Three Essays On The Interaction Between Product Markets And Financial Markets
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Three Essays On The Interaction Between Product Markets And Financial Markets
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Author : John Joohahn Moon
language : en
Publisher:
Release Date : 1994
Three Essays On The Interaction Between Product Markets And Financial Markets written by John Joohahn Moon and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1994 with Asset allocation categories.
Three Essays On Information Efficiency In Financial Markets And Product Market Interaction
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Author : Haina Ding
language : en
Publisher:
Release Date : 2014
Three Essays On Information Efficiency In Financial Markets And Product Market Interaction written by Haina Ding and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
This dissertation contains three independent essays. The first two essays look at the informational role of stock prices and its impact on the real economy. The last one explores the relationship between managerial incentive and product market competition. In the first essay, two firms compete in a product market and have an opportunity to invest in a risky technology either early on as a leader or later once stock prices reveal the value of the technology. Information leakage thus introduces an option of waiting, which enhances production efficiency. A potential leader may nevertheless be discouraged from investing upfront, when anticipating its competitor to invest later in response to good news. I show that an increase in product market competition increases the option value of waiting but has an ambiguous effect on information production. It may thus be the case that intense competition leads to more leakage such that no firm would invest, especially so in a smaller market. Given a moderate level of competition, price informativeness may improve investment outcome when investment profitability and the market size are relatively large. The second essay examines the feedback effects of certifications in financial markets. A firm has to decide whether to monitor (or to ascertain) internally the prospect of a potential investment or to delegate this task to a certifier who reveals his evaluations to the outsiders. The investment decision is then taken based on all of the information available in the market. The information asymmetry between the firm and lenders is alleviated under delegation, and hence the firm enjoys a lower cost of capital at the financing stage. Delegation however reduces the information advantage of speculators who then make less effort to acquire information. This results in a potential information crowding-out effect. We show that the firm may prefer to delegate when the prior belief about the investment prospect is relatively high, and to choose in-house information production when its own signal is more precise and when its current assets in place generate a higher expected payoff. The third essay considers a spatial competition model with horizontal and vertical differentiation. Two firms are assigned to exogenous locations on a circular city. Consumers, distributed on the circle, need to pay a transportation cost for purchasing. Anticipating a future uncertainty in product quality, firms simultaneously offer incentive contracts to managers to induce an optimal effort level. I show that competition may adversely affects incentives, as a lower transportation cost impairs a firm's local market power and consequently reduces a firm's marginal benefit from producing a high quality product, particularly when its competitor also produces a high quality product. On the other hand, greater competition reduces a firm's profit if it fails to improve product quality. This effect increases the optimal effort level and becomes dominant if the quality improvement is relatively large compared to the effort cost. Moreover, a large decrease in the transportation cost may change the market structure, such that the firm with better quality goods attracts all the demand, and thus the positive effect of competition on managerial effort becomes more significant.
Three Essays In Financial Markets The Bright Side Of Financial Derivatives Options Trading And Firm Innovation
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Author : Iván Blanco
language : en
Publisher: Ed. Universidad de Cantabria
Release Date : 2019-02-15
Three Essays In Financial Markets The Bright Side Of Financial Derivatives Options Trading And Firm Innovation written by Iván Blanco and has been published by Ed. Universidad de Cantabria this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-02-15 with Business & Economics categories.
Do financial derivatives enhance or impede innovation? We aim to answer this question by examining the relationship between equity options markets and standard measures of firm innovation. Our baseline results show that firms with more options trading activity generate more patents and patent citations per dollar of R&D invested. We then investigate how more active options markets affect firms' innovation strategy. Our results suggest that firms with greater trading activity pursue a more creative, diverse and risky innovation strategy. We discuss potential underlying mechanisms and show that options appear to mitigate managerial career concerns that would induce managers to take actions that boost short-term performance measures. Finally, using several econometric specifications that try to account for the potential endogeneity of options trading, we argue that the positive effect of options trading on firm innovation is causal.
