the impact of market structure on wages fringe benefits and turnover this paper examines the relationship between labor compensation and the structure of the product market which is measured by the industry concentration ratio and by dummy variables for the existence and type of government regulation unlike previous studies that have estimated the impact of concentration and regulation on wages or earnings this study extends the analysis to include the effect of market structure on employer provided pensions and insurance and on voluntary labor turnover the hypothesis that product market power raises labor compensation is supported by empirical results indicating that concentration increases wages and fringes but lowers voluntary labor turnover regulations that set minimum prices and restrict entry raise labor compensation since wage premiums due to regulation are not offset by lower pensions and insurance or higher turnover other forms of regulation such as profit regulation in public utilities are found to reduce labor compensation as evidenced by higher turnover or lower wages and fringes or both

a multiplicative model of optimal ceo incentives in market equilibrium this paper presents a unified theory of both the level and sensitivity of pay in competitive market equilibrium by embedding a moral hazard problem into a talent assignment model by considering multiplicative specifications for the ceo s utility and production functions we generate a number of different results from traditional additive models first both the ceo s low fractional ownership the jensen murphy incentives measure and its negative relationship with firm size can be quantitatively reconciled with optimal contracting and thus need not reflect rent extraction second the dollar change in wealth for a percentage change in firm value divided by annual pay is independent of firm size and therefore a desirable empirical measure of incentives third incentive pay is effective at solving agency problems with multiplicative impacts on firm value such as strategy choice however additive issues such as perk consumption are best addressed through direct monitoring jel d2 d3 g34 j3

measurement of vertical integration an index of vertical integration is constructed as a tool to examine how the average level of vertical integration has changed over time the hypothesis that if vertical integration can lower costs or reduce risks more firms will integrate vertically is subjected to an empirical test using the vertical industry connection index a randem sample of firms is selected from the compusat data base the results support the contention that vertical integration has increased in contrast with laffer s findings 17 references 10 figures 3 tables

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

sex discrimination and competition in product and labour markets theoritical explanations for wage discrimination collapse in the long run because competition should drive discriminations firms out of the market in product markets with imperfect competition em

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

optimal exercise of jointly held real options a nash bargaining approach with value diversion this paper provides a two stage decision framework in which two or more parties exercise a jointly held real option we show that a single party s timing decision is always socially efficient if it precedes bargaining on the terms of sharing however if the sharing rule is agreed before the exercise timing decision is made then socially optimal timing is attained only if there is a cash payment element in the division of surplus if the party that chooses the exercise timing can divert value from the project then the first best outcome may not be possible at all and the second best outcome may be implemented using a contract that is generally not optimal in the former cases our framework contributes to the understanding of a range of empirical regularities in corporate and entrepreneurial finance

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

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

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

reassessing the male female wage differential a fixed effects approach the vast literature on the subject of the male female wage differential has shown that despite dramatic structural and behavioral changes in the labor supply of women a sizeable wage differential exists 19 2 9 6 4 o neill 16 s92 finds that a sex differential of about 40 as measured by full time annual earnings has persisted in the u s for the last four decades but while few doubt the existence of the wage gap there is considerable controversy regarding the role of the factors explaining the gap the conventional approach of economists has been to estimate earnings as a function of various socio economic characteristics the observed wage gap is decomposed into a part explained by productivity related factors and an unexplained residual traditionally labelled as discrimination while it is possible that the unexplained variation in earnings is the result of discrimination it is also possibly the result of model misspecification 2 in this present paper we address the misspecification that could possibly arise from omitted variables endogeneity and sample selection while these issues have been considered in the context of women s labor supply functions they have largely been ignored in studies on the wage differential 12 13 we approach the problem of omitted variables by formulating a fixed effects model in this way productivity related factors that are difficult to measure or have unsuitable proxies are netted out from the earnings equation furthermore some of the variables that are used to explain wages are themselves the outcome of discrimination in particular the labor market experience of a woman is dependent on her wages earned here we address the endogeneity that such a cause and effect relationship may bring about a third difficulty arises because a typical sample of working women is a non random selection of the female labor force giving rise to the problem of sample selection bias heckman s 12 213 17 procedure is used to formulate a sample selection model of earnings the organization of this paper proceeds as follows section ii begins with the traditional model of earnings and then develops an extended model which consolidates the issues of omitted variables endogeneity and sample selection section iii contains the empirical results of the

an intra and inter industry evaluation of three classification schemes common in capital market research we compare the standard industry classification sic the north american industry classification system naics and the global industry classification standard gics schemes in their effectiveness to group stocks with similar operating characteristics we are the first to analyse and compare individual functional category levels within and across each industry classification and test whether the three industry classifications show significant improvement in homogeneity with finer industry partitions across a wide range of research applications our results suggest that the gics system offers advantages over the other two systems in grouping firms across all its levels of industry categories and across different application schemes common to capital market research however the sic and naics offer additional advantages across their finest industry partitions our study has important implications for users of industry classifications in various financial and economic analyses research settings and regul

