The Federal Reserve proposed a program to sell term deposits to banks to absorb some of the banking system’s $1 trillion in excess reserves now threatening to accelerate inflation as the economy recovers."
"The first study, led by corporate-governance expert Lucian Bebchuk of Harvard Law School, looked at more than 2,000 companies to see what share of the total compensation earned by the top five executives went to the CEO. The researchers call this number—which averages about 35%—the 'CEO pay slice.'
It turns out that the bigger the CEO's slice of the pie, the lower the company's future profitability and market valuation...."
"Aquinas, in his great Summa, raised a question that had been discussed by Cicero. A merchant is carrying grain to a famine-stricken area. He knows that soon other merchants are following him with many more supplies of grain. Is the merchant obliged to tell the starving citizenry of the supplies coming soon and thereby suffer a lower price, or is it all right for him to keep silent and reap the rewards of a high price? To Cicero, the merchant was duty-bound to disclose his information and sell at a lower price. But St. Thomas argued differently. Since the arrival of the later merchants was a future event and therefore uncertain, Aquinas declared justice did not require him to tell his customers about the impending arrival of his competitors. He could sell his own grain at the prevailing market price for that area, even though it was extremely high."
"...public resale of restricted and control securities if a number of conditions are met...."included in these conditions is a volume condition:
"Trading Volume Formula. If you are an affiliate, the number of equity securities you may sell during any three-month period cannot exceed the greater of 1% of the outstanding shares of the same class being sold, or if the class is listed on a stock exchange or quoted on Nasdaq, the greater of 1% or the average reported weekly trading volume during the four weeks preceding the filing a notice of sale on Form 144."Which brings us to the paper by Peterburgsky:
"I examine whether the double-counting of reported trading volume on Nasdaq plays a role in insiders’ decisions to move their firms. Specifically, since volume on Nasdaq is exaggerated and SEC Rule 144 ties the limit on insider selling to total volume, insiders of troubled firms may be able to use private information to take advantage of other shareholders by switching to Nasdaq and unloading more stock. Consistent with the hypothesis, I find that insiders engage in heavy selling of company stock in the months following the move. Post-announcement abnormal returns are strongly negative."
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"“The Enron case illustrates one of the most pernicious effects of insider trading: It gives executives a reason to distort reports on corporate performance and find other ways to manipulate markets to their own benefit,” Strudler notes."
" We characterize the microstructure of the market for Treasury inflation-protected securities (TIPS) using novel tick data from the interdealer market. We find a marked difference in trading activity between on-the-run and off-the-run securities, as in the nominal Treasury securities market. We find little difference in bid-ask spreads or quoted depth between on-the-run and off-the-run securities, in contrast to the nominal market, but we do find a sharp difference in the incidence of posted quotes. Intraday activity differs strikingly from the nominal market, with activity peaking in the mid-to-late morning. Announcement effects also differ from the nominal market, with auction results and consumer price index announcements eliciting particularly sharp increases in trading activity"
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"We find that voting with one’s feet is done largely by institutions that have less than 1% ownership in the firm while institutions that hold block levels of ownership at the time of the CEO turnover announcement significantly increase their ownership levels leading up to the turnover event. Moreover, we find evidence of activism in the financial press that is significantly related to CEO turnover. We conclude that voting with one’s feet is not a major mechanism by which institutions force corporate change."
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"Paul Zak, a neuroeconomist and director of the Center for Neuroeconomics Studies at Claremont Graduate University in Claremont, Calif., has devoted his research to explaining this type of generosity. 'I investigate the biological basis for generosity, focusing on the neuroactive hormone oxytocin,' he says in his blog for Psychology Today. 'Our studies have shown that this hormone partially explains generous behavior because it makes us feel more connected to others.'"
"Long-only buyers—those who tend to hold the stock rather than flip it on the first day—have always been critical participants in successful new issues. Mr. Fox added that issuers 'focus less on allocations when every deal is doing well than when they do in a more differentiating market period like we are in today.'"
