Research Paper Series

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Year RPS # Title Author/s
2011 2011-010 (MKTG) DEMAND UNCERTAINTY AND THREE-PART TARIFFS Ping Xiao, Tat Chan & Chakravarthi Narasimhan

In many industries such as wireless and internet services the expected consumption level before a consumer chooses a service provider can often be different than the actual realization. In this paper we study the optimality of three-part tariffs, a pricing strategy commonly observed in these industries, when consumers are uncertain about the amount they would consume when they make the choice decisions. We construct a model of a monopolist that faces heterogeneous consumers and explore when three part tariffs would be preferred over all-or-nothing and two-part tariffs. In a stylized framework with two types of consumers we find that without demand uncertainty, all-or-nothing price can be as efficient as three-part tariffs in extracting consumers’ surplus. Meanwhile firm will only serve heavy users when preference ratio is high. With demand uncertainty we find three-part tariffs dominate both all-or-nothing tariffs and two-part tariffs. However firm is still likely to serve both heavy and light users when preference ratio is high. Moreover when demand uncertainty exists, if the preference ratio is not too high, the firm make higher profit. Meanwhile heavy users’ surplus is higher, and light users’ surplus depends on the magnitude of how they are uncertain of their demand.

2011 2011-009 (MO) A POLYMORPHISM IN THE SEROTONIN RECEPTOR 5-HT2A GENE, STRESSORS, AND MOMENTARY JOB SATISFACTION: AN EXPERIENCE SAMPLING STUDY Zhaoli Song, Nan Wang, Wendong Li, Richard D. Arvey & Seang Mei Saw

Behavioral genetic studies have revealed that job satisfaction is heritable. However, little is known about what specific genes may be associated with job satisfaction and if so the mechanisms for such associations. In the present study, the experience-sampling method was used to examine the relationship between the -1438A/G SNP in the serotonin 2A receptor gene (5-HT2A), and momentary job satisfaction.  A sample of 206 Chinese Singaporeans reported their momentary experiences of job satisfaction and encountered stressors 4 times per day for a period of one week.  The G allele in the -1438A/G SNP was associated with lower mean level of momentary job satisfaction across the week as compared with the A allele. Furthermore, we found that major stressful life events as well as momentary stressors demonstrated the strongest negative relationship with momentary job satisfaction among participants with the G/G genotype.  These results suggest that the -1438A/G SNP in the 5-HT2A gene may be one form of genetic architecture that is involved in modulating individuals’ ongoing experience of job satisfaction.
 
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2011 2011-008 (FN) THE RISE AND FALL OF PORTFOLIO PUMPING AMONG U.S. MUTUAL FUNDS Truong X. Duong & Felix Meschke

This study investigates the effect of increased regulatory attention on the propensity of mutual fund managers to engage in illicit trading behavior. A study by Carhart et al. (2002) constituted a quasi-exogenous shock to regulatory enforcement levels because it developed a pumping measure, showed that pumping was prevalent, and prompted regulatory agencies to more vigorously enforce existing securities laws. We exploit this shock in our research design and show that between 1993 and 2001, quarterly mutual fund portfolios are artificially inflated by about 2.2 billion dollars. Portfolio pumping among U.S. mutual funds sharply decreased by about 110 basis points at year-end once the SEC filed fraud charges alleging portfolio pumping against fund managers in June and August of 2001. We further document that cross-sectional variations in pumping activity and the subsequent decreases of pumping vary in accordance with factors predicted by recent theoretical work. In many studies that examine regulatory rule changes, it is assumed that the degree to which existing laws and regulations are enforced before and after the rule change stays constant. Our findings suggest that this assumption is not innocuous since enforcement levels clearly matter in financial markets.

2011 2011-007 (FN) FOREIGN INSTITUTIONAL INVESTORS AND CORPORATE ACQUISITION DECISIONS Huang Jiekun, Ruth Tan & Jasmine Loo

This study examines the role of foreign institutional investors in corporate acquisition decisions. We find evidence that is consistent with foreign institutional investors playing a monitoring role and mitigating agency problems in corporate acquisition decisions. The relation is particularly strong among foreign independent institutions, foreign institutions from common-law countries, and for emerging-market acquirers. However, we find little evidence that foreign institutional ownership predicts long-run post-merger stock performance, which suggests that the market is efficient and has incorporated the information at announcement. In addition to preventive monitoring, we document that foreign institutional investors play an active role in corrective monitoring. Evidence indicates that the presence of foreign institutional investors increases the probability that a value-destroying deal is withdrawn, suggesting that they play an active disciplining role in blocking negative-NPV acquisitions. Consistent with our earlier findings, this result is driven mainly by foreign independent institutions and foreign institutions from common-law countries.

