barriers to entry and competitive behavior evidence from reforms of cable franchising regulations between 2005 and 2008 19 of the 50 states of the u s reformed the franchising process for cable television significantly easing entry into local markets using a differencein differences approach that exploits the staggered introduction of reforms we find that prices for basic service declined systematically by about 5 5 to 6 8 percent following the reforms but we find no statistically significant effect on average price for the more popular expanded basic service we also find that the reforms led to increased actual entry in reformed states by about 11 6 relative to non reformed states our analysis shows that the decline in price for basic service holds for markets that did not experience actual entry consistent with limit pricing by incumbents to control for potential state level shocks correlated with the reforms we undertake a sample split test examining changes in local markets which faced a greater threat of entry because they were close to a prominent second entrant we find larger declines in prices for both basic and expanded basic services in these markets our results are consistent with limit pricing models that predict incumbents respond to increased threat of entry and suggest that the reforms facilitated entry and modestly benefitted consumers in reformed states

market power of local cable television franchises evidence from the effects of deregulation the 1989 cable act eliminated most price regulation of cable television operators including the right of municipalities to enforce price terms in franchise agreements deregulation was justified at least partially by the contention that competition from other entertainment media eliminated any market power of cable franchises we examine the value at sale of existing cable systems before and after deregulation assuming that this value represents the expected present value of future profits deregulation had the predicted negligible effect on profits in cities with significant broadcast competition however profits appear to have increased in areas where the competition from broadcast television was less severe we explore several explanations for this increase and conclude that significant market power is the most plausible explanation

interim news and the role of proxy voting advice this paper examines the information content and consequences of third party voting advice that arrives as news at an interim stage in corporate proxy contests we first document significant stock returns around announcements of proxy vote recommendations we then develop a multiequation empirical procedure for disentangling the price impact of prediction effects changes in contest outcome probabilities from the price impact of certification effects changes in outcome contingent valuations both effects are present in the data voting advice is both predictive about contest outcomes and informative about the ability of dissidents to add value consequently proxy advice plays a dual informational role

venture management in japanese companies abstract this study based on a survey of reports on the subject published in japan since 1980 and an in depth analysis of 20 companies aims to understand the reasons why japanese firms have adopted western style venture management techniques and the organizational patterns they have created to implement them although they started relatively recently large japanese firms have adopted venture management methods in about the same proportion as their american counterparts the main reasons for this lie in the need to diversify out of mature industries to foster innovation to speed up new product development and to create an organizational vehicle permitting creative younger employees to develop their ideas the traditional characteristics of japanese firms have not been found suited to the latter two reasons the general pattern of organizing new venture activities was found to represent five different models ranging from company wide task forces to the creation of a separate new venture company these models constitute a decreasing order of integration of venture teams with other divisions and staff departments of the parent company the degree of integration of venture teams with the parent was found to be only partially related to the extent of diversification involved while task forces and new venture companies the two extreme categories represented increasing diversification the intermediate organizational forms were less uniformly related in separating the diversification variable into its technology and market components however a somewhat better explanatory link could be established companies in which new ventures drew upon the core technology tended to integrate their ventures with the parent more than others the other reasons for the weak link between diversification and integration was surmised to be the general trend toward encouraging entrepreneurship and speeding up the innovation process this was reflected in the authors interviews with companies and some overt behavior particularly the propensity to spin off new venture early and often the use of venture management methods in japan with its emphasis on youth and independence constitutes a partial renunciation of certain managerial policies and cultural traits that formed the strength of japanese companies in the past while certain aspects of traditional japanese management such as small group accountability shared division of labor and self organizing teams favor the implantation of venture management methods in japan others having to do with the seniority system and egalitarianism do not so far at least japanese managers have coped reasonably well with the organization frictions that one might have expected to arise partly because of the active interest and involvement of senior management the latter not only helped define the strategic context the domain of search but had venture teams report to them directly or indirectly in most cases

