Finance and Financial Management Commons^™

Testimonials Do Not Convert Patients From Brand To Generic Medication, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian, Gwendolyn Reynolds

Faculty Publications

Objectives—To assess whether the addition of a peer testimonial to an informational mailing increases conversion rates from brand-name prescription medications to lower-cost therapeutic equivalents, and whether the testimonial’s efficacy increases when information is added about an affiliation the quoted individual shares with the recipient.

Research Design and Methods—5,498 union members were randomly assigned to receive one of three different informational letters: one without a testimonial (No Testimonial Group), one with a testimonial from a person whose shared union affiliation with the recipient was not disclosed (Unaffiliated Testimonial Group), and one with a testimonial from a person whose shared union affiliation …

What Goes Up Must Come Down? Experimental Evidence On Intuitive Forecasting, John Beshears, James J. Choi, Andreas Fuster, David Laibson, Brigitte C. Madrian

Faculty Publications

Do laboratory subjects correctly perceive the dynamics of a mean-reverting time series? In our experiment, subjects receive historical data and make forecasts at different horizons. The time series process that we use features short-run momentum and long-run partial mean reversion. Half of the subjects see a version of this process in which the momentum and partial mean reversion unfold over 10 periods (‘fast’), while the other subjects see a version with dynamics that unfold over 50 periods (‘slow’). Typical subjects recognize most of the mean reversion of the fast process and none of the mean reversion of the slow process.

Consumers’ Misunderstanding Of Health Insurance, George Loewenstein, Joelle Y. Friedman, Barbara Mcgill, Sarah Ahmad, Suzanne Linck, Stacey Sinkula, John Beshears, James J. Choi, Jonathan Kolstad, David Laibson, Brigitte C. Madrian, John A. List, Kevin G. Volpp

Faculty Publications

We report results from two surveys of representative samples of Americans with private health insur-ance. The first examines how well Americans understand, and believe they understand, traditional healthinsurance coverage. The second examines whether those insured under a simplified all-copay insuranceplan will be more likely to engage in cost-reducing behaviors relative to those insured under a traditionalplan with deductibles and coinsurance, and measures consumer preferences between the two plans. Thesurveys provide strong evidence that consumers do not understand traditional plans and would betterunderstand a simplified plan, but weaker evidence that a simplified plan would have strong appeal toconsumers or change their …

Simplification And Saving, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian

Faculty Publications

The daunting complexity of important financial decisions can lead to procrastination. Weevaluate a low-cost intervention that substantially simplifies the retirement savings planparticipation decision. Individuals received an opportunity to enroll in a retirement savingsplan at a pre-selected contribution rate and asset allocation, allowing them to collapsea multidimensional problem into a binary choice between the status quo and the pre-selected alternative. The intervention increases plan enrollment rates by 10–20 percentagepoints. We find that a similar intervention can be used to increase contribution rates amongemployees who are already participating in a savings plan.

Planning Prompts As A Means Of Increasing Rates Of Immunization And Preventive Screening, Hengchen Dai, Katherine L. Milkman, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian

Faculty Publications

Building on psychological insights about the way people make decisions, behavioral scientists have proposed various methods to increase behaviors that promote welfare without limiting freedom of choice (Thaler & Sunstein, 2008). Recently, researchers have begun exploring the power of such methods for encouraging people to engage in beneficial health-related behaviors, particularly those that are often put off or forgotten (Loewenstein, Brennan, & Volpp, 2007). For example, motivated by evidence of substantial inertia at the status quo, researchers have demonstrated that if people are automatically assigned an appointment to receive a flu shot (while retaining the right to change or cancel …

Sb Ipos And Ipo Anomalies: An Empirical Analysis Of The Small Firm Uniqueness Hypothesis, James C. Brau, J. Troy Carpenter

Faculty Publications

The purpose of this paper is to provide a direct test of the small-firm uniqueness hypothesis advanced by Ang (1991). We do this by using the SB-IPO program of the SEC as our instrument to define a small firm. Having identified small firms, we test the three IPO anomalies to see if small firms differ from large firms along these dimensions. We find that SB IPOs experience the three anomalies; however, they do so in disparate ways than mainline IPOs do. In sum, we provide support for the small firm uniqueness hypothesis.