2011 2011-006 (FN) HETEROGENEOUS AGENTS AND ASSET MARKET DYNAMICS: THE ROLE OF INVESTMENT HORIZON Wenlan Qian

This study shows that taking into consideration heterogeneous investment horizons improves our understanding of price and trading dynamics. I develop an OLG model in which agents have heterogeneous preferences and investment horizons. With transaction costs, short term investors are more sensitive to fundamental shocks and are less likely to own (and trade) in a declining market. The model predicts that the ownership composition contains information about current and future price and trading dynamics. Empirically I find that owners' ex ante holding horizons co-vary negatively with prices, and they also predict future returns, particularly the return component forecastable by macro conditions.

2011 2011-005 (S & P) OVERSEAS LISTING OF CHINESE FIRMS: AN EXAMINATION OF POST-LISTING PERFORMANCE Jane W. Lu, Khee Hong Goh & Jessie Xueji Liang

This paper aims to investigate the operating performance changes of Chinese firms seeking IPO in an overseas market. It examines the effects of three sets of factors on the post-listing performance changes. Firstly, we argue that operating performance of Chinese firms is contingent on different forms of slack resources and. More specifically, high discretion slack resources, given its characteristics, will be positively associated with operating performance, whereas low discretion slack resources would be negatively related to operating performance. Secondly, this paper will also be examining the relationship between two key aspects of board independence and its relationship with operating performance as the Chinese firms transitioned from private to public firms in an overseas capital market. The two key indicators that will be examined are the proportion of independent directors on the board of directors and CEO duality, which plagues many Chinese firms operating in China. Finally, we examine the relationship between firm’s degree of internationalization and post-listing operating performance. Overseas listing is perceived as an important step of firm’s internationalization process. The degree to which the firm can benefit from overseas listing should depend on its capability obtained from prior internationalization activities.
 
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2011 2011-004 (MO) DELIBERATIVE PROCESSES OF PROFFERING AND WITHHOLDING OCB AT WORK Daniel J. McAllister & Sankalp Chaturvedi

In the two studies, we re-examine the discretionary nature of organizational citizenship behavior (OCB), and the factors influencing employee decisions about withholding and making citizenship contributions. We show that OCB can be discretionary in nature, and highlight the practical and research implications that follow.

2011 2011-003 (AC) DISCLOSURE ABOUT FAIR VALUE MEASUREMENT OF GOODWILL IMPAIRMENT: DOES IT IMPROVE TRANSPARENCY? Vincent Y. S. Chen & Feng Gu

This study examines whether firms’ disclosure about fair value measurement of goodwill impairment increases the transparency of accounting information on goodwill impairment.  We focus on disclosure about (1) the specifics on the acquired business and segment affected by goodwill impairment, (2) fair value measurement methodology selected by management for impairment test, and (3) the inputs of fair value measurement used in impairment test.  Our evidence indicates that disclosure about goodwill impairment test is useful to investors.  Greater disclosure increases the transparency of goodwill impairment reporting and mitigates investors’ concerns about management manipulation in the reporting of goodwill impairment.  The level of disclosure is also predictive of firms’ goodwill impairment in the subsequent year.  Our evidence thus supports the view that supplemental disclosure enhances the usefulness of fair value-based accounting information.

2011 2011-002 (AC) MANAGEMENT ESTIMATES OF COST OF CAPITAL Vincent Chen & Bin Miao

This study empirically examines the cost of capital employed by company management in their asset valuation decisions. Using a sample of cost of capital estimates manually collected from firms’ 10-K filings, we find that several firm characteristics, such as firm age, financial leverage, cash holding, and cash flow volatility, are among the important determinants of firms’ overall cost of capital. Further, management estimates of cost of equity are correlated with firm size, CAPM beta, and momentum, but not with book-to-market ratio or popular estimates derived from market data and valuation models (e.g. PE, PEG, or MPEG ratio). Finally, we find that cost of capital has a significant impact on investment, with 1% increase in cost of capital reducing the firm’s average capital expenditure over the next three years by 7 million.

2011 2011-001 (MO) INSTITUTIONAL SOURCES OF VARIATION IN EMBEDDED AGENCY: THE ADOPTION OF UNCONVENTIONAL THERAPIES BY CONVENTIONAL HOSPITALS Sangchan Park & Sangmook Yi

Who initiates change? Prior research has generally focused on an organization’s position in a field as a proxy for institutional embeddedness that influences organizational decisions to change. For instance, central organizations deeply embedded in institutional environment are less likely to innovate. In contrast, we argue that institutional influence assumed to exist in the position varies according to sources that condition the degree of embeddedness. As for the sources, we concentrate on the range and strength of associations that an organization has with its institutional environment. We examine our arguments in a study of the formal incorporation of unconventional medicine into conventional hospitals. Unconventional medicine includes a group of treatment therapies (e.g., acupuncture, therapeutic touch, naturopathy, etc.) whose underlying principles rest uneasily with those of dominant conventional medicine. Analyzing a dataset of 249 hospitals from 1997 to 2007, we find that hospitals with a greater range of associations with institutional environment are more likely to adopt unconventional therapies. The adoption of unconventional therapies is less likely when the strength of associations with institutional environment is greater. Implications for the study of how the embeddedness of agency arises are discussed.

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