to firms ownership type using a unique dataset of listed firms in china where state ownership is still prevalent based on the data of chinese firms response to the 2008 sichuan earthquake we find that the extent of corporate contributions for state owned firms following this disaster is less than that for private firms state owned firms are also less likely to respond in this disaster compared to private firms the results also reveal that firm size profitability geography cash resource available and leverage affect firms philanthropic disaster response behavior in china

an investigation into the relationship of retail gas prices on oil company profitability in this article we present several empirical procedures using publicly available data from the us department of energy doe and the securities and exchange commission sec to examine the relationship of oil company gross profit margins to retail gas prices this descriptive analysis indicates that the profit margins of the major integrated oil companies are lower on average during periods of extremely high gas and oil prices and in fact are even lower than in times of extremely low gas and oil prices large oil companies are most profitable during periods of moderate gasoline prices smaller vertically integrated oil companies and firms primarily in the business of refining purchased crude oil exhibit a consistently inverse relationship between profit margins and retail gas prices as gas prices increase these firms become less profitable we find no evidence for the increase in the gross profit margins of oil companies during episodes of very high retail gasoline prices

accounting rates of return many economic studies provide empirical evidence regarding cross sectional differences in firm profitability in most of these studies firm profitability is measured by an accounting rate of return net income dividend by the book value of assets hereafter arr rather than an economic rate of profit franklin fisher and john mcgowan define the firm s economic rate of profit irr as that interest rate which equates the present value of its net revenue stream to its initial outlay 1983 p 82 fisher and mcgowan examine the analytic relation between a firm s arr and its irr in a series of examples and conclude that the arr is such a bad surrogate for the irr that the results of arr based empirical studies are likely to be totally misleading p 91 william long and david ravenscraft 1984 have criticized the theoretical work of fisher and mcgowan because the nature of the analytic relationship between the arr and the irr in the context of highly simplified hypothetical examples may not be indicative of the nature of the relationship in empirical settings their criticism adopts the utilitarian view that the arr has to be treated as a suitable surrogate for the irr as long as no preferable alternative measure of profitability is available for empirical work this view has merit as long as the measurement error which is contained in the arr is random rather than systematic unfortunately the nature and extent of the measurement error which is contained in the arr in a particular empirical setting can only be determined unequivocally if the irr is unequivocally known in such a case of course there would be no need to rely on the arr at all due to this unhappy circle empirical research on firm profitability has continued to rely on the arr despite the fact that many persons reasonably believe that the results of such research may be totally misleading fisher and mcgowan g c harcourt 1965 while others reasonably believe that the results are reliable enough to form a basis for policy decisions long and ravenscraft recent work by y ijiri 1978 1979 1980 and by myself 1982 has shown that conditional irr estimates can be obtained from data in firms financial statements while these irr estimates are conditional they do abstract from certain extraneous factors that influence arrs and that differ across firms consequently the conditional irr estimates are free from some of the sources of measurement error which are known to contaminate the arr thus the conditional irr estimates can be used to provide evidence on whether these sources of measurement error have or have not affected the outcome of prior studies in which profitability was measured by the arr such evidence can help to objectively resolve the conflict between the opposing views on the reliability of arr based profitability research this paper uses conditional irr estimates to examine the properties of the measurement error in the arr in a study of the relationship between firm profitability and firm size the remainder of the paper is organized as follows in section i the theoretical work of fisher and mcgowan is used professor of accounting university of iowa iowa city ia 52242 i gratefully acknowledge the comments of william albrecht dan dhaliwal gary fethke franklin fisher scott linn william r kinney jr and the participants of a workshop at the university of florida on earlier versions of this paper 1 some authors for example william long and david ravenscraft 1984 have used the sales margin ratio earnings sales as a measure of profitability however if one views profitability as return per unit of sacrifice the sales margin ratio is not a profitability measure since it ignores the sacrifice or investment required to generate a dollar of sales consequently this paper does not attempt to shed any insight into prior studies that have relied on the sales margin ratio as a measure of profitability

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

collusion vs superiority a monte carlo analysis abstract this paper develops a monte carlo procedure which simulates regression equations characteristic of the profit concentration literature given knowledge lacking in empirical work of the underlying parameters true values it is shown that concentration s coefficient in an industry profit concentration regression may overestimate underestimate or accurately reflect the impact of monopoly power on price depending on the assumed underlying model current empirical evidence however tends to be more consistent with the model that predicts concentration overestimates the monopoly power effect

is it beneficial to be included in a sustainability stock index a panel data study for european firms this paper empirically examines the effect of inclusion in the dow jones sustainability world index djsi world on corporate financial performance on the basis of panel data for european firms that were included in the dow jones stoxx 600 index over time our micro econometric analysis with fixed and random effects models implies positive impacts on return on assets for continental european countries but insignificant effects for anglo saxon european countries i e the united kingdom and ireland furthermore the impacts on alternative indicators of corporate financial performance such as tobin s q are generally insignificant the weak or neutral effect of inclusion in the djsi world on corporate financial performance can be explained by several mutually confounding factors furthermore the composition of this sustainability stock index is influenced by factors that need not necessarily be directly connected to corporate environmental or social activities so that potential positive and negative effects of corporate sustainability performance on financial performance can be weakened methodologically this study again supports the strong relevance of unobserved firm heterogeneity since the application of misspecified pooled regression models leads to obviously biased estimation results

