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This paper studies the market reaction to vertical mergers and explores the many rationales for vertical integration proposed in the industrial organization literature. Abnormal returns for vertical merger announcements are [...]

This paper provides new evidence regarding the information content of debt ratings. We show that noninvestment grade subordinated issues are consistently priced too high (the yield is too low), and [...]

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jbankfin.2006.12.008 Byline: Zsuzsanna Fluck (a), Kose John (b), S. Abraham Ravid (c) Keywords: Privatization; Agency; Political constraints; Auctions; Private negotiations Abstract: This paper investigates the design of privatization mechanisms in emerging market economies characterized by political constraints that limit the set of viable privatization options. Our objective is to explain the striking diversity of mechanisms observed in practice and the frequent use of an apparently sub-optimal privatization mechanism: private negotiations. We develop a simple model in which privatization is to be carried out by a government agent, who plays favorites among bidders but is potentially disciplined by losing his private benefits of staying in office. If the political environment is such that the privatization agent himself aims at raising the fair value for the company, then privatization auctions and private negotiations are equally successful in raising public revenues. If, however, political considerations distort the agent's incentives, it may be that a seemingly transparent auction will raise less revenue, than opaque private negotiations. We also show that information disclosure laws may have negative welfare implications: they may help the privatization agent to collude with some of the bidders to the disadvantage of non-colluding bidders. Author Affiliation: (a) Eli Broad College of Business, Michigan State University, 319 Eppley Center, United States (b) Stern School of Business, New York University, 44 W. 4th St., NY 10012, United States (c) Rutgers Business School, 180 University Ave., Newark, NJ 07102, United States Article History: Received 18 April 2006; Accepted 1 December 2006

We analyze project choice in the motion picture industry and find evidence consistent with revenue maximization and excessive hedging. We find that movies that are very violent or feature sex and violence do not provide excess returns, but they increase revenues, particularly in the international market. Further, they tend to lose money less often and their returns are more predictable, even though there are never mega-hits. This evidence is consistent with studies of other industries, and it partially explains the 'R-rating puzzle,' that is, the preponderance of R-rated films although most studies find that G- and PG-rated films perform better.

The economic influence of film critics, film budgets and film stars on a film's success at the box office is examined.

The relationship of trade credit with quality guarantees and product marketability were investigated. The sample consisted of all industrial firms with COMPUSTAT records from 1985 to 1987. Results showed that extension of trade credit is prevalent among small firms, firms that require a longer production lead time and firms whose assessment of quality takes a longer period of time. The findings imply that these firms raise the implicit costs of trade credit extension by funding their receivables by way of payables and short-term borrowing. Moreover, firms that have more variable demand were found to extend trade credit than firms that have stable demand. The evidence show that the trade credit of a firm indicates not only its financial and liquidity standing but also quality guarantees and product marketability.

This article presents two alternative explanations for the role of stars in motion pictures. Either informed insiders signal project quality by hiring an expensive star, or stars capture their expected economic rent. These approaches are tested on a sample of movies produced in the 1990s. Means comparisons suggest that star-studded films bring in higher revenues. However, regressions show that any big budget investment increases revenues. Sequels, highly visible films and 'family oriented' ratings also contribute to revenues. A higher return on investment is correlated only with G or PG ratings and marginally with sequels. This is consistent with the 'rent capture' hypothesis.

This review surveys the literature analyzing the interactions of production decisions and capital structure, and finds that there are basically three ways in which the two types of decisions are linked. These give rise to three analytical approaches to the issue: a tax link, the agency approach, and the product-market (strategic) approach. The empirical evidence accumulated in this area of research is also examined. (Reprinted by permission of the publisher.)

A study on tender offers suggests a complex interaction between toeholds and bids, even though no asymmetric information is present. In a tender offer, toeholds are legal pre-announcement purchases of shares in the open market by the bidding firm. The scenario is presented by a simple model that describes the bidder's optimal toehold acquisition strategy in an environment that is very similar to existing legal institutions. The model implies that no toeholds must be acquired if no competing bidders are anticipated.

This paper compares the relative efficiency of the two major types of bankruptcy law. The first is the debtor-oriented American bankruptcy code; the second is the creditor- and liquidation-oriented legislation [...]

Presents letters to the editor in response to articles which appeared in previous issues of the magazine. Letters in response to "Family Inc.," which appeared in the November 10, 2003 issue; Letter in response to "Mega Plane," which appeared in the November 10 issue; Letter in response to "You don't own a digital camera yet?".

Several letters to the editor are presented in response to articles in previous issues including "CEO Pay: Obama's Reagan Moment" in the February 16, 2009 issue, "The Bailout Is Broken" in the February 9, 2009 issue, and "Should Taxpayers Fuel Tesla" in the February 9, 2009 issue.

This paper shows that several contractual equilibria coexist in the US venture capital (VC) contracts. Our database is larger than that of previous studies and includes 1,804 contracts. Our main finding is that California-based entrepreneurs receive less harsh contract terms. In particular, investors subject to California-based or California style contracts have less downside protection. This “California effect” remains large and significant even after we include all the previously discovered controls which determine contract design. We find a similar effect if the VC is located in California, or if a non-California VC had a large exposure to the California market. We do not find evidence that VCs are substituting cash flow contingencies for control rights or for performance-based CEO compensation contracts. We also document several other new contractual features of VC contracts. In particular, we find that better companies and more experienced VCs receive better contract terms, whereas older companies receive harsher contracts. We also confirm the role of concentration and proximity in financial contracts.