on measuring competitive viability and monopoly power in cable an empirical cost approach this study provides empirical evidence concerning the economic feasibility of competition in the local market for video delivery services using responses from the fcc s 1995 cost survey we jointly estimate a translog cost function with factor share equations to evaluate subadditivity the fitted total cost of each firm is compared with the cost of two firms providing the same total output in eleven different market scenarios although costs were mildly superadditive in the vast majority of cases they were lower when one firm provided the output average cost savings with respect to a monopoly were fairly small ranging from 1 37 with a 10 market overlap to 5 05 with a complete overbuild we also calculated marginal cost from the fitted total cost equation and a price for cable services derived from the fcc survey data using these results and rubinovitz s price elasticity of 1 46 we estimated that reregulation had a regulatory effectiveness of 0 3251 and held prices to 40 5 of the monopoly level

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

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

insider trading investment and liquidity a welfare analysis we compare equilibrium trading outcomes with and without participation by an informed insider assuming inflexible ex ante aggregate investment choices by agents noise trading arises from aggregate uncertainty regarding other agents intertemporal consumption preferences the welfare levels of outsiders can thus be ascertained the allocations without insider trading are not ex ante pareto efficient because our model differs from standard ones with negative exponential utility functions and normal returns we characterize the circumstances under which the revelation of payoff relevant information via prices arising from insider tradingbenefits outsiders with stochastic liquidity needs by improving risk sharing among them in models of informed trading allen 1984 dennert 1992 grossman and stiglitz 1980 kyle 1985 leland 1992 repullo 1994 it has been customary in order not to have an unrealistic fully revealing rational expectation equilibrium ree and no profits for informed traders to postulate some portion of the market demand for securities as arising from unmodeled noise traders whose endowments and preferences for consumption are left unspecified this makes it difficult to reach a welfare judgment regarding the impact of insider trading even when the implications for the informativeness of asset prices and investment can be ascertained thus an important issue in financial regulatory policy regarding the desirability of allowing trading by asymmetrically informed corporate insiders remains largely unresolved at the conceptual level our major goal in this paper is to rectify this shortcoming by modeling both noise traders and rational a priori uninformed traders together as agents with well specified preferences these agents allocate their endowments across a risky long term and a riskless short term investment ex ante london school of economics and political science and cepr and universita degli studi di torino respectively we are grateful for financial support from the ente einaudi the italian murst and the international centre for economic research icer torino it is a pleasure to acknowledge the excellent research assistance of giacomo elena work on this paper was begun while bhattacharya was a visiting fellow at icer during the summer of 1995 we wish to thank without implicating in errors gabriella chiesa and jose marin for advice and encouragement and participants at seminars at the universities of brescia roma tor vergata tilburg torino the cepr conference on information financial intermediation and the macroeconomy alghero 1997 as well as an anonymous referee and the editor rene stulz for their very helpful comments and suggestions

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

dual class recapitalizations as antitakeover mechanisms abstract we report evidence on shareholder wealth effects of 94 firms recapitalizing with dual classes of common stock with disparate voting rights we find significant negative abnormal stock price returns at the announcement of the dual class recapitalization when we consider recapitalizations separately announced since the nyse imposed a moratorium is june 1984 on the delisting of companies with dual classes of equity we find significant negative abnormal returns as compared with insignificant returns in the earlier period those firms recapitalizing from june 1986 through may 1987 experienced the most significant negative returns observed

the optimal enforcement of insider trading regulations regulating insider trading lessens the adverse selection problem facing market makers enabling them to quote better prices an optimal enforcement policy must balance these benefits against the costs of enforcement such a policy must specify i the conditions under which the regulator conducts an investigation ii the penalty schedule imposed if an insider is caught and iii a transaction tax to fund enforcement we derive the policy that maximizes investors welfare this policy entails investigations following large trading volumes or large price movements or both insiders caught making large trades are assessed the maximum penalty but small trades are not penalized given this policy insiders trade most aggressively on news with an intermediate price impact but refrain from trading on moderate or extreme news

