顶刊推送《Management Science》 2022-68-2

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Management Science

Volume 68, Issue 02  

（Pages 809-1589, February 2022)

Catalogue

[1]The Effect of Multichannel and Omnichannel Retailing on Physical Stores

Fei Gao, Vishal V. Agrawal, Shiliang Cui

[2]Honesty in the Digital Age

Alain Cohn, Tobias Gesche, Michel André Maréchal

[3]Predicting Human Discretion to Adjust Algorithmic Prescription: A Large-Scale Field Experiment in Warehouse Operations

Jiankun Sun, Dennis J. Zhang, Haoyuan Hu, Jan A. Van Mieghem

[4]How Do Restrictions on Advertising Affect Consumer Search?

Lesley Chiou, Catherine E. Tucker

[5]Demand Pooling in Omnichannel Operations

Ming Hu, Xiaolin Xu, Weili Xue, Yi Yang

[6]How Market Power Affects Dynamic Pricing: Evidence from Inventory Fluctuations at Car Dealerships

Ayelet Israeli, Fiona Scott-Morton, Jorge Silva-Risso, Florian Zettelmeyer

[7]The Profitability of Revenue-Based Quotas Under Price Negotiation

Pranav Jindal, Peter Newberry

[8]Impact of Social Interactions on Duopoly Competition with Quality Considerations

Xin Geng, Xiaomeng Guo, Guang Xiao

[9]Personalization from Customer Data Aggregation Using List Price

Zibin Xu, Anthony Dukes

[10]Product Lines and Price Discrimination in Markets with Information Frictions

Natalia Fabra, Juan-Pablo Montero

[11]Following the Customers: Dynamic Competitive Repositioning

Z. Eddie Ning, J. Miguel Villas-Boas

[12]Inattention in Contract Markets: Evidence from a Consolidation of Options in Telecom

Bjørn-Atle Reme, Helene Lie Røhr, Morten Sæthre

[13]Dual Sourcing and Smoothing Under Nonstationary Demand Time Series: Reshoring with SpeedFactories

Robert N. Boute, Stephen M. Disney, Joren Gijsbrechts, Jan A. Van Mieghem

[14]Social Responsibility Auditing in Supply Chain Networks

Han Zhang, Goker Aydin, Rodney P. Parker

[15]Regulating Conflicts of Interest in Medicine Through Public Disclosure: Evidence from a Physician Payments Sunshine Law

Matthew Chao, Ian Larkin

[16]Convex Optimization for Bundle Size Pricing Problem

Xiaobo Li, Hailong Sun, Chung Piaw Teo

[17]Can Market Participants Report Their Preferences Accurately (Enough)?

Eric Budish, Judd B. Kessler

[18]The Persistent Effects of Short-Term Peer Groups on Performance: Evidence from a Natural Experiment in Higher Education

Petra Thiemann

[19]The Performance of Time-Preference and Risk-Preference Measures in Surveys

Joshua Tasoff, Wenjie Zhang

[20]On the Fair Division of a Random Object

Anna Bogomolnaia, Hervé Moulin, Fedor Sandomirskiy

[21]Decision Making Under Model Uncertainty: Fréchet–Wasserstein Mean Preferences

Electra V. Petracou, Anastasios Xepapadeas, Athanasios N. Yannacopoulos

[22]A Model of Search with Two Stages of Information Acquisition and Additive Learning

Peter Gibbard

[23]Dimensioning On-Demand Vehicle Sharing Systems

Saif Benjaafar, Shining Wu, Hanlin Liu, Einar Bjarki Gunnarsson

[24]Assigning Priorities (or Not) in Service Systems with Nonlinear Waiting Costs

Huiyin Ouyang, Nilay Taník Argon, Serhan Ziya

[25]Relationships Under Stress: Relational Outsourcing in the U.S. Airline Industry After the 2008 Financial Crisis

Ricard Gil, Myongjin Kim, Giorgio Zanarone

[26]Scandal, Social Movement, and Change: Evidence from #MeToo in Hollywood

Hong Luo, Laurina Zhang

[27]Measuring the Impact of Crowdsourcing Features on Mobile App User Engagement and Retention: A Randomized Field Experiment

Zhuojun Gu, Ravi Bapna, Jason Chan, Alok Gupta

[28]Revisiting the Entrepreneurial Commercialization of Academic Science: Evidence from “Twin” Discoveries

Matt Marx, David H. Hsu

[29]Comparing Non-GAAP EPS in Earnings Announcements and Proxy Statements

Dirk E. Black, Ervin L. Black, Theodore E. Christensen, Kurt H. Gee

[30]Hedge Fund Activism and Corporate M&A Decisions

Szu-Yin (Jennifer) Wu, Kee H. Chung

[31]The Influence of Corporate Income Taxes on Investment Location: Evidence from Corporate Headquarters Relocations

Travis Chow, Sterling Huang, Kenneth J. Klassen, Jeffrey Ng

[32]The Real Side of the High-Volume Return Premium

Doron Israeli, Ron Kaniel, Suhas A. Sridharan

[33]Bail-in and Bailout: Friends or Foes?

Lorenzo Pandolfi

[34]Uncertainty and the Shadow Banking Crisis: Estimates from a Dynamic Model

Xu Tian

[35]Insider Trading, Competition, and Real Activities Manipulation

Hui Chen, Bjorn N. Jorgensen

[36]Executive Network Centrality and Corporate Reporting

Jing He

[37]Targets, Predictability, and Performance

Francisco Peñaranda, Liuren Wu

[38]Third-Party Consequences of Changes in Managerial Fiduciary Duties: The Case of Auditors’ Going Concern Opinions

Liang Tan, Santhosh Ramalingegowda, Yong Yu

[39]The Short-Run and Long-Run Components of Idiosyncratic Volatility and Stock Returns

Yunting Liu

Summary and Contents

The Effect of Multichannel and Omnichannel Retailing on Physical Stores

Fei Gao

Indiana University Bloomington

Vishal V. Agrawal

Georgetown University - McDonough School of Business

Shiliang Cui

Georgetown University - McDonough School of Business

Abstract: Most retailers today sell products through an online channel in addition to traditional physical stores. We investigate how such a multichannel or omnichannel retailer should decide the number and size of physical stores. We show that a higher return rate for online purchases can incentivize the retailer to have fewer physical stores that are larger in size. As online shopping becomes more convenient, a retailer may prefer to have more physical stores that are smaller in size. We also study the effect of three popular omnichannel strategies that involve changes of the physical stores’ functions: (i) showrooms only display products for customers to inspect before they purchase online, removing fulfillment from physical stores; (ii) return flexibility expands the functionality of physical stores by allowing customers to return online orders at them; and (iii) fulfillment flexibility expands functionality by allowing customers to pick up products purchased online at physical stores. We show that when the physical stores are given fewer (more) functions, as with the showroom (return or fulfillment flexibility) strategy, the omnichannel retailer may find it optimal to increase (reduce) the number and/or size of the physical stores.