"In a bill submitted to the French parliament this week, all companies listed on the Paris stock exchange would have to ensure female employees made up 50% of their board members by 2015. If passed, a gradual implementation of the law would see businesses obliged to have women in 20% of board seats within 18 months, and 40% within four years.
"Financial examiners and compliance officers are expected to be two of the 30 fastest-growing U.S. occupations over the next 10 years, according to a Labor Department report released last week."
Farnam Street: A Dirty Word or a Dirty World? Attribute Framing, Political Affiliation, and Query Theory: "The main distinction was between a surcharge described as a 'carbon tax' and an identical charge described as a 'carbon offset'.
The tax was unpopular - no real surprise. But when people were asked if they supported making the carbon offset mandatory - which is of course exactly equivalent - the response was highly favourable"
"Cadbury (CBRY.L) teased shareholders with the prospect of rival bids and promised bigger dividends and stronger growth as it again knocked back a 10 billion pound ($16.2 billion) offer from Kraft Foods (KFT.N)."
"'We have developed for the first time a system level model of a large gene network to decipher the underlying principles of the bacteria game theory and how an internal network of genes and proteins is used to calculate risks in this complicated situation,' he said.
This has applications to human society because many people encounter similar dilemmas during their own lives. For example, should people ignore side effects and vaccinate against a new potentially lethal virus or should they not vaccinate and take the risk of being infected with the possible consequences? If the majority of the population is going to get vaccinated, then it is better for each individual not to get vaccinated. However, if most people will not be vaccinated then it is better to be vaccinated."
Visualizing Bank Failures ( 2008-2009 ) from Michael J Bommarito II on Vimeo.
"Paul Samuelson, Nobel Prize-winning economist and author of the best-selling economics textbook in history, died today at his home in Belmont, Massachusetts. He was 94."
"Women also, apparently, make better money managers according to another study by two professors at UC Davis [3]. That study found that overconfidence caused men to trade stocks 45 percent more often than women, thus lowering their net portfolio returns by 2.65 percent per year (compared with 1.72 percent lower returns for women traders). Moreover, several studies show a link between profit and gender. Companies with several high-ranking women at either officer or director levels tend to have higher earnings per share, return on equity and stock prices than competitors with few or no senior women."The article mentions other studies as well and I know the evidence suggests strongly that there are differences between genders when it comes to risk financial risk taking.
"The sweeping story of the three economic bubbles that defined the decade begins with the tech bubble, its apex marked by AOL’s audacious takeover of Time Warner. The deal signified the heights and hope of the dot-com boom, a chapter that saw the creation of scores of high-flying internet companies, many of which would die an early death. The middle of the decade brought the housing boom and the formation of the real estate bubble. It was the age of easy money, with banks all too eager to fund new construction, and developers and homeowners all too eager to take on loans they couldn’t afford. The last bubble of the decade to burst was the credit bubble, exemplified by private equity firms awash in money and on the lookout for takeover targets. In some cases, these private equity deals and leveraged buyouts resulted in a lucky few making a fortune, with the targeted company loaded up with debt and ruined in the process."
"Goldman Sachs announced on Thursday that its top executives would forgo cash bonuses this year and that it would give shareholders a say in determining compensation......While Goldman will give shareholders a say on pay, the bank would not be required to bow to its investors wishes. Still, a vote against Goldman would be deeply embarrassing for the bank."
Some fear that inflating the nation’s debt away is the path of least resistance for political leaders who can’t make the hard choices on taxation and spending....
For those who detest inflation–and that’s most economists and policy makers–the bad news comes first. The paper says a review of the U.S. experience since World War II shows “eroding the debt through inflation is not farfetched.”"
"Thakor says it is important to determine the root causes of the financial crisis in order to prevent it from happening again. 'We had this double fragility in the financial system from high borrower and bank leverage....
