Showing papers by "HEC Paris published in 2006"
TL;DR: In this paper, the authors analyzed determinants and effects of differences between domestic accounting standards (DAS) and International Accounting Standards (IAS) and created two indices, absence and divergence, to measure the extent to which certain accounting issues are missing in DAS but are covered in IAS.
Abstract: This study analyzes determinants and effects of differences between Domestic Accounting Standards (DAS) and International Accounting Standards (IAS). We use an extensive list of differences between DAS and IAS to create two indices, absence and divergence. Absence measures the extent to which the rules regarding certain accounting issues are missing in DAS but are covered in IAS. Divergence applies in circumstances where the rules regarding the same accounting issue differ in DAS and IAS. It measures the extent of differences between DAS-based rules and IAS-based rules. Using a sample of 30 countries for 2001, we show that absence is (mainly) determined by the importance of the equity market and ownership concentration, while divergence is positively associated with the level of economic development and the importance of the accounting profession, but is constrained by the importance of equity markets. Our analysis suggests that a higher level of absence implies more opportunities for earnings management and for decreases in firm-specific information to investors. A larger divergence from IAS is associated with richer firm-specific information in capital markets.
386 citations
TL;DR: In this paper, a balance model of sitcom product placement effects is proposed, in which attitude alignment is the explanation for links between a triad composed of the consumer, the sitcom character, and the placed product.
Abstract: This study examines the influence of product placements in television serial comedies on consumer attitudes toward the products. Proposing a "Balance Model of Sitcom Product Placement Effects," the study integrates genre theory to analyze character-product associations in sitcoms, parasocial theory to consider consumer-character referential relations, and balance theory to address the main research issue of the way that characters' relations to placed products and consumers' relations to the characters affect consumers' attitudes to the products. The model is based on balance theory, in which attitude alignment is the explanation for links between a triad composed of the consumer, the sitcom character, and the placed product. The influence of two consumer-character variables (attitude and parasocial attachment) and two character- product variables (valence and strength of association) are tested in a real-world situation. The methodology uses real televised sitcoms as stimuli, real viewers as respondents,...
335 citations
TL;DR: In this article, the authors use Transaction Cost Economics (TCE) and the Resource-Based View (RBV) of the firm to study outsourcing agreements and develop an original approach of contract complexity and analyse the links among exchange hazards (i.e. specificity and environmental uncertainty), the contractual aspects of outsourcing (control, incentives, penalties, price and flexibility clauses) and level of ex post transaction costs.
Abstract: In this article, we use Transaction Cost Economics (TCE) and the Resource-Based View (RBV) of the firm to study outsourcing agreements. We develop an original approach of contract complexity and analyse the links among exchange hazards (i.e. specificity and environmental uncertainty), the contractual aspects of outsourcing (control, incentives, penalties, price and flexibility clauses) and the level of ex post transaction costs. Both contract complexity and ex post transaction costs are operationalized and measured. Our empirical research analyses 82 outsourcing contracts. This article uses three different dimensions (proximity to the core business, switching costs and adaptation costs) to assess the strategic importance of an outsourced activity. Our findings extend TCE's validity for the outsourcing of activities with a strategic value. Finally, this study offers an indirect measurement of ex post transaction costs. In short, to restrict vendor opportunism, contracts must contain incentives and penalties, as well as pricing and monitoring clauses.
275 citations
TL;DR: In this paper, a simple competitive model of CEO pay is developed, which predicts a cross-sectional constant-elasticity relation between pay and firm size, and also predicts that the level of CEO compensation should increase one for one with the average market capitalization of large firms.
Abstract: This paper develops a simple competitive model of CEO pay. A large part of the rise in CEO compensation in the US economy is explained without assuming managerial entrenchment, mishandling of options, or theft. CEOs have observable managerial talent and are matched to assets in a competitive assignment model. Under very general assumptions, using results from extreme value theory, the model determines the level of CEO pay across firms over time, and the pay-sensitivity relations. The model predicts a cross-sectional constant-elasticity relation between pay and firm size. It also predicts that the level of CEO compensation should increase one for one with the average market capitalization of large firms in the economy. Therefore, the six-fold increase of CEO pay between 1980 and 2003 can be fully attributed to the six-fold increase in market capitalization of large US companies. The model can also be used to study other large changes at the top of the income distribution, and offers a benchmark for calibratable corporate finance. We find a minuscule dispersion of CEO talent, which nonetheless justifies large pay levels and differences. The empirical evidence is broadly supportive of our model. The size of large firms explains many of the patterns in CEO pay, in the time series, across industries and across countries.