Honesty in the Digital Age

Alain Cohn

University of Michigan

Tobias Gesche

Harvard University

Michel André Maréchal

University of Zurich - Department of Economics

Abstract: Modern communication technologies enable efficient exchange of information, but often sacrifice direct human interaction inherent in more traditional forms of communication. This raises the question of whether the lack of personal interaction induces individuals to exploit informational asymmetries. We conducted two experiments with 866 subjects to examine how human versus machine interaction influences cheating for financial gain. We find that individuals cheat significantly more when they interact with a machine rather than a person, regardless of whether the machine is equipped with human features. When interacting with a human, individuals are particularly reluctant to report unlikely favorable outcomes, which is consistent with social image concerns. The second experiment shows that dishonest individuals prefer to interact with a machine when facing an opportunity to cheat. Our results suggest that human interaction is key to mitigating dishonest behavior and that self-selection into communication channels can be used to screen for dishonest people.

Keywords: cheating, honesty, private information, communication, digitization, lying costs

Predicting Human Discretion to Adjust Algorithmic Prescription: A Large-Scale Field Experiment in Warehouse Operations

Jiankun Sun

Imperial College Business School

Dennis J. Zhang

Washington University in St. Louis - John M. Olin Business School

Haoyuan Hu

Alibaba Group

Jan A. Van Mieghem

Northwestern University - Kellogg School of Management

Abstract: Conventional optimization algorithms that prescribe order packing instructions (which items to pack in which sequence in which box) focus on box volume utilization yet tend to overlook human behavioral deviations. We observe that packing workers at the warehouses of Alibaba Group deviate from algorithmic prescriptions for 5.8% of packages, and these deviations increase packing time and reduce operational efficiency. We posit two mechanisms and demonstrate that they result in two types of deviations: (1) information deviations stem from workers having more information and in turn better solutions than the algorithm; and (2) complexity deviations result from workers' aversion, inability or discretion to precisely implement algorithmic prescriptions.We propose a new "human-centric bin packing algorithm" that anticipates and incorporates human deviations to reduce deviations and improve performance. It predicts when workers are more likely to switch to larger boxes using machine learning techniques and then pro-actively adjusts the algorithmic prescriptions of those ``targeted packages.'' We conducted a large-scale randomized field experiment with the Alibaba Group. Orders were randomly assigned to either the new algorithm (treatment group) or Alibaba's original algorithm (control group). Our field experiment results show that our new algorithm lowers the rate of switching to larger boxes from 29.5% to 23.8% for targeted packages and reduces the average packing time of targeted packages by 4.5%. This idea of incorporating human deviations to improve optimization algorithms could also be generalized to other processes in logistics and operations.

Keywords: Warehouse Operations, Behavioral Operations, Field Experiment, Retailing

How Do Restrictions on Advertising Affect Consumer Search?

Lesley Chiou

Occidental College - Department of Economics

Catherine E. Tucker

Massachusetts Institute of Technology (MIT)

Abstract: Advertising is often criticized for presenting only partial or selective information about products. This criticism is particularly pronounced for health products, where large asymmetries in information may exist between consumers and firms. This paper explores how government restrictions designed to prevent selective advertising affect the types of information to which consumers are exposed. We exploit a natural experiment in the form of an FDA crackdown that prevented pharmaceutical companies from using selectively chosen information in their Internet search ads. Since companies could not adequately document side-effects within the advertising space allowed, they removed their ads. Our results suggest that, after the ads were removed, consumers were more likely to seek information from websites based on user-generated content or websites that focused on medical treatments not regulated by the FDA, such as Canadian pharmacies and sites promoting herbal remedies.

Keywords: search advertising, pharmaceuticals, advertising regulation

Demand Pooling in Omnichannel Operations

Ming Hu

University of Toronto

Xiaolin Xu

Nanjing University

Weili Xue

Southeast University

Yi Yang

Zhejiang University

Abstract: Both traditional retailers and e-tailers have been implementing omnichannel strategies such as buy online, pick up at store (BOPS). We build a stylized model to investigate the impact of the BOPS initiative on store operations from an inventory perspective. We consider two segments of customers, namely store-only customers who only make purchases offline and omni-customers who strategically choose between offline and online channels. We show that BOPS may either benefit or hurt the retailer depending on two fundamental system primitives: the store visiting cost and the online waiting cost. If the online waiting cost is relatively low and the store visiting cost is even lower, BOPS can induce omni-customers to migrate from online buying to BOPS, leading to demand pooling at the brick-and-mortar (B&M) store. Such demand pooling provides two benefits for the retailer: it reduces the overstocking cost, and after inventory reoptimization, it results in a higher fill rate at the B&M store, which benefits existing customers and potentially attracts more customers to the store. In contrast, if both store visiting and online waiting costs are relatively high with the latter even higher, introducing BOPS can result in demand depooling as a result of the migration of the omni-customers from offline purchasing to BOPS. This leads to a lower fill rate after inventory reoptimization, likely the result of a lower profit margin under BOPS, which turns away store-only customers and hurts the retailer.

Keywords: omnichannel, retail operations, channel management, inventory management

How Market Power Affects Dynamic Pricing: Evidence from Inventory Fluctuations at Car Dealerships

Ayelet Israeli

Harvard Business School

Fiona Scott-Morton

Yale School of Management

Jorge Silva-Risso

University of California

Florian Zettelmeyer

University of California, Berkeley - Marketing Group

Abstract: This paper investigates empirically the effect of market power on dynamic pricing in the presence of inventories. Our setting is the auto retail industry; we analyze how automotive dealerships adjust prices to inventory levels under varying degrees of market power. We first establish that inventory fluctuations create scarcity rents for cars that are in short supply. We then show that dealers’ ability to adjust prices in response to inventory depends on their market power, that is, the quantity of substitute inventory in their selling area. Specifically, we show that the slope of the price–inventory relationship (higher inventory lowers prices) is significantly steeper when dealers find themselves in a situation of high rather than low market power. A dealership with high market power moving from a situation of inventory shortage to a median inventory level lowers transaction prices by about 0.57% ceteris paribus, corresponding to 32.5% of dealers’ average per-vehicle profit margin or $145.6 on the average car. Conversely, when competition is more intense, moving from inventory shortage to a median inventory level lowers transaction prices by about 0.35% ceteris paribus, corresponding to 20.2% of dealers’ average per-vehicle profit margin or $90.9. To our knowledge, we are the first to empirically show that market power affects firms’ ability to dynamically price.