Essays In Financial Economics
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Author : Haofei Zhang
language : en
Publisher:
Release Date : 2019
Essays In Financial Economics written by Haofei Zhang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
This thesis consists of three essays on financial markets, product markets, information markets, and their interaction. Chapter 1 offers an introduction of the essays and summarizes the main findings. Chapter 2 studies how product markets shape managerial short-termism (myopia). It shows that under market competition, managerial short-termism may arise endogenously as a means for firms to commit to competing aggressively. Such managerial short-termism is facilitated by financial markets as firms tie their managers' pay to the short-term stock prices. The following two chapters focus on the interaction between financial markets and information markets; both chapters demonstrate that information markets are crucial in determining asset prices and market quality in financial markets. Chapter 3 develops an information-sales model in which investors acquire uncertain skills to interpret purchased data, thereby changing the behavior of data sellers. It leads to several novel results (e.g., price informativeness increases with skill-acquisition costs), which help clarify certain empirical regularities. Chapter 4 examines sales of financial market information in an economy with two information sellers. In equilibrium, the two sellers form either orthogonal or overlapping clientele, depending on the similarity of the information to be sold. When the two sellers' information is very distinct and the sellers have relatively large bargaining power in sharing trading profits, investors' information purchase behavior exhibits complementarity, leading to the possibility of multiple equilibria.
Three Essays On The Role Of Information Networks In Financial Markets
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Author : Swasti Gupta-Mukherjee
language : en
Publisher:
Release Date : 2007
Three Essays On The Role Of Information Networks In Financial Markets written by Swasti Gupta-Mukherjee and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with Capital market categories.
Based on previous evidence that there are information heterogeneities in capital markets, three essays including empirical frameworks for examining the information processes that impact portfolio investments and corporate investments was proposed. The first essay considers information channels among mutual fund managers (fund-fund networks), and between holding companies and fund managers (fund-company networks). Results show that (1) fund-fund (fund-company) information networks help in generating positive risk-adjusted returns from holdings in absence of fund-company (fund-fund) networks; (2) fund-company networks create information advantage only when the networks are relatively exclusive. Superior networks seem to pick stocks which outperform beyond the quarter. The second essay examines mutual fund managers' tendency to deviate from the strategies of their peers. Results indicate a significantly negative relationship between the managers' deviating tendency and fund performance, suggesting that the average fund manager is more likely to make erroneous decisions when they deviate from their peers. The third essay investigates the determinants of target choices in corporate acquisitions. Results reveal the influence of various factors, including information asymmetries, which may drive this behavior, including economic opportunities, anti-takeover regimes, competitive responses to other managers, and acquirers' size and book-to-market ratios.
Three Essays On The Industrial Organization Of Financial Markets
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Author : David F. Andrade
language : en
Publisher:
Release Date : 1997
Three Essays On The Industrial Organization Of Financial Markets written by David F. Andrade and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1997 with categories.
Three Essays In Financial Economics
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Author :
language : en
Publisher:
Release Date : 2014
Three Essays In Financial Economics written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
This dissertation contains three essays in financial economics. In Chapter 1, motivated by the phenomenon that momentum profits vary substantially across different market states, I develop a model to connect market states and momentum profits, and test the model's empirical implications. The model applies the mechanism of overconfidence and self-attribution bias into a setting of multiple risky assets with correlated payoffs. The model generates a set of implications regarding the relation between market states and returns on the winner, loser, and momentum portfolios. These implications are consistent with empirical patterns in the literature and those newly documented in this chapter. Overall, this chapter unifies momentum, negative momentum profits under certain market states, and long-run reversals. In Chapter 2, I examine the strategic role of cash in industries with significant R&D, and the variation of cash holdings and R&D intensity across such industries. In the model, firms compete to innovate but must also finance to bring innovations to the market. The first successful launcher of a new product enjoys an advantage. Outside financing takes time. Cash holdings, R&D intensity, and industry concentration are determined endogenously in equilibrium. Both cash holdings and R&D intensity increase with the winner's advantage and time delay in outside financing, and decrease with entry costs. Empirical patterns of industry cash holdings and R&D intensity support the model predictions. In Chapter 3, I document that the TED spread is a significant negative predictor of value premium. Over 1990 to 2011, a 1% increase in lagged TED spread predicts a 3.3% decrease of CAPM-adjusted value premium, with an R-squared value of 8.2%. I then argue that this finding is consistent with the mechanism that equity expected returns become lower under tighter credit conditions through shareholders' strategic default. I incorporate this mechanism into a simple model of a levered firm and derive more testable hypotheses. Consistent with these hypotheses, I further find that the negative relationship between value premium and lagged TED spread comes mainly from value stocks, stocks with lower credit ratings, stocks with lower cash flows, and stocks with higher shareholders' bargaining power and higher liquidation costs.
