Business Commons^™

Do Out-Of-State Buyers Pay More For Real Estate? An Examination Of Anchoring-Induced Bias And Search Costs, Val E. Lambson, Grant R. Mcqueen, Barrett A. Slade

Faculty Publications

We explore the questions of whether and why out-of-state buyers pay more for real estate than their in-state counterparts. Theoretically, we develop a model capable of explaining a premium if out-of-state buyers have high search costs, upwardly biased beliefs about prices or an unusually short time horizon to purchase. Empirically, we find that out-of-state buyers pay a statistically significant and economically meaningful premium for apartment complexes in the Phoenix area. We also find some evidence consistent with the premium being driven by high search costs, biased beliefs (anchoring) and haste associated with out-of-state buyers.

Human Capital And Learning As A Source Of Sustainable Competitive Advantage, Nile W. Hatch, Jeffrey H. Dyer

Faculty Publications

This paper seeks to identify the sources of wide and persistent variations in learning performance in the semiconductor manufacturing industry. In the resource-based view of the firm, human capital is frequently assumed to contribute to competitive advantage due to its inimitability based on its intangible, firm-specific, and socially complex nature. Consistent with this view, we find that investments in firm-specific human capital have a significant impact on learning and firm performance. More specifically, human capital selection (education requirements and screening), development through training, and deployment significantly improve learning by doing, which in turn improves performance. However, we find that acquiring …

Employee Stock Purchase Plans, Gary V. Engelhardt, Brigitte C. Madrian

Faculty Publications

Employee stock purchase plans (ESPPs) are designed to promote employee stock ownership broadly within the firm and provide another tax-deferred vehicle for individual capital accumulation in addition to traditional pensions, 401(k)s, and stock options. We outline the individual and corporate tax treatment of ESPPs and the circumstances under which ESPPs will be preferred to cash compensation from a purely tax perspective. We then examine empirically ESPP participation using administrative data from 1997-2001 for a large health services company that employs approximately 30,000 people. The picture that emerges from the analysis of these data suggests that there is substantial non-participation in …

The Effect Of Transaction Size On Off-The-Run Treasury Prices, David F. Babbel, Craig B. Merrill, Mark F. Meyer, Meiring De Villiers

Faculty Publications

A price pressure effect is implied by segmentation in the market for a security. An empirical property of a segmented market is that the price of the security is sensitive to supply and demand conditions for that specific security, absent changes in risk and absent any new information. This paper examines intra-day trading data from the inter-dealer broker market for U.S. Treasury securities and finds that there is a price pressure effect in the off-the-run Treasury market. Thus, securities that would appear to be very close substitutes, i.e., on-the-run and off-the-run Treasury bonds, behave as if there is some degree …

Initial Public Offerings: An Analysis Of Theory And Practice, James C. Brau, Stanley E. Fawcett

Faculty Publications

We survey 336 CFOs to compare practice to theory in the areas of IPO motivation, timing, underwriter selection, underpricing, signaling, and the decision to remain private. We find the primary motivation for going public is for acquisition purposes. CFOs base IPO timing on overall market conditions, are well-informed regarding expected underpricing, and feel underpricing compensates investors for taking risk. The most important positive signal is past historical earnings, followed by underwriter certification. CFOs have divergent opinions about the IPO process depending on firm-specific characteristics. Finally, we find the main reason for remaining private is to preserve decision-making control and ownership.

Asset Pricing Theory And The Valuation Of Canadian Paintings, Douglas J. Hodgson, Keith Vorkink

Faculty Publications

The valuation of Canadian paintings is analysed empirically. Using a sample of auction prices for major Canadian painters for the period 1968–2001, we run hedonic regressions to analyse the influence of various factors, including painter identity, on auction prices, as well as to construct a market price index. This index is used in a second-stage analysis in which we analyse the properties of Canadian art viewed as an investment asset. We apply standard asset pricing theory, as incorporated in the capital asset pricing model (CAPM), to the analysis of price movements in the market for Canadian paintings.