259 citations
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TL;DR: In this paper, the authors study changes in liquidity following the introduction of a new electronic limit order market when trading is centralized in a single-limit order market and also study how automation of routing decisions and trading fees affect the relative liquidity of rival markets.
Abstract: We study changes in liquidity following the introduction of a new electronic limit order market when, prior to its introduction, trading is centralized in a single limit order market. We also study how automation of routing decisions and trading fees affect the relative liquidity of rival markets. The theoretical analysis yields three main predictions: (i) consolidated depth is larger in the multiple limit order markets environment, (ii) consolidated bid-ask spread is smaller in the multiple limit order markets environment and (iii) the liquidity of the entrant market relative to that of the incumbent market increases with the level of automation for routing decisions (the proportion of 'smart routers'). We test these predictions by studying the rivalry between the London Stock Exchange (entrant) and Euronext (incumbent) in the Dutch stock market. The main predictions of the model are supported.
248 citations
TL;DR: This work proposes to conduct two disruption analyses to draw the disruptiveness profile of mobile payment solutions compared to other payment instruments and tries to discover what factors have hindered the technical and commercial development.
230 citations
TL;DR: It is proposed that people's desire for money is a modern derivate of their desire for food, and three studies show the reciprocal association between the incentive value of food and of money.
Abstract: This report attempts to provide an evolution- ary explanation for humans' motivation to strive for money in present-day societies. We propose that people's desire for money is a modern derivate of their desire for food. In three studies, we show the reciprocal association between the incentive value of food and of money. In Study 1, hungry participants were less likely than satiated par- ticipants to donate to charity. In Study 2, participants in a room with an olfactory food cue, known to increase the desire to eat, offered less money in a give-some game com- pared with participants in aroom free ofscent.InStudy3, participants' desire for money affected the amount of M&M's s theyateinasubsequenttastetest,butonlyamong participants who were not restricting their food intake in order to manage their weight.
184 citations
TL;DR: In this article, the authors discuss the profitability of service offerings by small and medium sized industrial firms and highlight the heterogeneity of their policies and practices regarding the pricing and costing of their service offers.
164 citations
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TL;DR: In this article, the authors provide a theoretical explanation for insider trading based on trading constraints and asymmetric information, and test their hypothesis against competing stories such as patterns of insider trading driven by earnings announcement dates, or insiders timing their trades to evade prosecution.
Abstract: This paper documents that at the individual stock level insiders sales peak many months before a large drop in the stock price, while insiders purchases peak only the month before a large jump. We provide a theoretical explanation for this phenomenon based on trading constraints and asymmetric information. We test our hypothesis against competing stories such as patterns of insider trading driven by earnings announcement dates, or insiders timing their trades to evade prosecution. Finally we provide new evidence regarding crashes and the degree of information asymmetry.
152 citations
TL;DR: In this article, the authors test the value relevance of R&D reporting in a sample of 197 French firms between 1993 and 2002 and find that capitalized research costs are negatively associated with stock prices and returns.
Abstract: Accounting for R&D costs is an open issue. SFAS N°2 mandates that all R&D costs must be immediately expensed. IAS 38 requires capitalization of R&D costs if they meet certain criteria. Recent research papers show the value relevance of capitalized R&D. We test the value relevance of R&D reporting in a sample of 197 French firms between 1993 and 2002. The French context provides an interesting field for R&D value relevance studies because both accounting treatments of R&D costs (expensing and capitalization) are allowed. Unlike previous studies, we find that capitalized R&D is negatively associated with stock prices and returns. This negative coefficient on capitalized R&D implies that investors are concerned with and react negatively to capitalization of R&D. We also find that the firms choosing to capitalize (successful) R&D are smaller, more highly leveraged, less profitable and have less growth opportunities. Taking into account these characteristics, our robustness checks confirm that capital...
151 citations
TL;DR: In this paper, the authors present a theory detailing the processes through which CEO charisma affects participants outside the organization, linking CEO charisma to those outsiders key to organizational effectiveness: institutional intermediaries and external stakeholders.
