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Faculty & Research

Research Colloquium 2013-2014

Join us for the final Distinguished Speaker Series event of the academic year on Wednesday, April 30, 2014 featuring Bernie Clark, Executive Vice President, Advisor Services at Charles Schwab & Co., Inc. This is truly an event that can't be missed! For more information and to reserve your seat today, please visit the DSS event page.

Research Colloquia

 

The Sharing of New Ideas


The Paul Merage School of Business - Research ColloquiaThe Research Colloquium provides a forum for interaction among faculty, students, and visitors interested in the applications of business and management. The colloquium includes presentations by faculty from UC Irvine and other universities, as well as research institutes.

Colloquia Events are open to the public unless otherwise noted; please see event description for more details.

 

Past Colloquia

2012-2013 Research Colloquia Events

2011-2012 Research Colloquia Events

2010-2011 Research Colloquia Events

2009-2010 Research Colloquia Events

 

 

April 18, 2014

Mark Grinblatt, UCLA 

More details later.

  

April 11, 2014

Diego Garcia, UNC

More details later.

 

(Host: Chong Huang)

Friday, April 18, 2014

 

Analysts' Forecast Bias and the Overpricing of High Credit Risk Stocks

 

SPEAKER: Mark Grinblatt

UNIVERSITY: University of California, Los Angeles

TIME: 2:00 pm-3:00 pm

 

ABSTRACT: 

This paper investigates whether financial analysts’ power to move prices arises form investors’ tendency to blindly follow analyst earnings estimates. Analyst forecasts are often overly optimistic. This optimism is predictable and many generate temporarily inflated stock prices. In addition, for high credit risk stocks, the quintile predicted to have the most optimistic forecasts outperforms the quintile with the least optimistic forecasts by about 19% per year. Certain types of firms attract significantly more analyst optimism than others—namely those with poor credit quality. For these firms, the prices distortions caused by analyst optimism are so large and frequent that they account for the negative credit risk-return relation observed in the cross section of the U.S. stocks.

 

 

(Host: Professor Terry Shevlin)

Friday, April 25, 2014

 

Who Benefits from Fair Value Accounting? An Equilibrium Analysis with Strategic Complementarities

 

SPEAKER: Chandra Kanodia

UNIVERSITY: University of Minnesota

TIME: 3:00 pm-4:30 pm

 

ABSTRACT:

The move to fair value accounting is arguably the most radical shift in accounting standards during the past decade. Under fair value accounting a firm’s assets and liabilities are marked to market at each reporting date rather than maintained at their original acquisition cost (less some mechanical adjustment for depreciation). The gains and losses arising from such revaluations are reported as part of a firm’s comprehensive income1. There is widespread support among regulators and academics for fair value accounting. The only concerns that have been expressed are those stemming from the difficulty of determining fair market values in settings where markets are thin or missing. There isn’t much skepticism, which is surprising because not enough is known about important questions such as: What are the equilibrium economic consequences of fair value accounting? Who benefits and why?

 

 

 (Host: Professor Libby Weber)

Wednesday, April 16, 2014

 

Towards a Stakeholder Theory of Strategic management

 

SPEAKER: Joseph Mahoney

UNIVERSITY: University of Illinois at Urbana-Champaign 

TIME: 3:00p.m. - 4:30p.m.

 

ABSTRACT:

This paper suggests that due to the changing nature of the firm, viewing shareholders as the sole residual claimants is an increasingly tenuous description of the actual relationships among a corporation's various stakeholders. Examining the corporation from a (team production) property rights perspective of incomplete contracting and implicit contracting provides a foundation for the revitalization of a stakeholder theory of the firm in the strategic managment discipline. 

 

(Host: Rick So)

Wednesday, April 30, 2014

 

Optimal Demonstrations for an Innovative Product

 

SPEAKER: Haresh Gurnani

UNIVERSITY: University of Miami

TIME: 1:30 pm-3:30 pm

 

 

ABSTRACT:

We develop a game theoretic model of price competition in which an innovating firm can offer product demonstrations. Placing minimal restriction on the firm’s ability to design demonstrations, we show that the equilibrium demonstration resolves some but not all customer valuation uncertainty and allows the innovating firm to attract customers while maintaining a high price. Consumer surplus may be lower with endogenous demonstrations that without demonstrations. Regulation requiring firms to provide fully-informative demonstrations (e.g., generous return policies or inspection periods) can further reduce consumer surplus. The ability to design demonstrations also creates incentives for innovating firms to limit the market appeal of their products, suggesting another mechanism through which product demonstrations can reduce market efficiency. The results have implications form firm management and pricing strategies and for consumer protection.  

 

(Host: Chong Huang)

Friday, April 11, 2014


The Kinks of Financial Journalism 

 

SPEAKER: Diego Garcia 

UNIVERSITY: The University of North Carolina at Chapel Hill Kenan-Flagler Business School

TIME: 2:00p.m. - 3:00p.m.

 

ABSTRACT: 

This paper studies the content of financial news as a function of past market research. As a proxy for media content we use positive and negative word counts from general financial news columns from the Wall Steet Journal and the New York Times. Our empirical analysis allows us to discriminate between theories that predict hyping good stock performances to those that emphasize negative news. The evidence is conclusive: negative market returns taint the ink of typewriters, while positive returns barely do. 

 

 

 

(Host: Professor Jacobson)

April 8, 2014


Funding Soft Liabilities 

 

SPEAKER: Joshua Rauh

UNIVERSITY: Stanford Graduate School of Business

TIME: 3:30pm- 5:00pm

 

ABSTRACT:

Many state and local governments provide some deferred compensation to public employees in the form of benefit promises that may not be paid in full. A primary example is retiree health insurance, although recent municipal bankruptcies have also raised the possibility that cities might cut pension payments as well. We analyze optimal funding strategy for defaultable liabilities in a model in which risk-averse workers who otherwise lack market exposure demand wage premiums to compensate for the possibility of benefit default. More aggressive pre-funding reduces the option value of default but also can reduce the wage premium that must be paid to workers. Calibrating broadly to the state of California’s budget and provision of retiree health insurance, the model delivers an optimal funding strategy of pre-funding over 15-20 years.