Whence Garch? A Preference-Based Explanation For Conditional Volatility, Grant Mcqueen, Keith Vorkink

Faculty Publications

We develop a preference-based equilibriumasset pricing model that explains low frequency conditional volatility. Similar to Barberis, Huang, and Santos (2001), agents in our model care about wealth changes, experience loss aversion, and keep a mental scorecard that a¤ects their level of risk aversion. A new feature of our model is that when perturbed by unexpected returns, investors become temporarily more sensitive to news. Gradually, investors become accustomed to the new level of wealth, restoring prior levels of risk aversion and news sensitivity. The state-dependent sensitivity to news creates the type of volatility clustering found in low frequency stock returns. We …

Corporate Governance And Dividend Policy In Emerging Markets, Todd Mitton

Faculty Publications

In a sample of 365 firms from 19 countries, I show that firms with stronger corporate governance have higher dividend payouts, consistent with agency models of dividends. In addition, the negative relationship between dividend payouts and growth opportunities is stronger among firms with better governance. I also show that firms with stronger governance are more profitable, but that greater profitability explains only part of the higher dividend payouts. The positive relationship between corporate governance and dividend payouts is limited primarily to countries with strong investor protection, suggesting that firm-level corporate governance and country-level investor protection are complements rather than substitutes.

Contributions Of Family Leisure To Family Functioning Among Transracial Adoptive Families, Ramon B. Zabriskie, Patti Freeman

Faculty Publications

The purpose of this study was to examine family leisure behavior among intact families with transracial adoptive children and make comparisons to a broad sample of families with only biological children. The sample consisted of 197 adoptive families. Data were analyzed from a parent, youth, and family perspective. The Family Leisure Activity Profile (FLAP) was used to determine family leisure involvement. FACES II was used to measure family functioning. Findings indicated that measures of family cohesion, family adaptability, and family functioning were higher among the adoptive family sample. Core, balance, and total family leisure involvement were also higher among the …

The Influences Of Family Leisure Patterns On Perceptions Of Family Functioning*, Ramon B. Zabriskie, Bryan P. Mccormick

Faculty Publications

This study conducted a preliminary test of a model of family leisure functioning by examining the relationship of core and balance family leisure patterns to family cohesion and adaptability. We hypothesized that core family leisure patterns address family needs for stability, facilitate the development of cohesive relationships, and are related to perceptions of family cohesion, whereas balance family leisure patterns address family needs for change, facilitate the development of adaptive skills, and are related to perceptions of family adaptability. Findings from 2 multiple regression analyses provided preliminary support for the model. Conclusions and implications are discussed.

Surveying Cost Growth, Michael A. Greiner, Vince Sipple, Edward D. White

Faculty Publications

Cost growth that weapon systems incur throughout their acquisition life cycle concerns those who work in the acquisition environment. One way to reduce the amount of unexpected cost growth is to develop better cost estimates. In attaining better cost estimates though, it is often helpful to understand and account for potential cost drivers. Several cost studies, some of which specifically focus on the aircraft industry, have been performed documenting and investigating these growth factors. Overviews of these various cost growth studies are presented as other tools for the cost estimators and program managers.

Mac Bay Boat Company, Geoffrey D. Reynolds

Faculty Publications

Mac Bay Boat Company is an article concerning the history of the boat building company founded in Holland, Michigan in 1948, moved to Fruitport, Michigan (Muskegon area) in 1956 and went of business in 1962.

The Taxation Of Telecommunications In California In The Information Age, J. E. Prieger, T. A. Sexton, Annette M. Nellen

Faculty Publications

No abstract provided.

Top Management Team Heterogeneity And Sme Export Performance: Investigating The Role Of Environmental Uncertainty, Franz T. Lohrke, Geralyn Mcclure Franklin, Vinay Kothari

Faculty Publications

Research has generally found that firms competing in high uncertainty environments gain advantages from having diverse (heterogeneous) management teams (TMTs). Employing a national survey of 70 small- and medium-sized enterprises (SMEs), the present study examined whether TM T heterogeneity in functional background, international work experience, and foreign language proficiency had a stronger relationship with export performance for firms competing in high than those competing in low uncertainty environments. Results were generally weak when market and industry factors contributing to uncertainty were examined separately; however, additional analysis showed that the hypothesized relationship did exist when uncertainty was measured employing both factors …

Analyzing E.M.B.A. Student Feedback, Ernest A. Capozzoli, David E. Gundersen

Faculty Publications

The results of an executive Masters of Business Administration (MBA) program assessment are analyzed and interpreted against the backdrop of increasing competition between universities to attract and retain qualified students. The public education environment is currently in a turbulent state. This turbulence is in part caused by such factors as: reductions in public funding for higher education due to constrained state budgets, student expectations, requirements imposed by accrediting bodies, and other outside constituencies requesting more accountability. The pressure to hold education institutions accountable is increasing at a rapid rate. To provide a measure of accountability and quantify program quality, education …

Book Review For Achieving Success Through Social Capital, Clive Muir

Faculty Publications

Book Review of Achieving Success Through Social Capital by Wayne Baker. San Francisco" Jossey-Bass, Inc. 2000. 256pp.

