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1
Cheung, William, Scott Fung, and Shih-Chuan Tsai. "The impacts of managerial and institutional ownership on firm performance: The role of stock price informativeness and corporate governance." Corporate Ownership and Control 6, no. 4 (2009): 115–27. http://dx.doi.org/10.22495/cocv6i4p11.
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This paper provides new evidence on the relations between managerial and institutional ownerships and firm performance. These relations are found to be affected by firm’s stock price informativeness and corporate governance. Based on a sample of US firms from NYSE, AMEX, and NASDAQ between 1989 and 2006, we document three important findings. First, managerial ownership and firm future performance are non-linearly related; the positive relation is stronger for firms with less informative prices or more agency problems. This finding suggests that poor governance and uninformative price increase the importance of managerial value creation for their firms by improving internal governance. Second, institutional ownership has a significant positive impact on firm future performance, with larger impact for firms with less informative prices or good governance. However, institutional ownership, which reflects external monitoring, has a weaker positive effect compared to managerial ownership, which controls for internal governance. Third, the interaction between managerial ownership and institutional ownership has a significant positive impact on firm future performance, suggesting that there are synergistic effects of internal and external corporate governance mechanisms in improving firm value.
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Li, Hao, Xi Yang, Yu Tu, and Ting Peng. "Two-Period Dynamic versus Fixed-Ratio Pricing Policies under Duopoly Competition." Mathematical Problems in Engineering 2019 (March 28, 2019): 1–11. http://dx.doi.org/10.1155/2019/6567952.
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This paper introduces a two-period, pricing policy under duopoly competition between two firms offering an identical product to consumers who are intertemporal utility maximization. Firms have equal inventories of faultlessly replaceable and perishable products. The firms adjust prices to maximize profits and determine optimal pricing policies, choosing from dynamic pricing, fixed-ratio pricing, and elastic pricing policies. According to a duopoly competition model, the consumer is limited to a single firm visit per period. The consumer decides to purchase the product at current price from a firm and remain in the market to purchase product from the other firm in the next period or exit the market. The results offer three main conclusions. First, elastic pricing is consistent with dynamic pricing. Second, the more consumers visit the firm in the first period, the more profits the firm will make. Third, we explore the effectiveness of different pricing policies. The results show that although dynamic pricing is a more complex policy than fixed-ratio pricing, it may lead to decreased equilibrium profits when the firms sharply discounts prices and consumer rationality is unlimited.
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Wiles, Michael A., and Anna Danielova. "The Worth of Product Placement in Successful Films: An Event Study Analysis." Journal of Marketing 73, no. 4 (July 2009): 44–63. http://dx.doi.org/10.1509/jmkg.73.4.044.
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As a result of the diminishing effectiveness of broadcast advertising, firms are increasingly turning to product placements in films and television to promote their products. A growing stream of product placement research has conducted surveys of consumer and practitioner views on the practice and experiments to gauge product placement's impact on brand awareness, attitudes, and purchase intent. However, there is no evidence of whether firms’ investments in film product placements are worthwhile. The event study of 126 product placements in successful films during 2002 reveals a mean cumulative abnormal return of .89% during the film's opening, indicating that product placement in a successful film is associated with positive movements in firm stock prices. Cross-sectional analysis of the returns offers new insight into how product, film, and execution factors influence the placement's worth. The authors find that placement abnormal returns are enhanced by tie-in advertising and brand equity but are inhibited by audience absorption, critical acclaim, and violent film content. Placement modality, character associations, and blatancy also significantly affect the placement's value.
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Cakan, Esin, Sercan Demiralay, and Veysel Ulusoy. "Oil Prices and Firm Returns in an Emerging Market." American Business Review 24, no. 1 (May 18, 2021): 166–87. http://dx.doi.org/10.37625/abr.24.1.166-187.
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This study examines the oil price effect on Turkish stock market as an emerging country on firm level data. After controlling short term interest rate, nominal exchange rate and crude oil price, we find that firms behave differently to a change in oil prices. The findings include these: i) variations in oil prices do not significantly affect Turkish firm returns. Out of 153, only 38 firms are affected significantly by oil price after controlling exchange rate and interest rate; ii) oil prices influence stock returns of Turkish firms, suggesting that under reaction and gradual information diffusion hypotheses may hold. iii) small and middle-sized firms are more affected negatively from oil price changes, where large-sized firms affected more positively. The empirical findings of this study have potential implications and offer significant insights for both practitioners and policy makers.
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Swanson, David. "Transportation price benchmarking: implications for firm performance." Benchmarking: An International Journal 23, no. 4 (May 3, 2016): 1015–26. http://dx.doi.org/10.1108/bij-04-2015-0034.
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Purpose – The purpose of this paper is to understand how transportation price benchmarking impacts firm performance. Design/methodology/approach – In this study, firm transportation costs and other financial variables are examined with regression analysis. This study extends empirical research on benchmarking by using current data, taking a longitudinal approach, using additional research methods, and by taking a contingency theory approach to examine firm performance contingent on the relative size of benchmarking information. Findings – Firms can reduce prices paid for transportation (thereby improving firm performance) by participating in benchmarking consortiums, and the amount of price reduction is contingent on the size of firm transportation spending relative to that of the benchmarked firms. Furthermore, the contingent relationship is concave, which indicates that participation in benchmarking consortiums can be optimized. Research limitations/implications – Despite the wide range of companies in this sample and the longitudinal approach of this research, this study examined benchmarking performance in just one marketplace (truckload transportation). Practical implications – The findings help managers to lower transportation costs and optimize the benefits that can be obtained from benchmarking. Originality/value – Transportation prices paid by firms are difficult to obtain because firms are not required to isolate and disclose this information on financial statements. Therefore, the transparency of transportation pricing data in this study which include a wide cross-section of firms provides a unique examination of actual transportation prices and how they can be used for benchmarking.
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Hollie, Dana, and Shaokun Carol Yu. "Do Reconciliations Of Segment Earnings Affect Stock Prices?" Journal of Applied Business Research (JABR) 28, no. 5 (August 21, 2012): 1085. http://dx.doi.org/10.19030/jabr.v28i5.7248.
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While SFAS No. 131 is intended to increase the transparency of financial reporting using a management approach, it may reduce shareholders ability to interpret segment disclosures relative to the industry approach employed under SFAS No.14. This study investigates whether segment reconciliation differences affect stock prices and whether abnormal returns can be earned using information about two components of earnings: aggregated segment earnings and segment earnings reconciliations. We compute reconciliations as the difference between firm-level consolidated earnings and aggregated segment-level earnings. Firms that report negative SERs have greater sales and profitability, greater return on equity, as well as more operating cash flows and firm growth. This suggests that firms that report aggregated segment earnings greater than firm-level consolidated earnings may be better off financially. Our findings show that mispricing does occur when firms report positive SERs by the market, underestimating the segment earnings reconciliation component of earnings persistence. Investors can also earn positive abnormal returns when investors take a long (short) position with the portfolio with the highest (lowest) absolute SERs. On the contrary, we find investors earn negative abnormal returns when firms report negative SERs. Collectively, this study provides evidence that mispricing occurs and that investors over/underestimate the importance and/or persistence of segment earnings reconciliations.
