Mark Klock

The Relation Between Patent Citations and Tobin's Q in the Semiconductor Industry

The market value of a firm is largely determined by the expected returns to the firms tangible and intangible assets. However, accounting data generally excludes intangible assets. Financial variables which are constructed in part from accounting data, such as Tobins Q, are thus biased. If measures of intangible capital are successful in explaining variation in Q, then a case can be made for incorporating such measures into future research. In high technology industries, such as the semiconductor industry, valuing a firms intangible assets requires the valuation of its technological capital. Past studies have relied heavily on simple patent counts and research and development expenditures to quantify the technological component of a firms intangible assets. This paper examines the ability of measures of intangible capital to explain variation in Q and considers an additional data source, patent citations. We find that stock variables created from citation data contain relevant information about the markets valuation of intangible assets.

The recreation benefits of beach renourishment

Abstract This paper presents a methodology for directly estimating recreational benefits associated with beach renourishment. The methodology is employed to estimate benefits for the renourishment of the northern New Jersey beaches. It is shown that estimated benefits are more sensitive to the estimated increase in visitation associated with beach renourishment than to the estimated increase in willingness-to-pay. More emphasis needs to be placed on visitation estimates in a cost-benefit analysis of beach renourishment than has been done previously. Additionally, for the first time, estimates of the existence value of beach renourishment are provided.

Measuring and valuing intangible capital in the wireless communications industry

Abstract We investigate the measurement and valuation of intangible capital in the wireless telecommunications industry. Four specific sources of intangible capital are investigated: advertising, research and development (R&D), radio spectrum licenses, and measures of installed customer base. All four sources of intangible capital explain a statistically significant portion of the variation in Tobin’s q, but the variation explained by R&D is subsumed by that explained by licenses. Together, licenses and advertising explain over 60% of the variation in q, and licenses are the much more powerful predictor of the two. The industry average q exceeds ten, and it appears that the failure of financial accounting statements to reasonably value licenses plays a substantial role in causing these extraordinarily high q ratios.

The Stock Market Reaction to a Change in Certifying Accountant

This study investigates the stock markets reaction to a change in certifying accountant using standard event-time methodology and examines potential factors influencing the market reaction. Factors potentially affecting the market reaction to this event include agency costs, information levels, audit quality changes, and financial condition. The research is of interest because the SEC has expressed much concern about the practice of opinion shopping-switching to an auditor who agrees to accede to questionable accounting practices in order to further managements goals. Although many auditor switches are legitimate decisions made for the benefit of shareholders (e.g., obtaining a less expensive audit firm or one with a wider range of services), the SEC is deeply concerned that even the appearance of opinion shopping will destroy public confidence in the marketplace. Motivated by the public confidence hypothesis, the SEC has undertaken efforts to discourage the practice of opinion shopping. Given the SECs expenditure of resources on the problem, it would be interesting to know how the market reacts to an auditor switch. A significant negative reaction by the market to auditor switches would be an indication that the investing public perceives these switches as opportunistic behavior by management. Alternatively, if the market ignores auditor switches, there would be evidence that the public does not perceive opinion shopping to be a pervasive problem. Previous research on this question has resulted in conflicting evidence. Analyzing this issue with a different sample will provide one more piece of evidence in the debate, but more importantly, the analysis of variables affecting the market reaction provides information useful for future research. The data support a finding that the market ignores auditor switches; however, we also find evidence that this result could be caused by a failure to control for agency costs and information level.

The behavior of respondents in contingent valuation: Evidence on starting bids

Abstract Data from a contingent valuation survey of New Jersey beaches provides a test of starting point bias. Subsamples were delineated corresponding to levels of respondent understanding of the commodity being valued. A means- difference test showed statistically significant starting point bias for each subsample of respondents. A bid function is used to show that starting point bias is present and it increases as the level of information (understanding) decreases. Starting point bias was found even though respondents were actually using and paying for the commodity in question and the starting bids were in the neighborhood of the entry fee.

An Alternative to Conversion Studies For Measuring the Impact of Travel Ads

Research on the effectiveness of tourism advertising has relied on conversion studies, an attempt to ascertain how many inquirers from travel ads are converted into visitors. In spite of the methodological improvements in conversion research, only descriptive statements can be made. Severe conceptual problems remain when using conversion re search. The approach presented here develops a behavioral model of tourism visitation with advertising as an independent variable. The approach is equivalent to estimating how aggregate advertising affects aggregate sales by estimating parameters of a general demand function.

The Effect of Market Structure on the Incentives to Quote Aggressively: An Empirical Study of Nasdaq Market Makers

We use data on Nasdaq stocks to study arguments that preferencing reduces incentives to quote competitively. We examine a market makers volume as a function of various measures of quoting aggressiveness. We find that more aggressive quoting does indeed result in more business. We also examine the relation between volume and quote aggressiveness as a function of the competitiveness. We find that in less (more) competitive markets, increased quote aggressiveness has a smaller (larger) impact on market share. We argue that preferencing arrangements could be more harmful to public investors in markets where competition is weak. Copyright 2002 by the Eastern Finance Association.

On the Acquisition of Equity Carve-Outs

We examine the role played by the parent’s motive in undertaking a carve-out; the parent’s post-IPO influence over the carved-out subsidiary; and anti-takeover provisions and industry structure of a carve-out on its acquisition likelihood and its acquisition premium. We find that the probability and hazard of a carve-out acquisition increase when the parent’s objective is to unlock the value of a subsidiary and when the parent and the subsidiary are tied with a product-market relationship. We also find that the post-IPO parent ownership significantly affects the acquisition likelihood and the level of acquisition premium. Additional analyses examining the post-IPO carve-out status suggest that the product-market relationship and post-IPO parent ownership increase the probability of re-acquisition.

Contrasting the Art of Economic Science with Pseudo-Economic Nonsense: The Distinction Between Reasonable Assumptions and Ridiculous Assumptions

In this paper I explain that law professors who claim to have proven that the stock market cannot be efficient have based their case on economic models contain hidden assumptions which are nonsense. Specifically, the assumption that investors have no wealth constraint and can borrow unlimited amounts of capital is nonsense. I further explain that the frequently touted claim that many investors are irrational is not relevant to the debate about market efficiency because when real world characteristics of financial markets are imposed - markets clear, budget constraints are satisfied, and investors face credit limits - markets will be efficient regardless of the mental capacity of investors.

A Model of Return Volatility with Application to Estimating Relative Risk Aversion

We estimate a monthly return volatility model that allows for the abrupt changes in volatility often observed in returns data. Using this model we are able to identify key months likely to correspond to draws from a high volatility regime. Using our model in conjunction with Mertons (1980) model relating expected risk premia to risk we obtain reasonable estimates of the coefficient of relative risk aversion.