Keywords: marketing, pricing, price discrimination, inventory production, dynamic pricing, automobile industry, market power

The Profitability of Revenue-Based Quotas Under Price Negotiation

Pranav Jindal

UNC Kenan-Flagler Business School

Peter Newberry

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

Abstract: We study how the presence of a monthly revenue-based quota impacts a retailer's profits when prices are negotiated by a salesperson. Utilizing transaction level data for refrigerators, we first provide reduced form evidence that prices are impacted by the quota: the negotiated discounts are approximately 3.8% higher if the salesperson is 10% closer to reaching the quota in the final week of the month. Guided by this result, we specify and estimate a demand model that identifies the impact of the quota through two forces - the effort salespeople expend in order to sell the product and their bargaining position. Results indicate that, as salespeople get closer to reaching their quota, their effort increases regardless of the week and their bargaining position weakens (i.e., they offer lower prices), but only in the final week of the month. We use these results to analyze the impact of the quota and find that holding salespeoples' total compensation fixed, eliminating quota results in 8% lower profit for the retailer. This decrease stems primarily from the reduction in effort which outweighs any benefit from strengthening the salespeoples' bargaining position. The change in profit is economically meaningful as eliminating both price negotiation (i.e., moving to fixed pricing) and the quota result in an up to 36% reduction in profit.

Keywords: salespeople, bargaining, compensation structure, quota, price delegation, pricing

Impact of Social Interactions on Duopoly Competition with Quality Considerations

Xin Geng

University of Miami - Department of Management

Xiaomeng Guo

Hong Kong Polytechnic University - Department of Logistics and Maritime Studies

Guang Xiao

Hong Kong Polytechnic University - Department of Logistics and Maritime Studies

Abstract: We study the impacts of social interactions on competing firms' quality differentiation, pricing decisions, and profit performance. Two forms of social interactions are identified and analyzed: 1) market expansion effect (MEE) -- the total market expands as a result of both firms' sales; and 2) value enhancement effect (VEE) -- a consumer gains additional utility of purchasing from one firm based on this firm's previous and/or current sales volume. We consider a two-stage duopoly competition framework, in which both firms select quality levels in the first stage simultaneously and engage in a two-period price competition in the second stage. In the main model, we assume that each firm sets a single price and commits to it across two selling periods. We find that both forms of social interactions tend to lower prices and intensify price competition for given quality levels. However, MEE weakens the product quality differentiation and is benign to both high-quality and low-quality firms. It also benefits consumers and improves social welfare. By contrast, VEE enlarges the quality differentiation and only benefits high-quality firm, but is particularly malignant to the low-quality firm. It further reduces the consumers' monetary surplus. Such impact is consistent regardless of whether the VEE interactions involve previous or current consumers. We further discuss several model extensions including dynamic pricing, combined social effects, and various cost structures, and verify that the aforementioned impacts of MEE and VEE are qualitatively robust to those extensions. Our results provide important managerial insights for firms in competitive markets and suggest that they need to not only be aware of the consumers' social interactions, but also, more importantly, distinguish the predominant form of the interactions so as to apply proper marketing strategies.

Keywords: duopoly competition; social interactions; product differentiation; pricing

Personalization from Customer Data Aggregation Using List Price

Zibin Xu

University of Southern California - Marshall School of Business

Anthony Dukes

University of Southern California - Marshall School of Business

Abstract: When consumers’ inferences of their reservation values are subject to environmental noise, firms can use customer data aggregation to obtain superior knowledge. This facilitates personalized pricing but may also induce consumer suspicions of overpaying. To alleviate the suspicions and convince consumers of their value, the firm may design its personalization scheme to include a list price in addition to the personalized prices. We find that only a separating equilibrium with list pricing survives the intuitive criterion. Specifically, when consumers underestimate their value, it is essential to use a binding list price to inform the consumers about the market’s price ceiling. Contrary to the conventional wisdom, the firm cannot abuse its informational advantage to steer consumers into overestimation, and price discrimination may strictly benefit the consumers who avoid overpaying.

Keywords: price discrimination, uninformed consumer preference, price signaling, data collection, privacy

Product Lines and Price Discrimination in Markets with Information Frictions

Natalia Fabra

Universidad Carlos III de Madrid - Departmento de Economia

Juan-Pablo Montero

Pontifical Catholic University of Chile

Abstract: A well known principle in economics is that firms differentiate their product offerings in order to relax competition. However, in this paper we show that in-formation frictions can invalidate this principle. We build a duopolistic model of second-degree price competition with information frictions in which (i) there always exists an equilibrium with overlapping qualities, whereas (ii) the equilibrium with non-overlapping qualities exists only when both information frictions and the costs of providing high quality are small enough. As a consequence, reasons other than the attempt to soften competition should be used to explain why firms in some cases carry non-overlapping product lines.

Keywords: pricing strategy, product strategy, retail competition, search, second degree price discrimination, vertical differentiation

Following the Customers: Dynamic Competitive Repositioning

Z.Eddie Ning

Cheung Kong Graduate School of Business

J.Miguel Villas-Boas

University of California, Berkeley

Abstract: We consider dynamic repositioning when competing firms try to follow the evolution of consumer preferences, while taking into account the competitive interaction, both in terms of static market competition, and the dynamic effects of different firm positionings. We fully characterize the dynamic market equilibrium, which includes the timing of the firms' repositionings depending on consumer preferences. As consumer preferences evolve away from where both firms are located, one firm first moves to follow consumer preferences, with the second firm only moving if the consumer preferences continue evolving away from that firm. The model predicts rich market dynamics, where firms stay for some period in different positionings if consumer preferences are in a relatively middle ground, or where a firm repositions to follow consumer preferences, but then repositions back to the original position, if consumer preferences return. We find that, when the variability of the consumer preferences or the discount rate is greater, or when the importance of the repositioning attribute is smaller, firms are less likely to follow consumer preferences. Firms are more heterogeneous in their responses, which leads to longer periods of differentiation, when the variability of the consumer preferences, the discount rate, or the importance of the repositioning attribute increases. We also find that competing firms reposition less frequently than what is socially optimal and than what collusion would imply, and we find more differentiation under collusion than under competition.

Keywords: Positioning, Repositioning, Differentiation, Evolving Preferences, Continuous-time Game

Inattention in Contract Markets: Evidence from a Consolidation of Options in Telecom

Bjørn-Atle Reme

Norwegian Institute of Public Health

Helene Lie Røhr

Telenor

Morten Sæthre

Norwegian School of Economics (NHH)

Abstract: We study customer inattention by utilizing a notification about a future price change in the mobile subscription market. With detailed customer-level data from a large telecom operator, together with data on prices and contracts offered by competitors, we document that the notification causes an increase in customer attention, which triggers search, plan switching, and churn. In particular, we show that the monthly propensity to churn increases by 60% (from 1% to 1.6%) among customers whose costs would decrease with the new prices. We also document an increase in churn directly after the notification, not at the time of the future price change, and argue that this timing pattern is evidence of sophisticated inattention: customers take immediate action to mitigate the impact of their own future inertia. We supplement the analysis with a survey and find supporting evidence for the important role of inattention in determining how consumers adapt to changes in the market.