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

standstill agreements privately negotiated stock repurchases and the market for corporate control abstract standstill agreements are voluntary contracts which limit a substantial stockholder s ownership interest in a corporation for a specified number of years they are often accompanied by repurchase of the substantial stockholder s shares at a premium above the market price standstills and premium buybacks reduce competition for corporate control and provide differential treatment of large block stockholders the analysis indicates a statistically significant negative average effect on non participating stockholder wealth associated with standstill agreements negotiated premium repurchases are also associated with negative but less significant stockholder returns the evidence is inconsistent with the hypothesis that these management actions are in the best interests of non participating stockholders

insider trading outside search and resource allocation why firms and society may disagree on insider trading restrictions we show that entrepreneurs may prefer to allow insider trading even when it is not socially optimal we examine a model in which an insider manager allocates resources on the basis of his private information and outside information conveyed through the secondary market price of the firm s shares if the manager is allowed to trade he will compete with informed outsiders reducing the equilibrium quality of outside information while the benefits to production of outside information are the same for society and entrepreneurs we show that the social and private costs are different thus entrepreneurs and society may disagree on the conditions under which insider trading restrictions should be imposed article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

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

ethical aspects of investor behavior the neoclassical paradigm assumes that shareholders utility is solely a function of their wealth and prescribes that management should act in a manner consistent with share price maximization the stakeholder view also assumes that shareholders utility derives from wealth but prescribes that managers must balance the shareholder wealth maximization objective against the rights of other constituencies thus while neoclassicists and stakeholder theorists have different prescriptives for management behavior their definitions of the shareholders interest are consistent shareholders are self interested economic agents whose utility is best served by share price maximization however if shareholders are other interested and attack importance to ethical and moral values then both the neoclassical and stakeholder view derive from invalid assumptions in this paper i present evidence that much shareholder behavior is ethically motivated as a result the basis for both the neoclassical and the stakeholder view are weakened

insider trading legislation and corporate governance this paper analyzes the impact of insider trading legislation on corporate governance in a context where large dominant shareholders can monitor underperforming companies managers have an incentive to give early warnings about adverse developments to dominant shareholders this information is effectively a bribe to induce dominant shareholders to sell their stock and refrain from intervention if insider trading is unregulated dominant shareholders collude with management at the expense of small shareholders the optimal regime forces the company to disclose all material information to the market private contracting between companies and shareholders leads to optimal insider trading regulation only if initial shareholders can enter a binding commitment otherwise large shareholders and managers recontract at the expense of small share holders enforcement also matters european union legislation requires inside information to be precise such a narrow definition creates a grey zone where information is private but cannot be classified as inside information as a result the effectiveness of corporate governance and firm value are reduced regulation in the us that treats shareholders with a stake exceeding 10 as insiders is potentially harmful

investment and insider trading within a dynamic environment this paper introduces an inside trader to an economy where rational but uninformed traders choose between investment projects with different levels of insider trading when inside information has little value in future investment decisions insider trading distorts investment towards assets with less private information imposing net welfare costs on the economy when an insider s private information is valuable in making future investment decisions the net social benefit of inside trading can be positive the resulting increases in investment efficiency due to more informative prices is enough to compensate for the distortion induced by the inside trader when insiders receive private information more than once insiders may trade to reveal their private information at the beginning of their relationship with the firm this has two effects i more information is revealed in equilibrium and ii there is less chance than an uninformed agent will have to trade with the insider both these effects reduce the investment inefficiencies associated with insider trading as a consequence uninformed liquidity traders prefer to trade in a market with a long term insider this improvement in investment efficiency leads to a pareto improvement both the uninformed traders and the insider are made better off if the insider receives information more than once