Building Literacy For Knowledge Economies: Reading And Writing About Trends And Issues In Business Week, Clive Muir

Faculty Publications

Knowledge economies require highly skilled workers to perform complex, information-based tasks with minimum supervision. Yet, studies in Canada and the United States show that even college educated workers often lack the information literacy skills necessary to perform their jobs. In this session, we will discuss how reading and writing about business trends and issues can help to improve business students’ analytical and critical thinking abilities.

An Analysis Of The Readability Of The Md&As Of Small, Medium, & Large Revenue Generating Cities, Shannon Lutz, Treba Marsh, Lucille Montondon

Faculty Publications

Studies assessing the annual reports of publicly held corporations have shown mixed results in regard to the readability levels of those reports. Recently, the Governmental Accounting Standards Board adopted GASB 33, 34, and 35 in which specific guidelines are outlined for the reporting of governmental entities. Are the Comprehensive Annual Financial Reports (annual reports) of the governmental entities understandable to the average user?

This study argues that the Managements Discussion and Analysis, the summary portion of the governmental annual report, is not understandable to the average reader. The sample was equally divided among small, medium, and large revenue-generating cities that …

Experimental Economic Approaches To International Marketing Research, Nancy R. Buchan

Faculty Publications

No abstract provided.

Return Distributions And Improved Tests Of Asset Pricing Models, Keith Vorkink

Faculty Publications

We compare and contrast some existing ordinary least squares (OLS)- and generalized method of moments (GMM)-based tests of asset pricing models with a new more general test. This new test is valid under the assumption that returns are elliptically distributed, a necessary and sufficient assumption of the linear capital asset pricing model (CAPM). This new test fails to reject the CAPM on a dataset of stocks sorted by market valuations, whereas similar tests constructed from OLS and GMM estimation methods reject the linear CAPM. We also find that outliers reduce the OLSestimated mispricing of the linear CAPM on monthly returns …

A Comparison Of Partially Adaptive And Reweighted Least Squares Estimation, Brian H. Boyer, James B. Mcdonald, Whitney K. Newey

Faculty Publications

The small sample performance of least median of squares, reweighted least squares, least squares, least absolute deviations, and three partially adaptive estimators are compared using Monte Carlo simulations. Two data problems are addressed in the paper: (1) data generated from non-normal error distributions and (2) contaminated data. Breakdown plots are used to investigate the sensitivity of partially adaptive estimators to data contamination relative to RLS. One partially adaptive estimator performs especially well when the errors are skewed, while another partially adaptive estimator and RLS perform particularly well when the errors are extremely leptokurtotic. In comparison with RLS, partially adaptive estimators …

Investor Overconfidence And Trading Volume, Meir Statman, Steven Thorley, Keith Vorkink

Faculty Publications

The proposition that investors are overconfident about their valuation and trading skills can explain high observed trading volume. With biased self-attribution, the level of investor overconfidence and thus trading volume varies with past returns. We test the trading volume predictions of formal overconfidence models and find that share turnover is positively related to lagged returns for many months. The relationship holds for both market-wide and individual security turnover, which we interpret as evidence of investor overconfidence and the disposition effect, respectively. Security volume is more responsive to market return shocks than to security return shocks, and both relationships are more …

Data Mining Of Forensic Association Rules, James V. Hansen, Paul Benjamin Lowry, Rayman D. Meservy

Faculty Publications

Data mining offers a potentially powerful method for analyzing the large data sets that are typically found in forensic computing (FC) investigations to discover useful and previously unknown patterns within the data. The contribution of this paper is an innovative and rigorous data mining methodology that enables effective search of large volumes of complex data to discover offender profiles. These profiles are based on association rules, which are computationally sound, flexible, easily interpreted, and provide a ready set of data for refinement via predictive models. Methodology incorporates link analysis and creation of predictive models based on association rule input.

