S. Abraham Ravid

How Critical Are Critical Reviews? The Box Office Effects of Film Critics, Star Power, and Budgets

The authors investigate how critics affect the box office performance of films and how the effects may be moderated by stars and budgets. The authors examine the process through which critics affect box office revenue, that is, whether they influence the decision of the film going public (their role as influencers), merely predict the decision (their role as predictors), or do both. They find that both positive and negative reviews are correlated with weekly box office revenue over an eight-week period, suggesting that critics play a dual role: They can influence and predict box office revenue. However, the authors find the impact of negative reviews (but not positive reviews) to diminish over time, a pattern that is more consistent with critics’ role as influencers. The authors then compare the positive impact of good reviews with the negative impact of bad reviews to find that film reviews evidence a negativity bias; that is, negative reviews hurt performance more than positive reviews help performance, but only during the first week of a films run. Finally, the authors examine two key moderators of critical reviews, stars and budgets, and find that popular stars and big budgets enhance box office revenue for films that receive more negative critical reviews than positive critical reviews but do little for films that receive more positive reviews than negative reviews. Taken together, the findings not only replicate and extend prior research on critical reviews and box office performance but also offer insight into how film studios can strategically manage the review process to enhance box office revenue.

Trade credit, quality guarantees, and product marketability

Although trade credit has long been an important source of financing for corporations, it is one of the least understood methods of doing business. One possible reason for misconceptions about trade credit is that it is not primarily financial in nature, but instead reflects production and marketing decisions. In this paper, we consider trade credit as a way that firms can guarantee product quality, rather than as a means of financing less creditworthy firms. In this context, we seek, and provide, possible explanations for observed phenomena such as relatively shorter (or no) trade credit terms for consumer and food products and relatively longer terms for heavy industrial equipment.

Managerial Objectives, the R-Rating Puzzle and the Production of Violent Films

We analyze project choice in the motion pictures industry and find evidence consistent with revenue maximization and excessive hedging. We focus on the production of violent films and films that feature sex and violence. We find that such movies do not provide excess returns, but they increase revenues, particularly in the international market. Further, they tend to lose money

Interest Rate Uncertainty and the Optimal Debt Maturity Structure

As demonstrated by Boyce and Kalotay (1979) and Brick and Ravid (1985), the use of long-term debt may be preferred because of tax-related advantages. Brick and Ravid show that if there exists a tax advantage to debt and nonstochastic interest rates, long-term debt will increase the present value of the tax benefits of debt if the term structure of interest rates, adjusted for risk of default, is increasing. A decreasing term structure, on the other hand, calls for short-term debt. The present paper extends the tax-induced argument of Brick and Ravid to allow for the presence of stochastic interest rates. Once interest rates are uncertain, pricing even under risk neutrality becomes a complex issue. We analyze the debt maturity decision under two competing pricing equations: the return to maturity expectations hypothesis and the local expectations hypothesis. (This terminology is used in Cox, Ingersoll, and Ross (1981) and Campbell (1986).) Under uncertainty, a debt capacity factor will create an additional incentive to issue long-term debt. Our other results may be interpreted to indicate that if the term premium, the difference between the implied forward interest rate and the future expected spot rate, is positive (sufficiently negative) then long-term (short-term) debt maturity strategy is optimal.

Financial Signalling by Committing to Cash Outflows

We analyze a model in which firms signal their quality by using financial policies to commit to cash outflows. Two financial policies may be used: dividend and debt-service obligations. We find sufficient conditions for the informational equilibrium to entail concommitant use of both dividends and leverage in the cost-minimizing combination of the commitment signal. In this equilibrium, better firms pay higher dividends and are more highly levered than lower quality firms.

On Interactions of Production and Financial Decisions

0 Until more than a decade ago, financial economists typically explored problems of capital structure and dividend policy under the assumption that operating cash flows or investment decisions were exogenously determined, either with certainty or with an endowed, known distribution. Micro and macro-economic theorists, on the other hand, discussed what might be called operating income maximization, and treated as irrelevant the origin of the funds they allocated between labor and capital. It is now the consensus, I believe, that although these approaches constitute important simplifications, they may obscure some of the more important activities that take place in the firm. Interactions of production and financial decisions have thus been the focus of many recent studies. This research is extremely important for financial decision makers. If indeed it turns out that there are economically significant interactions between production and financing, then proper financial management may be vastly more difficult than typically portrayed in modern textbooks. Most of what is taught in capital budgeting, for example, is based on separation of investment and financing. If in reality this is not the case, then decentralization of the firms operations can not be maintained, and all decisions will have to be made at the same time. Indeed, the many papers described here show how investment decisions, product pricing, labor negotiations, and market power may all be significantly related to the choice of capital structure. While this survey represents an attempt to assess the economic significance of each interaction, it must be emphasized that, as a casual glance at the references should reveal, we are dealing with on-going research that is not, as yet, supported by sufficient empirical evidence to yield definitive answers.

Toehold Strategies, Takeover Laws And Rival Bidders

A laminated multi-layer wiring board comprising alternate layers of a glass ceramic material and conductor pattern. The glass ceramic layers are made of a glass ceramic comprising glass and dispersed ceramic particles. The glass ceramic layers further contain hollow or porous silica glass spheres dispersed in the glass ceramic. The hollow or porous silica glass spheres are covered with a ceramic coating layer containing aluminum as a constituent element. Such a structure prevents crystallization of the silica spheres and the resultant rapid increase in the thermal expansion coefficient of the glass ceramic layer. The structure also procludes the formation of pores in the surfaces of the spheres.

The Comparative Efficiency of Small-Firm Bankruptcies: A Study of the US and Finnish Bankruptcy Codes

We use a sample of small firms to compare efficiency aspects of the creditor oriented old (pre-1993) Finnish bankruptcy code and the debtor oriented US code. We find that although the same economic factors affect liquidations in both the US and Finland, under the Finnish code firms are somewhat more likely to be liquidated piecemeal. We also find that the costs of going concern sales and of liquidations under the Finnish code tend to go toward the higher end of the range found in US studies; and that payments to creditors in the US reorganizations are higher than the payoffs under the Finnish bankruptcy regime.

The Geography of Venture Capital Contracts

We show that geographical elements and regional culture can play an essential role in contract design in addition to the influence of more “traditional” determinants such as information and agency problems or the nature of legal institutions. Across 1,800 financial contracts written between U.S. entrepreneurial companies and U.S. Venture Capital (VC) investors, we show that contracts include significantly fewer investor-friendly cash flow contingencies if the company is located in California or if the lead VC is more exposed to the California market. The regional differences in contract design can, to some degree, be explained by the level of concentration of local VC markets. We also show that when the geographical distance between a VC and a company is greater, contracts give high-powered incentives to entrepreneurs by including more investor-friendly cash flow contingencies. This latter finding supports the view that geographical proximity enhances monitoring and soft information. However, the “California effect” persists even after we control for distance and VC market concentration.

Privatizing in stages and the dynamics of ownership structure

Abstract We examine the dynamics of privatization and provide an explanation for the different patterns of evolution of private ownership. In our model the government simply chooses the degree of privatization (and associated corporate governance mechanisms) and delegates production to the management. The managements objective and its alignment with that of the government is determined by the level of privatization. We have a complete characterization of privatization dynamics for all possible stochastic evolutions of the economy in the history-independent case. We also characterize the privatization dynamics when the economy exhibits habit formation, learning by doing and revolution of rising expectations. In particular we are able to distinguish characteristics of privatization in stages (experimentation) from those of partial privatization (hesitation). We illustrate the model using examples from several countries.