To get at root causes of the current crisis and prevent future meltdowns, Thakor offers these proposals:
- create an agency to gather information and monitor the interconnectedness of institutions, including the shadow banking system
- increase the minimum regulatory capital requirements for banks (a controversial, but necessary calibration according to Thakor)
- provide thoughtful research-based policy prescriptions that halt the tide of over-regulation
Blaming executive compensation or pumping more liquidity into the system is not going to fix the financial crisis, says Thakor."
"City minister, Lord Myners, spent this afternoon calling the heads of all major banks in the City to try to reassure them about the tax, which is being introduced immediately, bankers reckoned there would be a race to circumvent the rules by raising basic salaries, deferring bonus payments or shifting bankers' contracts overseas."and my favorite line:
"One lawyer said the one-off 50% tax on bonuses of more than £25,000 that will be paid by banks, rather than bankers, could become a job creation plan for Frankfurt, Paris and Zurich"
"Mexico spent $1.172 billion to buy oil hedges for 2010, covering a possible revenue shortfall if production falls for the sixth straight year and prices don’t recover from about a five-year low.
Mexico purchased put options that give it the option, not the obligation, to sell its oil for $57 a barrel next year, the Finance Ministry said in an e-mail statement today.
“We want this as an insurance policy...,"
| The Colbert Report | Mon - Thurs 11:30pm / 10:30c | |||
| Fed's Dead | ||||
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"Women who received testosterone made significantly higher offers than those who received placebo — an average of 3.9 money units compared with the placebo group's average offer of 3.4 money units.
'In the socially complex human environment, pro-social behaviour, not aggression, secures status,' says Michael Naef, an experimental economist at the Royal Holloway, University of London, who is a co-author on the paper."
"U.S. homeowners have lost about $5.9 trillion in value since the housing market peak in March 2006 as mounting foreclosures and the recession weighed on prices, according to Zillow.com.
Almost half a billion dollars was wiped out this year through Nov. 30, as the market headed for a third straight annual decline. New foreclosures and higher mortgage rates in 2010 may hinder a rebound, the property data service said today in a statement."
"At NetJets, the returns have been disappointing — and lately the losses severe. Through his investment company, Berkshire Hathaway, he bought the private jet travel business, which caters to the affluent, for $725 million in 1998. Even though Berkshire does not provide detailed results for this small piece of its empire, insiders confirm that Mr. Buffett has yet to recover his investment.
With problems mounting at the unit — heavy losses and allegations of business improprieties — Mr. Buffett...."
"At NetJets, the returns have been disappointing — and lately the losses severe. Through his investment company, Berkshire Hathaway, he bought the private jet travel business, which caters to the affluent, for $725 million in 1998. Even though Berkshire does not provide detailed results for this small piece of its empire, insiders confirm that Mr. Buffett has yet to recover his investment.It goes on to say that David Sokol (who many believe will eventually replace Buffett) has been assigned to straighten things out.
With problems mounting at the unit — heavy losses and allegations of business improprieties...."
"A generous candy stash raises a co-workers status, but sometimes the rules of exchange get confusing. Behavioral economist Dan Ariely uses his Predicably Irrational insights to help Marketplaces Eve Troeh understand social norms and social contracts"
The FDIC issued a report today that shows that many Americans do not have access to banking or choose not to use the banking system.
First the results:
From FDIC.gov:
An estimated 7.7 percent of U.S. households, approximately 9 million, are unbanked. These households do not have a checking or a savings account.... In addition to the unbanked households, an estimated 17.9 percent of U.S. households, roughly 21 million, are underbanked. These households have a checking or savings account but rely on alternative financial services. Specifically, underbanked households have used non-bank money orders, non-bank check-cashing services, payday loans, rent-to-own agreements, or pawn shops at least once or twice a year or refund anticipation loans at least once in the past five years
From USATODAY:
"Nearly 30 million households have no bank account or have one but also use alternate financial services at least occasionally, according to the FDIC report. The survey, the FDIC's first in-depth study of the issue, was conducted by the Census Bureau.
The problem is most acute among minorities: 53% of African-American households and 43% of Hispanic households use check cashers or similar services instead of or in addition to banks.