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

earnings differentials and market structure theoretical models suggest that market structure may influence the magnitude of earnings differentials and or discrimination observed in the marketplace empirical results with regard to wage differentials and labor force participation patterns have been mixed most wage differential studies have focused on males due to difficulty in obtaining reliable data for women and to the sample selection problem of women s labor force participation decisions this paper characterizes market structure by four categories regulated nonprofit government and nonregulated industries within these structural categories earnings differentials are examined for men and women adjusting for race occupational stratification and sample selection bias

managerial overconfidence and accounting conservatism managerial overconfidence overconfident managers overestimate ixwxuhuhwxuqviurpwkhluilupv lqyhvwphqwv 7kxv zh predict that overconfident managers will tend to accelerate good news recognition delay loss recognition and generally use less conservative accounting furthermore we test whether external monitoring helps to mitigate this effect using measures of both conditional and unconditional conservatism we find robust evidence of a negative relation between ceo overconfidence and accounting conservatism we further find that external monitoring does not appear to mitigate this effect our findings add to the growing literature on overconfidence and complements findings in schrand and zechman 2011 that overconfidence affects financial reporting behavior

up to standard market positioning and performance of hong kong films 1975 1997 the trade off between conformity and differentiation that market entrants face has recently been enriched by a new sociological insight differentiation is rewarded only within the confines of taken for granted market categories entrepreneurs however routinely engage in combining existing market categories the present paper attempts to reconcile these seemingly different views by focusing on the role of market uncertainty in particular we predict that the propensity of entrants to blend multiple categories increases with market uncertainty upon considering the endogenous influence of uncertainty on market positioning the positive returns obtained by entrants from combining multiple categories become apparent because differentiation inspires the positioning of entrants in the face of market uncertainty the frequent adoption of the same combination by competitors dampens the performance returns derived from it our hypotheses find support from the analysis of a large sample of hong kong films during 1975 1997

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

the timing of mergers along the production chain capital structure and risk dynamics abstract i demonstrate that the timing of vertical mergers is generally dependent on industry characteristics my predictions are consistent with empirically observed patterns of vertical mergers i show that merger activity during economic upturns tends to be motivated by operating efficiencies while merger activity during economic downturns tends to occur as a means of keeping production chain operational mergers allow firms to capture synergies and improve efficiencies in order to survive economic contractions the pricing framework implies that a vertical merger decision usually reduces risk during two different economic states

did tough antitrust enforcement cause the diversification of american corporations this paper investigates the hypothesis that tough antitrust enforcement in the 1960s led firms to engage in diversification programs by preventing them from growing within their own industries if true diversification should have occurred more often when large firms merged than when small firms merged because small mergers were less likely to have received antitrust attention such a pattern is not observed in a sample of 549 acquisitions from 1968 diversification was equally common in large and small mergers survey evidence shows that diversification movements occurred in other industrialized nations where there was a loose antitrust environment both pieces of evidence suggest that antitrust played a minor role in the diversification movement

dynamics of niche width and resource partitioning this article examines the effects of crowding in a market center on rates of change in organizational niche width and on organizational mortality it proposes that although firms with wide niches benefit from risk spreading and economies of scale they are simultaneously exposed to intense competition an analysis of organizational dynamics in automobile manufacturing firms in france germany and great britain shows that competitive pressure not only increases the hazard of disbanding but also prompts organizational transformations that give rise to processes of resource partitioning emphasizing the content process distinction in conceptualizing organizational change the article finds that the process effect of changes in niche width and position increases mortality hazards we discuss our findings in light of the processes investigated by the ecological theories of density dependence resource partitioning and structural inertia and point to the theoretical links that help to integrate these theories

a quick algorithm for pricing european average options an algorithm is described that prices european average options the algorithm is tested against monte carlo estimates and is shown to be accurate the speed of the algorithm is comparable to the black scholes algorithm a closed form solution is derived for european geometric average options

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

corporate control and the choice of investment financing the case of corporate acquisitions we test the proposition that corporate control considerations motivate the means of investment financing cash and debt or stock corporate insiders who value control will prefer financing investments by cash or debt rather than by issuing new stock which dilutes their holdings and increases the risk of losing control our empirical results support this hypothesis in corporate acquisitions the larger the managerial ownership fraction of the acquiring firm the more likely the use of cash financing also the previously observed negative bidders abnormal returns associated with stock financing are mainly in acquisitions made by firms with low managerial ownership do firms have systematic preferences for the means of financing investments in modigliani and miller s 1958 m m s perfect market no tax world the means by which investments are financed are irrelevant for the total value of the firm miller 1977 extended this irrelevance proposition to a case where taxes exist however casual observation suggests that firms are not indifferent to the means of financing for example many firms prefer to finance investments from internal sources or by debt rather than by issuing new equity an explanation for such systematic financing preferences and the consequent capital structure of firms is therefore called for indeed a number of such explanations have been advanced for example deangelo and masulis 1980 showed that in miller s 1977 framework the means of financing is not irrelevant if firms have different expected marginal effective tax rates due to differences in fixed charges it has also been argued that financing preferences may result from agency costs associated with debt e g barnea haugen and senbet 1981 or from asymmetry of information between managers and outside investors myers and majluf 1984 recently harris and raviv 1988 and stulz 1988 advanced a new argument for the existence of financing preferences that centers around managers incentive to maintain control over the corporation specifically by increasing debt and using the proceeds to retire equity held by the public owners managers increase the probability of maintaining control and reaping the benefits associated with it since the substitution of debt for outsiders equity decreases the fraction of

the law and large block trades although these issues have been analyzed by legal scholars since andrew berle and gardiner means in 1932 no systematic empirical evidence has been collected we investigate the validity of this belief as well as broader implications of the law on large block trades by analyzing 106 trades of at least 5 of common stock of exchange listed firms between 1978 and 1982 we find that when block sellers receive premium stock prices typically increase but not to the price per share received by the blockholders we argue that this tension is resolved by assigning a different set of rights and obligations to large block shareholders when they act as managers