dual class shares a review the majority of firms traded in the world s three largest stock exchanges london new york and tokyo follow the one share one vote principle however in other countries dual classes of shares are common place for example 50 percent of the publicly traded dutch firms have non voting equity and approximately 75 percent of the publicly traded danish finnish and swedish firms have shares that differ in their voting rights this paper reviews the arguments as to why firms create dual classes of shares their effect on firm value and the relative prices of shares that differ only in their voting rights copyright 1992 by oxford university press

information asymmetry valuation and the corporate spin off decision we empirically analyze the information hypothesis that the separation of a rm s divisions into independently traded units through a spin o enhances value because it mitigates information asymmetry about the rm consistent with this hypothesis we nd that rms that engage in spin o s have higher levels of information asymmetry compared to their industry and size matched counterparts and the information problems decrease signi cantly after the spin o the gains around spin o s are positively related to the degree of information asymmetry and this relation is more pronounced for rms with fewer negative synergies between divisions finally rms with higher growth opportunities and rms in need of external capital show a higher propensity to engage in spin o s they also raise more capital following a spin o which is consistent with the view that

demand pricing and regulation evidence from the cable tv industry subsequent to the nationwide deregulation of the cable tv industry a number of questions have been raised concerning the conduct of cable firms answers to these questions turn upon a fundamental set of issues regarding the economic relationships of demand pricing and regulation in this article we empirically examine these relationships for the period prior to deregulation a number of basic findings emerge among these we find that the demand for basic cable service ranges from being generally inelastic in rural areas to elastic in large urban markets the elasticity of demand for pay cable services is typically well in excess of unity also while regulation did not lead to economically efficient marginal cost prices for basic cable service it did act to keep prices below monopoly levels moreover our examination reveals some significant differences in the effectiveness of the various types of regulation practiced in the pre deregulation period

research note competitive bundling and counterbundling with generalist and specialist firms bundling which is the practice of selling two or more products or services in a package is a pervasive marketing practice and is often used as a strategic competitive tool however there has not been enough consideration of competitive bundling situations in which exit of a competitor is not a concern in this paper we address this issue by identifying conditions under which strategic competitors may or may not resort to bundling when competitor exit considerations are absent we study competition between a multiproduct generalist firm and two single product specialist firms in two product categories one of which has undifferentiated products and the other has differentiated products in our model the specialist firms can form an alliance to bundle their products in competing with the generalist firm in contrast to the previous literature we find that concurrent bundling by competitors if it occurs in equilibrium is profitable we also find that when one competitor bundles and the other does not the bundling firm gains a greater share of customers and makes a higher profit however when conditions favor counterbundling by a competitor such counterbundling helps the competitor retain its customers finally we note that under other market conditions concurrent bundling by competitors escalates price competition to the extent that retaining customers through bundling is not profitable in such a case we show that strategic competitors are better off having asymmetric product lines with one competitor bundling and the other selling unbundled

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

does the japanese governance system enhance shareholder wealth evidence from the stock price effects of top management turnover this article examines the stock price effects of top management turnover announcements for 432 japanese corporations from 1985 to 1990 we find that these announcements are associated with significantly positive abnormal returns the returns are greater when turnover is forced than when turnover represents normal succession the stock price effects are also significantly positive when turnover is forced and the successor is appointed from outside the firm we find that large shareholders play an important role during outside succession this evidence suggests that the disciplinary decisions of japanese governance mechanisms are consistent with shareholder wealth maximization article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

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

non price concessions and the effect of franchise bidding schemes on cable company costs among the potentially important problems with franchise bidding schemes is the possibility that franchisers may extract non price concessions merit goods from competing bidders at the expense of lower prices for plain vanilla service the systematic evidence presented in this paper suggests that the pursuit of such non price concessions in the case of cable franchise competitions is substantial expenditures on non price concessions account for 26 of cable construction costs and 11 of operating costs the pursuit of non price concessions by local franchising authorities appears to have two negative economic efficiency consequences first expenditures on such concessions appear to provide only a limited amount of economic benefits second by raising costs spending on non price concessions inhibits the ultimate level to which prices can be held by franchise bidding schemes