Keywords: consumer inertia, inattention, consumer behavior, telecom, churn

Dual Sourcing and Smoothing Under Nonstationary Demand Time Series: Reshoring with SpeedFactories

Robert N. Boute

KU Leuven - Faculty of Business and Economics (FEB); Vlerick Business School - Operations & Technology Management Center

Stephen M. Disney

Centre for Simulation, Analytics, and Modelling, The University of Exeter Business School

Joren Gijsbrechts

Catholic University of Portugal (UCP) - Catolica Lisbon School of Business and Economics

Jan A. Van Mieghem

Northwestern University - Kellogg School of Management

Abstract: We investigate near-shoring a small part of the global production to local \emph{SpeedFactories} that serve only the variable demand. The short lead time of the responsive SpeedFactory reduces the risk of making large volumes in advance, yet it does not involve a complete re-shoring of demand. Using a break-even analysis we investigate the lead time, demand, and cost characteristics that make dual sourcing with a SpeedFactory desirable compared to complete off-shoring. Our analysis employs a linear generalization of the celebrated order-up-to inventory policy to settings where capacity costs exist. The policy allows for order smoothing to reduce capacity costs and performs well relative to the (unknown) optimal policy. We highlight the significant impact of auto-correlated and non-stationary demand series, which are prevalent in practice yet challenging to analyze, on the economic benefit of re-shoring. Methodologically, we adopt a linear policy and normally distributed demand and use $Z-$transforms to present exact analyses.

Keywords: Inventory Management, Order Smoothing, Order-Up-To Policy, Auto-Regressive Demand, Integrated Moving Average Demand, Global Outsourcing, Dual Sourcing, Z−transform

Social Responsibility Auditing in Supply Chain Networks

Han Zhang

Michigan State University - Eli Broad College of Business

Goker Aydin

Johns Hopkins University - Carey Business School

Rodney P. Parker

Indiana University Bloomington

Abstract: We study a buyer's problem of auditing suppliers within an existing network to ensure social responsibility compliance. The buyer suffers economic damages if a violation at a supplier is exposed (whether by the media, regulator, or NGO). To avoid damages the buyer may audit the network to identify noncompliance. If a supplier fails an audit, the buyer must take one of two costly actions: either rectify the supplier or drop the supplier (along with any dependent suppliers). Dropping a supplier changes the network topology, reducing competition and thereby increasing the buyer's input cost arising from an equilibrium. We show the buyer's optimal dynamic auditing policy has two subphases: the buyer will first audit and drop some suppliers, before either auditing and rectifying all remaining suppliers, or halting auditing altogether. By halting, the buyer tolerates some noncompliance in the network ("see no evil, hear no evil"). Within the audit-and-drop subphase, when auditing only in the upper tier, the buyer always audits a least valuable unaudited supplier, yielding greater balance in the network. When the buyer audits both tiers, it might choose a supplier other than the least valuable. The buyer may choose a supplier in a pivotal position to help ascertain the viability of a portion of the network ("litmus test"). In extensions, we find: when violations in tier 1 carry higher penalty for the buyer, the buyer may audit and rectify only tier-1 suppliers; when audits may be inaccurate, the buyer more likely tolerates a greater level of noncompliance.

Keywords: socially responsible sourcing, auditing, supply networks, supply risk

Regulating Conflicts of Interest in Medicine Through Public Disclosure: Evidence from a Physician Payments Sunshine Law

Matthew Chao

Williams College

Ian Larkin

University of California, Los Angeles

Abstract: Hospital and health care administrators have often named prescription drug costs as one of their largest cost problems. Relatedly, a significant body of research demonstrates that meals and honoraria from pharmaceutical firms to physicians leads to higher prescribing of expensive, brand name drugs. Some administrators and scholars have advocated for mandatory disclosure of these payments in order to reduce this conflict of interest, but many practitioners believe disclosure has little effect on prescribing. This paper uses a quasi-experiment of a 2009 payment disclosure policy in Massachusetts to estimate the causal impact of public disclosure on prescribing. The comprehensive dataset includes all retail prescriptions for 262 drugs in 9 drug classes written by 5730 physicians in five states over 48 months. We show a significant post-disclosure reduction in brand name drug prescriptions by Massachusetts physicians, relative to control doctors in other states. These effects are driven by heavy prescribers of brand name drugs in the pre-policy period, particularly for drugs with large pre-policy sales forces. Effects are also detected before the first data were released, implying that the effects are not because patients or administrators responded to the disclosed payments. Instead, some physicians may have reduced payments after disclosure is mandated, leading to changes in their prescriptions. Taken in tandem with the many studies showing that industry payments influence prescribing, this study suggests a strong role for mandatory public disclosure in reducing conflicts of interest in medicine and costly prescribing of brand name drugs.

Keywords: Conflicts of Interest, Disclosure, Social Image, Pharmaceutical Marketing, Reciprocity

Convex Optimization for Bundle Size Pricing Problem

Xiaobo Li

National University of Singapore

Hailong Sun

National University of Singapore (NUS)

Chung Piaw Teo

NUS Business School - Department of Decision Sciences

Abstract: We study the bundle size pricing (BSP) problem where a monopolist sells bundles of products to customers, and the price of each bundle depends only on the size (number of items) of the bundle. Although this pricing mechanism is attractive in practice, finding optimal bundle prices is difficult since it involves characterizing distributions of the maximum partial sums of order statistics. In this paper, we propose to solve the BSP problem under a discrete choice model using only the first and second moments of customer valuations. Correlations between valuations of bundles are captured by the covariance matrix. We show that the BSP problem under this model is convex and can be efficiently solved using off-the-shelf solvers. Our approach is flexible in optimizing prices for any given bundle size. Numerical results show that it performs very well compared with state-of-the-art heuristics. This provides a unified and efficient approach to solve the BSP problem under various distributions and dimensions.

Keywords: discrete choice, bundle size pricing, convex optimization, semi-definite programming

Can Market Participants Report Their Preferences Accurately (Enough)?