Revenge Of The Steamroller: Abcp As A Window On Risk Choices, Carlos Arteta, Mark Carey, Ricardo Correa, Jason Kotter

Faculty Publications

We empirically examine financial institutions’ motivations to take systematic bad-tail risk in the form of sponsorship of credit-arbitrage asset-backed commercial paper vehicles. A run on debt issued by such vehicles played a key role in causing and propagating the liquidity crisis that began in the summer of 2007. We find evidence consistent with important roles for both ownermanager agency problems and government-induced distortions, especially government control or ownership of banks.

Legislating Stock Prices, Lauren Cohen, Karl B. Diether, Christopher Malloy

Faculty Publications

We demonstrate that legislation has a simple, yet previously undetected, impact on stock prices. Exploiting the voting record of legislators whose constituents are the affected industries, we show that the votes of these “interested” legislators capture important information seemingly ignored by the market. A long-short portfolio based on these legislators' views earns abnormal returns of over 90 basis points per month following the passage of legislation. Industries that we classify as beneficiaries of legislation experience significantly more positive earnings surprises and positive analyst revisions in the months following passage of the bill, as well as significantly higher future sales and …

A Structural Model Of Human Capital And Leverage, Ryan Pratt

Faculty Publications

I study the effect of human capital on firms' leverage decisions in a structural dynamic model. Firms produce using physical capital and labor. They pay a cost per employee they hire, thus investing in human capital. In default a portion of this human capital investment is lost. The loss of human capital constitutes a significant cost of financial distress. Labor intensive firms are more heavily exposed to this cost and respond by using less leverage. Thus the model predicts a decreasing relationship between leverage and labor intensity. Consistent with this prediction, I show in the data that high labor intensity …

The Impact Of Securitization On The Expansion Of Subprime Credit, Taylor Nadauld, Shane M. Sherlund

Faculty Publications

This paper investigates the relationship between securitization activity and the extension of subprime credit. The analysis is motivated by two sets of compelling empirical facts. First, the origination of subprime mortgages exploded between the years 2003 and 2005. Second, the securitization of subprime loans increased substantially over the same time period, driven primarily by the five largest independent broker/dealer investment banks. We argue that the relative shift in the securitization activity of investment banks was driven by forces exogenous to factors impacting lending decisions in the primary mortgage market and resulted in lower ZIP code denial rates, higher subprime origination …

Not All That Glitters Is Gold: The Effect Of Attention And Blogs On The Investors' Investing Behaviors, Nan Hu, Yi Dong, Ling Liu, Lee J. Yao

Research Collection School Of Computing and Information Systems

This article investigates the relationship between a firm’s visibility in blogspaces, termed blog exposure, and the cross-sectional stock returns. We show that blog exposure is fundamentally different from the traditional media coverage, and securities with low blog exposure earn higher returns than stocks with high blog exposure. We further illustrate that such an effect is more prominent for stocks with low institutional ownership. Contrary to traditional media coverage, the return premium associated with blog exposure cannot be explained by either the illiquidity hypothesis or the investor recognition hypothesis based on the rational-agent framework. Instead, our results suggest that blog effect …

Teaching Amidst Transformation: Integrating Global Perspectives On The Financial Crisis Into The Classroom, Shruti Rana

Journal of Business & Technology Law

No abstract provided.

Startsmart Impact Report, Commonwealth Bank Foundation

Program monitoring and evaluation

The Commonwealth Bank Foundation’s school-based, financial education program, StartSmart, was developed with the assistance of education experts and launched in 2007. The StartSmart program – is a series of interactive, financial literacy workshops delivered in classrooms by a team of facilitators which works in partnership with school teachers to deliver effective financial education. The program extends to students in primary, secondary and vocational education settings. The Commonwealth Bank Foundation engaged the Australian Council for Educational Research (ACER) to undertake an evaluation of the StartSmart program. The purpose of this research was to measure the impact of StartSmart on students’ financial …

Forecasting Singapore Economic Growth With Mixed-Frequency Data, A. Tsui, C.Y. Xu, Zhaoyong Zhang