 

 

(Host: Terry Shevlin)

April 11, 2014

 

Linguistic Complexity in Firm Disclosures: Obfuscation or Information? 

 

SPEAKER: Brian Bushee

UNIVERSITY: University of Pennsylvania Wharton School of Business 

TIME: 3:00 - 4:30 p.m. 

 

ABSTRACT:

Prior research argues that the linguistic complexity of a firm’s disclosures reflects managerial obfuscation. However, complex language can be used either to obfuscate or to convey information, with the effect likely depending on the incentives of the source. We measure the overall linguistic complexity of quarterly earnings conference calls, and decompose it into the portion driven by managers and the portion driven by analysts. Consistent with complex language reflecting obfuscation, we find that manager-driven complexity is associated with lower earnings response coefficients and greater information asymmetry. However, consistent with the possibility that complex language can also reflect information, we find that analyst- driven complexity is associated with higher earnings response coefficients and lower information asymmetry.

 


 (Host: Terry Shevlin)

April 4, 2014

 

How the Discovery of Accruals-Based vs. Real Earnings Management Affects Investment Decisions: The Importance of Trust

 

SPEAKER: Max Hewitt

UNIVERSITY: Indiana University, Kelley School of Business

TIME: 3:00 - 4:30pm

 

ABSTRACT:

Given the information asymmetry that exists between a firm’s managers and its stakeholders, investing in the firm involves trust. The discovery of earnings management likely impairs that trust. The literature, however, has yet to examine how trust impairments stemming from the discovery of the method used to manage earnings (accruals-based vs. real) affect investment decisions. We fill this void by conducting an experiment that examines the role of trust in explaining the interaction effect of the method used to manage earnings and managers’ motive for managing earnings on investors’ assessments of the firm’s future performance, risk, and willingness to invest in the firm. Consistent with our trust-based predictions, when managers acted in investors’ interests, we find that investors view the firm more negatively when managers are discovered to have used accruals-based – as opposed to real – earnings management. In additional analyses, we provide further support for our trust-based explanation and distinguish our findings from an explanation based on investors’ assessments of the firm’s future cash flows. Overall, our study highlights how managers’ ‘cash flow neutral’ accounting choices (e.g., capitalizing vs. expensing R&D costs) to achieve an earnings benchmark can detrimentally affect investors’ willingness to invest in a firm.

 


 (Host: Sreya Kolay)

April 1, 2014

 

Timing of Product Allocation: Using Probabilistic Selling to Enhance Inventory Management

 

SPEAKER: Dr. Jinhong Xie

UNIVERSITY: University of Florida

TIME: 10:00 am-11:30 am

 

ABSTRACT:

This paper examines probabilistic selling (PS) as an inventory management mechanism, paying special attention to the impact of the timing of product assignment to buyers of probabilistic goods. In practice, sellers tend to offer probabilistic products only after major demand uncertainty has been resolved. By deferring product assignments, a firm is able to obtain more information about demand for each specific product before deciding which product to assign to consumers. However, our analysis demonstrates that PS can be an effective inventory management mechanism even if the firm allocates products before knowing which product will be more popular, and thus scarcer. Interestingly, we show that it can be more profitable for the firm to allocate products to consumers before, rather than after, learning the true demand for a product because, although early allocation imposes higher inventory costs (due to larger required inventory levels), it also enables the firm to charge higher prices. Our results also reveal that, when introducing probabilistic goods, the firm should order less inventory (relative to the case where probabilistic goods are not offered) if costs are very low, but more inventory otherwise. Finally, we show that PS, as an inventory-management mechanism, can create a win-win situation, both improving profit and increasing social welfare.
 

(Host: Margarethe Wiersema)

March 19, 2014

 

The Hazards of Inverted Market Constraints

 

SPEAKER: David Souer

UNIVERSITY: University of Connecticut

TIME: 2:00pm-3:30pm

 

ABSTRACT:

This paper addresses agency conflict when a boundary condition of agency theory, adversarial market pricing, fails to hold. In such times of inverted market constraints, firm managers seemingly have a temporary opportunity to exploit the lack of normal discipline from the price mechanism. We aregue that in rushing to exploit this temporary opportunity, managers often overlook the firm's own lack of supporting infrastructure to use this advantage properly, ironically hastening the firm's demise instead of prolonging its success. Empirical support for the counterintuitive proposition that worse performance results from a supposedly advantageous position can be seen in data from IPOs of internet-related companies before and during the 1999-2000 'bubble,' a period when 'dot-com' firms had unusually strong access to capital because of inverted market constraints. 

 


(Host: Margarethe Wiersema)

March 14, 2014

 

Exploitation, Exploration, and Analysts: Are Firms Rewarded for Ambidexterity

 

SPEAKER: Mary Benner, Associate Professor 

UNIVERSITY: University of Minnesota, Carlson School of Management

TIME: 2:00pm - 3:30pm

 

ABSTRACT:

Despite the explosion in research on exploitation, exploration, and ambidexterity, prior research has been relatively silent on whether organizations are encouraged or discouraged by important stakeholders as they pursue these complementary but contrasting activities. We study whether securities analysts reward or penalize firms through changes in their recommendations as firms pursue exploitation, exploration, and ambidexterity. Further, we study how investor audience expectations, i.e. the extent to which firms are viewed as growth versus income stocks, influence analysts’ evaluations. Finally, we study how heterogeneity in the institutional logics firms face from their investor audiences, indicated by the range of a firm’s investors and their associated expectations for appropriate firm actions, further influences analysts’ evaluations as firms pursue both exploitation and exploration. We find that analysts’ reactions toward exploration and exploitation do depend on a firm‟s stock market identity as a “growth” or “income” stock and that securities analysts are generally positive toward firms’ efforts to balance exploitation and exploration, but are consistently more positive toward exploration and ambidexterity for firms viewed as growth stocks. We also find, in contrast to our predictions drawn from recent work in institutional theory, that the more heterogeneous the institutional logics represented in a firm’s investor audience, the more negative the evaluations toward ambidexterity. Our findings underscore the pressures from external stakeholders that challenge firms’ efforts in achieving a balance between exploitation and exploration that go beyond the substantial internal challenges of ambidexterity described in prior research.