Eric Budish

University of Chicago - Booth School of Business

Judd B. Kessler

University of Pennsylvania - Business & Public Policy Department

Abstract: In mechanism design theory it is common to assume that agents can perfectly report their preferences, even in complex settings where this assumption strains reality. We experimentally test whether real market participants can report their real preferences for course schedules “accurately enough” for a novel course allocation mechanism, approximate competitive equilibrium from equal incomes (A-CEEI), to realize its theoretical benefits. To use market participants’ real preferences (i.e., rather than artificial “induced preferences” as is typical in market design experiments), we developed a new experimental method. Our method, the “elicited preferences” approach, generates preference data from subjects through a series of binary choices. These binary choices revealed that subjects preferred their schedules constructed under A-CEEI to their schedules constructed under the incumbent mechanism, a bidding points auction, and that A-CEEI reduced envy, suggesting subjects were able to report their preferences accurately enough to realize the efficiency and fairness benefits of A-CEEI. However, preference reporting mistakes did meaningfully harm mechanism performance. One identifiable pattern of mistakes was that subjects had relatively more difficulty reporting cardinal as opposed to ordinal preference information. The experiment helped to persuade the Wharton School to adopt the new mechanism and helped guide aspects of its practical implementation, especially around preference reporting.Preview Abstract

Keywords: market design, experiments, matching theory, course allocation, preference elicitation, combinatorial assignment, combinatorial allocation

The Persistent Effects of Short-Term Peer Groups on Performance: Evidence from a Natural Experiment in Higher Education

Petra Thiemann

Lund Universitet Ekonomihogskolan

Abstract: This paper studies the persistent effects of short-term peer exposure on long-run performance in a college setting. I exploit the random assignment of undergraduates to peer groups during a mandatory orientation week and track the students’ performance over four years (until graduation). Assignment to orientation week groups with high levels of peer ability is associated with lower performance during the first year at college and a higher probability of early dropout. These adverse effects are driven entirely by the exposure of low-ability students to high-ability peers. Beyond the first year, exposure to higher peer ability during the orientation week negatively affects selection into the college’s most popular major (business administration) and final grade point average. Taken together, the findings suggest that the composition of short-term peer groups matters for individual choices and long-run performance outcomes.

Keywords: peer effects, natural experiment, higher education, performance

The Performance of Time-Preference and Risk-Preference Measures in Surveys

Joshua Tasoff

Claremont Colleges - Claremont Graduate University

Wenjie Zhang

Claremont Colleges - School of Politics and Economics

Abstract: Time preferences and risk preferences play an important role in a wide range of behavior, including financial decisions, entrepreneurship, and the proper incentivizing of agents. Numerous methods have been developed to measure these preferences hypothetically in surveys but they have yielded inconsistent results. We analyze a panel data set in which subjects have collectively answered more than 400 surveys including 15 time-preference and 36 risk-preference elicitations. We evaluate the performance of these measures using the criteria of (1) ability to predict economically important behavior and (2) distinctness from other observables. We find substantial heterogeneity in the predictiveness of the measures. The best performing measure for time-preference is a titration method, in which a sequence of adaptive binary choice questions narrows in on a subject’s indifference point, and for risk-preference it is a self-report measure of risk aversion. Using factor analysis, we find that time preferences are well explained by a single factor but risk preferences load on multiple factors. However, the first factor loads almost entirely on self-reported risk-preference measures and this factor explains much of the variation. The evidence can help inform researchers about which elicitation methods to include in their surveys.

Keywords: Time Preferences, Risk Preferences, Surveys, Elicitation Method

On the Fair Division of a Random Object

Anna Bogomolnaia

University of Glasgow

Hervé Moulin

Higher School of Economics

Fedor Sandomirskiy

echnion - Israel Institute of Technology

Abstract: Ann likes oranges much more than apples; Bob likes apples much more than oranges. Tomorrow they will receive one fruit that will be an orange or an apple with equal probability.

Giving one half to each agent is fair for each realization of the fruit. However, agreeing that

whatever fruit appears will go to the agent who likes it more gives a higher expected utility to

each agent and is fair in the average sense: in expectation, each agent prefers his allocation to

the equal division of the fruit, i.e., he gets a fair share.

We turn this familiar observation into an economic design problem: upon drawing a random

object (the fruit), we learn the realized utility of each agent and can compare it to the mean of

his distribution of utilities; no other statistical information about the distribution is available.

We fully characterize the division rules using only this sparse information in the most efficient

possible way, while giving everyone a fair share. Although the probability distribution of individual utilities is arbitrary and mostly unknown to the manager, these rules perform in the

same range as the best rule when the manager has full access to this distribution.

Keywords: fair division, goods or bads, prior-independent mechanisms, competitive ratio

Decision Making Under Model Uncertainty: Fréchet–Wasserstein Mean Preferences

Electra V. Petracou

University of the Aegean

Anastasios Xepapadeas

Athens University of Economics and Business; University of Bologna - School of Economics, Management, and Statistics

Athanasios N. Yannacopoulos

Athens University of Economics and Business

Abstract: This paper contributes to the literature on decision making under multiple probability models by studying a class of variational preferences. These preferences are defined in terms of Fréchet mean utility functionals, which are based on the Wasserstein metric in the space of probability models. In order to produce a measure that is the “closest” to all probability models in the given set, we find the barycenter of the set. We derive explicit expressions for the Fréchet–Wasserstein mean utility functionals and show that they can be expressed in terms of an expansion that provides a tractable link between risk aversion and ambiguity aversion. The proposed utility functionals are illustrated in terms of two applications. The first application allows us to define the social discount rate under model uncertainty. In the second application, the functionals are used in risk securitization. The barycenter in this case can be interpreted as the model that maximizes the probability that different decision makers will agree on, which could be useful for designing and pricing a catastrophe bond.

Published Online:July 6, 2021

A Model of Search with Two Stages of Information Acquisition and Additive Learning

Peter Gibbard

University of Otago

Abstract: This paper presents a model of choice with two stages of information acquisition. In this model, the choice problem can be interpreted as a variant of a more general multiarmed bandit problem. We assume that information acquisition takes a simple “additive form”—the value of an alternative is the sum of two components, which the decision maker can learn by undertaking two stages of information acquisition. This assumption yields a model that is tractable for the purposes of structural estimation. One possible application of the model is to online purchasing on e-commerce sites. For a consumer on an e-commerce website, there are potentially two stages of information acquisition: the consumer can obtain information about an alternative from (i) browsing the search results page and (ii) clicking on the alternative. By way of contrast, in much of the literature on structural econometric models of online purchasing, there is typically only one stage of information acquisition. Our paper may, therefore, provide a more realistic theory for modeling search, at least for those types of search—such as online purchasing—that involve two stages of information acquisition.