an empirical analysis of the role of the medium of exchange in mergers in empirical studies of differences between firms which are acquired and those which are not researchers typically divide firms into two groups acquired and nonacquired in this paper we argue that cash takeovers may be sufficiently different from noncash acquisitions that failure to distinguish between them may lead to inappropriate generalizations we provide evidence from the mid 1970s that three categories of firms can be distinguished nonacquired acquired in a cash takeover and acquired in an exchange of securities there is a substantial empirical literature exploring the differences between firms which are acquired and those which are not typically these studies divide firms into two groups acquired and nonacquired and analyze the differences in the characteristics of the two groups using binary dependent variable techniques such as discriminant analysis or probit analysis a fundamental shortcoming of these studies is that no distinctions are made concerning the nature of the merger or the acquiring firm that is it is assumed that acquired firms fall into a single category that is distinguishable from nonacquired firms in fact individual acquisitions may be motivated by quite different features suggesting that more than a single category of acquired firms should be analyzed in this paper we argue that cash takeovers may be sufficiently different from noncash acquisitions that modeling the events as being the same i e just mergers may be inappropriate we then provide evidence using data for the mid 1970s that three types of firms can be distinguished nonacquired acquired in a cash takeover and acquired in an exchange of securities the paper is organized as follows in the next section we suggest why firms acquired for cash may be quite different from firms acquired by an exchange of securities section ii describes the empirical techniques which are used and

affiliated firms and financial support evidence from indian business groups abstract we investigate the functioning of internal capital markets in indian business groups we document that intragroup loans are an important means of transferring cash across group firms and are typically used to support financially weaker firms evidence suggests that an important reason for providing support may be to avoid default by a group firm and consequent negative spillovers to the rest of the group consistent with such spillovers the first bankruptcy in a group is followed by significant drops in external financing investments and profits of other firms in the group and an increase in their bankruptcy probability

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

to be different or to be the same it s a question and theory of strategic balance this paper addresses the performance consequences of firm level strategic similarity past research observed that firms face pressures to be different and to be the same by differentiating firms reduce competition by conforming firms demonstrate their legitimacy both reduced competition and legitimacy improve performance this paper begins building a theory of strategic balance by synthesizing the differentiation and conformity perspectives the theory directs attention to intermediate levels of strategic similarity where firms balance the pressures of competition and legitimation empirical support for the theory is found in a longitudinal study of commercial banks several suggestions for developing a theory of strategic balance conclude the paper the theory s major implication is that firms should be as different as legitimately possible copyright 1999 john wiley sons ltd

overconfidence compensation contracts and capital budgeting a risk averse manager s overconfidence makes him less conservative as a result it is cheaper for firms to motivate him to pursue valuable risky projects when compensation endogenously adjusts to reflect outside opportunities moderate levels of overconfidence lead firms to offer the manager flatter compensation contracts that make him better off overconfident managers are also more attractive to firms than their rational counterparts because overconfidence commits them to exert effort to learn about projects still too much overconfidence is detrimental to the manager since it leads him to accept highly convex compensation contracts that expose him to excessive risk

on the structure of take over models and insider outsider conflicts in negotiated take overs abstract we model a takeover game where the players can bid or bargain without the traditional exogenous constraints on the order length and number of alternating stages in our european setting dominant shareholders can appoint and dismiss management implying that we have an insider outsider conflict rather than a management shareholder agency problem and that the distribution of sizeable private benefits is a crucial issue the bargaining solution determines the price even if no explicit negotiations are observed while bargaining strength and scope for exclusion determine the type of takeover pre negotiated or not discriminatory or not

the value of the voting right a study of the milan stock exchange experience i study the large premium 82 percent attributed to voting shares on the milan stock exchange the premium varies according to the ownership structare and the concentration of the voting rights and it can be rationalized in the presence of enormous private benefits of control a case study seems to indicate that in italy private benefits of control can easily be worth more than 60 percent of the value of nonvoting equity a tentative explanation for these findings is provided traditional finance theory disregards the value of voting rights in pricing common stock in most cases this omission does not seem harmful many studies of differential voting stocks in different countries have indicated that voting rights are generally worth between 10 percent and 20 percent of the value of common stock the italian evidence i present differs sharply from this view in italy voting shares that have inferior dividend rights trade at an average premium

trial and settlement a study of high low agreements this paper presents the first systematic theoretical and empirical study of high low agreements in civil litigation a high low agreement is a private contract that if signed by litigants before the conclusion of a trial constrains the future damages payment to lie between a minimum and a maximum amount whereas the existing literature describes litigation as a choice between trial and settlement our examination of high low agreements a relatively new phenomenon in civil litigation introduces partial or incomplete settlements in our theoretical model trial is both costly and risky when litigants have divergent subjective beliefs and are mutually optimistic about their trial prospects cases may fail to settle in these cases high low agreements can be in the litigants mutual interest because they limit the risk of outlier damages awards while still allowing for an optimal degree of speculation using unique insurance claims data from a national insurance company we describe the features of these agreements and empirically investigate the factors that may influence whether litigants discuss or enter into high low agreements our empirical findings are consistent with the predictions of the theoretical model we also explore extensions and alternative explanations for high low agreements including their use to mitigate excessive offsetting trial expenditures

executive overconfidence and compensation structure we examine the impact of overconfidence on compensation structure our findings support the exploitation hypothesis firms offer incentive heavy compensation contracts to overconfident chief executive officers ceos to exploit their positively biased views of firm prospects overconfident ceos receive more option intensive compensation and this relation increases with ceo bargaining power exogenous shocks sarbanes oxley act of 2002 sox and financial accounting standard fas 123r provide additional support for the findings overconfident non ceo executives also receive more incentive based pay independent of ceo overconfidence buttressing the notion that firms tailor compensation contracts to individual behavioral traits such as overconfidence