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Beierlein, Jaclyn J., and James Nelson. "Do IPO filing prices reflect firm quality?" Managerial Finance 45, no. 4 (April 8, 2019): 499–512. http://dx.doi.org/10.1108/mf-03-2018-0118.
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Purpose Prior research suggests that institutional investors prefer higher priced stock, while individual investors prefer lower priced stock. The purpose of this paper is to examine whether the IPO filing price reflects firm characteristics that are commonly associated with quality, including size, age, earnings, underwriter reputation and venture capital backing. Design/methodology/approach The authors used t-tests, Wilcoxon rank sum tests, logistic and ordinary least squares regressions to test the hypotheses. Findings The authors find that IPO filing prices are positively related to measures of quality, except venture backing, which impacts prices non-linearly. Ceteris paribus, small (large) venture backed firms’ filing prices are set significantly lower (higher). Research limitations/implications Firm managers set IPO filing prices high when they believe the firm is likely to attract institutional investors due to its size, quality and certification, and will set prices low otherwise. Practical implications Individual investors should be wary of IPO firms with lower prices. Managers should be cognizant of the positive relationship between IPO quality and price. Originality/value This study provides evidence that IPO prices reflect firm quality and may be set deliberately to attract individual investors when institutional investor demand is expected to be low. It also provides evidence that venture backing affects IPO prices non-linearly, consistent with the grandstanding hypothesis.
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Uysal, Vahap, and Seth Hoelscher. "Local clientele: geography and comovement of stock returns." Review of Behavioral Finance 10, no. 3 (August 13, 2018): 231–51. http://dx.doi.org/10.1108/rbf-07-2017-0071.
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Purpose Local investors have the ability to impact the stock prices and returns of local firms. However, the impact of news made by a firm on local investors and neighboring companies is absent from the academic literature. The purpose of this paper is to fill that void and examine how a local investor clientele affects the stock market reactions of firms located within the same geographic proximity as a news-generating firm. Design/methodology/approach After accounting for firm, industry, and geographic characteristics, this study examines how a firm’s dividend initiation announcement (positive news) influences stock prices of seemingly unrelated firms within the same metropolitan statistical area (MSA). Findings Dividend-paying firms located in areas with a higher percentage of dividend clientele experience a positive comovement reaction when a seemingly unrelated firm within the same MSA announces a dividend initiation. The positive reactions are specifically for dividend-paying firms, while non-dividend payers exhibit no significant response. These results are robust to numerous regression methods and alternative explanations. Practical implications These findings are consistent with the positive-investor-attention hypothesis, suggesting positive spillover effects from news announcements for other local firms in the presence of individual investor clientele. Originality/value This is the first study to link how news generated by one firm can influence other geographically local firms, providing evidence on the impact of individual investor clientele on stock returns of local non-news firms.
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Bastos, Paulo, Joana Silva, and Eric Verhoogen. "Export Destinations and Input Prices." American Economic Review 108, no. 2 (February 1, 2018): 353–92. http://dx.doi.org/10.1257/aer.20140647.
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This paper examines the relationship between the destination of exports and the input prices paid by firms, using detailed customs and firm-product-level data from Portugal. Both ordinary least squares regressions and an instrumental-variable strategy using exchange-rate movements (interacted with indicators for initial exports) as a source of variation in destinations indicate that exporting to richer countries leads firms to pay higher prices for inputs, other things equal. The results are supportive of what we call the income-based quality-choice channel: selling to richer destinations leads firms to raise the average quality of goods they produce and to purchase higher-quality inputs. (JEL D22, D24, F14, F31, L15)
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Gao, Xiang, and John Topuz. "Firm location and systematic risk: the real estate channel." Review of Accounting and Finance 19, no. 3 (August 6, 2020): 387–409. http://dx.doi.org/10.1108/raf-05-2019-0109.
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Purpose This paper aims to investigate whether the cyclicality of local real estate prices affects the systematic risk of local firms using a geography-based measure of land availability as a quasi-exogenous proxy for real estate price cyclicality. Design/methodology/approach This paper uses the geography-based land availability measure as a proxy for the procyclicality of real estate prices and the location of a firm’s headquarters as a proxy for the location of its real estate assets. Four-factor asset pricing model (market, size, value and momentum factors) is used to examine whether firms headquartered in more land-constrained metropolitan statistical areas have higher systematic risks. Findings The results show that real estate prices are more procyclical in areas with lower land availability and firms headquartered in these areas have higher systematic risk. This effect is more pronounced for firms with higher real estate holdings as a ratio of their tangible assets. Moreover, there are no abnormal returns to trading strategies based on land availability, consistent with stock market betas reflecting this local real estate factor. Research limitations/implications This paper contributes to the literature on local asset pricing factors, the collateral role of firms’ real estate holdings and the co-movement of security prices of geographically close firms. Practical implications This paper has important managerial implications by showing that, when firms decide on the location of their buildings (e.g. headquarters building, manufacturing plant and retail outlet), the location’s influence on systematic risk should be part of the decision-making process. Originality/value This paper is among the first to use a geography-based measure of land availability to study whether the procyclicality of local real estate prices influences firm risk independent of the procyclicality of the local economy. Thus, both the portfolio formed and firm-level analyses provide a more direct evidence of the positive relation between the procyclicality of local real estate prices and firm risk.
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Cheung, William Ming Yan, Adrian Lei, and Libin Tao. "Corporate governance and the divergence of learning channels." Corporate Ownership and Control 8, no. 3 (2011): 9–17. http://dx.doi.org/10.22495/cocv8i3p1.
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We study the relation between corporate governance, market liquidity and stock price informativeness. Firms with more informative stock prices are associated with larger transaction volume, larger bid-ask spread and better corporate governance. Thisliquidity-informativeness relation is significant for firms with high antitakeover provision (bad corporate governance). However, bid-ask spread is insignificantly associated withprice informativeness for firms with less antitakeover provision (good corporate governance). This supports that firm-specific return variation better measures stock price informativeness when firm has strong corporate governance framework. Our results suggest that (i) more (less) informed trading activities associated with weak (strong) corporate governance, and (ii) corporate governance explains the cross-sectional variation in information efficiency of stock prices. Our results are consistent with theories in financial market learning that investor learn from informed trading activities associated with weak governance firms and informative disclosure from strong governance firms.
