Research on performance aspirations has tended to assume that historical and social aspirations work in parallel and influence strategic behavior in a similar manner. We posit that these two distinct ...modes of performance comparison in fact lead to dissimilar firm behavior. We also explore how variability in prior acquisition performance influences the relationship between aspiration levels and subsequent strategic behavior. We examine our questions in the context of mergers and acquisitions within the U.S. commercial banking industry from 1988 to 2005. Consistent with our opening prediction, we find that firms' acquisition behavior varies significantly depending on whether historical or social comparisons are used. We also find that high variability in the previous acquisition performance of a firm intensifies the relationship between acquisition performance relative to aspirations and the probability of the firm making acquisitions below historical and social aspirations, but attenuates the relationship above such aspirations.
Short Sellers and Financial Misconduct KARPOFF, JONATHAN M.; LOU, XIAOXIA
The Journal of finance (New York),
October 2010, Letnik:
65, Številka:
5
Journal Article
Recenzirano
We examine whether short sellers detect firms that misrepresent their financial statements, and whether their trading conveys external costs or benefits to other investors. Abnormal short interest ...increases steadily in the 19 months before the misrepresentation is publicly revealed, particularly when the misconduct is severe. Short selling is associated with a faster time-to-discovery, and it dampens the share price inflation that occurs when firms misstate their earnings. These results indicate that short sellers anticipate the eventual discovery and severity of financial misconduct. They also convey external benefits, helping to uncover misconduct and keeping prices closer to fundamental values.
We use proprietary data from a major investment bank to investigate factors associated with analysts' annual compensation. We find compensation to be positively related to "All-Star" recognition, ...investment-banking contributions, the size of analysts' portfolios, and whether an analyst is identified as a top stock picker by the Wall Street Journal. We find no evidence that compensation is related to earnings forecast accuracy. But consistent with prior studies, we find analyst turnover to be related to forecast accuracy, suggesting that analyst forecasting incentives are primarily termination based. Additional analyses indicate that "All-Star" recognition proxies for buy-side client votes on analyst research quality used to allocate commissions across banks and analysts. Taken as a whole, our evidence is consistent with analyst compensation being designed to reward actions that increase brokerage and investment-banking revenues. To assess the generality of our findings, we test the same relations using compensation data from a second high-status bank and obtain similar results.
We investigate the effect of studying abroad on international labour market mobility later in life for university graduates. We exploit the introduction and expansion of the European ERASMUS student ...exchange programme as an instrument for studying abroad. We find that studying abroad increases an individual's probability of working in a foreign country by about 15 percentage points. We investigate heterogeneity in returns according to parental education and the student's financial situation. Furthermore, we suggest mechanisms through which the effect of studying abroad may operate.
This paper presents an empirical analysis of major drivers of land use change in China from 1988 to 2005. We compile a geographic information system database and develop a new method to estimate an ...econometric land use model that explicitly takes into account the spatial interactions between land use decisions. Results indicate that increasing urban land value was a major driver of farmland development, while rising rural income was a primary driver of conversion of farmland to forests and grassland. The growth of urban income and road density reduces grassland conversion but increases deforestation.
Hospitals operate in markets with varied demographic, competitive, and ownership characteristics, yet research on ownership tends to examine hospitals in isolation. Here we examine three hospital ...ownership types – nonprofit, for-profit, and government – and their spillover effects. We estimate the effects of for-profit market share in two ways, on the provision of medical services and on operating margins at the three types of hospitals. We find that nonprofit hospitals’ medical service provision systematically varies by market mix. We find no significant effect of market mix on the operating margins of nonprofit hospitals, but find that for-profit hospitals have higher margins in markets with more for-profits. These results fit best with theories in which hospitals maximize their own output.
This article analyzes the contribution of high-growth firms (HGFs) to the process of knowledge creation. We articulate a demand-pull innovation framework in which knowledge creation is driven by ...sales growth, and knowledge stems from creative recombination. Building on the literature on HGFs and economic growth, we investigate whether "gazelles" follow patterns of knowledge creation dominated by exploration or exploitation strategies. We construct indicators for the structure of knowledge and identify firms' innovation strategies. The empirical results show that increasing growth rates are associated with exploration, supporting the idea that HGFs are key actors in the creation of new technological knowledge, and showing also that firms that achieve higher than average growth focus on exploration based on familiar technology. This suggests that exploration is less random than has been suggested. Our main result is that HGFs, especially gazelles, predominantly adopt exploration strategies that have the characteristics of organized search more often observed among firms following an exploitation strategy.
We empirically analyse the determinants of Initial Public Offering (IPO) underpricing using panel data for 24 countries over the period 1988-2005. Our hypotheses stress the importance of ...institutional and legal factors in explaining cross-country variations. We find evidence that underpricing is higher in countries with stronger protection of outside investors, suggesting that incumbent managers try to use underpricing as a tool to safeguard their private benefits of control when going public. Moreover, the results show that underpricing is reduced when stronger law enforcement and the availability of accounting information reduce the value of private benefits of control.
Prior efforts to specify and then empirically estimate structural models of the outcomes of tort lawsuits involve only two parties—plaintiff and defendant. We incorporate the defendant's insurer and ...its "duty to settle" into a three-party settlement model. In medical malpractice cases, there is both anecdotal and quantitative evidence that policy limits and the insurer's duty to settle are central parts of settlement bargaining. We estimate the model using a Texas database of closed, paid medical malpractice claims. Both the data and our model predict a mass of cases with a settlement offer by the plaintiff exactly at limits; a smaller but still sizeable mass of cases with payout exactly at limits (both in pre-trial settlements and after trial), and substantial haircuts (payout < damages) in tried cases with damages > limits. In counterfactual analysis, we predict that, as dutyto-settle liability becomes stricter, there will be: more at-limits offers, fewer trials, fewer at-limits payments in tried cases, more insurer payments above limits, and smaller haircuts.
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