joining the pack or going solo a dynamic theory of new firm positioning abstract the question of new firm positioning in the marketplace and entrant s subsequent long term performance lies at the heart of strategic entrepreneurship we suggest a dynamic theory of new firm positioning that hinges on an important feature of the competitive environment industry level product diversity the key argument is that industry level product diversity drives imitation or differentiation at entry which in turn shapes the exit likelihood of new entrants so in our theory the extent of the new entrant s product portfolio overlap with all the industry s incumbents takes center stage support for our logic is obtained from the analysis of the life histories of 640 british motorcycle producers during the period 1899 1993

crossing takeover premiums and mix of payment an empirical test of contractual setting in m a transactions the analyses of the tender offer premiums and of the means of payment should not be performed separately in the empirical literature these two variables are often considered independently although they may have an endogenous relationship in a contractual setting using a sample of european m as over the 2000 2010 decade we show that these two variables are jointly set in a contractual empirical approach the relationship between the percentage of cash and the offer premium is positive higher premiums yield payments with more cash we highlight that the payment choice is not a continuum between full cash and full share payments two different regimes of payment in m a transactions are empirically characterized we analyze the major determinants of m a terms when the offer premium and the means of payment are jointly set the underlying rationale of an asymmetry of information and a risk sharing calculus is found to be significant in the setting of the agreement

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

creating value by changing the old guard the impact of controlling shareholder heterogeneity on firm performance and corporate policies theory suggests that controlling shareholders can influence firm value through both shared benefits creation and private benefits consumption using negotiated control block transfers from 31 countries we look beyond ownership concentration and investigate how controlling shareholder heterogeneity influences the relative importance of these two effects we document that a control transfer precipitates positive firm outcomes particularly when the vendor has maintained control over an extended period and the acquirer displays a strong incentive to engage in restructuring in such cases we observe a sustained positive price reaction more focused corporate investments lower leverage higher operating efficiency and superior long term performance

the transactions cost approach to vertical integration an empirical examination the transactions cost approach developed by coase and williamson provides a coherent framework for investigating the determinants of vertical integration in different industries empirical implications are developed and then tested using a cross section of firm level data pooled over different time periods the results tend to confirm hypotheses regarding the internal costs of management small numbers bargaining problems and the notion of the firm as suited to adaptive sequential decision making under conditions of uncertainty it rhile there exists an extensive literature on vy theoretical rationales for vertical integration surprisingly little is known about the importance of the different theories the empirical literature includes two types of studies case studies test the applicability of a particular theory to a single firm or industry e g armour and teece 1980 perry 1980 or monteverde and teece 1982a they are susceptible to bias in their choice of industry and the generality of their results cannot be established another category of studies examines a broad base of industries to determine the relationship between vertical integration and such variables as industry concentration average firm size and sales growth e g adelman 1955 gort 1962 and tucker and wilder 1977 the link between these studies and theories of vertical integration is generally left unclear 2 this study will adopt the strategy of investigating a broad base of industries but unlike earlier studies of this type will test empirical implications following from the transactions cost approach 3 this approach as developed by coase 1937 and williamson 1975 1979 provides a coherent framework for investigating determinants of vertical integration over different industries furthermore williamson has persuasively argued that transactions cost considerations underlie such prominent reasons for vertical integration as the elimination of monopoly distortions technical complementarities supply reliability and economies in the acquisition of information the transactions cost approach is summarized and implications are developed in the first section of this paper the implications are tested using firm level data pooled over time the empirical model is presented in the second section and the results are presented in the third section the model incorporates variables not included in previous studies of vertical integration such as measures of market risk and organizational structure the results tend to confirm hypotheses regarding internal costs of management small numbers bargaining problems and the notion of the firm as an institution suited to adaptive sequential decision making a summary of the results and conclusions are contained in the final section i the transactions cost approach arrow 1969 has defined transactions costs as the cost of organizing the economic system in attempting to translate this idea into a framework for explaining the organization of economic activity williamson and others have focused on the role of opportunism and the limited capability of individuals in processing information the choice of institutional alternative depends on minimizing the costs which arise in the presence of transaction specific investments and uncertainty while a wide variety of institutional alternatives exist a simple dichotomy is adopted here for the sake of tractability following coase transactions are classified according to whether they take place in the firm or across markets market alternatives become hazardous in recurring exchanges involving transaction specific capital and efficient information processing the firm then provides a received for publication november 21 1983 revision accepted for publication december 3 1984 rutgers university this paper is based on my dissertation i would like to thank my committee armen alchian harold demsetz david mayers fred weston and my chairman benjamin klein for their helpful comments recent versions of the paper also benefited from comments made by k chung d carlton d kaserman and anonymous referees i would also like to thank participants of the transactions cost workshop at the university of pennsylvania the usual disclaimer applies 1 recent summaries of the theoretical literature on vertical integration are in warren boulton 1978 and kaserman 1978 see levy 1981 1984 for discussion of this problem 3earlier studies by armour and teece 1980 and monteverde and teece 1982 a b have successfully employed the transactions cost approach to examine vertical integration in particular industries this study differs in that it adopts the transactions cost approach to test implications across industries