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Paul, Rodney, Andrew P. Weinbach, and Eric Higger. "The “Large-Firm” Effect? Bettor Preferences and Market Prices in NCAA Football." Journal of Prediction Markets 7, no. 2 (October 4, 2013): 29–41. http://dx.doi.org/10.5750/jpm.v7i2.751.
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Abstract: NCAA football has a clear classification of “large” (AQ) and “small” (non-AQ) conferences. This setting lends itself to the testing of the “small-firm” effect found in financial markets in the college football betting market. The “small-firm” effect occurs when small cap firms outperform large cap firms; typically attributed to difficulty and costs in finding information on small firms. In college football, AQ-teams win more than implied by efficiency against non-AQ teams. At the same time, AQ teams receive a disproportionate share of bets on these games. The likely rationale behind these findings is the incentives created by the BCS system which leads the point spread to not be a true random variable within this market.
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Ovtchinnikov, Alexei V., and John J. McConnell. "Capital Market Imperfections and the Sensitivity of Investment to Stock Prices." Journal of Financial and Quantitative Analysis 44, no. 3 (June 2009): 551–78. http://dx.doi.org/10.1017/s0022109009990081.
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AbstractPrior studies argue that investment by undervalued firms that require external equity is particularly sensitive to stock prices in irrational capital markets. We present a model in which investment can appear to be more sensitive to stock prices when capital markets are rational, but subject to imperfections such as debt overhang, information asymmetries, and financial distress costs. Our empirical tests support the rational (but imperfect) capital markets view. Specifically, investment–stock price sensitivity is related to firm leverage, financial slack, and probability of financial distress, but is not related to proxies for firm undervaluation. Because, in our model, stock prices reflect the net present values (NPVs) of investment opportunities, our results are consistent with rational capital markets improving the allocation of capital by channeling more funds to firms with positive NPV projects.
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SCHOONBEEK, LAMBERT, and PETER KOOREMAN. "THE IMPACT OF ADVERTISING IN A DUOPOLY GAME." International Game Theory Review 09, no. 04 (December 2007): 565–81. http://dx.doi.org/10.1142/s0219198907001606.
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We investigate the impact of advertising in a static differentiated duopoly. First, we consider the Nash equilibrium if firms compete with both prices and advertising. Second, we examine the Nash equilibrium if firms only compete in prices and do not advertise. We characterize the circumstances in which the profit, output, and/or price of each firm is greater (or smaller) with advertising than without advertising.
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Christensen, Peter O., and Hans Frimor. "Public Information and Efficient Capital Investments: Implications for the Cost of Capital and Firm Values." Accounting Review 95, no. 5 (October 22, 2019): 57–93. http://dx.doi.org/10.2308/accr-52640.
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ABSTRACT In a standard financial economics model of asset pricing and value-maximizing firms, we show that better public information about firm-specific and economy-wide events affects the allocation of capital investments among firms and over time. The consequences for capital market outcomes, such as risk, risk premia, interest rates, firm prices, and the cost of capital, depend on investor preferences and whether improvements are to firm-specific or economy-wide information. We show that interest rates and risk premia tend to move in opposite directions and that the effects on interest rates often dominate the effects on risk premia in determining firm values and the cost of capital.
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Hottman, Colin J., Stephen J. Redding, and David E. Weinstein. "Quantifying the Sources of Firm Heterogeneity *." Quarterly Journal of Economics 131, no. 3 (March 3, 2016): 1291–364. http://dx.doi.org/10.1093/qje/qjw012.
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Abstract We develop and structurally estimate a model of heterogeneous multiproduct firms that can be used to decompose the firm-size distribution into the contributions of costs, “appeal” (quality or taste), markups, and product scope. Using Nielsen barcode data on prices and sales, we find that variation in firm appeal and product scope explains at least four fifths of the variation in firm sales. We show that the imperfect substitutability of products within firms, and the fact that larger firms supply more products than smaller firms, implies that standard productivity measures are highly dependent on implicit demand system assumptions and probably dramatically understate the relative productivity of the largest firms. Although most firms are well approximated by the monopolistic competition benchmark of constant markups, we find that the largest firms that account for most of aggregate sales depart substantially from this benchmark, and exhibit both variable markups and substantial cannibalization effects.
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Shaddady, Ali, and Faisal Alnori. "Do Ownership Structure, Political Connections and Executive Compensation Have Multifaceted Effects on Firm Performance? An Alternative Approach." International Journal of Economics and Finance 12, no. 10 (September 18, 2020): 22. http://dx.doi.org/10.5539/ijef.v12n10p22.
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This study investigates the multifaceted effects of board characteristics and ownership on firm performance. Using panel data for 130 listed firms over the period 2009-2016 and after applying the SORM-DEA to OLS, quantile and 3SLS regressions. We explore the first empirical evidence showing that board characteristics tend to have multifaceted effects in explaining firm performance. Executive compensation has a positive influence in expounding firm performance. In contrast, political connections have a negative impact on firm performance. Further, the findings indicate that foreign ownership and CEO chair duality are positively related to firm performance. These effects are more pronounced in periods of high oil prices, while foreign ownership and CEO chair duality fail to explain firm performance in a period of low oil price. The results also reveal that CEO educational background has a significant effect on performance in service firms compared with industrial firms. The outcomes of this study provide important implications for investors and policymakers.
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Hamza, Taher, and Nada Mselmi. "Corporate Governance and Equity Prices: The Effect of Board of Directors and Audit Committee Independence." Management international 21, no. 2 (October 16, 2018): 152–64. http://dx.doi.org/10.7202/1052694ar.
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This paper investigates the effect of board and audit committee independence on firm market performance. Using a sample of French listed firms, we find a negative and significant relation between board independence and equity returns. This suggests that appointing more independent directors fails in enhancing firm stock returns. Furthermore, we show that firms with independent audit committees exhibit higher equity returns. We analyze three portfolios sorted by the percentage of independent directors on boards and audit committees using Carhart’s model and find that the portfolio of firms with low board independence and high audit committee independence exhibits the highest abnormal returns. JEL Classification: G34, G11
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Rahman, Asif, Muhammad Faizan Malik, and Shehzad Khan. "Oil Price Fluctuations and Volatility of Firm Risk." Global Social Sciences Review IV, no. II (June 30, 2019): 420–29. http://dx.doi.org/10.31703/gssr.2019(iv-ii).54.