internal drivers and performance consequences of small firm green business strategy the moderating role of external forces growing detrimental effects on the bio physical environment have been responsible for a large number of small firms to adopt a more strategic stance toward exploiting green related opportunities this article aims to shed light on how internal company factors help to formulate a green business strategy among small manufacturing firms and how this in turn influences their competitive advantage and performance based on data received from 153 small cypriot manufacturers we propose and test a conceptual model anchored on the resource based view of the firm the findings underscore the critical role of both organizational resources and capabilities in pursuing a green business strategy the adoption of this strategy was more evident in the case of firms operating in more harmful as opposed to less harmful industries the implementation of a green business strategy was found to generate a positional competitive advantage with this association becoming stronger under conditions of high regulatory intensity high market dynamism high public concern and high competitive intensity it was also revealed that this competitive advantage is conducive to gaining heightened market and financial performance our study makes a fivefold contribution it injects a theoretical perspective into a relatively atheoretic field underlines the role of organizational resources capabilities as drivers of eco friendly initiatives highlights the often neglected strategic aspects of small firms ecological business activities stresses the contingent role of external forces in moderating the positive impact of small firm green business strategy on competitive advantage and focuses on the performance implications of the small firm s engagement in environmental operations

the energy efficiency paradox revisited through a partial observability approach the present paper examines the energy efficiency paradox demonstrated in greek manufacturing firms through a partial observability approach the data set used has resulted from a survey carried out among 161 energy saving technology firm adopters maximum likelihood estimates that arise from an incidental truncation model reveal that the adoption of the energy saving technologies is indeed strongly correlated to the returns of assets that are required in order to undertake the corresponding investments the source of the energy efficiency paradox lies within a wide range of factors policy schemes that aim to increase the adoption rate of energy saving technologies within the field of manufacturing are significantly affected by differences in the size of firms finally mixed policies seem to be more effective than policies that are only capital subsidy or regulation oriented

should central bankers talk to the foreign exchange markets in this paper we study the role of official statements and speeches given by central bank authorities in charge of foreign exchange policy we investigate the impact of statements that comment on and confirm such interventions on the day of the intervention on the two major foreign exchange markets over an extended period 1989 2003 we also study the impact in terms of policy effectiveness of central bank communication before the actual operations our results suggest that appropriate speeches clarifying the current intervention policy can have marginally virtuous effects both in terms of exchange rate level and exchange rate volatility this leads us to conclude that in general actual interventions on the market should still be employed provided that official statements are used to clarify the nature and purpose of these interventions c 2008 elsevier ltd all rights reserved

factors influencing microfinance engagements by formal financial institutions the commercialization of microfinance brings formal financial institutions into the microfinance landscape yet little is known about the forces that lead to this phenomenon this paper is the first dedicated to this topic using a hand collected dataset of 112 institutions from 34 countries covering the period from 2008 to 2012 based on institutional theory and resource based argument we empirically assess the effects of institutional environment factors including regulative normative and cognitive elements as well as resource based factors including practice model and multinational diversity on the intensity of engagements to do so we define the roles as capital related product related and service delivery and calculate engagement intensity using a scoring method which reflects an organization s extent of presence in the microfinance value chain the analysis takes the engaging location domestic or overseas and engaging model connected or unconnected to core business into account we find that the two logics together can explain such involvement legal compliance is identified as most relevant for domestic players while resource based factors are more relevant for overseas players in addition to regression analysis many cases are identified to support the arguments

the intra day impact of communication on euro dollar volatility and jumps abstract in this paper we examine the intra day effects of verbal statements and comments on the fx market uncertainty using two measures continuous volatility and discontinuous jumps focusing on the euro dollar exchange rate we provide empirical evidence of how these two sources of uncertainty matter in measuring the short term reaction of exchange rates to communication events talks significantly trigger large jumps or extreme events for approximately an hour after the news release continuous volatility starts reacting prior to the news intensifies around the release time and stays at high levels for several hours our results suggest that monetary authorities generally tend to communicate with markets on days when uncertainty is relatively severe and higher than normal disentangling the us and euro area statements we also find that abnormal levels of volatility are mostly driven by the communication of the euro area officials rather than us authorities

the impact of european central bank governing council announcements on the foreign exchange market a microstructural analysis abstract we examine the evidence regarding systematic patterns in the euro dollar foreign exchange market on days when the governing council gc of the european central bank announces its interest rate decisions versus other days we examine 5 minute data in a non linear framework allowing for switching between a high volatility informed trading state and a low volatility liquidity trading state we find strong evidence that the gc policy announcements contain significant news content although there is some evidence of positioning in the hour prior to the announcement this probably reflects dealers minimizing their exposure rather than evidence of information leakage

market incentives for safe commercial airline operation using a sample of nearly all fatal u s airline accidents between 1960 and 1985 this paper attempts to quantify the costs that airlines incur due to crashes the potential costs include those due to loss of life and equipment tort liability increased regulatory oversight and loss of demand as consumers turn away from products perceived to be unsafe examination of the deviations from expected demand following accidents reveals little or no effect prior to airline deregulation and weak indication of a response to recent crashes these results are consistent with the changes in an airline s equity value following an accident which are statistically significant but quite small relative to the total social cost of the accident