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

the leading shareholder strategy takeover contests and stock price dynamics abstract this paper analyzes the attractiveness of the leading shareholder strategy control without majority ownership for a potential takeover bidder with a cost of raising funds additional purchases commit the bidder to more aggressive behavior in a takeover battle and thus discourage competing bids at the optimum the bidder thus trades off the cost of buying additional shares with the risk of losing control to another bidder small shareholders payoffs depend instead on the relative management skills of the bidders and on the premium they obtain when competing bidders enter the battle this model can also be interpreted in terms of equilibrium ownership of dominant shareholders facing costs of raising funds and risks of takeover attempts

estimating wage discrimination in the labor market if labor supply curves are not perfectly inelastic wage discrimination induces some minority workers to leave the labor force studies of discrimination that focus only on wage differentials overlook these disincentive effects on minority employment

takeover motives during the conglomerate merger wave this article examines the stock market response to acquisition announcements during and immediately after the conglomerate merger wave of the late 1960s the main finding is that acquirer shareholders benefited from diversification acquisitions which implies that diversification was not driven by managerial objectives it is also shown that the market responded positively to bidders who retained the management of target companies and negatively to bidders who replaced target management this is consistent with the hypothesis that the market favored acquisitions intended to exploit managerial synergies it suggests that the market disliked takeovers that were motivated to discipline target management evidence on buyer and target price earnings ratios is presented that is inconsistent with the conjecture that conglomerates were able to mislead investors by earnings per share manipulation

productivity and the role of college in narrowing the male female wage differential in the usa in 1980 this study analyses the impact that productivity factors and the particular role of college have upon the inequality in male and female wages using the 1980 1 100 public use sample the findings herein suggest that whereas both black and white females and black males who entered the labour force in 1975 or later possess productivity characteristics that are superior to their elder counterparts the productivity characteristics of white males entering the labour force over this period are significantly inferior to those possessed by older white males also in sharp contrast to a voluminous literature that concludes that college widens the wage gap between the sexes this analysis shows that college played a paramount role among the productivity characteristics in narrowing the gender wage differential in 1980

how optimal distinctiveness affects new ventures failure risk a contingency perspective abstract in this article we apply the concept of optimal distinctiveness to test whether category spanning has a nonlinear effect on new ventures risk to fail we argue that by being optimally distinct i e by attaining a level of category spanning that allows new ventures to benefit from balancing the competing needs of conformity with and differentiation from competitors new ventures can improve their survival chances in addition we argue that the relevance of optimal distinctiveness varies with a venture s age and a category s density we tested our hypotheses using data from 1668 metal bands that were founded in the united kingdom between 1967 and 2005 the results indicate that optimal distinctiveness is relevant to new ventures failure risk moreover we show that venture age attenuates the relevance of optimal distinctiveness whereas category density strengthens that factor s relevance

initial shareholdings and overbidding in takeover contests within the context of takeovers this paper shows that in private value auctions the optimal individually rational strategy for a bidder with partial ownership of the item is to overbid i e to bid more than his valuation this strategy however can lead to i an inefficient outcome and ii the winning bidder making a net loss further the overbidding result implies that the presence of a large shareholder increases the bid premium in single bidder takeovers at the expense of reducing the probability of the takeover actually occurring

the real effects of uncertainty on merger activity firm values can substantially change between the time deal terms are set and the actual deal closing risking renegotiation or termination we find increases in market volatility decrease subsequent deal activity but only for public targets subject to an interim period the effect is strongest when volatility is highest for deals taking longer to close and for larger targets merging parties attempt to shorten the interim window as risk increases firm and industry level uncertainty measures reveal similar findings ruling out an unobserved macro variable we conclude interim uncertainty contributes to understanding the timing and intensity of public firms merger activity received february 12 2015 accepted may 23 2016 by editor david denis

the development of an infrastructure for entrepreneurship abstract this paper takes a macroperspective of entrepreneurship and focuses on the issues and events involved in constructing an industrial infrastructure that facilitates and constrains entrepreneurship this infrastructure includes 1 institutional arrangements to legitimate regulate and standardize a new technology 2 public resource endowments of basic scientific knowledge financing mechanisms and a pool of competent labor as well as 3 proprietary rd numerous entrepreneurial actors in the public and not for profit sectors play crucial roles it motivates one to examine the different roles played by these actors and how their joint contributions interact to develop and commercialize a new technology this in turn makes it possible to understand how the risk time and cost to an individual entrepreneur are significantly influenced by developments in the overall infrastructure for entrepreneurship it also explains why the entrepreneurs who run in packs will be more successful than those that go it alone to develop their innovations

agency conflicts in public and negotiated transfers of corporate control we analyze control transfers in firms with a dominant minority blockholder and otherwise dispersed owners and show that the transaction mode is important negotiated block trades preserve a low level of ownership concentration inducing more inefficient extraction of private benefits in contrast public acquisitions increase ownership concentration resulting in fewer private benefits and higher firm value within our model the incumbent and new controlling party prefer to trade the block because of the dispersed shareholders free riding behavior we also explore the regulatory implications of this agency problem and its impact on the terms of block trades

collars and renegotiation in mergers and acquisitions i examine the motivation for and effect of including a collar in a merger agreement the most important cross sectional determinants of the bid structure cash vs stock and whether to include a collar are the market related stock return standard deviations for the bidder and target this evidence supports the hypothesis that the method of payment is dependent on the sensitivities of the bidder and target to market related risk because either has the incentive to demand renegotiation of the merger terms if the value of the bidder s offer changes materially relative to the value of the target during the bid period an important decision made during merger or takeover negotiations is the method of payment to be offered to target shareholders takeover bids can be made in cash and or some combination of securities issued by the bidding firm a considerable number of papers in the finance literature provide empirical evidence on the determinants of the choice between stock and cash as the method of payment including carleton et al 1983 niden 1986 crawford 1987 auerbach and reishus 1988 amihud lev and travlos 1990 chaney lovata and philipich 1991 and martin 1996 however this literature typically ignores the increasing fraction 20 in recent years of stock merger bids that contain a collar while an ordinary stock merger bid specifies the number of bidder shares offered as consideration for each target share the exchange ratio a collar bid provides for certain changes in the exchange ratio conditional on the level of the bidder s stock price around the effective date of the merger often insulating target stockholders from volatility in the bidder s stock price and promising a cash like payoff at the end of the bid period collar bids come in two basic forms the first which i call fixed exchange fex specifies a constant exchange ratio over a range of bidder stock prices with adjustment to the ratio outside those bounds an example of this type of transaction is the merger agreement announced on january 17 1994 between