(Host: Mingdi Xin)

March 14, 2014


Cloud Implications Software Network Structure and Security Risks

 

SPEAKER: Dr. Marius Florin Niculescu

UNIVERSITY: Georgia Tech, Ernest Scheller Jr. College of Business

TIME: 10:30 am- 12:00 pm

 

ABSTRACT:

By software vendors offering, via the cloud, software as a service (SaaS) versions of traditionally on-premises application software, security risks associated with usage become more diversified which can greatly increase the value associated with the software. In an environment where negative security externalities are present and users make complex consumption and patching decisions, we construct a model that clarifies whether and how SaaS versions should be offered by vendors. We find that the existence of version-specific security externalities is sufficient to warrant a versioned outcome, which has been shown to be suboptimal in the absence of security risks. In high security-loss environments, we find that SaaS should be geared to the middle tier of the consumer market if patching costs and the quality of the SaaS offering are high, and geared to the lower tier otherwise. In the former case, it is a noteworthy result that strategic interactions between the vendor and consumers can lead a lower inherent quality product to actually be preferred by a higher tier customer segment when security risk associated with each version is endogenously determined by consumption choices. Relative to on-premises benchmarks, we find that software diversification indeed leads to lower average security losses for users when patching costs are high. However, when patching costs are low, surprisingly, average security losses can actually increase as a result of SaaS offerings and lead to lower consumer surplus. We also investigate the vendor’s security investment decision and establish that the vendor tends to increase investments in an on-premises version and decrease investments in a SaaS version as the market becomes riskier. In low security-loss environments, we find that SaaS is optimally targeted to a lower tier of the consumer market, average security losses decrease, and consumer surplus increases as a result. Security investments increase for both software versions as risk increases in these environments.


(Host: Jone Pearce)

March 10, 2014


Equilibria and a Moral Code

 

SPEAKER: Keith Murnighan

UNIVERSITY: Northwestern University,Kellogg School of Management

TIME: 3:00 - 4:30 pm

 

ABSTRACT:

In this talk I will summarize some recent and some older research on the moral choices that people make. I will use the findings to address the question of the existence of a moral code, i.e., the roots of an individual's value system that push them to consistently and consciously choose to do the right thing. I will also use the findings to create an equilibrium model of human moral action.

 


 (Host: Margarethe Wiersema)

March 10, 2014


Organizational Constraints to Adaptation: Intra-Firm Asymmetry in the Locus of Coordination

 

SPEAKER: Brian Wu

UNIVERSITY: University of Michigan, Ross School of Business

TIME: 2:00 - 3:30 pm

 

ABSTRACT:

We assemble a panel dataset of firms in the U.S. defense industry between 1996 and 2006 to examine the drivers of heterogeneous incumbent firm adaptation following the industry-wide demand shock of September 11, 2001. This shock entailed not only an increase in aggregate demand, but also a shift in the relative attractiveness of individual product areas, resulting in the need for firms to reshuffle their product portfolios in response to changing demand conditions. The exogenous nature of the shock allows us to empirically isolate the effect of pre-shock interdependence structures on post-shock adaptation outcomes. We find that the locus of coordination within an organization can explain differential post-shock adaptation performance, with inter-product coordination (product bundling) creating greater adaptation challenges as compared to intra-product coordination (product customization). These differences arise because interdependencies that cross modular boundaries are more difficult to manage than those contained within such boundaries. We investigate the moderating effects of product complementary and organizational grouping, finding results consistent with our hypothesized mechanisms. This paper is one of the first large-sample empirical studies to identify the impact of within-firm interdependence on adaptation in the context of a demand shock; in so doing it underscores the importance of looking beyond the firm’s aggregate level of interdependence, toward the firm’s particular locus of coordination.

 

 


(Host: Chong Huang)

March 7, 2014


High Frequency Quoting: Short-Term Volatility in Bids and Offers

 

SPEAKER: Joel Hasbrouck, Kenneth G. Langone Professor of Business Administration and Professor of Finance

UNIVERSITY: New York University

TIME: 2:00 pm - 3:00 pm

 

ABSTRACT: High-frequency changes, reversals, and oscillations induce volatility in a market’s bid and offer quotes. This volatility degrades the informational content of the quotes, exacerbates execution price risk for marketable orders, and impairs the reliability of the quotes as reference marks for the pricing of dark trades. This paper examines variance on time scales as short as fifty milliseconds for the National Best Bid and Offer (NBBO) in the US equity market. On average, in a 2011 sample, NBBO variance at the fifty millisecond time scale is approximately four times larger than can be attributed to long-term fundamental price variance. The historical picture over 2001-2011 is complex. The average volatility has not increased between 2001 and 2011, but its nature has changed. In the earlier years quote volatility is due to large spikes in bids and offers; in later years, to oscillations of low amplitude. The highest quote volatilities arise during the 2004-2006 period corresponding to the phase-in of Reg NMS and the transition to electronic trading.

 


(Host: Luyi Gui)

March 6, 2014


Process Flexibility: Performance Guarantee of Sparse Flexibility Structures

 

SPEAKER: Jiawei Zhang

UNIVERSITY: New York University

TIME: 11:30 am- 1:30 pm

 

ABSTRACT: 

Process flexibility has been widely applied in many industries as a competitive strategy to improve responsiveness to demand uncertainty. An important flexibility concept is the long chain proposed by Jordan and Graves. The effectiveness of the long chain has been investigated via empirical as well as theoretical analysis for specific probability distributions of the random demand.

 

In the first part of the talk, we present a closed-form distribution-free bound on the ratio of the expected sale of the long chain relative to that of full flexibility. Our bound depends only on the mean and standard deviation of the random demand, but compares very well with the bound that uses complete information of the demand distribution. This suggests the robustness of the performance of the long chain under different distributions.

 In the second part of the talk, we focus on the design of sparse flexible process structures that can achieve any given performance guarantee (relative to full flexibility). We introduce a new concept called probabilistic graph expanders. Compared to other designs such as the k-chain or (normal) expanders, our probabilistic expanders achieve (almost) the same performance guarantee, but require much less production flexibility.
 