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Prior literature reports that macro-economic factors of a country affect stock exchange performance and thus firm performance. Recent strands of literature and the fluctuations in currency have a substantive effect on countries' economies. These fluctuations are also a cause of price fluctuations of imports and exports. One such factor which directly affects firm performance is the oil price fluctuations. Thus, this thesis empirically investigates the effect of oil price fluctuations on firm risk for the firms listed on PSX for the period 2012-2017. Secondary data is taken from SBP, Balance Sheet Analysis Database, Pakistan Stock Exchange and the company's website in some cases. Using Panel data, results show that oil prices increase firm risk (beta), which indicates that market participants react to change in oil prices and thus increases risks. The study indicates that policymakers need to control oil prices to keep firm risk in control and thus manage the market towards a better investment environment.
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Lailiyah, Elliv Hidayatul, Ika Purwanti, and Muhammad Sulton. "Misprice, Leverage and Stock Buyback: Evidence in Indonesia." Jurnal Ekonomi Bisnis dan Kewirausahaan 9, no. 2 (August 28, 2020): 98. http://dx.doi.org/10.26418/jebik.v9i2.41547.
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Cash distribution by stock buyback is one ways to increase stockholder wealth. This study is to analyze the effect of misprice (misvaluation) and leverage on stock buyback. Limited prior study discussed about stock buyback and misprice especially in Indonesia, theoritically, in Indonesia not only firm with undervalue stock do stock buyback but also firm with overvalue stock. Stock buyback can increase the stock prices, but the implementation in Indonesia is still small. Non-financial firms listed on the Indonesia Stock Exchange from 2010 to 2017 used in this study. Samples were taken by a purposive sampling method based on certain criteria. The data analysis techniques use multiple linear regression statistical analysis. The results showed that misprice has a positive effect on buyback. The different thing found in Indonesia because overvalued firms hold stock buyback. Leverage has a negative effect on stock buyback. Firms with leverage below the target tend to do a stock buyback. In addition, the stock buyback also used to correct prices (for undervalued stock to be fair). The implication in this study is stock buyback not only viewing to correct prices but also giving a signal to the market that the firm is in a good fundamental condition.
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Masoudi, Nahid. "Greenness as a Differentiating Strategy." Mathematics 9, no. 11 (June 6, 2021): 1300. http://dx.doi.org/10.3390/math9111300.
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In a vertical differentiation model, we study a market where consumers, depending on their level of environmental consciousness, value the greenness of the product they consume and are distributed according to a Kumaraswamy distribution. Three scenarios are studied: only one firm takes some green measures and firms compete upon prices; only one firm takes some green measures, and this firm acts as the leader of the price competition; and finally, both firms choose their level of greenness and compete upon their location and price. The results suggest that as consumers become more environmentally conscious, the marginal consumer and the greener firm’s location move to the right. In contrast, the less green firm’s response is non-monotonic. In fact, when the two firms choose their location along with their prices, the latter firm chooses to produce a less green product in response to more environmentally conscious consumers. In the extreme case where all consumers are fully environmentally conscious, the latter firm produces a brown product and sells it at a price equal to its marginal cost. In this case, the greener firm’s price and location choices make the consumers indifferent between the two products. These results could explain why despite all the improvements in the consumers’ environmental consciousness, brown (in its general term) products are still widely produced and consumed, even by environmentally conscious consumers.
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Edwards, Alexander, Michelle Hutchens, and Sonja Olhoft Rego. "The Pricing and Performance of Supercharged IPOs." Accounting Review 94, no. 4 (October 1, 2018): 245–73. http://dx.doi.org/10.2308/accr-52304.
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ABSTRACT This study examines a new form of initial public offerings, “supercharged” IPOs, where a firm-organized pre-IPO as a pass-through entity undergoes a series of transactions that steps-up the adjusted tax basis of the IPO firm's assets. This step-up imposes tax liabilities on pre-IPO owners, but also creates significant future tax benefits for the firm; the average anticipated deferred tax asset is $486 million ($13 per share) for our sample of supercharged IPO firms. Pursuant to tax receivable agreements, supercharged IPO firms pay a large portion of these tax benefits to pre-IPO owners as they are realized in the future. Future firm performance must be sufficiently strong for the IPO firm and the pre-IPO owners to realize the future tax benefits created by the supercharged transaction structure. We hypothesize and provide evidence of higher IPO offer prices and stronger future performance for supercharged IPO firms relative to traditional IPO firms. JEL Classifications: G14; G32; G34; H25.
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Wan, Qin, Jing Zhu, Huijing Li, and Lili Wang. "How to offer mobile targeting promotion under asymmetry." Nankai Business Review International 8, no. 3 (August 7, 2017): 289–303. http://dx.doi.org/10.1108/nbri-01-2017-0004.
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Purpose Based on consumers’ geographic real-time locations, firms can utilize mobile targeting promotion (MTP) to target consumers through some applications embedded in mobile device. This paper aims to focus on two competing firms about how to make MTP strategies under asymmetric mobile accessibilities, i.e. the proportions of consumers who can be targeted by firms through apps are different. Design/methodology/approach This paper develops a game model for two competing firms. Aiming to maximizing profit, firms should consider how to utilize MTP strategies to trade off the benefit (expand market share) and the cost (intensive price competition). Findings The optimal MTP strategies and equilibrium prices have been presented under different scenarios. This paper verifies that asymmetry can make the firm with high mobile accessibility obtain extra profits. Furthermore, when unit targeting cost is relatively low, profit of the firm with low mobile accessibility increases first and decreases later with respect to its mobile accessibility. Practical implications Competing firms’ optimal MTP strategies and equilibrium prices are determined not only by unit targeting cost but also by consumers’ mobile accessibilities to firms. Firms have strong incentive to enlarge the mobile accessibility to procure more profit in monopoly context, but, under competing context, a higher mobile accessibility may not mean better for firm. Originality/value This is one of the few papers which study mobile targeting based on game theory considering unit targeting cost and asymmetric mobile accessibility simultaneously.
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Alverio, Mariluz, and Javier Rodríguez. "Private firm pricing and propensity to go public: evidence from mutual funds holdings." Journal of Risk Finance 17, no. 3 (May 16, 2016): 328–46. http://dx.doi.org/10.1108/jrf-09-2015-0088.
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Purpose The purpose of this study is to focus on mutual funds’ valuations of their US private firm holdings. According to extant academic literature, mutual funds’ boards of directors should assign prices to their private firm stocks based on their own determination of fair value. Design/methodology/approach This study investigates fluctuations in valuations of mutual funds holdings of private firms, and whether or not mutual funds managers are able to pick privately held firms that eventually undergo an initial public offer. Findings The study shows that private firm common stocks’ prices fluctuate much more than preferred stocks’; however, as expected, preferred stock is the most selected security type. This study also investigates these firms’ propensity to undergo an initial public offering (IPO). Results show that mutual funds allocated most of their capital to US private sector firms that underwent an initial public offering. Logit model results reveal that fund managers are able to pick privately held firms that will go public. Research limitations/implications Due to data limitations, the authors’ analysis does not control for venture capital ownership; an issue the authors plan to address in the future. Originality/value Though, research in this area may exist, the authors have not found academic literature related to holdings of private firms by mutual funds, pricing by funds’ boards of directors or the motives for such investments.
