Price Manipulation with Dark Pools And Multi-Product Separation In Inventory Hedging

Sun, Yuemeng. 2011. Price Manipulation with Dark Pools And Multi-Product Separation In Inventory Hedging. Doctoral Dissertation, Cornell University.

This dissertation addresses two different problems within mathematical finance: an optimal execution problem with dark pools using a market impact model, and multi-product separation with financial hedging for inventory management. In the first part of the dissertation we consider an optimal liquidation problem in which a large investor can sell on a traditional exchange or in a so-called dark pool. Dark pools differ from traditional exchanges in that the orders placed in it generate little to no price impact on the market price of the asset. Within the framework of the Almgren-Chriss market impact model, we study an extended model which includes the cross-impact between the two venues. By analyzing the optimal execution strategy, we identify those model specifications for which the corresponding order execution problem is stable in the sense that are no price manipulation strategies which can be beneficial. In the second part of the dissertation, we propose financial hedging tools for inventory management. Based on a framework for hedging against the correlation of operational returns with financial market returns, we consider the general problem of optimizing simultaneously over both the operational policy and the hedging policy of the corporation. Our main goal is to achieve a separation result such that for a corporation with multiple products and inventory departments, the inventory decisions of each department can be made independently of the other departments' decisions. We focus initially on a single-period, multi-product hedging problem for inventory management, and model an economy experiencing monetary inflation. We use the Heath-Jarrow- Morton model to represent the financial market. We then extend the model to consider multiple periods and more general market models. In both cases, we prove a separation result for inventory management that allows each inventory department to make decisions independently. In particular, the separation result for the multi-period problem is a global separation in the sense that no interaction needs to be considered among products in intermediate time periods. In addition, we propose a dynamic programming simplification of the multi-period single-item inventory problem which further simplifies the computation by reducing the dimension of the state space.

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Essays On CEO Inside Debt

Cen, Wei. 2011. Essays On CEO Inside Debt. Doctoral Dissertation, Cornell University.

Executive defined benefit pensions and deferred compensation are known as "inside debt". The reason is that their values depend on the ability of the firm to make future payments to its participant employees. Such plans have the potential of mitigating the risk-shifting problem of managers (Jensen and Meckling (1976)) because executives who own inside debt are worried about firm default risk and not only about shareholder return. In this dissertation, I examine the determinants of CEO inside debt and its components. I then use the inside debt as a measure of CEO risk preferences and examine its relation to firms' risk. In Chapter one, I use the new SEC disclosure rule of 2006 to examine the determinants of CEO inside debt. I find that CEOs defer a larger fraction of their compensation when their cash compensation is high, firm liquidity is high, firm default risk is low, and when executive personal wealth is high. These findings are consistent with CEOs choosing to defer compensation when they least need the money and when they do not expect the firm to default. In contrast to previous studies, I find a non-linear inverted U-shape relation between firm leverage and CEO inside debt. In particular, CEOs reduce their inside-debt when the firm is highly levered. Using novel data from executive deferred compensation, Chapter two presents new evidence on the relationship between CEO risk preference and firm risk (the volatility of firm performance measures such as stock return, earnings and operating cash flows). My results show a negative association between the CEO risk aversion (as measured by realized performance on inside debt) and the volatility of firm market performance: Firms with risk-averse CEOs have experience less stock price volatility. I also find that firms providing deferred compensation plans have lower performance volatility. The results contribute to the inside debt literature by showing that debt compensation is related to lower firm risk and lower firm market value.

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Essays On Firms Behaviors And Efficiencies

Huang, Hao. 2010. Essays On Firms Behaviors And Efficiencies. Doctoral Dissertation, Cornell University.

In Chapter 1, we study the relationship between the target value creation and acquirer corporate governance measures. We show that, based on the 2-day, 5-day and 10day announcement windows, the targets acquired by companies with more antitakeover provisions (ATP) experience higher announcement returns. We also study the link between acquirer’s corporate governance measure and net synergistic effects on the capital market. We find that high-ATP acquirers engage in mergers that are not only destructive to their own firm values, but as a whole high-ATP acquirers also on average make acquisitions that yield lower net synergistic values. We also study the acquirer returns to confirm MWX’s results. Lastly, we examine the impacts of Gindices on combined company’s value changes in asymmetric windows, and we find the breakeven G-indices under which the net synergistic effects tend to be positive for different windows. In Chapter 2, we examine the relationship between various types of market shares and net interest margins in the Taiwanese banking industry. The study uses previously untapped Taiwanese banking data with more than 5000 observations and three model specifications over a 19-year span. The results show that the market shares have positive and statistically significant impacts on net interest margins for most aggregate samples. But the results also show that as the banking industry became saturated and banks began engaging in pricing wars and risky lending, the deposit and branch market shares have had negative impacts on bank spreads since 2001. The credit lending market share became a much more important factor for profitability; it was less important before around 2001 because (non-collateralized) credit lending was not as prevalent, and the market for credit cards or cash cards, which yield higher interest rates, was small. The results support the argument for further industry consolidation to build healthier and larger financial institutions.

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Parallel Real Asset Management with Environmental Regulation: Integer Programming And Approximate Dynamic Programming Approaches

Stasko, Timon. 2011. Parallel Real Asset Management With Environmental Regulation: Integer Programming And Approximate Dynamic Programming Approaches. Doctoral Dissertation, Cornell University.