(Host: Libby Weber)

March 5, 2014

Third Parties and Contract Design: The Case of Contracts for Technology Transfer

 

SPEAKER: Fabrice Lumineau

UNIVERSITY: Purdue University

TIME: 1:30 pm - 3:00pm

 

ABSTRACT: 

ABSTRACT IS AVAILABLE UPON REQUEST.

 


(Host: Margarethe Wiersema)

March 4, 2014

The Quest for Expansive Intellectual Property Rights and the Failure to Disclose Known Relevant Prior Art

 

SPEAKER: Kevin Steensma

UNIVERSITY: University of Washington Business School

TIME: 2:00pm - 3:30pm

 

ABSTRACT: 
Expansive patent portfolios may be used by firms to fence off technological space for commercialization, impede the commercialization efforts of competitors, and enhance bargaining power in cross-licensing negotiations. Low quality patents with claims that overlap those of other patents contribute to these portfolios and patent strategies. By failing to disclose known relevant prior art during the patenting process, inventors and their firms may be granted low quality patents with intellectual property claims which would not otherwise have been granted. We find that the failure of inventors to disclose known relevant prior art increases as they gain experience with the patenting process. Such failure is also greater among inventors employed by relatively small, poorly performing firms that rely on outsourced legal counsel during the application process.  

 

 


(Host: Shuya Yin)

March 3, 2014

 

Dynamic Coalitional Stability in Supply Chain Games

 

SPEAKER: Mahesh Nagarajan

UNIVERSITY: University of British Columbia, Sauder School of Business

TIME: 10:30am - 11:30am

 

ABSTRACT:

Coalition formation and stability is a topic of interest to game theorists, applied mathematicians, economists and recently operations management researchers. Traditional analysis looked at two issues: first, characterizing stable or equilibrium outcomes for a specific game and second calculating allocation rules that resulted in a specified form of coalitional stability. Unfortunately, both paradigms as used in the operations management literature have some failings. The first one strongly depends on specific allocations rules that are used and the second one is afflicted with myopia. We first present complexity results on coalitional stability in supply chain games. Next we show an “invariance principle” that goes towards addressing the above issue. In particular, we characterize sufficient conditions under which when the number of players is large, farsighted stable coalition structures for a significant class of games remain invariant to the specific allocation rules used to divide profit within coalitions. We explore the associated class of games and allocation rules and discuss the implication to supply chain settings. Finally, we present a result in the spirit of Nash’s program. We present a non-cooperative random graph-theoretic model whose Sub-game perfect Nash equilibrium corresponds to the cooperative game theoretic predictions.

 


(Host: Terry Shevlin)

February 28, 2014

 

Professional Knowledge-Building Institutions and the Historical Emergence of Accounting Norms

 

SPEAKER: Greg Waymire

UNIVERSITY: Goizueta Business School, Emory University

TIME: 3:00 pm - 4:30pm

  

ABSTRACT:

Accounting norms preceded U.S. Generally Accepted Accounting Principles (GAAP), but little is known about how and why these norms emerged. We hypothesize that private-sector institutions aimed at building an accounting knowledge base fostered accounting norms before formal standard-setters were appointed in the 1930s. We identify specific U.S. institutions that helped shape a consensus on consolidated financial statements and other accounting issues. We use ‘history-friendly’ agent-based models to simulate how increased professional communication and institutional memory helped the emergence of norms. We find that widespread sharing of individual experiences stimulates professional convergence on more effective solutions as suggested by Canning (1929). While our focus is historical, most of the institutions we investigate continue to operate today. Our analysis suggests that powerful evolutionary forces likely shape modern accounting practice long before standard setters issue rules on any given problem.


 

(Host: John Turner)

February 28, 2014

 

Operations & Decision Technologies Colloquium

 

SPEAKER: Michael Trick, Senior Associate Dean

UNIVERSITY: Carnegie Mellon University, Tepper School of Business

TIME: 9:30-11:00 a.m.

 

ABSTRACT:

Improved algorithms and faster computers have greatly increased the applicability of optimization approaches to practical problems.  Drawing on my experiences in sports scheduling (including providing the schedules for Major League Baseball for the past seven years), supply chain design, and machine scheduling; I'll discuss some of the key trends in operations research and show how they affect problem solving in the real world.  I'll also talk about some of the key challenges for the field: scalability, uncertainty, and robustness as they relate to my own experiences.
 


(Host: Chong Huang)

February 28, 2014

Out-Of-The-Money CEOs: Private Control Premium and Option Exercises

 

SPEAKER: Wei Jiang

UNIVERSITY: Columbia University

TIME: 2:00 pm - 3:00pm

 

ABSTRACT: 

This study infers CEOs’ (and insiders’) private benefits of control from their option exercise behavior. We document two salient patterns: First, the presence of a proxy contest triples the probability that an insider exercises call options out-of-the money, a strategy deemed unambiguously irrational under the conventional models without control premium. Second, CEOs are significantly less (slightly more) likely to exercise options in order to sell (hold) the resulting shares when a proxy contest is looming.   Both cases are consistent with the hypothesis that CEOs’ valuation of their stocks exceeds that of the market price by the amount of their private control premium.  When such benefits of control are at risk, combined with restrictions on trading in stocks by insiders, CEOs distort their option exercises in order to boost their actual or potential voting power. A conservative lower- bound estimate of the median private control premium amounts to 13% of the stock value. We further show that the control motive in option exercise is distinct from other motives documented in the literature, including diversification, inside information about future stock prices, and behavioral factors such as overconfidence.
 


(Host: Margarethe Wiersema)

February 21, 2014

 

Strategy Colloquium

 

SPEAKER: Professor Violina Rindova, Ralph B. Thomas Professor in Business in the Department of Management

UNIVERSITY: The University of Texas at Austin, McCombs School of Business

TIME: 2:45-4:15 p.m.

 

ABSTRACT:

To understand how organizations combine conflicting logics strategically and enhance their capacity for novel actions, we conducted an in-depth longitudinal study of the multiple efforts of an Italian manufacturer of household goods – Alessi – to combine the logics of industrial manufacturing and cultural production. Over three decades, Alessi developed multiple strategies to combine principles of the two logics; each strategy guided different changes in its habitual practices, and the envisioning and pursuit of a different type of market opportunity. Based on our observations, we theorize a) the mechanisms through which organizations develop different recombinant strategies; and b) the mechanisms through which different recombinant strategies affect the capacities of organizations for novel actions. These findings extend current understanding of how organizations strategically manage institutional pluralism by unpacking the processes and mechanisms that link combining multiple logics with practice change and market opportunities.

