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on Corporate Finance |
| By: | Nicholas Barberis; Robin Greenwood; Lawrence Jin; Andrei Shleifer |
| Abstract: | Survey evidence suggests that many investors form beliefs about future stock market returns by extrapolating past returns: they expect the stock market to perform well (poorly) in the near future if it performed well (poorly) in the recent past. Such beliefs are hard to reconcile with existing models of the aggregate stock market. We study a consumption-based asset pricing model in which some investors form beliefs about future price changes in the stock market by extrapolating past price changes, while other investors hold fully rational beliefs. We find that the model captures many features of actual prices and returns, but is also consistent with the survey evidence on investor expectations. This suggests that the survey evidence does not need to be seen as an inconvenient obstacle to understanding the stock market; on the contrary, it is consistent with the facts about prices and returns, and may be the key to understanding them. |
| JEL: | G12 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19189&r=cfn |
| By: | Annamaria Conti; Jerry Thursby; Marie C. Thursby |
| Abstract: | We examine the role of patents as signals used to reduce information asymmetries in entrepreneurial finance. A theoretical model gives conditions for a unique separating equilibrium in which startup founders file for patents to signal invention quality to investors, as well as appropriating value. The theory allows for heterogeneous investors and examine the optimal match of different types of startups, as defined by the quality of their technology, to investors who differ in the amount of non financial capital they provide. The empirical analysis is consistent with the model's predictions using a novel dataset of Israeli startups that received external funding during the period 1994-2011. |
| JEL: | G14 O16 O3 O34 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19191&r=cfn |
| By: | Fiordelisi, Franco; Meles, Antonio; Monferrà, Stefano; Starita, Maria Grazia |
| Abstract: | This study analyses the determining factors of reserve errors in publicly listed property and casualty insurance companies in the U.S. This subject deserves special attention because the previous literature does not control for trade-offs between executive remuneration and other incentives regarding such insurers’ discretionary accounting choices. We find that insurance managers manipulate loss reserves to increase their stock-based remuneration and to achieve corporate goals particularly those goals that relate to reducing tax burdens and obscuring financial weakness. We also observe that enactment of the Sarbanes-Oxley Act has constrained the loss reserve underestimation and changed the structure of reserve error incentives. |
| Keywords: | P&C insurers; reserve manipulation; executive compensation |
| JEL: | G22 G32 M42 |
| Date: | 2013–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:47867&r=cfn |
| By: | Aleksander Berentsen; Michael McBride; Guillaume Rocheteau |
| Abstract: | The goal of this paper is to study how informational frictions affect asset liquidity in OTC markets in a laboratory setting. The experiments replicate an OTC market similar to the one used in monetary and financial economics (Shi, 1995; Trejos and Wright, 1995; Duffie, Garleanu, and Pedersen, 2005): individuals are matched bilaterally and at random, there are gains from trades due to differences in technologies and endowments, and the terms of trade are determined through a simple bargaining protocol. Subjects buy commodities that have different private values with assets that have common values and can be subject to a private information problem. The asset plays the role of a medium of exchange, but this role can be affected by its lack of "recognizability." We study a benchmark experiment where the OTC bargaining game takes place under complete information, a set of experiments with adverse selection where the terminal value of notes are determined exogenously, and a set of experiments with hidden actions where subjects can produce fraudulent notes at some cost. |
| Keywords: | Liquidity, money, information, experiments |
| JEL: | G12 G14 E42 D82 D83 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:126&r=cfn |