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

competition and the medium of exchange in takeovers the role of the medium of exchange in competition among bidders and its effect on returns to stockholders in corporate takeovers are investigated consistent with recent empirical evidence our model shows that stockholders of both acquiring and target firms obtain higher returns when a takeover is financed with cash rather than equity and that returns to target shareholders increase with competition the model predicts that the fraction of synergy captured by the target decreases with the level of synergy finally it is shown that as competition increases the cash component of the offer as well as the proportion of cash offered increases article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

ceo optimism and forced turnover abstract we show theoretically that optimism can lead a risk averse chief executive officer ceo to choose the first best investment level that maximizes shareholder value optimism below above the interior optimum leads the ceo to underinvest overinvest hence if boards of directors act in the interests of shareholders ceos with relatively low or high optimism face a higher probability of forced turnover than moderately optimistic ceos face using a large sample of turnovers we find strong empirical support for this prediction the results are consistent with the view that there is an interior optimum level of managerial optimism that maximizes firm value

on the measurement of investment types heterogeneity in corporate tax elasticities this paper contributes to debates about the appropriate characterisation of heterogeneous investment types and to what extent different investment motives affect the responsiveness to corporate taxation in particular we employ and refine a methodology to better evaluate the tax elasticity of investment types using a combination of both firm specific information and sector specific information from input output tables we discuss how to classify investment as non related horizontal vertical and complex types first we point out to what extent the resulting classification depends on assumptions made by the researcher second we employ an ample set of classifications and find that non related investment reacts stronger to corporate taxation whereas horizontal investment is less responsive though significant negative tax semi elasticities turn out for the subset of manufacturing industries to address inherent characteristics of vertical and complex investment we extend the methodology and find that by and large stronger business motives reduce the tax responsiveness of investment to a larger extent given the current debates about substantial corporate tax reforms it is all the more important to recognise that corporate tax effects can vary fundamentally between countries driven by country specific differences in their composition of industries and investment types

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

efficient and inefficient sales of corporate control this paper develops a framework for analyzing transactions that transfer a company s controlling block from an existing controller to a new controller this framework is used to compare the market rule which is followed in the united states with the equal opportunity rule which is used in many other countries the market rule is superior to the equal opportunity rule in facilitating efficient transfers of control but inferior to it in discouraging inefficient transfers conditions under which one of the two rules is overall superior are identified for example the market rule is superior if existing and new controllers draw their characteristics from the same distributions finally the rules effects on surplus division are analyzed and this examination reveals a rationale for mandatory rules

getting to know you a theory of strategic group identity this paper develops a theory of strategic group identity that explains how strategic groups emerge in an industry and how they can affect firm behaviors and outcomes in so doing it provides a theoretical basis for the existence of strategic groups we argue that managers cognitively partition their industry environment to reduce uncertainty and to cope with bounded rationality social learning theory and social identification theory are used to describe how cognitive groups coalesce into meaningful substructures and how a group level identity emerges we describe the ways in which macro level factors condition the development of groups and their identities we introduce the notion of a strong identity which characterizes any group sufficiently recognized and attended to by members to affect individual action groups with weak identities are no more than transient agglomerations of firms and do not exist in any meaningful sense these ideas are developed into propositions that describe the conditions under which groups with strong identities are likely to emerge a second set of propositions describes their transformation over time identity strength is linked to both positive and negative outcomes in a final set of propositions we show how strategic groups with strong identities can affect firm performance resolving a longstanding problem which has plagued strategic groups research and conclude by suggesting some approaches for measurement and future research 1997 by john wiley sons ltd

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

the internal capital markets of business groups evidence from intra group loans abstract we study business groups internal capital markets using a unique data set on intra group lending in chile 1990 2009 in line with groups financing advantage firms that borrow internally have higher investment leverage and return on equity roe than other firms at the margin controlling shareholders have higher cash flow rights in borrowing firms than in lending firms however there is no robust evidence of minority shareholders losing out from intra group loans as tunneling predicts our evidence is consistent with the idea that strict regulation and disclosure requirements for intra group loans which are features of the chilean market reduce the risk of expropriation in pyramids

investment efficiency and product market competition does more competition lead to more information production and greater investment efficiency this question is largely unexplored in the finance literature this article provides both a model and a series of extensive empirical tests the model features a 2 stage bayesian game in differentiated products market competition we find that competition causes firms to acquire less information and investments to become more inefficient relative to a first best case with the same market structure empirically the panel regression analysis provides strong support for the theory and shows that investment is more efficient in concentrated industries

efficient mechanisms for mergers and acquisitions we characterize incentive ecient merger outcomes when payments can be made both in cash and stock each firm has private information about both its stand alone value and a component of the possibly negative potential synergies we study two cases when transfers can and cannot be made contingent on the value of any new firm when they can we show that redistributing shares of any non merging firm generates information rents and provide necessary and sucient conditions for the implementability of ecient merger rules when they cannot private information undermines eciency more when it concerns stand alone values