Abstract: We present a theory detailing the processes through which CEO charisma affects participants outside the organization. In order to reach this goal, the model extends the range of current theory beyond internal organizational members, linking CEO charisma to those outsiders key to organizational effectiveness: institutional intermediaries and external stakeholders. We discuss several implications suggested by this framework to facilitate future research in this area.
TL;DR: A divisive (descendant) clustering method is introduced, which splits the sample into homogeneous sub-groups corresponding to disclosure patterns (or profiles), for clearer determination of the financial characteristics of each group.
Abstract: Past accounting research contains an extensive range of disclosure and determinants studies. But these studies have one major methodological drawback: the disclosure analysis is often restricted to determination of the disclosure index, that is, the sum of disclosed items, weighted or unweighted. The disclosure profile (which reflects the structure of published information) is generally not part of the research design. The objective of this paper is to introduce a divisive (descendant) clustering method, which splits the sample into homogeneous sub-groups corresponding to disclosure patterns (or profiles), for clearer determination of the financial characteristics of each group. This methodology is illustrated by a study of disclosure on provisions by large French firms. The results show that the disclosure pattern is related to provision intensity, size, leverage and market expectation, but not to profit, return and industry. This new research method is a valuable complementary tool for expanding on disclosure and determinants studies, moving from disclosure levels to disclosure patterns.
TL;DR: In this article, the authors introduce a neoclassical growth economy with idiosyncratic production risk and incomplete markets, where each agent is an entrepreneur operating her own technology with her own capital stock.
TL;DR: In this paper, a multivariate extension of the Markov-Switching Multifractal (MSM) was proposed, which is a stochastic volatility model with a closed-form likelihood.
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TL;DR: In this article, the authors discuss the recurring use of what they call the "sameness principle" along with another principle, inspired by contemporary philosophy and somehow present in the organizational ethics literature called "otherness."
Abstract: Our objective is to discuss, in the organizational change literature, the recurring use of what we call the "sameness principle," along with another principle, inspired by contemporary philosophy and somehow present in the organizational ethics literature. called "otherness." We review four classic organizational change approaches, underscore the limitations of the sameness principle, and position otherness relative to current organizational ethics literature. We then emphasize the role of powerful agents within the organization as potential conveyors of otherness and deduce propositions that relate these agents' posture to the observable type of organizational change processes
TL;DR: In this paper, the authors discuss the recurring use of what they call the "sameness principle" along with another principle, inspired by contemporary philosophy and somehow present in the organizational ethics literature, called "otherness".
Abstract: Our objective is to discuss, in the organizational change literature, the recurring use of what we call the “sameness principle,” along with another principle, inspired by contemporary philosophy and somehow present in the organizational ethics literature, called “otherness.” We review four classic organizational change approaches, underscore the limitations of the sameness principle, and position otherness relative to current organizational ethics literature. We then emphasize the role of powerful agents within the organization as potential conveyors of otherness and deduce propositions that relate these agents' posture to the observable type of organizational change processes.
TL;DR: In this article, a model examining the influence of cultural factors on sales compensation decisions of managers (incentive vs. fixed pay and parity vs. equity allocation) was proposed to understand why managers choose one sales compensation form rather than another, where theoretical answers typically focus on the type of plans managers should design, not on the factors that managers actually consider.
TL;DR: In this paper, the role of geographic dispersion on corporate decision-making is investigated and it is found that firms are more likely to protect proximate employees in soft information industries (i.e., when information is difficult to transfer over long distances).
Abstract: We document the role of geographic dispersion on corporate decision-making. Our findings include: (i) geographically dispersed firms are less employee friendly; (ii) dismissals of divisional employees are less common in divisions located closer to corporate headquarters; and (iii) firms appear to adopt a "pecking-order" and divest out-of-state entities before in-state. To explain these findings, we consider both information and social factors. We find that firms are more likely to protect proximate employees in soft information industries (i.e. when information is difficult to transfer over long distances). However, employee protection only holds when headquarters is located in a less-populated county suggesting a role for social factors. Additionally, stock markets respond favorably to divestitures of in-state divisions. Our findings suggest that social factors work alongside informational considerations in making geographic dispersion an important factor in corporate decision-making.