corporate philanthropic giving advertising intensity and industry competition level this article examines whether the likelihood and amount of firm charitable giving in response to catastrophic events are related to firm advertising intensity and whether industry competition level moderates this relationship using data on chinese firms philanthropic response to the 2008 sichuan earthquake we find that firm advertising intensity is positively associated with both the probability and the amount of corporate giving the results also indicate that this positive advertising intensity philanthropic giving relationship is stronger in competitive industries and firms in competitive industries are more likely to donate this study thus provides evidence suggesting that even in the wake of catastrophic events corporate philanthropic giving is strategic

commercially available order flow data and exchange rate movements caveat emptor research suggests that customer order flow should help predict exchange rates we make two contributions first we provide a review of the recent literature on order flow and exchange rate movements second we critically evaluate the practical value of customer order flow data that are commercially available to the wider market as well as the forecasting properties of inter dealer order flow in line with microstructure theory we find little evidence that the latter can forecast exchange rates but our results also cast considerable doubt on the practical value to market practitioners of commercially available customer order flow data

airline passenger fatality and the demand for air travel after the 11 september tragedy 20 of the scheduled us airline flights were cancelled and the passenger load factor was down to 56 from 66 6 a year ago was the high death toll or the nature of the attack itself responsible for this dramatic decline using the us data we find that the demand for air travel did fall in years of relatively high fatality rate but the demand is not sensitive to whether the high fatality rate is due to any terrorist activities our estimation results suggest that even after controlling for the sharp increase in the fatality rate because of the 11 september tragedy a considerable proportion of the decline in demand for air travel that year is still unexplained this evidence could suggest that there has been a fundamental shift in consumers perception of air travel safety in the aftermath of the tragedy

corporate social responsibility ownership structure and political interference evidence from china prior research suggests that ownership structure is associated to corporate social responsibility csr in developed countries this article examines whether and how ownership structure affects csr in emerging markets using chinese firms social responsibility ranking our empirical evidences show that for non state owned firms corporate ownership dispersion is positively associated to csr however for state owned firms whose controlling shareholder is the state this relation is reversed we attribute the reversed relationship to political interferences and further test this hypothesis by demonstrating that regional economic development is negatively related to csr for state owned firms due to decreased political interference in more developed areas this study is the first to directly examine the relationship between the dispersion of corporate ownership and csr in emerging markets and our results depict that it is important to consider ownership type in assessing csr in emerging market where state ownership is still prevalent such as china the results also reveal that firm size profitability employee power leverage and growth opportunity affect csr in china

what defines news in foreign exchange markets abstract this paper examines whether the traditional sets of macro surprises that most of the literature considers are the only sorts of news that can explain exchange rate movements we examine the intra daily influence of a broad set of news reports including variables which are not typically considered fundamentals in the context of standard models of exchange rate determination and ask whether they too help predict exchange rate behavior we also examine whether news not only impacts exchange rates directly but also influences exchange rates via order flow signed trade volume our results indicate that along with the standard fundamentals both non fundamental news and order flow matter suggesting that future models of exchange rate determination ought to include all three types of explanatory variables

does firm size comfound the relationship between corporate social performance and firm financial performance there has been some theoretical and empirical debate that the positive relationship between corporate social performance csp and firm financial performance ffp is spurious and in fact caused by a third factor namely large firm size this study examines this question by integrating three meta analyses of more than two decades of research on 1 csp and ffp 2 firm size and csp and 3 firm size and ffp into one path analytic model the present study does not confirm size as a third factor which would confound the relationship between csp and ffp that is even if firm size is controlled for across studies comprising on average over 15 000 observations csp and ffp remain positively correlated showing a true score corrected path coefficient p of 0 37

has ecb communication been helpful in predicting interest rate decisions an evaluation of the early years of the economic and monetary union we examine the usefulness of communication by the european central bank for predicting its policy decisions during the early years of the european economic and monetary union using ordered probit models based on the taylor rule we find that statements on the main refinancing rate and future inflation are significantly related to interest rate decisions at the same time an out of sample evaluation shows that communication based models do not outperform models based on macroeconomic data in predicting decisions both types of models have difficulty in predicting changes in the main refinancing rate

reexamining the expected effect of available resources and firm size on firm environmental orientation an empirical study of uk firms an emergent body of literature examined why some firms apply some environmental initiatives while other firms do not take responsibility for their natural environment thus firm environmental orientation responsiveness and performance are linked in the literature to several variables unfortunately the relationship between firm environmental orientation and either available resources or firm size showed mixed results and inconclusive evidence therefore the aim of this paper is to show empirically how available resources and firm size can explain differences in firm environmental responsiveness and environmental performance econometric results of environmental responsiveness using the logistic regression model demonstrated that firm size does appear to add something unique in explaining differences in environmental responsiveness while available resource can be safely dropped from the model however econometric analysis of environmental performance using the maximum likelihood random effects model showed strong evidence that available resources and firm size are significant predictors of firm environmental performance