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

noise trading and takeovers a model of takeovers is investigated in which noise trading provides camouflage that makes it possible for a large corporate outsider to purchase enough shares at favorable prices so that takeovers become profitable although the model accommodates the possibility of dilution grossman and hart 1980 and a large incumbent shareholder shleifer and vishny 1986 neither dilution nor a large incumbent shareholder is necessary for costly takeovers to be profitable noise trading tends to encourage costly takeovers that otherwise would not occur and to discourage beneficial takeovers that otherwise would occur

managerial ownership of voting rights abstract managers of firms with dual classes of common stock can choose different quantities of votes for a given cash flow interest by choosing different quantities of the two securities we study managerial stock holdings in 45 dual class firms and find that vote ownership per se is an important motivation for these holdings in that corporate officers and their families hold a median 56 9 of the votes and 24 0 of the common stock cash flows we also find significant family involvement in many sample firms and document four case studies in which explicit acquisition premiums were paid for superior voting shares

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

reasonable doubt and the optimal magnitude of fines should the penalty fit the crime models of the enforcement compliance relationship have assumed that both the probability and magnitude of fines are independent choice variables of policy makers these models indicate that it may be optimal to monitor with lowfrequency but to inflict uniformly maximal penalties for all infractions detected this article shows that if the judicial system is built on the reasonable doubt test then the penalty and the probability of conviction are not independent in particular as the penalty increases the probability of conviction falls as a result uniformly maximal penalties may actually encourage crime rather than deter it this article shows that optimal fines should rise with the severity of the infraction that is the penalty should fit the crime models of the enforcement compliance relationship generally treat both the probability and magnitude of fines as independent choice variables of the government this approach has led becker 1968 and others to conclude that it is optimal to set uniformly maximal penalties for all crimes and to set the probability of conviction at the minimum level necessary to enforce compliance with the law while this normative prescription is natural and intuitive there still remains a larger positive question of why in most nations of the world penalties are not uniformly high but rather rise with the severity of the crime one possible resolution of the positive and normative questions may lie in the fact that penalties and probabilities of conviction are not generally independent convictions are typically determined by judges or jurors who are instructed to convict only if the evidence convinces them beyond a reasonable doubt that the accused is guilty psychologists however have found that a juror s willingness to convict may be influenced by more than just the evidence jurors are very sensitive to the potential penalties that defendants may pay

technology strategy and new venture performance a study of corporate sponsored and independent biotechnology ventures abstract new ventures companies eight years or younger play a major role in the development of an emerging high technology industry corporate sponsored new ventures those supported by an established corporation and independent ventures those founded by independent entrepreneurs frequently battle for industry leadership and financial success whereas both venture types use technology to achieve financial and market success little is known about the differences in their technology strategies technology strategy is the plan that guides a new venture s decisions on the development and use of technological capabilities this strategy covers six major areas the first is selecting the pioneering posture where a venture decides whether or not be among the industry s first companies to introduce new products technologies to the market the second is determining the number of products to be introduced to the market the third is choosing the extent of a venture s use of internal and external r d sources internal sources usually refer to in house r d activities external sources may include purchasing or licensing of technology from other companies or joining strategic alliances to acquire that technology the fourth is deciding the level of r d spending the fifth is selecting the combination portfolio of applied and basic research projects whereas basic r d advances science applied r d leads to new products and technologies the sixth and final dimension is the venture s use of patenting to protect any competitive advantages it might gain from its r d activities this article reports the results of a study that explored the differences in the technology strategies and performance of corporate and independent ventures the biotechnology industry was chosen to test the study s hypotheses using 112 ventures seven of the study s hypotheses focused on the potential variations in technology strategy between corporate and independent ventures independent ventures ivs were expected to surpass corporate ventures cvs in pioneering new products technologies using internal r d and emphasizing applied r d cvs were expected to surpass ivs in introducing new products using external r d sources spending on r d and patenting the study s remaining three hypotheses covered possible variations in new venture performance nvp and their sources the results showed that ivs focused more on pioneering pursued a more applied r d portfolio and emphasized internal r d more than cvs cvs utilized external technology sources spent more heavily on r d stressed basic r d and used patenting more intensively than ivs these results were consistent with the hypotheses however contrary to expectations there were no significant differences between cvs and ivs in the frequency of new product introductions probably because most ventures were at the invention rather than the commercialization stage the results on the nvp of cvs and ivs were counter to expectations ivs outperformed cvs probably because of the high motivation of the iv owners who reaped the rewards of growth and profitability also whereas cvs may have greater access to the resources of their sponsors political conflicts and rigid corporate controls might have reduced their ability to achieve competitive advantages the results also indicated that cvs and ivs appeared to gain competitive advantages from different technological choices pioneering a focus on applied r d and extensive use of the internal r d sources were also positively associated with the performance of ivs heavy r d spending the use of both internal and external r d sources frequent product introductions and patenting were positively associated with the performance of cvs finding that technology strategies significantly impacted nvp should encourage executives to consider pursuing a formal technology strategy likewise the finding that different dimensions of technology strategy influenced the performance of cvs and ivs in different ways has practical implications cv managers can learn from their higher performing iv rivals also because established companies frequently acquire ivs information about their technology strategies can be valuable in assimilating the acquired ventures overall the results show that technology strategy is an important factor in enhancing new venture performance