TL;DR: In this article, the authors discuss three forces underlying the rise of heroic CEO images in the USA: Ariadne, or charismatic leadership theory and its formulation of charisma; Theseus or the CEOs struggling to obtain power over stock market actors; and the Minotaur, or the stock market itself and the securities analyst profession.
Abstract: This paper illustrates the construction of CEO charisma within the US stock market. By metaphorically employing the myth of the Minotaur, we discuss three forces underlying the rise of heroic CEO images in the USA: Ariadne, or charismatic leadership theory and its formulation of charisma; Theseus, or the CEOs struggling to obtain power over stock market actors; and the Minotaur, or the stock market itself and the securities analyst profession. Building on the literature on organizational symbolism, we present a qualitative study of two CEO successions, focusing on the form and content of the persona and the vision projected by CEOs and elaborated by securities analysts. The results suggest that jointly constructing charisma through discourse, CEOs and analysts enact a form of power that does not lie in top-down coercion, but rather on the emergent, active involvement and contribution of its very subjects.
TL;DR: This paper showed that the Implicit association test (IAT) is sensitive to self-presentation, especially for high self-monitors, and suggested that participants can fake the IAT to appear in a favorable light.
TL;DR: In this article, the authors investigated the merger wave hypothesis for the US and the UK employing a Markov regime switching model and identified the beginning of a merger wave in the mid 1990s but not the much-discussed 1980s merger wave.
Abstract: This paper investigates the merger wave hypothesis for the US and the UK employing a Markov regime switching model. Using quarterly data covering the last thirty years, for the US, we identify the beginning of a merger wave in the mid 1990s but not the much-discussed 1980s merger wave. We argue that the latter finding can be ascribed to the refined methods of inference offered by the Gibbs sampling approach. As opposed to the US, mergers in the UK exhibit multiple waves, with activity surging in the early 1970s and the late 1980s.
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TL;DR: In this paper, the authors explore the impact of investor sentiment on the pricing and aftermarket behavior of IPOs and show that IPOs can be overpriced, and still exhibit positive initial return.
Abstract: This paper explores the impact of investor sentiment on the pricing and aftermarket behavior of IPOs. Using a model in which the aftermarket price of IPO shares depends on the information about the intrinsic value of the company and investor sentiment, I show that IPOs can be overpriced, and still exhibit positive initial return. The predictions of the model are supported by a sample of recent French offerings, in which a fraction of the shares was reserved for individual investors. Individual investors' demand is positively related to market conditions. Moreover, large individual investors' demand leads to high IPO prices, large initial returns, and poor long-run performance.
TL;DR: This article conducted a comprehensive study of commonality in liquidity using intraday spread and depth data from 47 stock exchanges and found evidence of a distinct, global component in bid-ask spreads and depths.
Abstract: We conduct a comprehensive study of commonality in liquidity using intraday spread and depth data from 47 stock exchanges. We find that firm-level changes in liquidity are significantly influenced by exchange-level changes across most of the world's stock exchanges. Emerging Asian exchanges have exceptionally strong commonality, while those of Latin America exhibit little if any commonality. After documenting the pervasive role of commonality within individual exchanges, we examine commonality across exchanges. We find evidence of a distinct, global component in bid-ask spreads and depths. Local (exchange-level) sources of commonality represent roughly 39 percent of the firm's total commonality in liquidity, while global sources contribute an additional 19 percent. We also investigate potential sources of exchange-level and global commonality. We show that commonality is driven by both domestic and US macroeconomic announcements.
TL;DR: In this article, the authors show that the sensitivity of the cross-listing premium to the size of growth opportunities increases when holdings (resp. market shares) become more evenly distributed between foreign and domestic investors.
Abstract: We show that a cross-listing allows a firm to make better investment decisions because it enhances stock price informativeness. This theory of cross-listings yield several predictions. In particular, it implies that the sensitivity of investment to stock prices should be larger for cross-listed firms. Moreover, the increase in value generated by a cross-listing (the cross-listing premium) should be positively related to the size of growth opportunities and negatively related to the quality of managerial information. We also analyze in details the effects of the geography of ownership (the distribution of holdings between foreign and domestic investors) on the cross-listing premium. In particular, we show that the sensitivity of the cross-listing premium to the size of growth opportunities increases when holdings (resp. market shares) become more evenly distributed between foreign and domestic investors (resp. markets). Last, we show that concentration of trading in the home market (flow-back) can indeed increase the cross-listing premium for some firms.