Model Checking For Design And Assurance Of E-Business Processes, Bonnie Anderson, James V. Hansen, Paul Benjamin Lowry, Scott L. Summers

Faculty Publications

Use of the Internet for electronic business has the potential to revolutionize the way many businesses are conducted. Yet, several businesses have fallen victim to problems in information systems that facilitate e-Business. These problems are characterized by uncertainties due to system complexity, rapid development, interconnectivity, and a lack of familiarity with the new technologically based economy. This paper demonstrates how model checking can aid in the design and assurance of e- Business processes in environments characterized by distributed processing, parallelism, concurrency, communication uncertainties, and continuous operations.

Testing Forward Exchange Rate Unbiasedness Efficiently: A Semiparametric Approach, Douglas J. Hodgson, Oliver Linton, Keith Vorkink

Faculty Publications

We apply semiparametric efficient estimation procedures for a seemingly unrelated regression model where the multivariate error density is elliptically symmetric to study the efficiency of the foreign exchange market. We consider both cointegrating regressions and standard stationary regressions. The elliptical symmetry assumption allows us to avoid the curse of dimensionality problem that typically arises in multivariate semiparametric estimation procedures, because the multivariate elliptically symmetric density function can be written as a function of a scalar transformation of the observed multivariate data. We test the unbiasedness hypothesis on both weekly and daily exchange rate data and strongly reject unbiasedness at the …

A Study Of Corporate Diversification And Restructuring Activities In The 1980s And 1990s Using Multiple Measures, Mahesh N. Rajan

Faculty Publications

Using popular/common measures of diversification employed by industrial organization scholars (Jacquemin-Berry entropy measure) and strategy scholars (size of the primary business segment), this study examines the corporate diversification and restructuring activities of American firms (sample from the Fortune 250 list) in the 1980s and 1990s. There is empirical support for the widespread notion that in the 1980s and 1990s, firms underwent major restructuring efforts by divesting unrelated (unprofitable) businesses and strengthening their core business units and related segments. Additionally, the results illustrate the consistencies and discrepancies between the above measures.

Concealing And Confounding Adverse Signals: Insider Wealth-Maximizing Behavior In The Ipo Process, James S. Ang, James C. Brau

Faculty Publications

We study a known negative signal, the sale of insider shares in an IPO and find that insiders adopt two concealment strategies consistent with wealth-maximizing behavior. First, insiders underreport the number of personally owned shares in the prominent original prospectus and use an obscure amendment to communicate the true higher level of shares to be offered. Second, when insiders increase shares in a later amendment, they tend to either increase secondary shares disproportional to primary share increases, or to reduce primary shares to wholly or partly conceal the increase in secondary shares offered. Insiders confound the negative secondary share signal …

Propping And Tunneling, Eric Friedman, Simon Johnson, Todd Mitton

Faculty Publications

In countries with weak legal systems, there is a great deal of tunneling by the entrepreneurs who control publicly traded firms. However, under some conditions entrepreneurs prop up their firms, i.e., they use their private funds to benefit minority shareholders. We provide evidence and a model that explains propping. In particular, we suggest that issuing debt can credibly commit an entrepreneur to propping, even though creditors can never take possession of any underlying collateral. This helps to explain why emerging markets with weak institutions sometimes grow rapidly and why they are also subject to frequent economic and financial crises. Journal …

The Relations Between Knowledge, Search Strategy, And Performance In Unaided And Aided Information Search, John A. Barrick, Brian C. Spilker

Faculty Publications

Information search is a critical step in resolving complex issues in many different decisionmaking domains. This study examines the relations between knowledge, search strategy, and performance in both unaided and aided information search. The results of an experiment indicates that (a) task-relevant knowledge is directly related to performance in aided but not in unaided information search; (b) in unaided information search, search strategy mediates the relation between knowledge and performance; that is, knowledge indirectly affects performance through its effect on search strategy; and (c) an information search aid moderates both the relation between knowledge and search strategy and the relation …

An Empirical Model Of Price And Quality Effects Of E-Commerce, Scott E. Sampson, Kendall Hulet

Faculty Publications

During the e-Commerce boom of the late 1990s it was predicted that the Internet would have a significant impact on prices of various goods and services. Whether the net impact would he positive or negative was harder to forecast, there being opposing effects. We develop a model that describes some of those effects, including information asymmetry, search costs, price dispersion, trust premiums, and convenience premiums. The model is discussed, and a major portion is statistically tested with empirical data. As an exploratory gesture, the model is extended to consider product quality effects of online shopping. The final section concludes with …