corporate social performance and innovation with high social benefits a quantitative analysis this article analyses the link between innovation with high social benefits and corporate social performance csp and the role that family firms play in this this theme is particularly relevant given the large number of firms that are family owned also the implicit potential of innovation to reconcile corporate sustainability aspects with profitability justifies an extended analysis of this link governments often support socially beneficial innovation with various policy instruments with the intention of increasing international competitiveness and simultaneously supporting sustainable development in parallel firms pursue corporate social responsibility csr and environmental management activities partly in the hope that this will foster such innovation in their organisation alongside their main aim of improving csp hence the main research question of this article is about the association of csp with innovation with high social benefits and the determinants of the potential moderation of this association based on panel data the article analyses the link between csp and innovation and the effect of being a family firm using panel estimation techniques the results point to a moderating role of family firms on the link between innovation with high social benefits and csp the article concludes by assessing the policy implications of this insight

private information flow and price discovery in the u s treasury market abstract using intraday data we identify the intensity of private information flow in the u s treasury market our results show that the intensity of private information flow is highly correlated with public information shocks and higher for longer maturity bonds more importantly we find that bond price changes associated with high intensity of private information flow tend to be persistent whereas those associated with low intensity of private information flow are more likely reversed while public information and private information are the main determinants of bond price variations on days with news announcements private information and liquidity shocks are important determinants of bond price variations on days with no significant events finally we show that the depth of limit order book is inversely related to the intensity of private information flow nevertheless informed dealers do not seem to use hidden orders to disguise their trading intentions

hotels and restaurants are the risks rewarded evidence from norway abstract the purpose of this paper is to apply accounting based risk measures to describe and compare the risk involved in accommodation and restaurants to three other industries it is found that the variation in earnings is particularly high in construction but also significant in accommodation and restaurants the volatility in construction is caused by variance in sales construction companies experience low profits when the economy is depressed while earnings boom when the economy progresses on the other hand earnings in retail are stable it appears that retailing provides low risk and steady profits the sales variance in accommodation and restaurants is fairly low the high variability in earnings is mainly caused by operational and financial leverage despite the high total risk hotels and restaurants earn less profit than the other industries examined apparently the market does not reward self inflicted risk induced by high leverage perhaps norwegian accommodation providers and restaurant keepers have concerns other than maximising profit and minimising risk and owners lifestyles are reflected in the financial accounts an alternative explanation might be that the accommodation catering sector has had unrealistic expectations in the period covered by the research

accounting for endogeneity and the dynamics of corporate social corporate financial performance relationship abstract this paper examines the endogeneity problem in studies dealing with corporate social performance and financial performance relationship since randomized controlled experiments in the business research field are often unfeasible researchers rely mostly on observational data to make claims about doing good doing well arguments in response to several strong calls for additional well crafted empirical research that address endogeneity we revisit the csp cfp relationship in the airline industry to understand how endogeneity arises and how to control for it in studies based on observational panel data we exploit various approaches such as ols fixed effects fixed effects iv 2sls dynamic system gmm and gls estimators we show the appropriateness behind the use of the dynamic system gmm estimator and its benefits over the fixed effects estimator in addition we demonstrate that results in models that do not account for endogeneity lead to inflated estimations misleading interpretations and wrong theoretical propositions about the dynamic nature of csp cfp relationship

a resource based perspective on corporate environmental performance and profitability drawing on the resource based view of the firm we posited that environmental performance and economic performance are positively linked and that industry growth moderates the relationship with the returns to environmental performance higher in high growth industries we tested these hypotheses with an analysis of 243 finns over two years using independently developed environmental ratings results indicate that it pays to be green and that this relationship strengthens with industry growth we conclude by highlighting the study s academic and managerial implications making special reference to the social issues in management literature

successful in the long run a meta regression analysis of persistent firm profits we study the profit persistence literature by applying meta regression analysis mra to a set of 36 empirical papers which analyze the persistence of abnormal firm profits over time the analyzed literature provides evidence for a mediocre degree of persistence in abnormal profits an initial analysis of the distribution of reported profit persistence estimates reveals some degree of excess variation this points toward publication bias that favors significant results independent of their algebraic sign the mra however reveals that publication bias is particularly favoring results that indicate profit persistence and thus contradict the neoclassical model of perfect competition moreover the mra enables to control for heterogeneity driven by the study design we find that the analyzed country developing vs developed the applied econometric approach as well as the analyzed period of time are significant drivers of heterogeneity in reported persistence estimates

it pays to be green a premature conclusion it has been claimed that good environmental performance can improve firms economic performance however because of e g data limitations the methods applied in most previous quantitative empirical studies on effects of environmental performance on economic performance of firms suffer from several shortcomings we discuss these shortcomings and conclude that previously applied methods are unsatisfactory as support for a conclusion that it pays for firms to be green then we illustrate the consequences of these shortcomings by performing several regression analyses of the effect of environmental performance on economic performance using a panel data set of norwegian plants a pooled regression where observable firm characteristics like e g size or industry are controlled for confirms a positive effect of environmental performance on economic performance however the estimated positive effect could be due to omitted unobserved variables like management or technology when the regression model controls for unobserved plant heterogeneity the effect is generally no longer statistically significant hence although greener plants tend to perform economically better the analysis provides little support for the claim that it is because they are greener these empirical findings further indicate that a conclusion that it pays to be green is premature