Buying money orders and cashing checks are the most frequent transactions, the survey shows. Those using check cashers and other services say they are faster, cheaper and more convenient than banks — even though they pay a fee to cash a check they could deposit in a bank account for free."
And from the UPI:
"Nine million households, including a fifth of households earning under $30,000 a year, have no bank account, the report to be released Wednesday says."
Now we can argue some about the definitions (for instance are you underbanked if you use Money Orders twice a year? and what percentage are in transit (closed account at bank A, have yet to open one at bank B)? But regardless of those issues, the numbers are pretty big but as any student of banking should say, somewhat predictable. Why? As fees go up, small accounts pay a higher proportion. Thus it may be expected that some close their accounts. And indeed, nearly half of those who are "unbanked" did in fact close their accounts.
Working with many of these "unbanked" through BonaResponds has given me a new appreciation of the importance of banking. Being "unbanked" definitely limits their access to capital (for instance this past year heard : "We will install insulation as soon as we can sell our tractor") and increases transaction costs. But it also prevents credit histories and thus makes future loans even more difficult.
"Nearly 30 million households have no bank account or have one but also use alternate financial services at least occasionally, according to the FDIC report. The survey, the FDIC's first in-depth study of the issue, was conducted by the Census Bureau.
The problem is most acute among minorities: 53% of African-American households and 43% of Hispanic households use check cashers or similar services instead of or in addition to banks."
Who says there's a credit crunch?
Somali pirates are raising money through a local equity offering:
In Somalia's main pirate lair of Haradheere, the sea gangs have set up a cooperative to fund their hijackings offshore, a sort of stock exchange meets criminal syndicate.
Great as a teaching tool, but maybe, just maybe a tad illegal?
"Who says there's a credit crunch?
Somali pirates are raising money through a local equity offering:
In Somalia's main pirate lair of Haradheere, the sea gangs have set up a cooperative to fund their hijackings offshore, a sort of stock exchange meets criminal syndicate."
"Who says there's a credit crunch?
Somali pirates are raising money through a local equity offering:
In Somalia's main pirate lair of Haradheere, the sea gangs have set up a cooperative to fund their hijackings offshore, a sort of stock exchange meets criminal syndicate."
Hostile takeovers from Marketplace on Vimeo.
"We find that shorts establish significant positions more than a year before the average restatement announcement, those positions increase as the announcement month approaches, and the largest positions are held in companies that will announce an accounting irregularity that attracts class action litigation. Shorts are thereby well positioned to profit from the lengthy string of negative returns that precede the announcement of a severe accounting irregularity. Afterward, we find average short interest is sticky, and shorts retain positions in firms that experience a further price decline. In the six months after an announcement, positions in heavily shorted restating firms (i.e., short interest exceeding 2.5 percent before the announcement) earn an additional 24 percent (31 percent with class action litigation). We conclude that shorts have the skill to play an important private-sector role in identifying and disciplining companies with accounting irregularities."
"The results reveal that during misstatement years, accruals and cash and credit sales are unusually high, while return on assets and the number of employees are declining. In addition, misstating firms finance more of their assets through operating leases and have relatively less PP&E. We find that market pressures appear to affect incentives to misstate. Misstating firms are raising new financing, have higher market-to-book ratios, and strong prior stock price performance. We develop a model to predict accounting misstatements."
"Between October 2002 and October 2003, a spatial analysis of U.S. census records and the Korean Business Directory was performed to clarify the distribution of the Korean population and their institutions in the Los Angeles area.Sunday services and other meetings in four Korean congregations, and board meetings of Korean Churches for Community Development (KCCD) and the Korean American Museum (KAM), were observed.... Analysis of the data reveals that Korean congregations play a pivotal role in creating social capital for the Korean immigrant community in Los Angeles: many Koreans have built close social networks through the ethnic churches.In fact, Korean churches act as small business incubators in Koreatown, placing information and financial capital within the reach of immigrant entrepreneurs.Because these Koreans place more trust in those from the same religious group than in those from the same ethnic group, it appears that faith-based social capital can be more important than ethnic resources in the establishment of immigrant businesses. (SAA)"
Who was speaking? Senator Nelson Aldrich (R of NY)."...until human nature is changed, it will be impossible to prevent, either by legislation of otherwise, periods of overspeculation with undue inflation of values and overextension of credit."