Essays On Corporate Finance And Product Market Competition
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Author : Bomi Lee
language : en
Publisher:
Release Date : 2014
Essays On Corporate Finance And Product Market Competition written by Bomi Lee and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
This dissertation contains two essays on the aggressive behavior of corporations in product market competition. In the first essay, I investigate how market structure can impact a firm's risk of facing predation by rivals, and hence, its financial policy decisions. Using a simple model, I demonstrate that a firm faces a greater predation threat when it meets the same competitor in many markets, as this competitor is able to internalize more of the benefit, degrading the firm's ability to compete in the future through aggressive actions today. I then test the predictions of the model using 2003-2011 panel data on store location across retail store chains in the US. I find that firms tend to expand more aggressively in markets shared with a competitor experiencing a substantial increase in leverage, or a decline in a credit rating, when they face that competitor in more of the other markets. The expansion relationship was found to be stronger in data from the 2008-2009 financial crisis, a period when difficulty in rolling over or obtaining new debt made it especially hard for weak firms to absorb losses. I also show that a firm facing the same competitors in many markets choose lower levels of leverage and that it decreases that leverage when a merger in the industry increases the amount of competitive overlap it has with other firms. These results suggest that firms are aware of the predation risk due to a competitive overlap and select financial policies to minimize this risk. In the second essay, I study the impact of internally generated funds on product market competition. More specifically, I investigate the idea that firms compete aggressively when their competitors face cash flow shortfalls. Testing this idea is challenging because competitor's cash flow changes are potentially endogenous with respect to firm's behavior. I address this problem in three ways. First, I investigate firm's reaction in a given market when its competitors face cash flow shortfalls outside of that market; this analysis is conducted using store location data on retail store chains. Second, I focus on the 2008-2009 financial crisis period in which retail store chains were hit by a negative demand shock which was hardly expected ex ante. Finally, I use a shock to local economic conditions which varies across markets and the different distributions of store locations across firms as instruments for the changes in competitors' cash flows. I find that a firm expands more in a given market in which it competes with rivals which face a more negative cash flow shortfall in the other markets. This relation is stronger when the competitors were highly leveraged before the crisis. Finally, I illustrate evidence that a firm responds more aggressively to competitor's cash flow shortfalls if it competes with that competitor in many of the same markets; this result is consistent with the prediction of the model in Chapter 1. These essays contribute to the literature by adding new evidence on the predatory behavior of corporations in product market competition.
Three Essays On Capital Market With Incomplete And Asymmetric Information
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Author : Chaoli Guo
language : en
Publisher:
Release Date : 2017-01-26
Three Essays On Capital Market With Incomplete And Asymmetric Information written by Chaoli Guo and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-01-26 with categories.
Essays On Financial Markets And Strategic Interactions
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Author : Marc Otto Nachmann
language : en
Publisher:
Release Date : 1994
Essays On Financial Markets And Strategic Interactions written by Marc Otto Nachmann and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1994 with Capital market categories.