Keywords: decision analysis, sequential, dynamic programming, economics, microeconomic behavior

Dimensioning On-Demand Vehicle Sharing Systems

Saif Benjaafar

University of Minnesota - Minneapolis - Industrial & System Engineering

Shining Wu

Hong Kong Polytechnic University - Department of Logistics and Maritime Studies

Hanlin Liu

Southern University of Science and Technology

Einar Bjarki Gunnarsson

University of Minnesota - Twin Cities - Department of Industrial and Systems Engineering

Abstract: We consider the problem of optimal fleet sizing in a vehicle sharing system. Vehicles are available for short-term rental and are accessible from multiple locations. A vehicle rented at one location can be returned to any other location. The size of the fleet must account not only for the nominal load and for the randomness in demand and rental duration but also for the randomness in the number of vehicles that are available at each location due to vehicle roaming (vehicles not returning to the same location from which they were picked up). We model the dynamics of the system using a closed queueing network and obtain explicit and closed form lower and upper bounds on the optimal number of vehicles (the minimum number of vehicles needed to meet a target service level). Specifically, we show that starting with any pair of lower and upper bounds, we can always obtain another pair of lower and upper bounds with gaps between the lower and upper bounds that are independent of demand and bounded by 1/(1-alpha), where alpha is the prescribed service level. We show that the generated bounds are asymptotically exact under several regimes. We use features of the bounds to construct a simple and closed form approximation that we show to be always within the generated lower and upper bounds and is exact under the asymptotic regimes considered. Extensive numerical experiments show that the approximate and exact values are nearly indistinguishable for a wide range of parameter values. The approximation is highly interpretable with buffer capacity expressed in terms of three explicit terms that can be interpreted as follows: (1) standard buffer capacity that is protection against randomness in demand and rental times, (2) buffer capacity that is protection against vehicle roaming, and (3) a correction term. Our analysis reveals important differences between the optimal sizing of standard queueing systems (where servers always return to the same queue upon service completion) and that of systems where servers, upon service completion, randomly join any one of the queues in the system. We show that the additional capacity needed to buffer against vehicle roaming can be substantial even in systems with vanishingly small demand.

Keywords: On-demand vehicle sharing systems, closed queueing networks, capacity optimization, bounds and approximations

Assigning Priorities (or Not) in Service Systems with Nonlinear Waiting Costs

Huiyin Ouyang

The University of Hong Kong (HKU) - Faculty of Business and Economics

Nilay Taník Argon

University of North Carolina (UNC) at Chapel Hill

Serhan Ziya

Department of Statistics and Operations Research

Abstract: For queueing systems with multiple customer types differing in service time distributions and costs for waiting, it is known that giving priority to one type over others minimizes the long-run average waiting costs when waiting is penalized linearly in time. However, when waiting costs are nonlinear, which is typically a more reasonable depiction of reality, it is not clear whether policies that ignore the type information such as the first-come-first-serve policy (FCFS) should be replaced with type-based priority policies. To shed some light on to this problem, we study a single-server queueing system with two types of customers under static queueing policies that use information on customers’ types and order of arrival. Our main theorem ranks the type-based priority policies and FCFS according to their long-run average waiting costs under nonlinear cost functions. We then apply this result to polynomial cost functions and generate insights into when prioritization is advantageous. For example, we find that when customers are similar in terms of their service time distributions, then the parameter region where FCFS is more preferable over type-based priority policies under quadratic costs increases with traffic intensity. We also conduct a numerical study to compare the best static policy with a well-known dynamic policy that requires information on the current waiting times of customers. We find that the best static policy performs comparably with (sometimes even better than) this dynamic policy except when the traffic is heavy and it is not clear which type should receive priority.

Keywords: Priority assignment, nonlinear cost, quadratic cost, c-mu rule

Relationships Under Stress: Relational Outsourcing in the U.S. Airline Industry After the 2008 Financial Crisis

Ricard Gil

Queen's University

Myongjin Kim

University of Oklahoma

Giorgio Zanarone

Washington University in St. Louis

Abstract: This paper studies how firms restructure their relational contracts in the face of permanent shocks to the value of their relationships. In the context of the U.S. airline industry, we argue that major carriers enter self-enforcing agreements with their outsourced regional partners because a key aspect of airline operations—the exchange of landing slots under adverse weather—is formally noncontractible. We show empirically that major and regional airlines did not terminate their relational contracts after the 2008 crisis but rather, restructured the scope of such contracts in a way that restored their credibility. In particular, we show that a major airline was less likely to continue outsourcing a route to a regional partner after the 2008 crisis the lower the present discounted value of their preexisting relationship and hence, the larger the negative effect of the crisis on the relational contract’s “self-enforcing range.”

Keywords: relational contracts, adaptation, outsourcing, airlines

Scandal, Social Movement, and Change: Evidence from #MeToo in Hollywood

Hong Luo

Harvard Business School - Strategy Unit

Laurina Zhang

Boston University - Questrom School of Business

Abstract: Social movements have the potential to effect change in strategic decision making. In this paper, we examine whether the #MeToo movement, spurred by the Harvey Weinstein scandal, leads to changes in the likelihood of Hollywood producers working with female writers on new movie projects. Since #MeToo affected the entire industry, we use variation in whether producers had past collaborations with Weinstein to investigate whether and how #MeToo may spur change. We find that producers previously associated with Weinstein are, on average, about 35-percent more likely to work with female writers after the scandal than they were before, relative to non-associated producers; and the size of this effect increases with the intensity of the association. Female producers are the main drivers of our results, perhaps because they are more likely than male producers to resonate with the movement’s cause and face relatively low costs of enacting change. Changes made by other groups, such as production teams with the most intense association with Weinstein and less-experienced all-male teams, may be better explained by motivations to mitigate risk. We also find that producers do not sacrifice writer experience by hiring more female writers and that both experienced and novice female writers have benefited from the increased demand. Our study shows that social movements that seek to address gender inequality can, indeed, lead to meaningful change. It also provides perspective for thinking about whether, and to what extent, changes may occur in broader settings.

Keywords: gender inequality, social movements, scandal, project selection, creative industries

Measuring the Impact of Crowdsourcing Features on Mobile App User Engagement and Retention: A Randomized Field Experiment

Zhuojun Gu

Pennsylvania State University - University Park; The University of Texas

Ravi Bapna

University of Minnesota - Minneapolis

Jason Chan

University of Minnesota - Twin Cities - Carlson School of Management

Alok Gupta

University of Minnesota - Twin Cities - Carlson School of Management

Abstract: The most commonly cited issues with mobile apps are low user engagement and retention levels. In this paper, we explore the efficacy of crowdsourcing features on enhancing user engagement and retention in the context of mobile gaming apps. To do so, we examine two specific crowdsourcing features, namely, the ability to contribute content and the ability to access crowdsourced content. Under a 2×2 factorial design, we assess the impact of these crowdsourcing features on usage outcomes via a randomized field experiment. In our experiment, we also examine the underlying mechanisms that lead to the main observed effects. Interestingly, we find that even without contributing content, users exhibited heightened user engagement and retention when they are given the option to contribute gaming content to the app. But with actual content submission, usage improvement is promoted to a larger magnitude. In particular, results show that the content contribution feature reduces users’ hazard of ending a session and abandoning the app by 11% and 14%, respectively. Results also show that content access option only has positive effect on user retention but not user engagement. Moreover, the greatest improvement in user retention is achieved when users are treated with the full-crowdsourcing feature, which enables users to both contribute content and view crowdsourced content from the community. Finally, we find heterogeneous treatment effects in our study setting: full-crowdsourcing features tend to enhance the retention of heavy game players, while they heighten the engagement level of casual gamers. Study implications for app design and crowdsourcing are discussed.

