Michaël Dewally

Reputation, Certification, Warranties, and Information as Remedies for Seller-Buyer Information Asymmetries: Lessons from the Online Comic Book Market

Signaling strategies that sellers of higher-quality products or securities employ to differentiate their products include (1) development of a reputation for quality, (2) third-party certification, (3) warranties, and (4) information disclosure. These signaling strategies are compared using data from the online auction market for classic comic books. This markets advantages include that (1) the information asymmetry is substantial, (2) good measures of reputation are available, and (3) all four signals are common. We explore which signals are strongest and why, which are substitutes or complements, and how choice among the other three strategies depends on the reputation of the seller.

A Comparison of Reputation, Certification, Warranties, and Information Disclosure as Remedies for Information Asymmetries: Lessons from the On-line Comic Book Market

Signaling strategies which sellers of high quality securities, goods, or services employ to differentiate their securities or products from those of lower quality include: (1) developing a reputation for high quality, (2) certification by a respected third party (e.g., underwriters, bond rating agencies, and auditors, for securities, and testing laboratories for goods), (3) warranties (for goods), and (4) information disclosure (such as financial statements for securities and specifications and test results for goods). These signaling strategies are compared using data from the online comic book auction market. This market has a number of important advantages: (1) the information asymmetry is substantial, (2) good measures of reputation are available, and (3) there are many sellers employing different combinations of the four strategies. Of the four strategies, we find certification by a respected third party sends the strongest signal. On average certified comics sell for over 50% more than otherwise equivalent uncertified comics. Moreover it appears that part of this price premium is due to risk reduction, i.e., not all is due to differences in the expected quality of certified and uncertified books. We find that both how positive or negative the sellers reputation is and how well established that reputation is significantly impact the price though reputation is less important than certification. We find no evidence that warranties in the form of money-back guarantees impact the price. Apparently buyers reason that sellers of truly high quality books should seek certification so discount the presence of both warranties and positive reputations. Virtually all sellers disclose information in the form of scans and failure to do so lowers the price a modest amount. Since for a single sale, the sellers reputation is exogenous while the other three strategies are endogenous, we explore how a sellers strategy choices depend on her reputation.

What Attracts Bidders to Online Auctions and What is Their Incremental Price Impact

Based on data from eBay auctions of classic comic books, we explore the determinants of the number of bidders in online auctions and the impact of additional bidders on the auction price. We test for winners curse and examine how secret reserve prices impact both bidding activity and the auction price. In our data set, the number of bidders varies widely from zero in 20.4% of the observed auctions to ten or more in 16.5% but 70% of this variation in bidder numbers is predictable based on the comic being auctioned and attributes of the seller and auction such as third party certification of the comics condition, the sellers reputation, and the length of the auction. Each additional bidder tends to increase the realized auction price about 2.4%. A minor part of this increase is apparently either because the auctions have a private value component or because some bidders fail to fully adjust for winners curse. However, most appears due to the inability of bidders to accurately determine the number of bidders they are bidding against. The presence of a secret reserve price sharply reduces the number of bidders in an auction but has little impact on what individual bidders are willing to bid.

The impact of social norms on female corporate board membership inclusion

Purpose The purpose of this paper is to document that religious adherence in the county of the corporate headquarter and educational attainment of the female director pool near the firm headquarters are influential to the likely addition of female corporate board directors. Design/methodology/approach The sample covers 1,630 unique firms and 30,369 unique directors covering a ten-year period to investigate the effects of religiosity and educational attainment. Findings The analysis reveals that while the number of women has increased in general terms, this change is mostly limited to boards that are increasing in size. Women do not tend to replace exiting male board members but are appointed when the board size grows. Therefore, while the number of women is increasing in absolute terms, they are not increasing in relative terms. In areas where religiosity is high, as measured by church affiliation and attendance, female participation in the boardroom is lower and a more educated and qualified female population leads to higher board participation. These effects supersede any regional effects. Originality/value The study adds insights into corporate board dynamic, providing new evidence concerning the impact of local conditions on board composition as well as additional information concerning the interplay of board dynamics and female board representation.

Investment Bank Expertise in Cross-Border Mergers and Acquisitions

We study the influence of country expertise of investment banks in facilitating cross-border merger deals by analyzing a large international sample of M&A deals. We provide evidence that the geographical proximity, cultural affinity, and local experience of investment banks advising bidding firms on cross-border M&A deals significantly decrease the time to completion required to complete the deal, significantly increase the probability of completion of the deal and the operating performance of the acquiring firm after the deal. The cultural affinity between the bank and the target country and the expertise of the acquirer on the target country have also a significant positive effect on the stock market reaction at the announcement of the deal. Our results are robust to firm, deal, country specific factors, and endogeneity concerns.

Institutions, capital control, and liquidity creation

Purpose The purpose of this study is to conduct an empirical investigation on how country-specific characteristics such as the quality of the institutional environment and the restrictiveness of capital control policy affect domestic financial sector’s ability to provide liquidity to the economy. Design/methodology/approach This study uses panel regressions on international banking data across 102 countries from Bankscope. Findings The results show that strong institutions and looser capital control in a country enhance the banks’ role as the liquidity provider to the economy. The study also finds that institutional quality and capital control have a dynamic effect that influences the creation of liquidity. Better institutions benefit the creation of liquidity in either under normal economic conditions or during economic downturn. Loosened capital control, as a result of financial openness, facilitates liquidity creation under normal economic conditions. Originality/value This study complements the research on the role of country-level institutions in financial and economic development and suggests a liquidity channel through which a country’s institutions can further economic growth. The study also provides evidence on the impact of a country’s control of capital flows on the role of banking sector in domestic economy.

Determinants of financial policy in the hospitality sector in the United States

This article investigates the circumstances surrounding large investments by firms in the hospitality sector in the United States. The authors identify 400 large-scale investment events for firms in the restaurant, hotel, and recreation industries. During these events, firms increase their size substantially through building or acquiring assets. The authors determine that a combination of market and firm-specific factors lead to such events. Firms are more likely to engage in large investments when they have experienced strong recent sales growth and when they have lower existing leverage. These investments are more likely when the market is less volatile and when general economic conditions indicate strong consumer demand. Finally, the authors show that firms are more likely to rely on a combination of cash flow and debt financing to complete such investments, though firms experiencing higher sales growth are prone to use more equity financing.

Determinants of Trader Profits in Futures Markets

Using a unique proprietary data set of positions held by all large traders in the crude oil, gasoline, and heating oil futures markets, we use actual trader profits to test the predictions of various commodity futures pricing models. We find statistically and economically significant evidence that: (a) mean hedger profits are negative while speculator profits are positive, which is consistent with the risk premium hypothesis, (b) traders (whether speculators or hedgers) who hold long (short) positions when likely hedgers in aggregate are net short (long) have higher profits than traders whose net positions are aligned with likely hedgers, which is consistent with the hedging pressure hypothesis, and (c) profits on long positions vary inversely with inventories and directly with price volatility, which is consistent with the modern theory of storage. We establish these associations while controlling for macroeconomic risk factors that potentially affect futures returns and for trader characteristics. Our results indicate also that the momentum in commodity futures markets may be due largely to hedging pressure.