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Loukil, Nadia. "Stock Liquidity, Feedback Prices, And Asset Liquidity: Evidence From The Tunisian Stock Market." Journal of Applied Business Research (JABR) 31, no. 2 (March 3, 2015): 407. http://dx.doi.org/10.19030/jabr.v31i2.9125.
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This paper explores how feedback prices influence firms' investment on asset liquidity through stock liquidity. Using a sample of the Tunisian listed firms between 1999 and 2010, empirical results confirm that stock market liquidity plays a significant role in investment decisions and show that high stock liquidity encourages firms to invest more on asset liquidity to overcome feedback prices (negative and positive feedback). Therefore, the papers findings demonstrate the link between stock markets and the current business activity of the firm. Furthermore, the results indicate how stock liquidity strengthens feedback prices effects on managerial decisions and choices, which highlights the importance of stock liquidity.
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مجيد, ارشد فؤاد, and وفاء حسين ابو سمرة. "The Impact of Combine Level of Capital Structure and Dividend Policy on Firm Stock Price An apply study of companies listed on Amman Stock Exchange." Journal of Economics and Administrative Sciences 21, no. 86 (December 1, 2015): 1. http://dx.doi.org/10.33095/jeas.v21i86.901.
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Although a great deal of works has been done on the area of capital structure and dividend policy, there is still insufficient knowledge of how these policies affect stock prices. This shortcoming may have been originated from the separation between both policies when investigating their effect on stock prices. Based on this point, this research adopts a new technique (completely randomized design), to combine the effect of capital structure and dividend policy on stock prices rather than separating between them. The study used panel based regression analysis depending on the sample of 30 service and industrial Jordanian firms for the period of 2001-2010. The result of test hypotheses found the following; 1) dividend payout has a positive effect on firm stock prices. 2) Firm leverage has a negative effect on firm stock prices. 3) Combined level of capital structure and dividend policy has an effect on stock prices. 4) Different levels of combined level of capital structure and dividend policy affect stock prices in a different way
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Gunter, Lewell F., and James O. Wise. "The Impact Of Sales Changes On Agribusiness Payrolls." Journal of Agricultural and Applied Economics 25, no. 1 (July 1993): 228–36. http://dx.doi.org/10.1017/s1074070800018782.
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AbstractAgribusiness firms face substantial market risk associated with variations in farm production, output and input prices, exchange rates, and other factors. Some of the risk faced by agribusiness is passed through to the employees of the firm and to the communities where the firms are located, as employment levels are changed in response to these variations. An econometric analysis of the transmission of sales changes into payroll changes was performed for a sample of Georgia agribusiness firms. Transmission elasticities were found to be affected by firm type, size, age, and by the degree of use of part-time employees.
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Pontoh, Winston. "Market reaction and fundamental signal in Indonesia." Investment Management and Financial Innovations 14, no. 3 (November 9, 2017): 210–17. http://dx.doi.org/10.21511/imfi.14(3-1).2017.05.
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The random reaction in capital market by different perceptions and other factors makes it difficult for investors to get their optimum return. The objective of this study is to provide an empirical evidence about how the market will react by fundamental signal from the perspective of life cycle theory, free cash flow theory, and bird in the hand theory. The study presents the analysis of covariate for hypotheses testing with 241 firms as the sample which are listed in Indonesia Stock Exchange for period 2010–2015. This study finds that the life cycle theory and free cash flow theory are not absolute theories to explain the market reaction for any firms, because each firm has its own characteristics. The findings show that share prices shall react differently depending on each characteristics of the firm. The bird in the hand theory seems applicable in any case of firms, since the informational contents by dividend can deliver good signal to investors in capital market. Excluding the smaller and younger firms, this study proves that dividend is still a better way in determining the reaction of share prices, since each type of firms has its own types of dividend payers with different share prices.
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Houston, Joel, Christopher James, and Jason Karceski. "What a Difference a Month Makes: Stock Analyst Valuations Following Initial Public Offerings." Journal of Financial and Quantitative Analysis 41, no. 1 (March 2006): 111–38. http://dx.doi.org/10.1017/s0022109000002441.
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AbstractWe examine how analysts establish target prices for IPO firms and whether comparable firms used to support target prices are helpful in explaining IPO offer prices. During the bubble period of 1999 to 2000, the average offer price was set at a discount relative to comparable firm valuations. In contrast, the average offer price was set at a small premium relative to comparables in the pre-bubble period. This shift appears to hold even after controlling for the differences in the types of firms going public during the bubble period. Moreover, target prices of IPO firms were set at a higher premium relative to comparables during the bubble period. While our results suggest that underwriters systematically discounted offer prices during the bubble period, an alternative explanation is that the shift arose because underwriters and analysts faced different incentives and legal exposures during the bubble period.
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Mamadehussene, Samir. "Price-Matching Guarantees as a Direct Signal of Low Prices." Journal of Marketing Research 56, no. 2 (January 7, 2019): 245–58. http://dx.doi.org/10.1177/0022243718821666.
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If consumers believe that stores offering price-matching guarantees (PMGs) charge low prices, high-search-cost consumers will purchase from PMG stores. This leads PMG stores’ demand to be less price sensitive, which drives these stores to charge higher prices. The belief that PMG stores charge low prices paradoxically leads them to charge high prices. For this reason, the literature finds that PMGs can only signal low prices when firm heterogeneity is sufficiently large. Because PMGs are offered by retailers that purchase the same product from the same producer, large firm heterogeneity may be a strong assumption. This article proposes a theory that explains how homogeneous firms may signal their low prices through PMGs: consumers perceive PMG stores to have lower prices not because they expect them to have low marginal costs or service quality, but simply because they offer a PMG.
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Bauman, Mark P., and Kenneth W. Shaw. "The Usefulness of Disclosures of Untaxed Foreign Earnings in Firm Valuation." Journal of the American Taxation Association 30, no. 2 (September 1, 2008): 53–77. http://dx.doi.org/10.2308/jata.2008.30.2.53.
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ABSTRACT: Under current accounting rules, U.S. multinationals are not required to record liabilities for future taxes on earnings of foreign subsidiaries, as long as those earnings are deemed to be indefinitely reinvested in those subsidiaries. These rules allow considerable flexibility in the designation of earnings deemed permanently reinvested and the reporting of expected repatriation taxes thereon. Some firms disclose amounts for unrecorded taxes on permanently reinvested earnings, but most do not. We show that while estimated repatriation taxes are relevant in explaining share prices of non-disclosing firms, they are less relevant than firm-disclosed amounts are in explaining share prices of disclosing firms. This result is due to estimated repatriation tax amounts exhibiting downward bias, and less accuracy for actual repatriation tax effects, relative to firm-disclosed repatriation tax amounts. We propose new disclosures designed to improve the relevance of estimated repatriation tax amounts.
