2718 research outputs found
Sort by
Representations and Warranties Insurance in Mergers and Acquisitions
Get PDFTo mitigate information asymmetry in acquisitions, the seller makes contractual representations and warranties (referred to as “R&W” or “reps”) about the state of the target, such as attesting to the accuracy of the target’s financial statements. While seller indemnities allow buyers to impose costs due to breaches in the reps discovered after the deal’s close, these indemnities involve significant contracting costs. To mitigate these costs, the acquisition parties have increasingly turned to purchasing representations and warranties insurance. Using a proprietary and novel sample of R&W insurance policies issued worldwide for acquisitions of non-public targets, we find that the demand for R&W insurance, the premium charged for it, and the likelihood of a claim being filed are correlated with industry metrics for valuation uncertainty, the type of acquirer and seller, and the target’s legal regime. In particular, we find higher demand for R&W insurance and a higher R&W insurance premium charged when the target belongs to an industry with weaker internal controls. We also find that a higher premium is charged when the target is in an industry with relatively high levels of R&D to sales, indicating that the insurance company expects unrecognized intangible assets to have a greater risk of future claims. Our study adds to our understanding of how parties reduce target valuation uncertainty and the role of disclosures and R&W insurance policies in private mergers and acquisitions transactions
Organizational Culture, Adaptation, and Performance
Get PDFPrior research emphasizes how organizational culture can hinder organizational adaptation. In this study, we investigate how organizational culture can help promote organizational adaptation to environmental changes, using a formal model from cultural evolution theory. In the model, organizational members face a trade-off between innovating versus following tradition (because environmental changes are uncertain). Members can also decide to help others who are following the tradition, thereby improving its diffusion. Organizational leaders shape the culture of their organization, which influences members’ decisions to choose innovation or tradition or to help others following tradition. Culture comprises two dimensions: beliefs and prosocial values. We find that increasing the accuracy of beliefs leads to improvements in both innovation and following tradition, thereby mitigating the trade-off between them and boosting adaptation and performance. On prosocial values, we find that increasing their intensity reduces the cost of following tradition but at the expense of reduced adaptation, resulting in an inverted-U relationship between intensity of prosocial values and performance. Overall, we show how leaders can fine-tune the dimensions of organizational culture to foster improvements in adaptation and performance. The formal model we introduce is novel to the literature and offers a way of studying adaptation to a changing environment and to incorporate social learning into models of adaptation under bounded rationality. Funding: J. Poblete was supported by Instituto Sistemas Complejos de Ingenieria [Grant ANID PIA/PUENTE AFB230002]. Supplemental Material: The online appendix is available at [https://doi.org/10.1287/orsc.2022.16791](https://doi.org/10.1287/orsc.2022.16791
"It's not literally true, but you get the gist": how nuanced understandings of truth encourage people to condone and spread misinformation
Get PDFPeople have a more-nuanced view of misinformation than the binary distinction between “fake news” and “real news” implies. We distinguish between the truth of a statement’s verbatim details (i.e., the specific, literal information) and its gist (i.e., the general, overarching meaning), and suggest that people tolerate and intentionally spread misinformation in part because they believe its gist. That is, even when they recognize a claim as literally false, they may judge it as morally acceptable to spread because they believe it is true “in spirit.” Prior knowledge, partisanship, and imagination increase belief in the gist. We argue that partisan conflict about the morality of spreading misinformation hinges on disagreements not only about facts but also about gists
Media Attention and Event-Based Grouping of Stocks: An Examination of Stocks Hyped by Media Outlets as Benefiting from the Olympics
Get PDFWe examine five summer Olympics and identify stocks that media outlets hype as benefiting from the Olympics (Olympic stocks). There is a seven-year period from the time that a country first learns it has won the Olympic bid to the start of the games (Olympic time period). We predict that the excitement of the Olympics along with the greater media attention impacts the valuation and risk of Olympic stocks. Consistent with this prediction, we show that Olympic stocks earn higher returns than their matched counterparts and comove more strongly with each other over the Olympic time period. Olympic stocks also exhibit increases in trading volume and stock volatility on days when media outlets have stories linking the firm to the Olympic Games. However, we find no evidence that the Olympic Games translate into stronger fundamentals for Olympic firms or stronger fundamental co-movements. These findings suggest that investors are not purchasing the stocks based on an analysis of fundamentals, but are purchasing them based on their Olympic attribute. To confirm that event-based groupings occur in other settings, we show that co-movement increases for stocks classified by the media as “stay-at-home” stocks at the start of the COVID-19 pandemic. This paper was accepted by Eric So, accounting.