the relationships among acquiring and acquired firms product lines this study develops detailed information on the relationships among the activities of acquiring and acquired firms at and near the time of merger for a sample of 94 takeovers undertaken between 1977 1982 we focus on takeovers for two reasons first takeovers are an important and controversial phenomenon second takeovers allow us to look at marginal changes admittedly large ones in the firm s boundaries thus they provide a useful way of examining relationships among activities of the firm without having to go into great detail regarding the historical decisions that generated the firm s current structure while the individual establishment is our basic data unit in this study we aggregate the activities of the firm to the line of business lob level each lob of an acquired firm is classified as to its relationship horizontal vertical upstream or downstream and conglomerate to the lobs of the acquiring firm using these categorizations we aggregate the lob level information to the firm level to investigate the degree to which our sample of mergers is specialized to particular types of relationships while we find a significant group of unspecialized takeovers most appear to fit a specific category we also look at the pattern of closed operations immediately following the takeover closings are generally concentrated in operations involving horizontal relationships finally we consider the pattern of relationships between hostile and friendly takeovers and whether takeover premiums vary by type of merger merger premiums are not related to the type of relationship between the acquiring and acquired firm but they are tied to whether the takeover is friendly or hostile this abstract was borrowed from another version of this item

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

towards an economic theory of the multiproduct firm this paper outlines a theory of the multiproduct firm important building blocks include excess capacity and its creation market imperfections and the peculiarities of organizational knowledge including its fungible and taut character a framework is adopted in which profit seeking firms are seen to diversify in order to avoid the high transactions costs associated with using various markets to trade the services of various specialized assets neoclassical explanations of the multiproduct firm are shown to be seriously deficient

competition small business financing and discrimination evidence from a new survey we analyze credit applications loan denials and interest rates paid by small businesses across owner gender race and ethnicity in addition we examine data from owners who said they did not apply for credit because they believed that their applications would have been turned down after controlling for a rich set of explanatory variables including personal and business credit histories substantial differences in denial rates between firms owned by african americans and white males remain moreover consistent with becker s classic theories 1957 we find evidence that increases in competition in the firm s local banking market reduces these differences

on the patterns and wealth effects of vertical mergers we use industry commodity flows information to measure vertical relations in completed mergers from 1962 to 1996 almost one third of the mergers display vertical relatedness vertical merger activity is more intensive in the 1980s and 1990s and less so in the 1960s and the 1970s vertical mergers generate positive wealth effects that are significantly larger than those for diversifying mergers the wealth effects in vertical mergers are comparable to those in pure horizontal mergers

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

negotiated block trades and corporate control we identify negotiated trades of large percentage blocks of stock as corporate control transactions when a block trades and the firm is not fully acquired cumulative abnormal returns average 5 6 and 33 of the chief executives are replaced within a year stock price increases are larger when control passes to the new blockholder when management does not resist the blockholder s effort to influence corporate policy and when the block purchaser eventually fully acquires the firm these findings suggest that the specific skills and expertise of blockholders and not just the concentration of ownership are important determinants of firm value we examine 106 negotiated trades of at least 5 of the common stock of new york stock exchange nyse and american stock exchange amex listed corporations our primary objective is to assess the impact of these transactions on the firms whose shares are traded we also investigate the importance of active block investor s specific managerial expertise and incentives for firm value the emerging literature on concentrated ownership focuses on how the level of ownership affects a blockholder s incentives to undertake a variety of corporate decisions although it has been recognized that a blockholder s identity also can be important less attention has been paid to this issue several recent studies however provide evidence that blockholders incentives and expertise are not homogeneous for example holderness and sheehan 1985 find that the stock market reacts more favorably to initial block accumulations by six controversial investors who are often portrayed in the press as raiders than to initial accumulations by a random sample of investors morck shleifer and vishny 1988 find that firm value tends to be lower when the firm is run by a member of the founder s family than when it is run by an officer unrelated to the founder brickley lease and smith 1988 document that institutional blockholders are less willing to vote against management on antitakeover amendments when they are likely to have business dealings with the firm when a block trades the concentration of ownership typically does not change but the blockholder s identity does

the goals and promise of the sarbanes oxley act the primary goal of the sarbanes oxley act was to fix auditing of u s public companies consistent with its full official name the public company accounting reform and investor protection act of 2002 by consensus auditing had been working poorly and increasingly so the most important and most promising part of sarbanes oxley was the creation of a unique quasi public institution to oversee and regulate auditing the public company accounting oversight board pcaob in controversial section 404 the law also created new disclosure based incentives for firms to spend money on internal controls above increases that would have occurred after the corporate scandals of the early 2000s in exchange for these higher costs which have already fallen substantially sarbanes oxley promises a variety of long term benefits investors will face a lower risk of losses from fraud and theft and benefit from more reliable financial reporting greater transparency and accountability public companies will pay a lower cost of capital and the economy will benefit because of a better allocation of resources and faster growth sarbanes oxley remains a work in progress section 404 in particular was implemented too aggressively but reformers should push for continued improvements in its implementation by pcaob rather than for repeal of the legislation itself

concentration and the inter industry wage structure the israeli manufacturing sector the paper analysis the inter industry wage differentials in the israeli manufacturing sector in conjunction with differences in the degree of competition in the various industries unlike some other studies carried out with us date that did not produce conclusive results this study shows a clear cut positive relationship between wages and the degree of monopolization this result is found both for unskilled and highly skilled workers