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Atkeson, Andrew, Christian Hellwig, and Guillermo Ordoñez. "Optimal Regulation in the Presence of Reputation Concerns *." Quarterly Journal of Economics 130, no. 1 (November 25, 2014): 415–64. http://dx.doi.org/10.1093/qje/qju034.
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Abstract In all markets, firms go through a process of creative destruction: entry, random growth, and exit. In many of these markets there are also regulations that restrict entry, possibly distorting this process. We study the public interest rationale for entry taxes in a general equilibrium model with free entry and exit of firms in which firm dynamics are driven by reputation concerns. In our model firms can produce high-quality output by making a costly but efficient initial unobservable investment. If buyers never learn about this investment, an extreme “lemons problem” develops, no firm invests, and the market shuts down. Learning introduces reputation incentives such that a fraction of entrants do invest. We show that if the market operates with spot prices, entry taxes always enhance the role of reputation to induce investment, improving welfare despite the impact of these taxes on equilibrium prices and total production.
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Amiti, Mary, Oleg Itskhoki, and Jozef Konings. "International Shocks, Variable Markups, and Domestic Prices." Review of Economic Studies 86, no. 6 (February 2, 2019): 2356–402. http://dx.doi.org/10.1093/restud/rdz005.
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Abstract How strong are strategic complementarities in price setting across firms? In this article, we provide a direct empirical estimate of firms’ price responses to changes in competitor prices. We develop a general theoretical framework and an empirical identification strategy, taking advantage of a new micro-level dataset for the Belgian manufacturing sector. We find strong evidence of strategic complementarities, with a typical firm adjusting its price with an elasticity of 0.4 in response to its competitors’ price changes and with an elasticity of 0.6 in response to its own cost shocks. Furthermore, we find evidence of substantial heterogeneity in these elasticities across firms. Small firms exhibit no strategic complementarities in price setting and complete cost pass-through. In contrast, large firms exhibit strong strategic complementarities, responding to both competitor price changes and their own cost shocks with roughly equal elasticities of around 0.5. We show that this pattern of heterogeneity in markup variability across firms is important for explaining the aggregate markup response to international shocks and the observed low exchange rate pass-through into domestic prices.
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Gregoriou, Andros, Jerome Healy, and Jairaj Gupta. "Determinants of telecommunication stock prices." Journal of Economic Studies 42, no. 4 (September 14, 2015): 534–48. http://dx.doi.org/10.1108/jes-06-2013-0080.
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Purpose – The purpose of this paper is to analyze the determinants affecting the stock prices of telecommunications firms in both developed and developing countries around the world. Design/methodology/approach – The empirical analysis is performed using panel data from 160 countries and 45 companies, covering the time period from 2000 to 2011. To identify the significant factors, company level firm-specific financial and non-financial factors have been analyzed that are expected to bear significant impact on price volatility of telecommunications stock. Findings – The test results reveal that capital expenditure and book value are the most significant factors. Dividends and debt levels only affect prices significantly in specification tests with either time-series or cross-sectional effects, whereas firms’ earnings and numbers of mobile internet subscribers do not contribute to the explanatory power of telecommunication stock price variability. Practical implications – The study sheds light to the potential investors in evaluating the risk associated with investment in stocks of telecommunications firms and take informed investment decisions. Originality/value – This is the first study that presents a comprehensive analysis of determinants affecting the stock prices of telecommunications firms in both developed and developing countries around the world.
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Li, Xi, Krista J. Li, and Xin (Shane) Wang. "Transparency of Behavior-Based Pricing." Journal of Marketing Research 57, no. 1 (November 19, 2019): 78–99. http://dx.doi.org/10.1177/0022243719881448.
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Behavior-based pricing (BBP) refers to the practice in which firms collect consumers’ purchase history data, recognize repeat and new consumers from the data, and offer them different prices. This is a prevalent practice for firms and a worldwide concern for consumers. Extant research has examined BBP under the assumption that consumers observe firms’ practice of BBP. However, consumers do not know that specific firms are doing this and are often unaware of how firms collect and use their data. In this article, the authors examine (1) how firms make BBP decisions when consumers do not observe whether firms perform BBP and (2) how the transparency of firms’ BBP practice affects firms and consumers. They find that when consumers do not observe firms’ practice of BBP and the cost of implementing BBP is low, a firm indeed practices BBP, even though BBP is a dominated strategy when consumers observe it. When the cost is moderate, the firm does not use BBP; however, it must distort its first-period price downward to signal and convince consumers of its choice. A high cost of implementing BBP serves as a commitment device that the firm will forfeit BBP, thereby improving firm profit. By comparing regimes in which consumers do and do not observe a firm’s practice of BBP, the authors find that transparency of BBP increases firm profit but decreases consumer surplus and social welfare. Therefore, requiring firms to disclose collection and usage of consumer data could hurt consumers and lead to unintended consequences.
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Engelberg, Joseph, Arzu Ozoguz, and Sean Wang. "Know Thy Neighbor: Industry Clusters, Information Spillovers, and Market Efficiency." Journal of Financial and Quantitative Analysis 53, no. 5 (September 12, 2018): 1937–61. http://dx.doi.org/10.1017/s0022109018000261.
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Firms in industry clusters have market prices that are more efficient than firms outside clusters. To establish causality, we analyze exogenous firm relocations and find that firms that relocate into industry clusters have higher levels of industry information in their prices. We argue that geographical proximity allows for information spillovers, reducing marginal cost to information producers. Our evidence supports this view: Analysts are more likely to cover stocks inside industry clusters, and when institutional investors have a large position in one stock in the industry cluster, they are more likely to hold other stocks in the same industry cluster.
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Viana, Rui Couto, and Lúcia Lima Rodrigues. "What Determines Port Wine Prices?" Journal of Wine Economics 2, no. 2 (2007): 203–12. http://dx.doi.org/10.1017/s1931436100000444.
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AbstractIn this study, we estimate a cross-sectional hedonic price function for Port wines in order to determine the price influence of several Port wine characteristics. Drawing on a large sample of more than 14,000 sales from the biggest Port wine firms we find that market prices can be explained by objective characteristics such as age, type of Port and type of brand appearing on the bottle label and subjective characteristics such as firm reputation. The Port type is the main price determinant. (JEL Classification: C21, Q11)
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Begy, Genevieve, and Vishal Talwar. "The Economic Worth of Product Placement in Prime-time Television Shows." International Journal of Market Research 58, no. 2 (March 2016): 253–75. http://dx.doi.org/10.2501/ijmr-2015-026.