 


(Host: Terry Shevlin)

February 14, 2014

 

Operations & Decision Technologies Colloquium

 

SPEAKER: Pervin Shroff

UNIVERSITY: University of Minnesota, Carlson School of Management

TIME: 3:00-4:30 pm

 

ABSTRACT:

We examine whether fair value accounting applied to goodwill impairment leads to unintended negative consequences. Under the fair-value-based goodwill impairment test, a firm’s market value is often used as an important reference point for determining the existence of impairment. A below-one market-to-book ratio generally used by external auditors and security lawyers is a reasonable indicator of impairment; however, it could be misleading when prices deviate from fundamentals. In fact, strict reliance on this indicator can result in firms being pressured into recording goodwill impairment upon a temporary market value decline which may be unsubstantiated by economic fundamentals. From a sample of goodwill impairments recorded during the period 2002-2009, we identify about a sixth of the sample firms which report impairment charges that are most likely market-driven and not backed by fundamentals. This number triples during the financial crisis when price deviations from fundamentals are likely more prevalent. Validating our identification of market-driven impairments, we find that the impairment loss of these firms is associated with a return reversal in the subsequent year. It appears from our results that investors do not differentiate between market-driven and other impairments and react equally negatively upon the initial announcement of the loss. This results in a further price decline for firms with marketdriven impairments analogous to the downward price spiral observed during the crisis. In addition, we find that, until the return reversal occurs, firms with market-driven impairment experience an increase in information asymmetry associated with the impairment loss. Finally, our results suggest that these firms "time" share repurchases to benefit from the delay in the market's reversal of the temporary undervaluation. Overall, our findings shed light on the potential negative consequences of the imperfect implementation of fair value accounting.

 

 


(Host: Kaye Schoonhoven)
February 14, 2014

 

Blurred lines: Familial and entrepreneurial logics in a family technology venture

 

SPEAKER:         Professor Melissa Graebner
UNIVERSITY:     University of Texas- Austin
TIME:                  12:00pm~1:30pm
 
ABSTRACT
Separate logics inform the perceptions and behaviors of entrepreneurial ventures and family businesses. These logics are distinct and often in conflict. Prior work, however, has devoted limited attention to understanding family technology ventures (FTVs) – technology ventures combining both “familial” and “entrepreneurial” logics. Moreover, it is not clear how such firms manage the tension between competing logics, and perceptions associated with them, in order to acquire resources. In an inductive, single-case study of a family technology-focused venture, we examine the strategies family executives use to cope with opposing logics and to influence the perceptions of resource providers, including employees, investors and customers.

Melissa Graebner, Associate Professor of Management and Associate Director at the Herb Kelleher Center for Entrepreneurship She holds both MBA and Ph.D. degrees from Stanford University. Her research interests include corporate governance, entrepreneurship, mergers and acquisitions and strategic decision making.
 


(Host: Mingdi Xin)
February 5, 2014

 

Identity and Opinion: A Randomized Experiment

 

SPEAKER: Sean J. Taylor

UNIVERSITY: New York University, Leonard N. Stern School of Business

TIME: 10:30 a.m.-12:00 p.m.

 

ABSTRACT:

Identity and content are inextricably linked in social media. Content items are almost always displayed alongside the identity of the user who shares them. This social context enables social advertising but thwarts marketers’ efforts to separate causal engagement effects of content from the identity of the user who shares it. To identify the role of identity in driving engagement, we conducted a large-scale randomized experiment on a social news website. For any comment on the site, 5% of random viewers could not see the commenter’s identity, allowing us to measure how users interact with anonymous content. We conducted the experiment over two years, facilitating within-commenter measurements that characterize heterogeneity in identity effects. Our results establish three conclusions. First, identity cues affect rating behavior and discourse, and these effects depend on the specific identity of the content producer. Identity cues improve some users’ con- tent ratings and responses, while reducing ratings and replies for others. Second, both selective turnout and opinion change drive the results, meaning identity cues actually change people’s opinions. Third, we find an association between users’ past scores and identity effects, implying that users bias ratings toward past identity-rating associations. The work improves our understanding of the persuasive impact of identity and helps marketers create more effective social advertising.

 


(Host: Terry Shevlin)

January 17, 2014

 

The Economic Consequences of Public Pension Accounting Rules

 

SPEAKER: Joesph Weber

UNIVERSITY: MIT Sloan School of Management

TIME: 3:00-4:30 p.m.

 

ABSTRACT:

We provide evidence that the accounting rules prescribed by the Governmental Accounting Standards Board (GASB) and the choices states make when implementing these rules allow states to understate pension deficits, especially during times of fiscal stress, and that an unintended consequence of these understatements is higher future labor costs. Importantly, we find that the positive association between pension deficit understatement and future labor costs is attributable to the inherent methodology in the GASB rules, which systematically understate the pension deficits, and not to the opportunistic reporting by state governments. Therefore, it is not only the case that the current GASB regime poses distributional fairness issues (by not requiring sufficient pension contributions), but also that it is leading to policy choices (such as increased labor expenditures) that have the potential to exacerbate future fiscal problems.

 


(Host: Terry Shevlin)

January 31, 2014

 

What are the benefits of audited disclosures to equity market participants?