Supplemental Material: The online appendix is available at [https://doi.org/10.1287/mnsc.2021.02218](https://doi.org/10.1287/mnsc.2021.02218
Managers’ use of humor on public earnings conference calls
Get PDFDespite the prevalence and importance of humor in interpersonal communication, the disclosure literature is silent on the use of humor in the context of corporate communication. Using a sophisticated machine learning algorithm, we identify managers’ successful uses of humor during public earnings conference calls. When managers use humor on an earnings call, stock market returns and analyst forecast revisions following the call are more positive, primarily because of a muted response to negative earnings news. Consistent with managers’ successful use of humor being a favorable signal of future firm performance, we find no evidence of a return reversal over the subsequent quarter, and managers’ use of humor predicts more favorable news at the subsequent quarter’s earnings announcement. Our study provides new evidence on the use of humor in corporate disclosures, and our findings indicate that humor can meaningfully influence the market response to public earnings conference calls
Financial cycles with heterogeneous intermediaries
Get PDFWe develop a dynamic macroeconomic model with heterogeneous financial intermediaries and endogenous entry. Time-varying endogenous macroeconomic risk arises from the risk-shifting behaviour of the cross-section of financial intermediaries. When interest rates are high, a decrease in interest rates stimulates investment and decreases aggregate risk. In contrast, when they are low, further stimulus can increase financial instability while inducing a fall in the risk premium. In this case, there is a trade-off between stimulating the economy and financial stability. This provides a model of the risk-taking channel of monetary policy
Playing the political game of innovation: An integrative framework and future research directions
No full textInnovation politics impact the development and introduction of innovations, yet knowledge about the influence of specific political behavior or behavioral patterns remains blurred. Based on a literature review and the articles in this Special Issue, we propose a three-part framework that identifies the building blocks of political behavior in innovation: what motivates actors to be political, the different types of political actors, and the effect of various political behaviors on innovation outcomes. Emphasizing the evolving landscape of innovation politics, the framework aims to highlight research gaps and guide future studies toward improving our understanding of the functional and dysfunctional aspects of innovation politics
Daily Episodic and Continuous Arbitrage Trading with Electric Batteries
Get PDFThe business models for the operation of battery storage systems often depend substantially upon the revenues from arbitrage in the daily electricity wholesale market. Other revenue streams can be attractive, but even with them, wholesale market arbitrage is often used as the benchmark. There can be various trading policies for wholesale market arbitrage and this paper provides a comparison of three main variations. These are: day-ahead spread trading, day-ahead trading with look-ahead and intra-day continuously trading with look-ahead. The example is from the GB electricity market in which wind and solar generation as well as demand forecasts are used to forecast electricity prices. The results of the back-testing indicate the comparative attractiveness of day-ahead spread trading in terms of risk and return performance
4 Common Types of Team Conflict — and How to Resolve Them
No full textManagers spend 20% of their time on average managing team conflict. Over the past three decades, the authors have studied thousands of team conflicts around the world and have identified four common patterns of team conflict. The first occurs when conflict revolves around a single member of a team (20-25% of team conflicts). The second is when two members of a team disagree (the most common team conflict at 35%). The third is when two subgroups in a team are at odds (20-25%). The fourth is when all members of a team are disagreeing in a whole-team conflict (less than 15%). The authors suggest strategies to tailor a conflict resolution approach for each type, so that managers can address conflict as close to its origin as possible
Robust and Heterogenous Odds Ratio: Estimating Price Sensitivity for Unbought Items
Get PDFProblem definition:
Mining for heterogeneous responses to an intervention is a crucial step for data-driven operations, for instance to personalize treatment or pricing. We investigate how to estimate price sensitivity from transaction-level data. In causal inference terms, we estimate heterogeneous treatment effects when (a) the response to treatment (here, whether a customer buys a product) is binary, and (b) treatment assignments are partially observed (here, full information is only available for purchased items).
Methodology/Results:
We propose a recursive partitioning procedure to estimate heterogeneous odds ratio, a widely used measure of treatment effect in medicine and social sciences. We integrate an adversarial imputation step to allow for robust estimation even in presence of partially observed treatment assignments. We validate our methodology on synthetic data and apply it to three case studies from political science, medicine, and revenue management. Managerial Implications: Our robust heterogeneous odds ratio estimation method is a simple and intuitive tool to quantify heterogeneity in patients or customers and personalize interventions, while lifting a central limitation in many revenue management data