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Product placement is fiercely being courted by firms as a consequence of the declining credibility of traditional broadcast advertising and the ‘30-second spot’. Very little research analysing its economic worth exists outside of the realm of film, however. This paper responds by applying a consistent measure of placement effectiveness to television through use of event analyses. It finds a mean cumulative abnormal return of 0. 79% in a sample of 264 placements from the 2011-12 prime-time season, confirming that product placement in television is positively and significantly associated with movement in firms' stock prices. Placement in a season premiere has significantly higher mean returns than in a non-pivotal episode, irrespective of whether the firm places the product in both episodes. A cross-sectional analysis of placement, episode and show factors suggests that the duration of placement and one-hour show length are positively associated with stock price movement. Placement in a show's debut season is adversely associated to worth.
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BACCHIEGA, EMANUELE, LUCA LAMBERTINI, and ANDREA MANTOVAINI. "PROCESS AND PRODUCT INNOVATION IN A VERTICALLY DIFFERENTIATED INDUSTRY." International Game Theory Review 13, no. 02 (June 2011): 209–21. http://dx.doi.org/10.1142/s0219198911002952.
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We examine a vertically differentiated duopoly where firms invest in process and product innovation and then compete in prices under full market coverage. We show that (i) process innovation fosters (hinders) product innovation for the low-quality (high-quality) firm; (ii) the firm which is initially more efficient invests more than the rival in process innovation; (iii) if the initial differential between marginal costs is sufficiently high, the demand for the less efficient firm is nil and the duopoly equilibrium does not exist.
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Gale, Douglas, and Piero Gottardi. "Bankruptcy, Finance Constraints, and the Value of the Firm." American Economic Journal: Microeconomics 3, no. 2 (May 1, 2011): 1–37. http://dx.doi.org/10.1257/mic.3.2.1.
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We study a competitive model in which market incompleteness implies that debt-financed firms may default in some states of nature, and default may lead to the sale of the firms' assets at fire sale prices when a finance constraint is binding. The anticipation of such “losses” alone may distort firms' investment decisions. We characterize the conditions under which fire sales occur in equilibrium, and their consequences on firms' investment decisions. We also show that endogenous financial crises may arise in this environment, with asset prices collapsing as a result of pure self-fulfilling beliefs. Finally, we examine alternative interventions to restore the efficiency of equilibria. (JEL D83, G31, G32, G33)
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Malhotra, Nisha. "Signaling Costs: Why Don't More Firms Petition for Protection?" Business and Politics 10, no. 1 (April 2008): 1–24. http://dx.doi.org/10.2202/1469-3569.1206.
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The main aim is to question why we don't see more firms petitioning for import relief. It is well accepted that petitioning itself can restrain imports, lead to higher prices and hence higher profits (in the short run). What prevents more firms from filing for protection? It may be that petitioning reflects cost inefficiency on the part of the petitioning firm, and concerns about revealing this information might act as a deterrent for firms to come forward with their complaints. However, in a declining industry where a large number of firms are contemplating exit, petitioning could be a signal that the firm expects to remain in the market for the near future. The signaling hypothesis is tested by comparing the stock market response of an antidumping petition for petitioning firms and non-petitioning firms producing the same product.
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Hatem, Ben Said. "How Can We Increase Shareholder' Wealth? An Empirical Validation from European Countries." Business and Economic Research 7, no. 1 (May 20, 2017): 323. http://dx.doi.org/10.5296/ber.v7i1.9738.
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This paper tests the determinants of shareholder's wealth. Our study examined three countries: Russia, Sweden and the United Kingdom. The samples contains 69 firms for every country observed over a period of 4 years from 2007 to 2010. Firm value is measured by two ratios: Tobin's Q ratio obtained as the sum of market capitalisation, long term debt and short term capital structure divided by total assets, and market to book ratio measured as market value equity over shareholder's equity. The descriptive statistics manipulate that firms in Sweden and the United Kingdom have higher Tobin's Q and market to book ratios, respectively. We found evidence about the hypothesis of tax savings on firm value. Firms with higher values of performance have higher market equity values. We manipulated to a significant relationship between firm value and size when we consider, only Tobin's Q ratio, as dependant variable. More cash means high stocks prices for firms in Sweden and the United Kingdom. In the British and Swedish markets, older firms have less value.
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Hayakawa, Kazunobu, Nuttawut Laksanapanyakul, Hiroshi Mukunoki, and Shujiro Urata. "Impact of Free Trade Agreement Use on Import Prices." World Bank Economic Review 33, no. 3 (May 15, 2018): 643–60. http://dx.doi.org/10.1093/wber/lhx026.
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Abstract We examine the impact of free trade agreement (FTA) use on import prices. For this analysis, we employ establishment-level import data with information on tariff schemes, that is, the FTA and most-favored-nation schemes used for importing. Unlike previous studies, we estimate the effects of FTA use on prices by controlling for differences in importing-firm characteristics. There are three main findings. First, the effect of FTA use is overestimated when not controlling for importing firm-related fixed effects. Second, on average, firms’ FTA use reduces tariffs by 12 percentage points and raises import prices by 3.6–6.7 percent. Third, in general, we do not find a price rise resulting from the costs of complying with rules of origin.
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Westerman, Wim, Adri De Ridder, and Marijn Achtereekte. "Firm performance and diversification in the energy sector." Managerial Finance 46, no. 11 (June 12, 2020): 1373–90. http://dx.doi.org/10.1108/mf-11-2019-0589.
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PurposeThe study aims to fill a gap in the literature on the economic impact of industrial and international diversification on firm performance in the energy sector. Li et al. (2016) investigate firms listed in China, and this study analyzes firms listed in (Western) Europe.Design/methodology/approachA sample of 129 energy firms is extracted from Datastream and covers the period from January 2009 to December 2015. Univariate and multivariate regression analyses are used to determine a plausible relation of diversification on corporate performance. Also, the difference between renewable energy firms and conventional energy firms is explored.FindingsA univariate analysis using both return on assets and Tobin's Q as a variable shows that renewable energy firms have a higher profitability than conventional energy firms. However, a multivariate analysis does not confirm this result. The authors also document a negative relation between diversification strategies and firm performance.Research limitations/implicationsThe study uses main industry codes. Yet, one might make a distinction between renewable energy and conventional energy amounts with corporations. Also, the authors cover financial crisis years. Researchers might take into account more recent years.Practical implicationsThe findings of the study highlight the importance of short-term and long-term considerations for practitioners related to demand, the energy mix, oil prices and firm strategies.Originality/valueThe authors contribute to the debate and the literature when identifying similarities and differences between conventional energy firms and renewable energy firms in their application of diversification strategies and their (relation to) firm performance.