"The basic intuition behind the model is as follows. Think of a partnership run by an old CEO who is about to retire.....The CEO can appropriate everything else: he can tunnel cash out of the firm, consume perks, or convert cash to leisure by shirking. Because the CEO has a short horizon, he could simply decide to take all of the cash flow, investing nothing for the future. But he needs the young manager’s effort in order to generate the cash flow. If the manager sees that the CEO will leave nothing behind, she has scant incentive to exert effort, and cash flow falls significantly."
"Hershey must secure majority economic control of the combined entity while trying to minimize its total leverage. At the same time, it ideally wants to preserve its own dual-class structure so that the Trust that controls Hershey retains an economic interest above a 15% threshold as well as significant voting control."
| SUMMARY OUTPUT | |||||||||
| Regression Statistics | |||||||||
| Multiple R | 0.023957 | ||||||||
| R Square | 0.000574 | ||||||||
| Adjusted R Square | -0.0033 | ||||||||
| Standard Error | 0.019088 | ||||||||
"Professor Robin Hogarth uses a novel new methodology to demonstrate that even relatively simple measures of mood state can have a significant effect on perception of risk"
"Professor Peter Iliev said he nailed down the cost of Section 404 compliance by examining companies with market caps just above $75 million and those just below it. Those below that cap have not had to comply until now.
'We needed a control group that didn't have to comply,' Iliev said. 'This allowed us to look at those who did comply and attribute any differences to the new regulation.'
What he found was that there were some rim-rocking costs associated with auditing internal controls. These smaller firms had to pay an additional $697,890 in audit fees in 2004 – the year he examined – which amounted to a 98 percent increase over the companies not in compliance."
"Volpp concluded by noting three major questions in this field individual behavior and health: First, are there built-in default benefits to be had? Second, in what ways can we make information provision more precise? Third, how can we shape incentives to get people to behave in a healthy manner?"
"Another new area -- endocrinological economics -- studies how hormones such as testosterone and estradiol affect economic behavior. At the workshop, Coren Apicella, research fellow at Harvard University, will discuss how testosterone levels affect risk-taking tasks. Schipper will talk about his recent work on how the menstrual cycle influences risk-taking in an auction-bidding game.
Workshop participants will also address how genetics contribute to economic decision-making, including a presentation by graduate student David Cesarini, of the Massachusetts Institute of Technology, on pension investments by identical and non-identical twins."
"This paper demonstrates that mere exposure to luxury goods increases individuals’ propensity to prioritize self-interests over others’ interests, influencing the decisions they make. Experiment 1 found that participants primed with luxury goods were more likely than those primed with non-luxury goods to endorse business decisions that benefit themselves but could potentially harm others. Using a word recognition task, Experiment 2 further demonstrates that exposure to luxury is likely to activate self-interest but not necessarily the tendency to harm others."
Paper or plastic? Steak or salmon? Stay or go? Every day, we make thousands of decisions, most minor, some major. But how does your brain make the choice? In this hour, we'll take a look at the science of decision making. Can your genes influence split second decisions? And how do your emotions influence the way you decide?"
"On November 12, 2009, Warren Buffett, MS ’51, and Bill Gates met with more than 700 students, faculty members and alumni from Columbia Business School in a town hall event, which was filmed for global broadcast by CNBC. Buffett and Gates responded to questions from the student body about the economic crisis, capitalism and areas of economic growth in the United States. They also gave career advice and discussed the mentors and habits that played a role in their success."
"Last Friday, he posted a satirical article called First 100x Leveraged ETFs. It made fun of the trend toward higher leverage among ETF products....he was deluged with emails. Many people got the joke. But a full 65% expressed interest in some form or another in owning SOAR and SINK."mmm, Does any one else remember Sidd Finch?