the effects of market structure and ownership on prices and service offerings in the cable television industry this article provides empirical evidence on the effects of alternative market structures and ownership modes on prices and service offerings in the cable television industry we analyze the underlying characteristics and behavior of competing versus monopoly operators on the one hand and privately versus nonprivately owned operators on the other we find that competition and nonprivate ownership are associated with lower prices for basic cable television service we also find that cable television price and quality differentials vary with certain characteristics of competing operators and that market structure and ownership status influence changes in price and quality over time

price differences between equity classes corporate control foreign ownership or liquidity abstract this paper is the first comprehensive study of price differences for dual class equity at the oslo stock exchange it analyzes the relative importance of corporate control foreign ownership restrictions and stock market liquidity for the price differences the norwegian market has the peculiar feature that in part of the sample period non voting shares were trading at a premium to voting shares i e what is usually termed the voting premium was negative this result can be rationalized by restrictions on foreign ownership in the later part of the period with no regulatory restrictions on foreign ownership the voting premium is positive and related to corporate governance and liquidity

market power and price increases for basic cable service since deregulation since the deregulation of rates for basic cable television service increases in price have outpaced the rate of inflation this article examines whether or not cable systems increased market power or their increased exercise of market power explains these price increases an estimated quasi supply function for cable systems before and after deregulation implies that real basic cable prices increased 18 since deregulation holding quality and other costs constant accounting for 43 of the total real price increase a demand equation is also estimated and the estimated demand elasticity of basic cable does not change after deregulation implying that this 18 real price increase is due to greater exercise of existing market power made possible by the elimination ofprice regulation rather than to an increase in market power caused by a change in the demand elasticity for cable