 

SPEAKER: Teri Lombardi Yohn

UNIVERSITY: Kelley School of Business, Indiana University

TIME: 3:00 pm-4:30 pm

 

ABSTRACT:

By exploiting a unique setting that allows a comparison of earnings announcements for a single company based on whether or not the audit was completed at the earnings announcement date, we document capital market benefits to audited versus unaudited information in the earnings announcement. We utilize the Public Company Accounting Oversight Board’s issuance of Auditing Standard No. 2 and Auditing Standard No. 3 (AS2/3) as an exogenous shock to the timing of audit completion in relation to the earnings announcement. We examine a sample of treatment companies whose audits were completed at the annual earnings announcement date from 2001 to 2003 and whose audits were incomplete at the annual earnings announcement date from 2004 to 2006. Using each company as its own control, we test for changes in the market reaction to the earnings announcements in the pre- and post-AS2/3 periods. To control for potential changes in company characteristics over time, we also compare these changes to the changes for the same company’s second quarter earnings announcements over the same period, which by regulation are unaudited in both time periods. We find that earnings announcements with a completed audit provide a greater reduction in information asymmetry, as captured by bid-ask spreads, relative to earnings announcements with an incomplete audit. We also find that the market perceives earnings announcements with a completed audit to be more value relevant as measured by the earnings response coefficient than earnings announcements with an incomplete audit. The results demonstrate the benefits of audited versus unaudited financial statements to equity investors. They also have implications for regulators as they demonstrate detrimental, and perhaps unintended, consequences that recent regulations requiring stricter auditing standards have had on equity market participants.

 


(Host: Terry Shevlin)

January 10, 2014

 

Auditor of Lobbying and Audit Quality

 

SPEAKER: Katherine Gunny

UNIVERSITY: University of Colorado, Leeds School of Business

TIME: 3:00 pm-4:30 pm

 

ABSTRACT:

 

Regulators and the public have expressed concerns about accounting firms lobbying politicians and regulators on behalf of their own audit clients because it could pose an advocacy threat to auditor independence. In this study, we examine whether these lobbying activities by accounting firms are associated with their clients’ audit quality. Since required disclosures of lobbying activities under the Lobbying Disclosure Act are very limited, we construct a proxy to capture auditor lobbying on behalf of audit clients. Using our proxy for lobbying, we find that perceived audit quality (measured using earnings response coefficients) is negatively related to lobbying. However, we fail to find that actual audit quality is lower for these clients (measured as the propensity to restate earnings, propensity to issue a going-concern opinion, and discretionary accruals). Our findings suggest that investors perceive auditors’ lobbying for clients’ political interests as harmful to audit quality but that these concerns do not appear to materialize in the financial statements. Similar to the literature on nonaudit services and the self-interest threat, our evidence suggests that reputation concerns and litigation risk provide enough incentive for auditors to maintain their independence in the presence of an advocacy threat to auditor independence.

 


(Host: Alladi Venkatesh)

January 9, 2014

 

CRS Knowledge at the Interface Between Business and Society: Activists Engaging Publics and Corporations Through Social and Mobile Media

 

SPEAKER: Constance E. Kampf

UNIVERSITY: Aarhus University, Denmark

TIME: 11:00 -12:30pm

 

ABSTRACT: 

 

Basic assumptions about the nature of corporate-stakeholder relations for defining Corporate Social Responsibility (CSR) are coming into question with recent work, such as Ramaswamy’s (2008) call for de-centering the firm and democratizing the focus for defining and creating value, Strand & Freeman’s (2012) paper investigating the Scandinavian origins of stakeholder models demonstrating stakeholder models from the 1960s that blurred boundaries between corporations and society, and Werhane’s (2011) analysis of dynamic and de-centered stakeholder models.This talk looks at assumptions inherent in key stakeholder models and uses the social media activism cases to further develop those models for understanding corporate stakeholder relations in a globalized context influenced by social media. Understanding and listening to activism offers corporations a means of assessing their alignment with surrounding social contexts, and reflecting on their understanding of stakeholder-corporate relations from a perspective based in public awareness and concern about the consequences of their CSR strategies.
 

(Host: Terry Shevlin)

December 13, 2013

 

Has the Profitability of Research and Development Expenditures Changed over Time?

SPEAKER: Sarah McVay
UNIVERSITY: University of Washington
Time: 3:00 - 4:30pm
 
ABSTRACT:
We examine how the profitability of research and development expenditures (R&D) has changed over time. We estimate that, for the Compustat population spending at least two percent of sales on R&D, the average dollar of R&D spent from 1980–1995 is associated with $2.99 of operating income over the subsequent five years, declining to $0.70 when examining R&D spent over 1996–2010. This decline is evident across multiple measures of future benefits, including capitalizing delisting returns to allow future earnings to reflect acquisition premiums, as well as future stock returns. Moreover, this result is not limited to small firms, but is observed in aggregate tests, suggesting a systematic decline in the benefits to R&D across all research intense publicly traded firms. Our results suggest that in recent periods, the creation of intangible assets through R&D expenditures is not present for the average firm, which would support the treatment of expensing R&D as incurred and question the presumed positive social welfare implications of R&D enticements such as tax credits.
 

(Host: Chris Bauman)

December 9, 2013

 

Optimistic About Optimism: The Belief that Optimism Improves Performance
 
SPEAKER: Don Moore
UNIVERSITY: UC Berkeley, Haas School of Business
TIME: 11:00am - 12:30pm
 

ABSTRACT:

 

A series of experiments investigated why people believe it is a good idea to be optimistic and whether they are right to do so. Specifically, we tested whether people believe that optimism improves performance. Participants prescribed optimism for someone implementing decisions but not for someone deliberating, indicating that people prescribe optimism selectively, when it can affect performance. Furthermore, participants believed optimism improved outcomes when a person’s actions had considerable, rather than little, influence over the outcome. A series of experiments tested the accuracy of this belief. We find that optimism did not improve performance as much as participants expected. In sum, people prescribe optimism when they believe it has the opportunity to improve the chance of success—unfortunately, people may be overly optimistic about how much optimism can do.

 


(Host: Terry Shevlin)

December 6, 2013

 

Public Disclosures and Information Asymmetries: A Theory of the Mosaic
 
SPEAKER: Edwige Cheynel
UNIVERSITY: Graduate School of Business, Columbia University
TIME: 3:00pm - 4:30pm
 

ABSTRACT:

 

We develop a model to investigate the impact of public disclosure on price efficiency and information asymmetry. Public disclosure policies can enhance the mosaic of information, allowing informed traders to improve the precision of their private information while simultaneously increasing the amount of information impounded in price. Managers who care about both share price and private benefits may optimally choose no disclosure, partial disclosure, or full disclosure. When managers can selectively disclose, they will selectively disclose whenever they choose no public disclosure, consistent with concerns that prompted Reg FD. However, if there is partial disclosure, the manager will not always selectively disclose. Finally, when managers have a duty to disclose negative news, overall disclosure may either increase or decrease. Mandating disclosure of one state may have the unintended consequence of enabling the manager to withhold information on other states.