"Had reforms started in 1970 rather than 1980, India would have grown faster. In this fast-growth scenario, i assume that per capita income growth in the 1970s would have been what was actually achieved in the 1980s: growth in the 1980s would have been what was actually achieved in the 1990s: and growth in the 1990s would have been what was achieved in 2001-08.
I calculate the rate of change of infant mortality, literacy and poverty with GDP since 1971. I then apply this rate of change to the fast-growth scenario. This reveals what infant mortality, literacy and poverty would have been with faster growth.
In a fast-growth scenario, infant mortality would have been less every year, and in 2008 would have been 27 deaths per thousand births, against the actual 54 per thousand. The cumulative number of 'missing children' turns out to be a massive 14.5 million."
"Financial products based on 8th-century religious laws may seem an unlikely haven during a global crisis. But Islamic banking and financial services, based on traditional Muslim laws known as Sharia, are enjoying a major resurgence.
A survey released on Nov. 5 by The Banker magazine found that assets held by Sharia-compliant banks rose 28.6% in 2009 to $822 billion, while assets held by conventional banks grew only 6.8%.
True, Islamic finance still accounts for only about 1% of the global financial-services market."
"Abstract:
Turnover, extreme returns, news and advertising expense are indirect proxies of investor attention. In contrast, we propose a direct measure of investor demand for attention -- active attention -- using search frequency in Google (SVI). In a sample of Russell 3000 stocks from 2004 to 2008, we find SVI to be correlated with but different from existing proxies of investor attention. In addition, SVI captures investor attention on a more timely basis. SVI allows us to shed new light on how retail investor attention affects the returns to IPO stocks and price momentum strategies. Using retail order execution in SEC Rule 11Ac1-5 reports, we establish a strong and direct link between SVI changes and trading by less sophisticated individual investors. Increased retail attention as measured by SVI during the IPO contributes to the large first-day return and long-run underperformance of IPO stocks. We also document stronger price momentum among stocks with higher levels of SVI, consistent with the explanation of momentum proposed by Daniel, Hirshleifer and Subrahmanyam (1998)."
"A carry trade is when you borrow from a currency with a low interest rate, and then invest in a currency with a higher interest rate. Say the US interest rate is 3%, and the Chinese interest rate is 5%. Borrow at 3%, invest at 5%, make 2%, because the Chinese yuan is pegged to the dollar at a fixed rate. "In international finance one learns that as this happens, what should happen is that the currencies and interest rates adjust to end this opportunity. But in this case the Yuan is pegged (more or less) to the Dollar. So that does not happen.
"The chairman of the China Banking Regulatory Commission complained to Obama that the carry trade was destabilizing the Chinese economy, but this really means the capital inflows are making it hard to keep the currency peg at its low current level. China has a higher interest rate than the US, and though the US dollar is falling worldwide, the yuan remains at its old peg against the greenback. China could float it, and let the market decide, but like most politicians, he does not trust the market. More importantly, there are worried it will hurt exports because a stronger yuan would increase the price of their exports to the rest of the world."
"David Romer's work on 4th down strategies in football. One fan of this work is Patriots' coach bill Belichick, who recently applied Romer's analysis.Click here to see Romer's paper which says punting is almost always a bad idea.
"British takeover law essentially handcuffs the board of a target company from doing anything to block a deal. No poison pills. No staggered boards. No changing the shareholder vote date. The potential for a C.E.O. or entrenched board to block a deal — or otherwise act in its own self- interest — is virtually nil. In other words, England is as close as any country gets to a true shareholder democracy. Any bid gets put to a vote, and all the board can do is offer an opinion.It should be noted that I include myself in this camp.
To many people, this is how the rest of the world should work."
"That’s been the argument of people like Martin Lipton, the takeover lawyer who invented the poison pill. He has long argued that shareholders don’t necessarily know what’s good for them, and that companies need someone looking out for their best interests. That best interest may include holding out for a higher offer, or even roping in other bidders.Which is clearly true, but it can also entrench management.