01 Jul 2006
TL;DR: In this paper, the authors analyze the handling of strategic management accounting in 20 general management accounting textbooks that are perceived as most important in German and in English-speaking countries, and they find that the concepts of management accounting are not integrated into textbooks within a coherent, consistent framework.
Abstract: We analyze the handling of strategic management accounting in the 20 general management accounting textbooks that are perceived as most important in German- and in English-speaking countries. Our analysis shows that strategic management accounting is not integrated into textbooks within a coherent, consistent framework. However, the survey also shows that these textbooks often use several strategic management accounting “subconcepts” which form a set of core concepts of strategic management accounting across the language areas. We identify these core concepts and elaborate on striking differences between the coverage of certain concepts in the German- and English-speaking worlds. In general, the German term “controlling” implies a more strategic emphasis than does its American counterpart, “management accounting”.
TL;DR: In this article, the effect of asymmetric information on price formation process in a financial market where private information is held by a market maker is considered and a Bayesian game is proposed in which there is price competition between two market makers with two different information partitions.
Abstract: We consider the effect of asymmetric information on price formation process in a financial market where private information is held by a market maker. A Bayesian game is proposed in which there is price competition between two market makers with two different information partitions. At each stage players set bid and ask prices simultaneously and then trade occurs between market maker who proposes the most profitable price and liquidity traders. We characterize a set of partially revealing equilibria where the informed market maker's prices do not convey his private information. Informed player's equilibrium payoffs are proportional to prior beliefs of the market.
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TL;DR: In this article, the authors proposed that equilibrium valuation is a powerful method to generate endogenous jumps in asset prices and proposed an economy with continuous consumption and dividend paths, in which endogenous price jumps originate from the market impact of regime-switches in the drifts and volatilities of fundamentals.
Abstract: This paper proposes that equilibrium valuation is a powerful method to generate endogenous jumps in asset prices We specify an economy with continuous consumption and dividend paths, in which endogenous price jumps originate from the market impact of regime-switches in the drifts and volatilities of fundamentals We parsimoniously incorporate regimes of heterogeneous durations and verify that the persistence of a shock endogenously increases the magnitude of the induced price jump As the number of frequencies driving fundamentals goes to infinity, the price process converges to a novel stochastic process, which we call a multifractal jump-diffusion
TL;DR: In this article, the authors study the second trading line and find that repurchases on the second line have a beneficial impact on the liquidity of repurchasing firms (i.e., higher trading volumes, smaller bid-ask spreads, and thicker total depths).
Abstract: This paper studies a unique buyback method allowing firms to reacquire their own shares on a separate trading line where only the firm is allowed to buy shares. This temporary trading platform is opened concurrently with the original trading line on the stock exchange. This share repurchase method is called the Second Trading Line and has been extensively used by Swiss companies since 1997. This type of repurchase is unique for two reasons. First, unlike open market programs, the repurchasing company does not trade under the cover of anonymity. Second, all transactions made by the repurchasing firm are publicly available in real time to every market participant. This is a case of instantaneous disclosure which contrasts sharply with other markets characterized by delayed or no disclosure. Using actual repurchase data from all buybacks implemented through second trading lines, we find that managers exhibit timing ability for the majority of programs. We also document that the daily repurchase decision is statistically associated with short-term price changes. However, we reject the opportunistic repurchase hypothesis and find no evidence that managers exploit their information advantage when reacquiring shares. We also find that repurchases on the second trading line have a beneficial impact on the liquidity of repurchasing firms (i.e., higher trading volumes, smaller bid-ask spreads, and thicker total depths). Exchanges and regulators may consider the second trading line an attractive share reacquisition mechanism because of its transparency and positive liquidity effects.
TL;DR: In this article, the authors proposed an anonymous tax on trades in assets that are Pareto improving, which is fully and correctly anticipated by traders, and results in ex-post optimal allocations; as such, it improves over previously proposed constrained interventions.
TL;DR: In this article, the authors provide an introductory exposition of stochastic games with imperfect monitoring. But their focus is on games in which the players imperfectly observe the play, and not on games with perfect monitoring.
Abstract: This chapter provides an introductory exposition of stochastic games with imperfect monitoring. These are stochastic games in which the players imperfectly observe the play. We discuss at length a few basic issues, and describe selected contributions.