epa s voluntary 33 50 program impact on toxic releases and economic performance of firms abstract this paper examines the motivations for participation in the voluntary 33 50 program and the program s impact on the toxic releases and economic performance of firms in the u s chemical industry it demonstrates that the benefits due to public recognition and the potentially avoided costs of liabilities and compliance under mandatory environmental regulations provide strong incentives for participation after controlling for sample selection bias and the impact of other firm specific characteristics this paper shows that program participation led to a statistically significant decline in toxic releases over the period 1991 93 the program also had a statistically significant negative impact on the current return on investment of firms but its impact on the expected long run profitability of firms was positive and statistically significant

the intraday bid ask spread behaviour of the jpy usd exchange rate in the ebs electronic brokerage system using a sophisticated tool of the periodic generalized autoregressive conditional heteroscedastic p garch model this article investigates the market institutional effects of the determining role of trading activities and exchange rate volatility on the intraday behaviour of the 15 minute jpy usd exchange rate bid ask spreads in the electronic broking service ebs of electronic brokerage market for the period from 1 january 2003 to 31 december 2005 we find that the exchange rate volatility both significantly and positively affects the bid ask spreads while the number of deals and quotation changes negatively affect the bid ask spreads these results are similar to those of past studies we also find that a u shaped pattern exists in the tokyo trading hours and an inverted u shaped pattern in the london trading hours in addition to a round clock inverted u shaped pattern of spread volatility this inverted u shaped pattern may be caused by unexpected news arrivals the spread behaviour of the ebs glo

the effects of top management team integrative complexity and decentralized decision making on corporate social performance we examine the influence of top management teams tmts integrative complexity and decentralization of decision making on corporate social performance we argue that both factors increase tmt ability to gather information on and attend to stakeholder needs thereby yielding higher corporate social performance we further predict that decentralization moderates the relationship between integrative complexity and corporate social performance in such a way that the relationship is stronger under conditions of centralization using a q sort methodology which translates complex qualitative observations into quantitative metrics we examined integrative complexity and decentralization in 61 fortune 500 firms and found support for our predictions in the wake of numerous corporate scandals corporate social performance has garnered much attention from business practitioners and academics alike corporate social performance refers to a business organization s configuration of principles of social responsibility processes of social responsiveness and policies programs and observable outcomes as they relate to the firm s societal relationships wood 1991 693 the dominant perspective taken in evaluating a firm s corporate social performance is the stakeholder approach according to which firms act in a socially responsible manner when they take the interests of multiple stakeholders e g customers employees into account mcguire dow argheyd 2003 ruf muralidhar brown janney paul 2001

the euro exchange rate during the european sovereign debt crisis dancing to its own tune abstract this paper studies the determinants of the euro exchange rate volatility during the european sovereign debt crisis allowing a role for macroeconomic fundamentals policy actions and the public debate by policy makers it finds that the euro exchange rate mainly danced to its own tune with a particularly low explanatory power for macroeconomic fundamentals the findings of the paper also suggest that financial markets might have been less reactive to the public debate by policy makers than previously feared still there are instances where exchange rate volatility increased in response to news such as on days when several politicians from aaa rated countries went public with negative statements suggesting that communication by policy makers at times of crisis should be cautious about triggering undesirable financial market reactions

the dynamics of superior performance among the largest firms in the global oil industry 1954 2008 this study combines quantitative and qualitative research methods to contribute to the understanding of the dynamics of superior performance among the largest firms in the global oil industry during the 1954 2008 period by identifying new stylized facts the combination of parametric and non parametric analysis displays cyclical patterns of the different aspects of performance dynamics appreciative theorizing through qualitative historical analysis uncovers causal explanations that are based on an interplay of corporate industrial and institutional change that leads to a succession of four competitive regimes

ownership versus competition efficiency in public enterprise certainly the introduction of product market competition into potentially competitive or at least contestable markets can improve performance to take just one example morrison and whinston 1986 1986 estimate that even in the imperfectly contestable u s airline industry the annual u s welfare gains from deregulation have been around 6 billion

market forces and aircraft safety an extension market forces and aircraft safety an extension gordon v karels recent work by chalk focuses on whether market forces provide safe products via stock market reaction to unanticipated events chalk finds a 200 million decline in mcdonnell douglas stockholder wealth related to the 1979 dc 10 crash in chicago that decline far exceeds reasonable estimates of regulatory and liability costs suggesting a market penalty for unsafe products his results however do not seem consistent with the notion of efficient markets as american airlines maintenance procedures were quickly identified as the likely cause of the crash this study finds no resulting shareholder wealth loss for american airlines or mcdonnell douglas i introduction in a recent article in this journal andrew chalk 1986 attempts to test whether market forces provide safety when products are too complex to permit buyer repurchase inspection to do so he uses the rather ingenious method of examining the abnormal returns to mcdonnell douglas stock prices following the may 25 1979 crash of a dc 10 just outside o hare airport in chicago efficient market theory predicts that perceived safety problems in products will result in a fall in the firm s stock price due primarily to a product demand effect if this is the case market forces would compel producers to invest in product safety even in situations when the technical safety aspects of the product are beyond the comprehension of the average consumer as is the case with large commercial aircraft chalk s study finds large and statistically significant negative abnormal returns to mcdonnell douglas stockholders on the order of 200 million in almost every case where news is released just after the crash both favorable and unfavorable with respect to mcdonnell douglas chalk finds statistically significant abnormal returns to mcdonnell douglas stock what is interesting about this particular event was that faulty maintenance and not a product defect was ultimately blamed as the principal cause of the crash initially the general safety of the dc 10 was questioned but subsequent evidence indicated that the maintenance procedure of an american airlines mechanic who later moved on to continental and taught the technique there of removing the engine and pylon in one step instead of separately caused stress which led to the engine tearing loose american airlines and continental ended up paying fines of 500 000 and 100 000 respectively for this procedure but american did not admit guilt for the crash in paying the fine 1 given that most of the blame for the crash fell on american s maintenance procedure the finding of significant cumulative abnormal returns by chalk are surprising in the context of efficient markets evidence of faulty maintenance procedures became public information within two weeks after the crash because of the initial uncertainty over the cause of the crash significant abnormal returns for particular event days are likely but those negative abnormal returns should be offset in later periods as the true cause becomes known to investors thus the finding of significant cumulative abnormal returns to mcdonnell douglas would not be consistent with the semistrong form of efficient markets the purpose of this note is to replicate and extend the findings of chalk s study by examining the market forces that affected the other major party involved in subsequent litigation american airlines corporation following chalk s argument one would expect to see the market impose substantial costs on american if it is believed that travel on that airline is less safe than previously thought travelers could substitute towards other airlines where possible reducing cash flow and hence the value of the firm the size of the demand effect should have little to do with american s investment in aircraft safety