Research outputs 2013

In this paper we intend to forecast the economic growth of Singapore by employing mixed frequency data. This study is motivated by the following observations: macroeconomic variables are the important indicators of the economic performance, but they are normally available at low frequencies, e.g. quarterly for GDP and monthly for inflation. In contrast, the financial variables such as stock returns are available at high frequency, and often the asset prices are forward-looking and believed to contain useful information about future economic developments (Stock and Watson 2003). It is therefore an interesting question to raise whether or not one can use …

Fair Value Measurements, Nathan Hatch Cannon

2013

This dissertation consists of two empirical studies that investigate fair value measurement issues currently facing the accounting profession--one from the perspective of the auditor, and the other from the perspective of the financial statement user. The results of each study are described below.

This first study examines experienced auditors' descriptions of specific client experiences in which auditing fair value measurements (FVMs) was particularly challenging. Based on a field survey of high-level engagement team personnel from several large firms, we identify a number of key issues currently facing the profession in auditing FVMs. First, when asked about challenges faced in auditing …

The Impact Of The Security Transaction Taxes On Stock Prices And Stock Liquidity; Evidence From The Nyse, Vedika Agarwal

CMC Senior Theses

Security Transaction taxes have been in place in many countries for many years now. Yet we do not fully know how these taxes effect prices, volumes, bid-ask spreads and volatility and in turn if they are good for the economy or not. This paper is an attempt to understand how security transaction taxes decrease volume of trading, decrease prices of stocks and increase bid-ask spreads. It analyses the effect the STTs implemented by the state and federal government in New York on June 1^st 1905 and December 1^st 1914 respectively, had on the stocks of the New York …

The Impact Of Prior Performance On Leadership Appointment In A Merger Of Equals, David A. Hirsch

CMC Senior Theses

Leadership appointment during mergers has a logical and established precedent when there is a clear target and acquirer. However, in the extraordinary case of Merger Of Equals (MOEs) – where this is relative equal ownership, board representation, earnings contribution etc - this process is much less defined and can often have serious consequences on the merger, both in closing negotiations as well as post-merger performance. Intuition assumes the better performing CEO should and will be appointed. In practice, however, that is often not the case. It is arguable that performance can be defined through objective means (financially & operationally), yet …

The Impact Of Participatory Notes On The Indian Rupee Exchange Rate, Rohan Kothari

CMC Senior Theses

Since 1992, India has grown as a global player in the finance world. In spite of its success, India has not been able to rid itself of potentially harmful practices. One such practice is the issuing of Participatory Notes (PN) to foreign investors, so that they can anonymously purchase securities or derivatives listed on the Indian Stock Exchanges. This instrument came into public view when it accounted for approximately 50% of all foreign portfolio assets in India. Since then, the laws regarding PNs have evolved to become a more transparent version of the old rules. Although PN levels are not …

An Investigation Into The Volatility And Cointegration Of Emerging European Stock Markets, Anna Golab

Theses: Doctorates and Masters

This dissertation examines the interaction between European Emerging markets including cointegration, volatility, correlation and spillover effects. This study is also concerned with the process of the enlargement of the European Union and how this affects the emerging markets of newcomers. The twelve emerging markets studied are Bulgaria, the Czech Republic, Cyprus, Estonia, Hungry, Latvia, Lithuania, Malta, Poland, Romania, Slovakia and Slovenia, which are all progressing very rapidly in their reforms and domestic economic stability.

The majority of prior studies on stock market comovements and integration have concentrated on mature developed markets or the advanced emerging markets of the Czech Republic, …

An Easy Method To Introduce Mirr Into Introductory Finance Classes, Tom Arnold, Terry D. Nixon

Finance Faculty Publications

In this paper, the modified internal rate of return (MIRR) is demonstrated to be a holding period return calculation that is not dependent on knowing a project's internal rate of return (IRR) nor the process for finding the IRR. Further, the MIRR calculation can be directly connected to the calculation of the profitability index (PI) and the net present value (NPV) if project cash flows are discounted using a firm's weighted average cost of capital. This connection to the PI and NPV allows for an intuitively appealing presentation of the MIRR calculation.