Keywords: crowdsourcing, online co-creation, user-generated content, mobile app, consumer empowerment, engagement, retention, autonomy, randomized field experiment

Revisiting the Entrepreneurial Commercialization of Academic Science: Evidence from “Twin” Discoveries

Matt Marx

Boston University - Questrom School of Business

David H. Hsu

University of Pennsylvania - Management Department

Abstract：Which factors shape the commercialization of academic scientific discoveries via startup formation? Prior literature has identified several contributing factors but does not address the fundamental problem that the commercial potential of a nascent discovery is generally unobserved, which potentially confounds inference. We construct a sample of approximately 20,000 “twin” scientific articles, which allows us to hold constant differences in the nature of the advance and more precisely examine characteristics that predict startup commercialization. In this framework, several commonly-accepted factors appear not to influence commercialization. However, we find that teams of academic scientists whose former collaborators include “star” serial entrepreneurs are much more likely to commercialize their own discoveries via startups, as are more interdisciplinary teams of scientists.

Keywords: university technology transfer, entrepreneurship, technology commercialization,“twin” scientific discoveries

Comparing Non-GAAP EPS in Earnings Announcements and Proxy Statements

Dirk E. Black

University of Nebraska at Lincoln - School of Accountancy

Ervin L. Black

Steed School of Accounting

Theodore E. Christensen

University of Georgia - J.M. Tull School of Accounting; University of Georgia

Kurt H. Gee

Pennsylvania State University

Abstract: We compare non-GAAP earnings per share (EPS) in firms’ annual earnings announcements and proxy statements using hand-collected data from U.S. Securities and Exchange Commission filings. We find that proxies for capital market incentives (contracting incentives) are more highly associated with firms’ disclosure of non-GAAP EPS in annual earnings announcements (proxy statements). However, we find systematic differences in the properties of firms’ non-GAAP earnings and exclusions depending on whether they disclose non-GAAP EPS in both the earnings announcement and the proxy statement. When firms disclose non-GAAP EPS in both documents, we find that non-GAAP EPS is more useful for assessing firm value. Specifically, these firms are more likely to: (1) exclude nonrecurring items, (2) exclude less persistent earnings components, and (3) provide less aggressive non-GAAP EPS. Our results suggest that non-GAAP EPS is higher in quality for investors when disclosed in both the annual earnings announcement and the proxy statement. We provide some of the first large-sample evidence consistent with the use of non-GAAP EPS metrics in both financial reporting and compensation contracting.

Keywords: non-GAAP EPS, contracting, compensation, valuation, value relevance

Hedge Fund Activism and Corporate M&A Decisions

Szu-Yin (Jennifer) Wu

State University of New York, University at Buffalo

Kee H. Chung

State University of New York at Buffalo - School of Management

Abstract: This paper shows that hedge fund activism is associated with a decrease in mergers and acquisitions (M&A) and offer premiums and an increase in stock and operating performance. Activist hedge funds improve target firms’ M&A performance by reducing poor M&A, diversifying M&A, and the M&A of firms with multiple business segments. Activist hedge funds improve target firms’ M&A decisions by influencing their governance practices. We show that our results are unlikely driven by selection bias. Overall, activist hedge funds play an important role in the market for corporate control by increasing the efficiency of target firms’ M&A activities through interventions.

Keywords: Hedge Fund Activism, M&A Performance, Schedule 13D Filings, Event Study, Abnormal Stock Returns, Selection Bias

The Influence of Corporate Income Taxes on Investment Location: Evidence from Corporate Headquarters Relocations

Travis Chow

The University of Hong Kong

Sterling Huang

Singapore Management University - School of Accountancy

Kenneth J. Klassen

University of Waterloo - School of Accounting and Finance

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance

Abstract: This study examines the effects of jurisdictions’ corporate taxes and other policies on firms’ headquarters (HQ) location decisions. Using changes in state corporate income tax rates across time and states as the setting, we find that a one-percentage-point increase in the HQ state corporate income tax rate increases the likelihood of firms relocating their HQ out of the state by 16.8%, and an equivalent decrease in the HQ state rate decreases the likelihood of HQ relocations by 9.1%. Exploiting the unique tax policy features within the state apportionment system lends strong support to the interpretation that taxation drives this effect. Our analyses also demonstrate that state income tax features affect the destination of the HQ move. We contribute to the literature on corporate decision-making by showing how state income taxation affects a real corporate decision that has significant economic consequences for the company and the state.

Keywords: Corporate Tax Rate; Headquarters Relocation; State Apportionment System

The Real Side of the High-Volume Return Premium

Doron Israeli

IDC Herzliya - Arison School of Business; Nazarbayev University - Graduate School of Business

Ron Kaniel

University of Rochester - Simon Business School

Suhas A. Sridharan

Emory University - Goizueta Business School

Abstract: Prior literature demonstrates that increased trading activity of a firm’s stock is associated with abnormal future stock returns (the high-volume return premium) and interprets this phenomenon as evidence that increased visibility generates reductions in cost of capital. Motivated by this interpretation, we investigate whether increased trading activity entails changes in real corporate actions. We document a positive relation between abnormal trading volume, future investment expenditures, and financing cash flows. This positive relation is not subsumed by the arrival of investment-related news or other corporate disclosures or by subsequent earnings information and is concentrated among firms with high financial constraints and firms with lower levels of investor recognition.

Keywords: trading volume, corporate investment, financing cash flows, investor recognition

Bail-in and Bailout: Friends or Foes?

Lorenzo Pandolfi

Università di Napoli Federico II and CSEF

Abstract: This paper analyzes the effects of bail-in and bailout policies on banks’ funding costs, incentives for loan monitoring, and financing capacity. In a model with moral hazard and two investment stages, a full bail-in turns out to be, ex post, the optimal policy to deal with a failing bank. Unlike a bailout, it allows the government to recapitalize the bank without resorting to distortionary taxes. As a consequence, however, investors expect bail-ins rather than bailouts. Ex ante, this raises banks’ cost of debt and depresses bankers’ incentives to monitor. When moral hazard is severe, this time inconsistency leads to a credit market collapse in which productive projects are not financed, unless the government precommits to an alternative resolution policy. The optimal policy is either a combination of bail-in and bailout—in which the government uses a minimal amount of public transfers to lower banks’ cost of debt—or liquidation, depending on the severity of moral hazard and the shadow cost of the partial bailout.