establishing a new business venture unit within a firm abstract the rapid growth of the united states as a whole is basically a story of the discovery and adoption of novel and improved ways of satisfying wants and needs previously these wants and needs have been championed by individuals such as j p morgan finance james b duke tobacco andrew carnegie steel cornelius vanderbilt railroads and john d rockefeller oil each of these entrepreneurs commercialized a new idea or invention the essence of the innovation process each bridged the gap between science and the marketplace by developing and commercializing a marketable innovation although even more of a need to reach the market as quickly as possible exists today the majority of the innovations commercialized each year come from new or smaller organizations often the ones with the least amount of capability and resources to accomplish the task existing businesses especially larger ones are in a much better position to bridge this gap these companies have the existing financial resources business skills and usually the marketing and distribution systems to successfully commercialize a new innovation recognizing this capability large companies have tried to instill an entrepreneurial spirit or an internal venturing program in an attempt to increase the amount and success of new offerings this activity has taken on a variety of forms one of which is the new business venture unit what are the characteristics of a new business venture unit are they more successful at introducing new products than autonomous entrepreneurs these and other questions were addressed in a research project of fortune 1000 firms consisting of a mail questionnaire and in depth personal interviews the majority of these firms did not have a new business venture unit 70 of those firms that did the average age of their unit was 5 3 years and the range of ages was from a few months to 20 years in addition the range of employees in the new business venture unit varied greatly from one to 100 firms in the primary product lines of chemical and medical products computers beauty products and feminine products tended to have new business venture units more than did firms in other product areas these units contained a variety of departments including marketing the most frequent finance and research and development through modest increases in the number of new products introduced each year the new business venture units also significantly increased the per centages of sales attributed to products introduced within the previous three years a good environment for a successful new business venture unit included encouraging new ideas allowing mistakes and failure making available the resources of the firm encouraging teamwork establishing broad per formance goals and an appropriate reward system and having top management strongly support the unit

a theory of the optimal cost barrier to corporate takeovers this paper characterizes financial and employment contracts in the presence of both worker moral hazard and the threat of opportunistic takeovers firms in which worker efforts or specific investments are of greater importance are shown to exhibit a greater degree of deferred compensation supported by governance structures that allow managers to resist hostile takeovers more vigorously this effect is most pronounced in firms where workers pay for their job by accepting low wages early in their careers firms in which large deferred payments cannot be offset by low starting wages will offer less resistance to a hostile bidder copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

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

the effect of private antitrust litigation on the stock market valuation of the firm the authors study the implications for shareholder wealth of interfirm antitrust litigation and how the costs of the dispute affect the propensity to settle upon filing defendants experience significant wealth losses that are ten million dollars larger than the wealth gains of plaintiffs financial distress behavioral constraints and follow on suits are sources of wealth leakage and influence settlement behavior since the threat of a monetary transfer has little power to explain either wealth effects or the likelihood of settlement the central concern of defendants may be the potential prohibition of profitable business practices copyright 1995 by american economic association

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

disclosure decisions by firms and the competition for price efficiency this paper develops a model of the relationship between investment decisions by firms and the efficiency of the market prices of their securities it is shown that more efficient security prices can lead to more efficient investment decisions this provides firms with the incentive to increase price efficiency by voluntarily disclosing information about the firm disclosure decisions are studied it is shown that firms may expend more resources on disclosure than is socially optimal this is in contrast to the concern implicit in mandatory disclosure rules that firms will expend too few resources on disclosure this paper develops a model of the relationship between firms investment decisions and the efficiency of the market prices of their securities it is shown that more efficient security prices can lead to more efficient investment decisions this provides firms with the incentive to increase price efficiency by voluntarily disclosing information about the firm disclosure decisions are studied the costs of disclosure are twofold first there are costs of producing and disseminating the information included here are opportunity costs of firms employees auditing and legal expenses costs of printing and distribution and costs associated with the release of any proprietary information second there are traders costs of assimilating the information for instance while it is not very costly to obtain a firm s 8 k and 10 k once produced it is quite costly to understand the implications of their contents while the former costs have been recognized in the literature on disclosure the latter costs have not that is while traders are sometimes viewed as having access to some costly information the information contained in firms disclosures is typically taken to be costlessly observed by all see for instance diamond 1985 and dye 1987 1 taking traders costs of learning the information content of firms disclosures into account leads to new conclusions regarding incentives to expend resources on disclosure in particular it is shown that firms may spend more on disclosure than is socially optimal this overdisclosure results from firms competing for the attention of traders this is an interesting result given the public policy concern that firms on their own will spend less on disclosure than is socially optimal

takeover defenses ownership structure and stock returns in the netherlands an empirical analysis this study empirically examines the relationships between a firm s takeover defenses and its ownership structure and stock returns analyzing data of dutch listed companies we find that multiple antitakeover defenses are increasingly adopted when firms are characterized by relatively lower ownership concentration the evidence supports the hypothesis that more concentrated ownership of shares provides more effective monitoring of managers as defense by issuing preferred share has recently been the most widely adopted mechanism in the netherlands its impact on shareholders wealth is also analyzed we observe the presence of two opposing effects of this antitakeover measure