the construct validity of the kinder lydenberg domini social performance ratings data carroll 1991 encouraged researchers in social issues management sim to continue to measure corporate social performance csp from a variety of different perspectives utilizing a variety of different measures in addition wolfe and aupperle 1991 and others have asserted that there is no single best way to measure csp and that multiple measures and perspectives help develop the field however pfeffer 1993 suggest that a lack of consistent measurement has constrained organization studies and by implication the field of social issues management in its development as a field it may be in the best interest of social issues management researchers to try to development a common body of measures and data recently kinder lydenberg and domini co kld a social choice investment advisory firm has made available their social performance database the kld data have potential to become a widely accepted set of csp measures the purpose of this paper is to present a construct validity study comparing the kld data to other measures of csp

structure and performance with profit measures based on stock market prices the theory that there is a causal relationship between industry structure conduct and performance is the fundamental premise in the field of industrial organization the most carefully researched component of that general theory is the hypothesis that increasing industrial concentration will give rise to increasing profits this traditional view is important not only because of its prominence in the academic analysis of industrial markets but also because of its implications for government policy especially antitrust policy the traditional view typically has been tested by treating an accounting based measure of industry profit as the dependent variable with concentration and other structural variables as independent variables within a cross section of manufacturing industries at a given point in time numerous papers have found that concentration has a positive impact on profits the methodology adopted in this paper is different the profit measures are based on stock market prices and are adjusted for risk this is an improvement because accounting methods are so poorly adapted to the measurement of economic profit and because risk may vary with concentration 2 39 another methodological innovation is the choice of time series over cross section analysis the question asked is whether the change over time in each industry s level of concentration had an impact on profits this minimizes the problem of omitted or inaccurately measured independent variables since there should be less change in basic structural characteristics over short time periods within an industry than between industries at a single point in time 2 a second important advantage is freedom from a basic assumption of crosssection studies the assumption that the relationship between concentration and profit is homogeneous across industries if the assumption is invalid empirical results are subject to bias two tests 7 26 have firmly rejected the homogeneity assumption 3

an assessment of the association between renewable energy utilization and firm financial performance contemporary research highlights multiple societal and environmental benefits in addition to potential economic advantages associated with renewable energy re utilization as federal and state incentives for investments in re technologies become more prevalent re sources represent increasingly viable alternatives to established fossil fuel energy re utilization is recognized as a key component of green product innovation that helps firms reduce the environmental impact of production processes and diminish their ecological footprints and energy consumption yet despite consistent evidence that corporate sustainability initiatives are favorably associated with firm performance the limited research that examines associations between re initiatives and firm performance yields mixed results and an explicit link has yet to be established drawing on the natural resource based view of the firm we examine the association between re utilization and firm financial performance over time annual roi tobin s q and operating margin for large u s firms identified as exceptional users of re in the epa s fortune 500 top green power partners list are compared with their respective industry medians over a 7 year period 2007 2013 and post hoc bootstrapping and sensitivity analyses are performed to further validate the study findings our research advances current knowledge about the influence of re utilization by demonstrating that top re user firms consistently generated superior financial performance compared to their industry competitors as such the study findings lend credence to the existence of a business case that complements the societal and environmental benefits of re utilization