Keywords: bail-inbailout, moral hazard, resolution policies, bank regulation

Uncertainty and the Shadow Banking Crisis: Estimates from a Dynamic Model

Xu Tian

University of Georgia - Terry College of Business - Department of Finance

Abstract: Shadow banks play an important role in the modern financial system and are arguably the source of key vulnerabilities that led to the 2007-2009 financial crisis. I develop a quantitative framework with uncertainty fluctuations and endogenous bank default to study the dynamics of shadow banking. I argue that the increase in asset return uncertainty during the crisis results in a spread spike, making it more costly for shadow banks to roll over their debt in the short-term debt market. As a result, these banks are forced to deleverage, leading to a decrease in credit intermediation. The model is estimated using a bank-level dataset of shadow banks in the United States. The parameter estimates imply that uncertainty shocks can explain 72% of asset contraction and 70% of deleveraging in the shadow banking sector. Maturity mismatch and asset fire-sales amplify the impact of the uncertainty shocks. First-moment shocks to bank asset return, financial shocks, or fire-sale cost shocks alone can not reproduce the large interbank spread spike, dramatic deleveraging or contraction in the U.S. shadow banking sector during the crisis. The model also allows for policy experiments. I analyze how unconventional monetary policies can help to counter the rise in the interbank spread, thus stabilizing the credit supply. Taking bank moral hazard into consideration, I find that government bailout might be counterproductive as it might result in more aggressive risk-taking among shadow banks, especially when bailout decisions are based on bank characteristics.

Keywords: Shadow banking, uncertainty, maturity mismatch, fire-sale, unconventional monetary policy, moral hazard

Insider Trading, Competition, and Real Activities Manipulation

Hui Chen

University of Zurich

Bjorn N. Jorgensen

Harvard University

Abstract: Corporate insiders, particularly managers, not only have access to their firms' private information, but also control over their firms' operational decisions. In this paper, we consider a setting where managers manipulate the firms' real activities in anticipation of subsequent insider trading opportunities. We find these managers choose production quantities that are strictly higher than the quantities absent insider trading. The overproduction leads to lower firm profits but higher consumer surplus. When we allow the managers to trade both in their own firms' and their rival firms' stocks, we find that the competition among insiders in the financial market drives down the expected insider trading profits and their incentives to distort production decisions. We then discuss the scenario of "substitute trading" when the managers only trade in their rival firms' shares, and show that the managers can earn some insider benefits without sacrificing their firms' profitability. We also explore the possibility of endogenizing the managers' ownership through compensation contracts.

Keywords: Insider trading, Kyle model, real activities manipulation, overproduction

Executive Network Centrality and Corporate Reporting

Jing He

The University of Utah

Abstract: This paper investigates the association of corporate reporting and executive network centrality, which measures an executive’s relative position in a massive network consisting of outside corporate leaders. I find that high-centrality chief executive officers (CEOs) and chief financial officers (CFOs) are generally more likely to engage in financial misreporting than low-centrality CEOs and CFOs. I also find that the influence of CFO network centrality is greater than that of CEOs in financial misreporting. Further analyses show that the monitoring effect of internal governance mechanisms on high-centrality executives is very limited and that the discipline of the managerial labor market is weaker for high-centrality CFOs as well. My results hold for a subsample subject to exogenous shocks to CFO connectedness and are robust to a series of alternative specifications including using CFO fixed effects. Taken together, my findings suggest that corporate reporting can be influenced by executives’ social network position, with high-centrality CFOs using their social power to make adverse corporate reporting decisions to gain personal benefits.

Keywords: social network centrality, financial reporting, corporate governance, managerial labor market

Targets, Predictability, and Performance

Francisco Peñaranda

CUNY Queens College

Liuren Wu

City University of New York, CUNY Baruch College - Zicklin School of Business

Abstract: We study market-timing strategies on a given portfolio to achieve a particular risk or return target. Targeting a constant risk level leads to increasing investment at better investment opportunities whereas targeting a constant expected return does the opposite. Theoretical and numerical analysis shows that, within the usual ranges of investment opportunities, risk targeting generates better unconditional performance than return targeting across a wide range of metrics. Empirical analysis with commonly constructed stock portfolios further highlights the practical infeasibility of return targeting due to the inherently low out-of-sample predicting power. By contrast, risk targeting tends to enhance unconditional stability and performance.

Keywords: Market Timing, Return Targeting, Risk Targeting, Mean-Variance Efficiency, Sharpe Ratio, Information Ratio, Skewness, Kurtosis

Third-Party Consequences of Changes in Managerial Fiduciary Duties: The Case of Auditors’ Going Concern Opinions

Liang Tan

Virginia Polytechnic Institute & State University

Santhosh Ramalingegowda

University of Georgia - Terry College of Business

Yong Yu

University of Texas at Austin

Abstract: This study examines the effect of managerial fiduciary duties on the likelihood of firms receiving going concern (GC) opinions from their auditors. We exploit an influential 1991 legal ruling that expanded fiduciary duties of corporate directors and officers in favor of creditors for near-insolvent Delaware firms. Our difference-in-differences test reveals an increase in GC opinions following the ruling for near-insolvent Delaware firms. Further tests indicate an increase in Type I audit opinion errors and no change in audit risk after the ruling. Additional analysis shows that after the ruling near-insolvent Delaware firms are less likely to dismiss their auditors following the receipt of a GC report. Overall, our findings are consistent with managers and directors with increased fiduciary duties toward creditors exerting less pressure on auditors and allowing them to reveal more GC opinions. Our results highlight important third-party consequences of changes in managerial fiduciary duties.

Keywords: Credit Lyonnais Ruling, Fiduciary Duties, Going Concern Opinions, Auditors

The Short-Run and Long-Run Components of Idiosyncratic Volatility and Stock Returns

Yunting Liu

Peking University

Abstract: To capture the dynamics of idiosyncratic volatility of stock returns over different horizons and investigate the relationship between idiosyncratic volatility and expected stock returns, this paper develops and estimates a parsimonious model of idiosyncratic volatility consisting of a short-run and a long-run component. The conditional short-run and long-run components are found to be positively and negatively related to expected stock returns, respectively. The positive relation between the short-run component and stock returns may be caused by investors requiring compensation for bearing idiosyncratic volatility risk when facing trading frictions and hold underdiversified portfolios. The negative relationship between the long-run component and stock returns may reflect the fact that stocks with high long-run idiosyncratic volatility are less exposed to systematic risk factors and, hence, earn lower returns. Moreover, the low-risk exposure of stocks characterized by high idiosyncratic volatility lends support to real-option-based mechanisms to explain this negative relation. In particular, the systematic risk of a firm with abundant growth options crucially depends upon the risk exposure of these options. The value of growth options could rise significantly because of convexity when the increase in idiosyncratic volatility occurs over long horizons. And growth options’ systematic risk could fall because the relative magnitude of their value in relation to systematic risk factors decreases.

Keywords: idiosyncratic volatility, short-run, long-run, cross-sectional stock returns, risk factors, real options

END

编辑团队成员名单：

李欣颖 青海民族大学 会计张澳 湖南大学 大四 会计学石庚岩 信阳师范学院 研二 会计学
吴伟 浙江工商大学 会计学 研三
王萃芳 东北财经大学 企业管理 博二
王俊苏 重庆理工大学 MPACC 研一

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