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

to steal or not to steal firm attributes legal environment and valuation data on corporate governance and disclosure practices reveal wide within country variation that decreases with the strength of investors legal protection a simple model identifies three firm attributes related to that variation investment opportunities external financing and ownership structure using firm level governance and transparency data from 27 countries we find that all three firm attributes are related to the quality of governance and disclosure practices and firms with higher governance and transparency rankings are valued higher in stock markets all relations are stronger in less investor friendly countries demonstrating that firms adapt to poor legal environments to establish efficient governance practices

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

dual class ipos a theoretical analysis we consider an incumbent who wishes to sell equity to outsiders at an ipo to implement his firm s project he may be talented lower cost of effort comparative advantage in project implementation or untalented the project may have high intrinsically more valuable but showing less signs of success in the near term or low near term uncertainty under a single class share structure the incumbent has a greater chance of losing control to potential rivals if he undertakes the project with high near term uncertainty since outsiders may vote for the rival if they believe the project is not progressing well a dual class share structure allows the incumbent to have enough votes to prevail against any rival but may be misused by untalented incumbents to dissipate value our results help to explain firms choices between dual class and single class ipos and the post ipo operating performance of dual class versus single class firms

inside trading and incentives the traditional arguments against inside trading insiders take advantage of other investors inside trading profits overcompensate managers see ross 1979 too much information is collected if inside trading is allowed see fama and laffer 1971 hirshleifer 1971 emphasize the social costs of prohibiting such trading without explaining the private incentives shareholders have to sanction this trading the efficiency argument in favor of inside trading inside trading improves the functioning of the stock market because information as a public good will be underproduced unless those who acquire it profit through inside trading demsetz 1969 does not explain shareholders support of inside trading because the owners of a firm do not seek to improve the efficiency of the stock market by sacrificing trading profits to insiders several alternative hypotheses for shareholders failure to impose restrictions on inside trading have been advanced this paper analyzes shareholders incentives to sanction inside trading i show that if a manager of a firm is initially compensated with earnings contingent contracts then the welfare of that manager and all of the firm s shareholders can be improved by allowing the manager to trade on his private information this result is established in the context of a multiple principal the shareholders single agent the manager model with the manager s trades observable ex post and is robust with respect to the specification of investors preferences and the definition of stock market equilibrium the topic of this paper originated in conversations with steve allen his comments as well as those of nicholas dopuch daniel fischel sanford grossman merton miller robert verrecchia and other members of the workshops on the applications of economics and on accounting research both at the university of chicago are gratefully acknowledged 1 for a list of such arguments see references in manne 1966 chap 1

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

alternative mechanisms for corporate control we examine performance and management characteristics of fortune 500 firms experiencing one of three types of control change internally precipitated management turnover hostile takeover and friendly takeover we find that firms experiencing internally precipitated management turnover perform poorly relative to other firms in their industries but are not concentrated in poorly performing industries in contrast targets of hostile takeovers are concentrated in troubled industries there is also weaker evidence that hostile takeover targets underperform their industry peers we interpret this evidence as consistent with the idea that the board of directors is capable of firing managers whose leadership leads to poor performance relative to industry but that an external challenge in the form of a hostile takeover is often required when the whole industry is in decline the evidence also indicates that firms run by a member of the founding family are less likely to experience either internally precipitated top management turnover or a hostile takeover on the other hand firms whose top management team is dominated by a single relatively young top executive while lacking in internal discipline are more likely to experience a hostile takeover this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

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