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Baig, Ahmed, Benjamin M. Blau, and Jie Hao. "Accounting Information Quality and the Clustering of Stock Prices." American Business Review 23, no. 2 (November 2020): 182–210. http://dx.doi.org/10.37625/abr.23.2.182-210.
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The foundation of economic theory is based on the premise that prices will converge to their equilibrium value. However, prior research has documented that stock prices cluster on round pricing increments. In this study, we develop and test the hypothesis that audit quality and the management of earnings—both of which affects the information environment of the firm—influence the degree of price clustering. Results show that firms with Big 4 auditors have less clustering in their stock prices while firms with higher abnormal audit fees, more discretionary accruals, and firms that tend to manipulate earnings have a higher degree of price clustering. These findings support our hypothesis and suggest that accounting information quality helps explain the price clustering anomaly and subsequently influences the efficiency of financial markets.
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Amjad Chaudhry, Azam. "A Panel Data Analysis of Electricity Demand in Pakistan." LAHORE JOURNAL OF ECONOMICS 15, Special Edition (September 1, 2010): 75–106. http://dx.doi.org/10.35536/lje.2010.v15.isp.a5.
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This paper looks at the economy-wide demand and the firm level demand for electricity in Pakistan. The economy wide estimation of electricity demand uses panel data from 63 countries from 1998-2008, and finds that the elasticity of demand for electricity with respect to per capita income is approximately 0.69, which implies that a 1% increase in per capita income will lead to a 0.69% increase in the demand for electricity. The firm level analysis uses firm level data from the World Bank’s Enterprise Survey for Pakistan and finds that the price elasticity of demand for electricity across all firms is approximately -0.57, which implies that a 1% increase in electricity prices will lead to a 0.57% decrease in electricity demand across firms. Across sectors, the textile sector has the highest price elasticity of demand (-0.81) while the price elasticity of demand for firms in the electricity and electronics sector is the smallest (-0.31). Finally, firm level data is also used to estimate production functions in order to estimate the impact of electricity shortages on manufacturing output.
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Bhabra, Gurmeet Singh, and Chris Wood. "Agency conflicts and the wealth effects of proxy contests." Corporate Ownership and Control 12, no. 1 (2014): 8–30. http://dx.doi.org/10.22495/cocv12i1p1.
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We examine the shareholder wealth impact of proxy contests and find that over the three years preceding the contest, target stock prices significantly underperform their industry peers. In addition, consistent with the monitoring role of proxy contests, the announcement and full contest periods result in a positive stock price reaction suggesting that the market views the initiation of a proxy contest as good news. Interesting differences emerge between firms in which dissidents win seats and those where they do not win seats. While target firm stock prices appreciate for all firms at the announcement, such wealth gains are permanent only for the subsample of targets which not only are afflicted with elevated levels of agency problems but also make significant reduction in discretionary expenditures. When dissidents do not win seats, no attempt to reduce agency costs is apparent, and as a result, these firms experience a sustained wealth loss over the years surrounding the contest. The steps taken to reduce agency costs primarily in firms in which dissidents win seats suggests that proxy contests fulfil their intended role of disciplining the board and improve firm performance.
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Sajeesh, Sajeesh, and Sang-Young Song. "Transaction Utility and Quality Choice." Review of Marketing Science 15, no. 1 (January 1, 2017): 1–17. http://dx.doi.org/10.1515/roms-2016-0030.
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AbstractThis paper uses a game-theoretic model to examine the role of reference price for firms that vary in their quality positioning in competing for customers. Reference prices provide consumers with additional components of utility. Building on previous research on the impact of consumer decision making on firm strategies, we focus on how firms choose their positioning when consumer utility is driven not only by acquisition utility but also by the transaction utility associated with the purchase and how this, in turn, affects firms’ pricing decisions and profits. Considering a competition between two firms, this paper shows that the firm with higher product quality provides greater discounts to consumers. We also show that when firms are allowed to set a high ‘regular’ price, product differentiation is greater between the firms, and price competition is less intense. Furthermore, under some conditions, the profits of both firms can be higher than the benchmark case (when the effects of transaction utility are ignored).
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Al-Dmour, Ahmed, Hala Zaidan, and Abdulrahman Alnatour. "The Usefulness of Analysts’ Target Prices to Foreign Institutional Investors: U.S. Evidence." Australasian Business, Accounting & Finance Journal 14, no. 5 (2020): 42–64. http://dx.doi.org/10.14453/aabfj.v14i5.4.
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This paper investigates whether foreign institutional investors in the United States earn future returns by responding to analysts target price revisions. to examine this issue, this study is using firm fixed effect and industry fixed effect regression in order to examine the effect of using analyst’s target price revisions on future abnormal return for foreign institutional investors. We used 51,427 firm-quarter observations between 2003 and 2013 in the U.S. equity market. Different robust approaches were used to proxy foreign institutional trading. We find a positive and significant increase in foreign institutional ownership in response to a positive change in analysts’ target prices, which predict positive stock returns. The results are robust to controlling for other analysts’ outputs, such as revisions to their earnings’ forecasts and stock recommendations, in addition to other determinants of institutional trading. These results are also robust using different measures of institutional trading. In addition, the results show that foreign institutional trading based on target prices’ revisions is more pronounced in firms with high information asymmetry. The results show that foreign institutional investors rely more on analysts in small firms and firms with low analyst coverage.
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Che, Hai, K. Sudhir, and P. B. Seetharaman. "Bounded Rationality in Pricing under State-Dependent Demand: Do Firms Look Ahead, and if So, How Far?" Journal of Marketing Research 44, no. 3 (August 2007): 434–49. http://dx.doi.org/10.1509/jmkr.44.3.434.
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The authors propose an empirical procedure to investigate the pricing behavior of manufacturers and retailers in the presence of state-dependent demand. Rather than assuming that firms are perfectly forward looking and therefore solving accordingly for dynamic equilibriums that would arise in the presence of state dependence, the authors systematically evaluate whether boundedly rational firms indeed look ahead when they set prices and, if so, to what extent. They illustrate the procedure using household-level scanner-panel data on breakfast cereals and replicate the substantive results using data on ketchup. The authors find that (1) omission of state dependence in demand biases inference of firm behavior (i.e., tacit collusion is erroneously inferred when firms are competitive); (2) observed retail prices are consistent with a pricing model in which both manufacturers and retailers are forward looking (i.e., they incorporate the effects of their current prices on their future profits), but firms have short time horizons when setting prices (i.e., they look ahead by only one period, suggesting that firms are boundedly rational in their dynamic pricing behavior); and (3) even a myopic pricing model of firms that accounts for state dependence in demand is a reasonable approximation of the observed prices in the market.