the validity of profits structure studies with particular reference to the ftc s line of business data the simple proposition that consumerdamaging collusion is more likely to occur when there are fewer competitors has given rise not only to legal restrictions of economic activity thought to restrict output but also to an enormous amount of empirical work attempting to relate market concentration to the exercise of monopoly power most such studies measured market structure by an index of concentration for example four firm concentration or herfindahl and performance by accounting profit for example net profit divided by assets or price cost margins sales less direct costs divided by sales from the positive statistically significant correlations often found between greater concentration and profit with other factors presumably accounted for some researchers conclude that increases in concentration are anticompetitive and that concentration therefore is bad the concentration profits studies have been criticized essentially on two grounds one is that the positive relationship is not indicative of collusive behavior in particular oliver williamson 1968 john mcgee 1971 harold demsetz 1973 1974 and sam peltzman 1977 point out that higher profits could result from efficiencies experienced by large firms which resulted both in greater market shares and high levels of concentration analytical arguments show that higher profits logically follow as much from lower costs that are associated with higher levels of concentration as from collusion determined higher prices some empirical evidence that supports this belief is presented by demsetz peltzman and bradley gale and ben branch 1982 however their findings have been contested on the grounds that the data used are biased or inadequate or that the researchers have not demonstrated that the observed higher profits greater concentration relationship was caused by lower costs 2 the second criticism is that available data provide an inadequate basis for such conclusions the concentration numbers are based usually on industries defined by the commerce department s standard industrial classifications sic the sic definitions tend to be supply production rather than demand determined include nonhomogeneous products and exclude sales of similar products that are included in different sic groups or are imported the profit data are taken from accounting reports that provide poor measures of economic values weiss 1974 describes many of these problems however he does not believe that these shortcomings invalidate the studies as weiss 1979 concludes

investing in socially responsible companies is a must for public pension funds because there is no better alternative with assets of over us 1 0 trillion and growing public pension funds in the united states have become a major force in the private sector through their holding of equity positions in large publicly traded corporations more recently these funds have been expanding their investment strategy by considering a corporation s long term risks on issues such as environmental protection sustainability and good corporate citizenship and how these factors impact a company s long term performance conventional wisdom argues that the fiduciary responsibility of the pension funds trustees must be solely focused on their beneficiaries and therefore their investment criteria must be based strictly on narrowly defined financial measures it is also asserted that well established financial measurements of corporate performance already include long term risk assessment through discounted present value of future flow of earnings consequently all other criteria are contrary to the best interest of the pension funds beneficiaries in this paper we assert that contrary to conventional wisdom pension funds and for that matter other mutual funds must be concerned with the long term survival and growth of corporations these measures are generally referred to socially responsible investing sri and when applied to corporations it is termed socially responsible corporate conduct srcc we demonstrate that current measurement of future risk assessment invariably understates and quite often completely overlooks these long term risks because of the inherent bias towards short run on the part of financial intermediaries whose compensation depends greatly on short term results furthermore there is ample evidence to suggest that these intermediaries have been engaging in self serving practices and thus failing in their duties to serve their clients i e pension funds best interests because of their large holdings in the total market as well as individual companies these funds cannot easily divest from poorly performing companies without destabilizing the companies stock and overall markets hence they must opt for a strategy of emphasizing investment criteria that encourage companies to take into account long term aspects of their operations in terms of their impact on environment sustainability and community welfare to name a few we argue that an exclusionary and even a primary focus on short term financial criteria is no longer a viable option it also calls for the pension funds to encourage greater transparency and accountability of the entire corporate sector through improved corporate governance thus socially responsible investing practices are not merely discretionary and desirable activities they are a necessary imperative which both the corporations and public pension funds and other large institutional holders will ignore at serious peril to themselves finally the paper considers some of the recent developments where corporations have been responding to these challenges and how their actions might be strengthened through greater disclosure and transparency of corporate activities it also makes recommendations for the pension funds to support further research in creating new measurement standards that further refine the concept of socially responsible investing as a necessary ingredient of long term corporate survival and growth in the context of a changing economic environmental and socio political dynamic

the competitive impact of air crashes stock market evidence abstract we examine stock market reactions to commercial air crashes to test the hypothesis that consumers respond by switching to rival airlines and or flying less we focus on the stock price reactions of airlines not involved in the crash if switching occurs noncrash airlines should benefit to the extent that they are direct competitors of the crash airline we develop a measure of market overlap and regress individual non crash airline abnormal returns on this measure allowing the constant term to capture any negative spillovers the evidence supports both a switching effect and a spillover

corporate social and financial performance an extended stakeholder theory and empirical test with accounting measures although agreement on the positive sign of the relationship between corporate social and financial performance is observed in the literature the mechanisms that constitute this relationship are not yet well known we address this issue by extending management s stakeholder theory by adding insights from psychology s prospect decision theory and sociology s resource dependence theory empirically we analyze an extensive panel dataset including information on disaggregated measures of social performance for the s p 500 in the 1997 2002 period in so doing we enrich the extant literature by focusing on stakeholder heterogeneity perceptional framing and disaggregated measures of corporate social performance

monetary policy predictability in the euro area an international comparison we evaluate the ability of market participants to anticipate monetary policy decisions in 14 countries first by looking at both the magnitude and volatility of changes in the money market rates we show that the days of policy meetings are special days for financial markets second we find that the predictability of federal reserve fed bank of england and european central bank ecb is fully comparable finally an econometric analysis of the ability of market participants to incorporate in the current short term interest rates the expected policy changes shows that in the euro area and in other countries policy decisions are anticipated well in advance

the effect of central bank transparency on exchange rate volatility abstract the increase in central bank transparency has been one of the main developments in central banking in the past two decades this leads to the question of the effect of central bank transparency on the volatility of exchange rates according to theoretical considerations more information could lead to either more precise forecasts or more noise trading this raises the need for an empirical estimation of the relationship the present study shows that the effect of central bank transparency on exchange rate volatility depends on a country s development while there is no effect of central bank transparency in the full sample and for developing countries transparency increases exchange rate fluctuations in developed countries