 


(Host: Terry Shevlin)

November 22, 2013

 
Systematic distress risk: evidence from state-contingent failure prediction
  
SPEAKER: Maria Ogneva
UNIVERSITY: University of Southern California
TIME: 3:00pm - 4:30pm
  

ABSTRACT:

 

We develop a measure of firm-specific systematic distress risk using an empirical model of state-contingent probability of failure, where states correspond to economic recessions and expansions. We find a positive distress risk premium associated with this measure in the cross-section of stock returns. This result stands in stark contrast to the previously documented distress risk anomaly - a negative correlation between unconditional probability of failure and stock returns. A distress-risk mimicking port- folio that is long (short) in high (low) recessionary failure probability stocks can track aggregate incidence of failures and future macroeconomic conditions.

 


(Host: Terry Shevlin)

November 11, 2013
 
Asset Measurement, Real Effects and the Financial Accelerator
  
SPEAKER: Jeremy Bertomeu
UNIVERSITY: Baruch College
TIME: 3:00pm - 4:30pm
  
ABSTRACT: 
 
This paper examines two questions: When should we expect asset measurements to contribute to macroeconomic fluctuations? Should regulators adapt the measurement to financial shocks? We develop a model in which firms borrow funds subject to collateral constraints and implement an ex-ante asset measurement rule. In this environment, we characterize the nature of optimal measurement rules and analyze their interaction with interest rates and financial shocks. Under certain conditions, impairment accounting contributes to the financial accelerator, magnifying the effect of financial shocks on investment. A regulatory process that ignores the dependence of the interest rate on the measurement often selects the “wrong” measurement, with excessive reliance on impairment accounting and forced liquidations.
 

(Host: Terry Shevlin) 

November 1, 2013

 

Budgeting, Psychological Contracts, and Budgetary Slack

 

SPEAKER: Professor Mike Shields

UNIVERSITY: Michigan State University

TIME: 3:00pm - 4:30pm

WHERE: SB 112

 

ABSTRACT:

 

We study three types of budgeting (authoritarian, consultative, participative) that differ with respect to the influence that managers have on their approved budgets and the economic opportunities to build budgetary slack. We provide evidence that when organizations implicitly communicate that budgeting will be participative, it establishes psychological contracts in managers.  If managers subsequently experience budgeting that is inconsistent with their expectations,, then the managers’ psychological contracts are breached. This leads to feelings of violation and distrust, even when the terms of the managers’ economic contracts are fulfilled. We examine if managers whose psychological contracts are breached seek redress by building additional budgetary slack in their budget requests. Experimental results indicate that when managers expect participation in and influence on budgeting, authoritarian and consultative budgeting result in psychological contract breach to a greater extent than participative budgeting. In retaliation, managers build in higher budgetary slack when budgeting is authoritarian or consultative than when budgeting is participative. Furthermore, the effects of psychological contract breach on built-in budgetary slack persist in the future, even when budgeting is no longer authoritarian or consultative.

 


(Host: Mingdi Xin)

November 1, 2013

 

Multi-Platform Digital Strategy: Bundling of Substitutable and Differentiated Goods

 

SPEAKER: Hemant Bhargava

UNIVERSITY: University of California, Davis

TIME: 10:30 - 12:00pm

WHERE: SB 112

 

ABSTRACT:

 

The distribution and consumption of media, entertainment, software, and other information goods has transformed in recent years. Consumers demand access on multiple platforms, and content providers have responded with different strategies, ranging from independent pricing on each platform to a single price for access to all platforms. I frame the multi-platform design problem as a choice between pure bundling (one price gets both platforms), mixed bundling (price each platform separately, and offer discount for getting both) and partial bundling (one platform is sold separately and also bundled with the second). When one platform is considered superior by all customers, then multi-platform discounts help the firm if higher-value customers have greater propensity for multi-platform access; the choice of bundling strategy depends on certain ratios of valuations and contingent valuations for the two platforms. When consumer valuations for the traditional and emerging platforms are mutually independent, then a full mixed bundling is optimal when the demand profiles for the two platforms are relatively similar; otherwise, it is optimal to sell bundle access to the weaker platform into the price for the superior platform while also selling the weaker platform separately. When platforms behave more like substitutes, then such partial bundling is less likely to be optimal.

 


(Host: Luyi Gui)

October 29, 2013

 

Playing Favorites: Extended Producer Responsibility, Export Bans, and Recycling as a Secondary Market Strategy

 

SPEAKER: Atalay Atasu

UNIVERSITY: Geogia Institue of Technology

TIME: 10:00 - 11:30pm

WHERE: SB 117

 

ABSTRACT:

 

We use a stylized economic model to analyze the decisions of a durable good producer facing Extended Producer Responsibility (EPR) legislation. The producer can utilize used products or end-of-life products to satisfy its legislative obligations. We show that EPR amplifies a firm's incentives to interfere with secondary markets. In particular, when recycling standards are not stringent, EPR leads to the recycling of used products rather than end-of-life products. This implies that certain forms of EPR obligations for durable products may have adverse effects, such as shortened useful lives. Along similar lines, stringent collection targets, recycling standards or end-of-life collection infrastructure requirements may lead to increased production and secondary market interference. These results suggest that EPR legislation may result in very different economic and environmental consequences than intended. For example, by adopting a life-cycle environmental impact perspective, one can show that more stringent EPR obligations may generate worse environmental performance depending on the relative environmental impact that used products have in different periods of their usage. This observation also allows us to contribute to an ongoing global debate in the environmental policy context: whether or not to restrict e-waste exports to developing countries. With the prevalence of landfill bans and EPR mandates imposed on producers, an easier and cheaper way to deal with e-waste appears to be to export e-waste to developing countries. Unfortunately, however, the poor working conditions and non-stringent recycling standards in these countries lead to major environmental and health problems for the society. As a counter measure, following an environmentalist initiative, an international convention (Basel convention) restricts the export of such e-waste into developing countries. We show that export restrictions focusing only on end-of-life products can be even more harmful from an environmental perspective. In essence, a producer that has the option to export used products can use this opportunity to weaken the competitiveness of secondary markets and avoid the potentially high recycling costs in the developed country (due to more stringent recycling requirements) by simply exporting the used products to a developing country. More importantly, this opportunity allows the producer to interfere with the secondary market at a lower cost and results in even higher sales volumes of new products. This not only results in an increase in natural resource and energy consumption in the developed country, but also in higher volumes of used product exports into developing countries, which eventually end up reaching their end-of-lives and potentially cause an even bigger environmental problem there.

