UCLA Anderson archives working papers as Adobe Acrobat files. Links are provided below. Many faculty members also have links to working papers, course materials and other knowledge assets on their individual biography pages.
Working Paper Archives
Popular Research Downloads at UCLA Anderson
Investment in Organization Capital
Bruce Ian Carlin, Bhagwan Chowdhry & Mark Garmaise
We study a firm's investment in organization capital by analyzing a dynamic model of language development and intrafirm communication. We show that firms with richer internal language (i.e., more organization capital) have lower employee turnover, and higher diversity in skill and wages among incumbents who are promoted from within the firm. Our results also suggest that firms in rapidly changing industries are less likely to invest in organization capital, and are more likely to have high managerial turnover. Finally, our model shows that employment protection regulations lead to more investment in organization capital but less innovation.
Exchange Rate Regimes, Capital Flows and Crisis Prevention
The purpose of this paper is to analyze, within the context of the implementation of a new “financial architecture,” the relationship between exchange rate regimes, capital flows and currency crises in emerging economies. The paper draws on lessons learned during the 1990s, and deals with some of the most important policy controversies that emerged after the Mexican, East Asian, Russian and Brazilian crises. I also evaluate some recent proposals for reforming the international financial architecture that have emphasized exchange rate regimes and capital mobility.
Inflation, Foreign Exchange, and Parsimonious Equity Valuation
John Hughes, Jing Liu & Mingshan Zhang
Inflation poses problems for parsimonious equity valuation using bottom line accounting numbers. At issue are the distortions in earnings and book values that follow from the use of historical cost unadjusted for general price level changes. These distortions include the understatement of operating assets and the mismatching of allocated costs that reflect past price levels with revenues that reflect current price levels. In this paper, we consider accounting policies that allow one to recover parsimonious valuation in an inflationary environment. Our model generalizes the cash flow dynamics of Feltham and Ohlson (1996) to encompass stochastic inflation. We show that parsimonious valuation can be achieved through either a restatement of book value and increase in depreciation similar to the policy recommended by SFAS 33, or a decrease in depreciation sufficient to capture both effects. We also suggest an approach for approximate parsimonious valuation without preparing full-scale general price level adjusted financial statements. Extending the analysis to the setting of a multinational firm with a unit operating in a country experiencing inflation, we show how to achieve parsimonious valuation in domestic currency through foreign currency translation using either historical or current exchange rates as prescribed under SFAS 8 and SFAS 52, respectively. Results speak to the value relevance of components of comprehensive income.
On the Right-of-first-refusal
Sushil Bikhchandani, Steven Lippman & Reade Ryan
When the seller of an asset grants a right-of-first-refusal to a buyer, this special buyer has the opportunity to purchase the asset at the best price the seller can obtain from the other potential buyers. We show that the right-of-first-refusal is inefficient, and it benefits the special buyer at the expense of the seller and other buyers. In a private values model, the benefit from granting a right-of-first-refusal to the special buyer equals the cost to the seller. When buyers’ valuations are correlated, the presence of a special buyer exacerbates the winner’s curse on regular buyers. Consequently, if some of the regular buyers do not articipate in the price discovery stage, the expected gain from granting a right-of-first-refusal to the special buyer is often less than the expected loss to the seller.
Linguistic Effects on Consumer Behavior in International Marketing Research
Shi Zhang, Bernd H. Schmitt & Hillary Haley
In recent years, there has been a wealth of research examining the relevance of culture to consumer behavior. We review a particular line of work within this larger body of research: work investigating the unique relevance of language. Our review finds that both structural features of language (properties of grammar) and lexical-semantic and phonological features of language (related to writing systems) are important. More specifically, current work suggests that these language features affect how consumers perceive, and also respond to, various marketing stimuli (e.g. advertisements and brand names). Our review summalizes and integrates a number of related findings, and highlights their practical significance. International marketing research has focused more and more heavily on the topic of cross-cultural consumer behavior. And this research has observed important cross-cultural differences in the processing, evaluation, and judgment of brand and product information. Much of this work suggests that cultural differences stem from pervasive socio-cultural or cognitive factors. For example, a good deal of research demonstrates that people have broad, culture-specific cognitive dispositions like individualism or collectivism, which can guide consumer behavior (e.g. Aaker and Williams 1998; Hofstede 1980; Triandis 1989). Other work has built upon these fundamental findings showing that there are specific conditions under which such dispositions are especially likely to affect consumer choice. Another line of research has turned the focus to language. This research, with roots in cognitive psychology and marketing alike, submits that a given culture's language can play vital role in determining consumer perceptions, evaluations, and decisions.
Understanding the Financial Crisis in Asia
Bhagwan Chowdhry & Amit Goyal
The financial crisis of East Asia in 1997 was largely unanticipated and was characterized by sharp falls in asset prices and currency values in several countries simultaneously. Many empirical models have been developed to predict the occurrence of such crisis. However, the out-of-sample performance of these models is disappointing. Most theoretical explanations of the crisis emphasize the role of banking sector and revolve around models of moral hazard or self-fulfilling runs on liquidity. Empirical tests of the models are, however, rare. Much work remains to be done to explain the contagion, and the effects of equity capital flows.
New Products, Sales Promotions and Firm Value, With Application to the Automobile Industry
Koen Pauwels, Jorge Silva-Risso, Shuba Srinivasan & Dominique M. Hanssens
Year after year, managers strive to improve financial performance and firm value by marketing actions such as new product introductions and promotional incentives. The current study investigates the short-term and long-term impact of such marketing actions on financial metrics, including top-line, bottom-line and stock market performance. The authors apply multivariate time series models to the automobile industry, where both new product introductions and promotional incentives are considered important performance drivers. Interestingly, while both marketing actions increase top-line firm performance, their long-term effects strongly differ for the bottom line. First, new product introductions increase long-term financial performance and firm value, but promotions do not. Second, investor reaction to new product introduction grows over time, indicating that useful information unfolds in the first two months after product launch. Third, product entry in a new market yields the highest top-line, bottom-line and stock market benefits. Managers may use these results to justify new product efforts and to weigh short-term and long-term consequences of promotional incentives.