effects of accounting techniques on the study of market power abstract this study uses a time series analysis to test for the effects of alternative depreciation and inventory accounting techniques on the estimation of firm level market power the key finding is that while alternative inventory measurement techniques have a significant effect on the estimated coefficients of a firm level profit structure model depreciation techniques have an insignificant effect on these coefficients this result is notable because previous researchers have focused exclusively on the biases due to accounting depreciation techniques and failed to see that alternative inventory techniques have the potential for causing the more significant biases

evaluating q as an alternative to the rate of return in measuring profitability the ratio of a firm s market value to its replace ment cost q is often used to measure firms profitability the use of q is increasin g in large part because of the growing realization that errors in evaluating firms capital assets may cause errors in estimates of the accounting rate of return r the same objection however applies t o q this paper reports the results of monte carlo experiments designed to determine whether q is superior to r errors in both q and r are large and potentially serious but do not render either measure useless copyright 1988 by mit press

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

a multimethod approach to identifying norms and normative expectations within a corporate hierarchy evidence from the financial services industry we use an incentive compatible economic experiment and surveys in the field at a large financial services firm to identify the norms for on the job behavior among financial advisers and their leaders and the normative expectations each group has of the other we examine whistle blowing on a peer an incentive clash between serving the client and earning commissions and a dilemma about fiduciary responsibility to a client we find patterns of agreement among advisers among leaders and between the two groups that are consistent with company guidelines identified ex ante however we also find measurable differences between what leaders expect and the actual norms of advisers when there is such a mismatch we are able to distinguish miscommunication from ethical disagreement between leaders and advisers finally we show that when advisers personal ethical opinions do not match group norms this mismatch is correlated with job dissatisfaction and lying for money in a second experiment this paper was accepted by brad barber teck ho and terrance odean special issue editors

touched by tragedy capital market lessons from the crash of valujet flight 592 abstract this study presents an event time analysis of the effects of the crash of valuejet flight 592 the mandated f a a shutdown of valujet and the subsequent restart of the airline on valujet shareholders and two portfolios composed of the stocks of major and low cost competitors the results of the study document immense losses for valujet s shareholders as well as large contagion losses for the holders of other low cost airlines but statistically significant gains for the owners of major airline stocks a cross sectional analysis of the abnormal returns registered at the time of the crash and shutdown suggests that fleet age and low cost status but not an airline s public safety record were significant of the determinants changes in share prices for competitor firms

profit rates and intangible capital a central question in industrial organization is why profit rates differ so dramatically across firms and industries one of the many explanations offered for this phenomenon is the failure of conventional accounting methods to adjust for intangible capital stocks i e it is argued that profit rates do not differ dramatically when capital stocks are correctly calculated to include intangible r d and advertising capital to test this hypothesis individual advertising capital stocks are calculated for firms in the toys distilled beverages cosmetics and pharmaceuticals industries and r d stocks are calculated for the pharmaceuticals firms the adjustments do not eliminate the wide dispersion in profit rates copyright 1991 by mit press

a methodology based on profitability criteria for defining the partial defection of customers in non contractual settings abstract the defection or churn of customers represents an important concern for any company and a central matter of interest in customer base analysis an additional complication arises in non contractual settings where the characteristics that should be observed to saying that a customer has totally or partially defected are not clearly defined as a matter of fact different definitions of the churn situation could be used in this context focusing on non contractual settings in this paper we propose a methodology for evaluating the short time economic effects that using a certain definition of churn would have on a company with this aim we have defined two efficiency measures for the economic results of a marketing campaign implemented against churn and these measures have been computed using a set of definitions of partial defection our methodology finds that definition maximizing both efficiency measures and moreover the monetary amount that the company should invest per customer in the campaign for achieving the optimal solution this has been modelled as a multiobjective optimization problem that we solved using compromise programming numerical results using real data from a spanish retailing company are presented and discussed in order to show the performance and validity of our proposal

the contribution of environmental and social standards towards ensuring legitimacy in supply chain governance increasingly companies implement social and environmental standards as instruments towards corporate social responsibility csr in supply chains this is based on the assumption that such standards increase legitimacy among stakeholders yet a wide variety of standards with different requirement levels exist and companies might tend to introduce the ones with low exigencies using them as a legitimacy front this strategy jeopardizes the reputation of social and environmental standards among stakeholders and their long term trust in these instruments of csr meaning that all expenses for their implementation are of no avail for the companies therefore this paper highlights which criteria are important for the selection implementation and improvement in order to achieve a company s aim but also to strengthen the legitimacy of social and environmental standards this research is based on conceptual thought and some existing empirical research comparing four different social and environmental standards revealing weaknesses and strengths it exposes the basic conditions for the success of such standards among stakeholders and identifies the need for more empirical data

the corporate social performance financial performance link strategic managers are consistently faced with the decision of how to allocate scarce corporate resources in an environment that is placing more and more pressures on them recent scholarship in strategic management suggests that many of these pressures come directly from sources associated with social issues in management rather than traditional arenas of strategic management using a greatly improved source of data on corporate social performance this paper reports the results of a rigorous study of the empirical linkages between financial and social performance corporate social performance csp is found to be positively associated with prior financial performance supporting the theory that slack resource availability and csp are positively related csp is also found to be positively associated with future financial performance supporting the theory that good management and csp are positively related 1997 by john wiley sons ltd