whither the nonprofit wage differential estimates from the 1990 census this article provides new estimates of the nonprofit for profit wage differential in the u s economy using observations on 4 1 million private sector employees from the 1990 census i find either zero or slightly positive economy wide wage differences between nonprofit and for profit employees in a standard earnings equation format significant wage differentials are found at the disaggregated occupation and industry level and provide a basis for testing hypotheses explaining nonprofit for profit wage differences

procurement and renegotiation parties bound by an incomplete contract have an incentive to renegotiate after acquiring new information the issue of the parties investment in the relationship before renegotiation is analyzed in a simple two period procurement model the firm invests in the first period it then learns its production cost and the sponsor learns its value for the project williamson s underinvestment presumption is shown to hold under very general assumptions about bargaining and about the ex post asymmetry of information as long as the firm s investment is not observable by the sponsor the introduction of a cancellation fee may well lead to even less investment contrary to what is sometimes argued the role of ex ante price fixing as an alternative way to reintroduce some form of commitment and the problem of cost overruns are discussed last it is shown that if investment is observable by the sponsor andthus may become a joint decision variable the two parties may choose to under or overinvest

why higher takeover premia protect minority shareholders posttakeover moral hazard by the acquirer and free riding by the target shareholders lead the former to acquire as few sharcs as necessary to gain control as moral hazard is most severe under such low ownership concentration inefficiencies arise in successful takeovers moreover share supply is shown to be upward sloping rules promoting ownership concentration limit both agency costs and the occurrence of takeovers furthermore higher takeover premia induced by competition translate into higher ownership concen tration and are thus beneficial finally one share one vote and simple majority are generally not optimal and socially optimal rules need not emerge through private contracting

how vertical integration affects firm innovation quasi experimental evidence although it is well established that vertical integration decisions have important consequences for firms direct evidence on how vertical integration matters to firm innovation has been scarce th

the community dynamics of entrepreneurship the birth of the american film industry 1895 1929 the study of entrepreneurship has traditionally focused on the founders of new organizations especially those that emerge as leaders in the creation of new industries much of this work follows what gartner 1989 called the traits approach studies of this type posit a causal link between the founding and success of new organizations and the personal attributes of the entrepreneurs however more recent research has documented the many ways in which successful entrepreneurship requires more than just the right person a multitude of factors operating at both the organizational and evironmental levels of analysis also affect the success of entrepreneurial efforts examples include technological change shane 1996 changes in sources of firm capital cable and shane 1997 changes in strategic alliances eisenhardt and schoonhoven 1996 personal networks ostgaard and birley 1996 national environments shane and kolvereid 1995 location choice stearns carter reynolds and williams 1995 and national culture shane 1992

differential information and security market equilibrium we propose a simple model of equilibrium asset pricing in which there are differences in the amounts of information available for developing inferences about the returns parame ters of alternative securities in contrast with earlier work we show that parameter uncer tainty or estimation risk can have an effect upon market equilibrium under reasonable conditions securities for which there is relatively little information are shown to have relatively higher systematic risk when that risk is properly measured ceteris paribus the initially very limited model is shown to be robust with respect to relaxation of a number of its principal assumptions we provide theoretical support for the empirical examination of at least three proxies for relative information period of listing number of security returns observations available and divergence of analyst opinion

compensation in the nonprofit sector we investigate the determinants of pay in the nonprofit sector using data for 25 55 year olds from the 1994 88 current population survey outgoing rotation groups our results are consistent with the hypothesis that compensation is primarily determined in competitive markets without labor donations to nonprofit employers one implication is that nonprofit workers receive virtually the same wages as observationally equivalent employees in similar positions with profit seeking enterprises we cannot rule out the possibility of nonprofit penalties or premiums for selected groups however the differentials are generally small and competition appears to play a dominant role in nonprofit wage setting

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

public trading and private incentives this article studies the link between public trading and the activity of a firm s large shareholder who can affect firm value public trading results in the formation of a stock price that is informative about the large shareholder s activity this increases the latter s incentives to engage in value increasing activities indeed if he has to liquidate part of his stake before the effect of his activity is publicly observed a more informative price rewards him for his activity implications are derived for the decision to go public capital structure and security design we consider a firm with a large shareholder and otherwise dispersed shares which are publicly traded the block holder is an insider in the sense that he can undertake actions that directly affect the firm s value moreover the insider might not take all value increasing actions as at least some of them involve a private cost for him in other words there is an incentive problem the article s main premise is that public trading as part of the price formation process generates information not only about exogenous factors affecting firm value but also about the insider s activity for instance as a result of public trading a firm s stock price will incorporate the market s evaluation of how a controlling shareholder allocates corporate resources we identify two sources of incentives for the insider to engage in activities that will increase firm value the first one is his stake in the firm since the insider participates in a value increase in proportion to his equity stake a larger stake increases the benefit to him from the firm value being high the view that large shareholders affect firm value is indeed widespread shleifer and vishny 1997 they alleviate the free rider problem pervasive in firms with passive dispersed investors unable or unwilling to affect the firm s operations that is outsiders

a reexamination of the conglomerate merger wave in the 1960s an internal capital markets view one possible explanation for bidding firms earning positive abnormal returns in diversifying acquisitions in the 1960s is that internal capital markets were expected to overcome the information deficiencies of the less developed capital markets examining 392 bidder firms during the 1960s we find the highest bidder returns when financially unconstrained buyers acquire constrained targets this result holds while controlling for merger terms and for different proxies used to classify firms facing costly external financing we also find that bidders generally retain target management suggesting that management may have provided companyspecific operational information while the bidder provided capital budgeting expertise