Who is right? We really do not know. The evidence is very mixed.
Middle ground? I would come down on letting shareholders have more (but not all) power. Giving the management too many tools to fight takeovers entrenches them and hurts the firm.
"Our evidence shows that the impact of the financial crisis is severe on credit constrained firms, leading to deeper cuts in planned R&D, employment, and capital spending. These firms also burn through more cash, draw more heavily on lines of credit for fear banks will restrict access in the future, and sell more assets to fund their operations. Using our direct measure of constraints, we also find that the inability to borrow externally causes many firms to bypass attractive investment projects, with 86% of constrained U.S. CFOs saying their investment in attractive projects has been restricted during the credit crisis of 2008 and more than half outright cancelling or postponing their investment plans."
"A new study carried out at the University of Haifa has found that the hormone oxytocin, the 'love hormone,' which affects behaviors such as trust, empathy and generosity, also affects opposite behaviors, such as jealousy and gloating."
"Morgan Stanley
shows pretty convincingly that beer costs more in countries where the top 3 market players hold a higher-than-average share of the market."
"An interesting experiment conducted by the BBC's 'Bang Goes The Theory Team' regarding a psychological phenomenon called 'Priming'. It is a phenomenon that may well change your understanding about the way we are all affected by what we see, and so, how we perceive our environment"
"Anchoring is an easy-to-demonstrate, hard-to-eradicate behavioural bias that has all sorts of nasty implications for investors, many of them not obvious. In fact, along with availability, it has the claim to be the mother of all biases.
The fundamental investment problem lies in the difficulty in deciding what something is intrinsically worth. A skilled negotiator will start from an extreme position, such as a very high price, in order to frame the subsequent discussions. Anywhere and anytime someone presents us with a number in order to start negotiations we’re being anchored. So if it really matters then you need to start from your own number or walk away."
"Analysis of the data indicates that family ownership creates value for all of the firm's shareholders only when it is combined with certain forms of family control and management. Family control in excess of ownership often results in multiple share classes, pyramids, cross, holdings, and votingagreements, all of which reduce shareholder value. Family management adds value when the founder serves as the CEO; when descendants assume the office of CEO, however, firm value decreases. Still,minority shareholders are likely to be no worse off in a family firm than they would have been in a non-family firm. In fact, founder-CEO firms withcontrol-enhancing mechanisms are about 25 percent more valuable than non-familyfirms."
"Predictive variables used emanate from informal arguments, alternative tests of risk-return models, behavioral biases, and frictions. More than fifty variables have been used to predict returns. The overall picture, however, remains murky, because more needs to be done to consider the correlational structure amongst the variables, use a comprehensive set of controls, and discern whether the results survive simple variations in methodology."
"The predictive variables are motivated principally in one of four ways. These are:
• Informal Wall Street wisdom (such as “value-investing”)
• Theoretical motivation based on risk-return (RR) model variants
• Behavioral biases or misreaction by cognitively challenged investors
• Frictions such as illiquidity or arbitrage constraints"
"Next Meeting
AFA
Atlanta, Georgia
Informal breakfast meeting
Date, Time TBA
Contact: Shane Underwood
shaneunderwood@yahoo.com"
"Globalization has brought a sharp increase in the developed world's labor supply. Labor in developing countries – countries with vast pools of underemployed people – can now more easily augment labor in the developed world, without having to relocate, in ways not thought possible only a few decades ago. We argue that the large increase in the developed world's labor supply, triggered by geo-political events and technological innovations, is the major underlying cause of the global macro economic imbalances that led to the great recession. The inability of existing institutions in the US and the rest of the world to cope with this shock set the stage for the great recession...."
"One explanation for the attractive prices of imported goods is that American workers are paid too much relative to their foreign peers.Two points on the NY Times piece: I do not claim to know the exact details (as in how exactly do we measure productivity) but empirically, if manufacturing jobs are going overseas, there is a simple economic fact that US workers must be being paid too much. Which obviously is not going to be popular, but it is something that we have all known for years. And yes when it points this price disadvantage out, is does so on a productivity standardized metric, which is to say that US wages are too high for relative productivity advantages.