 


(Host: Chong Huang)

October 23, 2013

 

Playing Favorites: How Firms Prevent the Revelation of Bad News

 

SPEAKER: Dong Lou

UNIVERSITY: UC Irvine, The Paul Merage School of Business

TIME: 2:00 - 3:00pm

WHERE: SB 111

 

ABSTRACT:

 

We explore a subtle but important mechanism through which firms manipulate their information environments. We show that firms control information flow to the market through their specific organization and choreographing of earnings conference calls. Firms that “cast” their conference calls by disproportionately calling on bullish analysts tend to underperform in the future. Firms that call on more favorable analysts experience more negative future earnings surprises and more future earnings restatements. A long-short portfolio that exploits this differential firm behavior earns abnormal returns of up to 101 basis points per month. Further, firms that cast their calls have higher accruals leading up to call, barely exceed/meet earnings forecasts on the call that they cast, and in the quarter directly following their casting tend to issue equity and have significantly more insider selling.

 


(Host: John Tuner)

October 14, 2013

 

Green Recycling Networks

 

SPEAKER: Greys Sosic

UNIVERSITY: Marshall School of Business, University of Southern California

TIME: 2:00 - 3:00pm

WHERE: SB 111

 

ABSTRACT:

 

In this paper, we study how two important determinants of recycling costs, economies of scale and material stream homogeneity, influence endogenous recycling coalition formation. On one hand, strong economies of scale make the coalitions typically larger, due to fixed-cost savings. On the other hand, large coalitions generate typically more heterogeneous material streams, which increases the variable recycling costs due to additional separation efforts. By enacting recent concepts such as Extended Producer Responsibility, which shifts the burden of proper disposal of used goods from the (local) governments to the producers that bring the goods to the market, legislators in many countries and states have fostered such coalition building. We study the efficiency of this strategy by analyzing a game-theoretical model in which producers compete in a horizontally differentiated primary market, but they may collaborate at the same time to organize proper disposal of the goods they bring to the market. We find structural differences in the coalitions that emerge endogenously, compared with both the coalitions that a government would select to maximize social welfare and coalitions that a (local) government would set up to minimize recycling costs of the equilibrium industry output in a setting in which producers ignore recycling costs. We conclude by discussing implications for social welfare of implementing taxes or subsidies.


(Host: Terry Shevlin)

October 11, 2013

 

Earnings Disappointments and Strategic Profit Allocations in Segment Reporting

 

SPEAKER: Tim Haight

UNIVERSITY: UC Irvine, The Paul Merage School of Business

TIME: 3:00 - 4:30pm

WHERE: SB 112

 

ABSTRACT:

 

I examine whether firms strategically allocate segment-level profits when reporting disappointing firm-level earnings. Prior research documents managers’ use of voluntary disclosure mechanisms to mitigate the extent of fallout from earnings disappointments, though little work has addressed whether managers exercise discretion in classifying the components of disappointing earnings to temper outsider reactions to the news. I hypothesize and find that firms reporting annual earnings just below the analyst consensus forecast shift profits (a) toward segments in which profits are relatively more informative for firm value under the normal course of operations and (b) away from segments exhibiting “scapegoat” characteristics that render current profits relatively uninformative for firm value. In addition, I find evidence of strategic profit allocations across segments is generally more pronounced for high growth firms, firms with limited abilities to manipulate accruals, firms that had not previously reported un-allocated (corporate-level) expenses, and firms in which the incremental value relevance of segment data is high.

 


 

(Host: Vidyanand Choudhary)

October 11, 2013

 

A Double Digital Divide? The Paradox of Efficient Markets and HIV Incidence Among the Digitally Disadvantaged

 

SPEAKER: Ritu Agarwal

UNIVERSITY: University of Maryland

TIME: 10:00 - 11:30am

WHERE: SB 112

 

ABSTRACT:

 

The role of the Internet in the domain of health has captured the attention of academic and policy communities.  While recent work has begun to examine the negative social welfare implications of Internet-enabled connectivity in the form of easily searchable, digitized, two sided matching platforms, limited attention has been paid to whom any potential negative externalities of these platforms accrue. In this study, we investigate how the availability of platforms for the solicitation of casual sex has influenced the incidence rate of HIV by race, gender, and socio-economic status. Using a census of nearly 12 million patients who are subjected to a natural experiment in the state of Florida between 2002 and 2006, we find that the largest negative effect accrues to historically at risk populations (i.e. African Americans and the socio-economic lower class) that, ironically, are also disadvantaged with respect to digital inequalities.  Disturbingly, we find that the largest relative penalty is experienced by populations generally considered at lower risk for HIV, who are also relatively digitally advantaged. Finally, results show a striking absence of learning and knowledge diffusion about the risks of platform use as the infection rate is rising over time. These findings, robust across multiple specifications, have important implications for policy makers and contribute to the literature on the digital divide and the role of the Internet in health.

 


 

(Host: Siew Hong Teoh)

August 20, 2013

 

Worrying About the Stock Market: Evidence from Hospital Admissions

 

SPEAKER: Joseph Engelberg, Christopher Parsons

UNIVERSITY: University of California, San Diego

TIME: 12:00 - 1:00pm

WHERE: SB 112

 

ABSTRACT:

 

Using individual patient records for every hospital in California from 1983-2011, we find a strong inverse link between daily stock returns and hospital admissions, particularly for psychological conditions such as anxiety, panic disorder, or major depression. The effect is nearly instantaneous (within the same day), suggesting that anticipation over future consumption directly influences instantaneous utility, e.g., Caplin and Leahy (2001). Moreover, the effect of such anticipation is path dependent, being strongest during low volatility regimes, and immediately following low returns.