Global wage convergence is great for the poor but tough on the overpaid. It’s possible to run the numbers to show that American manufacturing workers should take average real wage cuts of as much as 20 percent to get into global balance.
....if American wages get stuck above global market-clearing levels, as in the 1930s, the result could well be something approaching Depression-era levels of unemployment."
"Although data from the U.S. Census Bureau's Business Information Tracking Series show that 60 percent of the businesses launched between 1989 and 1992 did not survive six years, founders overconfidently believe that they can beat the odds of failure. The hubris theory offered here incorporates three separate psychological processes: overconfidence in knowledge, overconfidence in prediction, and overconfidence in personal abilities. A detailed discussion of the hubris theory leads to a series of propositions. According to the first two propositions, founders are most overconfident when faced with highly complex,dynamic tasks related to the new venture. Another proposition suggests that experienced firm founders become more overconfident when launching a firm that differs from previous ventures..."On the other hand, Lowe and Ziedonis find little support for this:
"Following a discussion of recent studies of university technology licensing to entrepreneurial firms and the literature on managerial cognitive bias, it is hypothesized that entrepreneurial startups are less likely than established firms to terminate development efforts and to commercialize inventions successfully. The last hypothesis proposes that inventions licensed by startups generate lower economic returns than do inventions licensed by established firms. Data on 734 inventions disclosed to the University of California from 1981to 1999 and licensed exclusively to a firm are used to test the hypotheses. The data indicate that startups actually generate greater levels of licensing revenues for similar technologies than do established firms. However,entrepreneurs appear to hold on longer to technologies that do not achieve commercial success. The latter finding suggests entrepreneurs may be in denial about the unpromising futures of these inventions. As a whole, the results offer little support for the idea that excessive optimism is a driving force in the decision to found a firm"
"When older wolves can no longer hunt successfully, younger wolves share their kill with them, in what MacNulty describes as a lupine version of Social Security. While a high ratio of old-to-young wolves may benefit elk, it could strain the wolf population because there aren't enough workers to support retirees."
"'When the noise is unexpected, the brain's response is larger,' said UAB psychologist David Knight, Ph.D., principal investigator on the study, which is currently in press online and will appear in the January 2010 issue of the journal NeuroImage. 'But when participants are able to predict when they are going to hear the unpleasant static noise, you can see the regions of the brain quiet down so that a smaller emotional response is produced.
'While past studies have looked at this startle phenomenon behaviorally, this is the first look at what is actually happening in these regions of the brain when someone is exposed to an unpleasant, unpredictable event,' Knight said."
"Richard Thaler outlines how principles from behavioral economics can help policymakers — and managers — achieve better outcomes.
Q: Could you explain some of the key ideas in Nudge: nudges, choice architecture, and libertarian paternalism?
'Libertarian paternalism' suggests that these two seemingly contradictory terms can actually define a non-contradictory and attractive policy alternative. ...So we would like to create environments where people are more likely to choose things that they, themselves, think are good for them."
"...no bidder in the past nineteen years has been able to achieve 85% in a hostile tender offer against a Delaware target. "
"Video from our work with the Christian Youth Corps in Machias on the Eisenhardt project. The two boys (Dalton and Wyatt) have a rare genetic problem. But that does not stop them from helping us help them!"
"Kraft on Monday formally made a £9.8 billion ($16.3 billion) hostile bid for Cadbury, making official its effort to create an international food giant. Cadbury quickly rejected the new proposal, setting up a potentially bruising fight for control of the British confectioner.
Kraft’s bid came just before a 5 p.m. deadline in London imposed by Britain’s Takeover Panel, which had given the American food company until Monday to make a formal offer. If Kraft did not do so, it would have been barred from making another bid for Cadbury for six months.
Now Kraft will take its proposal, comprised of 300 pence a share in cash and .2589 of a newly issued Kraft share for each Cadbury share, directly to the British company’s shareholders"