This dissertation presents a pair of models designed to assist in the management of multiple deteriorating real assets, given financial and environmental concerns. Whether the assets are buildings or vehicles or machines, their purchase and upkeep can be costly, making optimal management policies valuable. The models presented build upon a strong literature. They incorporate numerous factors which have been modeled previously, though generally not together. These include technological change, linked decisions for multiple assets, and non-steady-state demand. They stand out from previous literature due to their ability to model retrofits, as well as repairs and replacements. These retrofits can have initial as well as ongoing costs, and can impact externalities, making them relatively general. The integer program model is fast and well suited to analysis requiring large numbers of runs, such as the comparison of a wide range of regulatory alternatives. The approximate dynamic program, while slower, is able to handle stochastic asset failures and repair costs for large asset portfolios, something which previous models have struggled to accomplish without strong simplifying assumptions. A customized value iteration approach produces good solutions within a few hours for sample problems involving a fleet of well over a thousand vehicles subject to clean diesel regulation.

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Increasing Returns and Firm Performance: An Empirical Study

This thesis is about increasing returns: positive feedback effects in markets and firms. Positive feedback means that success causes further success and failure causes further failure. There are two market-based mechanisms of increasing returns, network effects and social interaction effects, and two firm-based mechanisms of increasing returns, scale effects and learning effects. Empirical research into the relations between these mechanisms and into the consequences of increasing returns for firm performance is relatively scarce. The aim of the researcher with this thesis is to fill part of this gap. Concepts taken from economics and management sciences are used, building on the industrial organization theory of the firm. Three empirical studies were conducted for which new measurement models were constructed and tested and for which primary and secondary data was collected and analyzed. The results show that the presence of increasing returns in the market influences firm performance, but always through the realization of increasing returns in the firm. This means that in an increasing returns market, management is an important factor determining firm performance. It is therefore essential for managers to understand the mechanisms of increasing returns in their markets and firms and for them to be able to act strategically upon those mechanisms. This will enable managers to exploit business opportunities arising from increasing returns and to avoid pitfalls, which should result in better firm performance.

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Market Information Sharing in Channel Relationships Its Nature, Antecedents, and Consequences

Willem Smit (Hendrik-Ido-Ambacht, 1972) is currently working as a Research Fellow at IMD - International Institute for Management Development in Lausanne, Switzerland. Prior to this, Willem graduated with a Master’s degree in Marketing from the Rotterdam School of Management, Erasmus University. He also studied management at McGill University in Montréal, Canada. After several years in business, he returned to academia and started his PhD at the Erasmus Research Institute of Management, Erasmus University Rotterdam. He has presented his research on marketing at different academic and professional conferences in both Europe and North America. All through his PhD research, Willem teamed up with three communities. First, he worked with the business community on several research and consulting projects, such as future retail formats of car dealers (with Automotive), online retailers’ market intelligence (with Thuiswinkel.org), future competitiveness of garden centers (with Dibevo), supplier involvement in the fashion industry, and soccer clubs’ fan loyalty (with Sparta and Excelsior). Second, he internationalized EPAR, the Erasmus University’s PhD Association, to better represent his fellow PhD candidates’ community and third, he served the academic community as an ad-hoc reviewer for Marketing Science, IMP conference, and Industrial Marketing Management. At IMD he expands the field in research on market-driven and market-driving channels. He also works closely with IMD faculty on related research themes such as supply chain management, collaborative market learning, and market orientation. For updates on his research: www.justtherightstuffontheshelf.com

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Corporate Social Performance: From Output Measurement to Impact Measurement

All organisations have social, environmental and economic impacts that effect people, their communities and the natural environment. Impacts include intended as well as unintended effects and negative as well as positive effects. Current practice in performance measurement tends to focus on measuring only a part of the total impact that organisations have on society. The research about what impact, as distinct from output and outcomes, organisational actions have upon the society remains largely unexplored in existing management and business & society research. Therefore, the objectives of this dissertation are to increase the understanding of social impact of organisations, and to propose a framework and methodology that facilitates social impact measurement. The social impact of different organizational activities is studied throughout this dissertation. The first study focuses on the social impact of Corporate Social Responsibility (CSR). The second study focuses on Strategic Philanthropy while the third study focuses on the social impact of an individual foundation, the Netherlands Heart Foundation. This variety of organisational activities is chosen to show that impact measurement is relevant in the profit sector as well as in the non-profit sector and is relevant for all kinds of organisational activities. Next to this, in a fourth study, different existing social impact measurement methods are collected, analysed and classified. The studies in this dissertation add to the existing body of research that focuses on corporate social performance and social impact measurement. It also informs management about the possibilities and limitations of social impact measurement.

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The Relationship between Offshoring Strategies and Firm Performance: Impact of innovation, absorptive capacity and firm size

How do offshoring strategies impact firm performance? And how are innovation, absorptive capacity and firm size influencing this relationship? This research investigates how firms of varying size, well-established firms and growing firms may profit from relocating business activities to foreign locations. Offshoring strategies are conceptualized as consisting of both organizational attributes – i.e. function offshored, governance mode and location – and strategic attributes – i.e. cost, resource and entrepreneurial drivers. Data has been collected in Europe and the US in collaboration with (1) the Offshoring Research Network (ORN), (2) Statistics Netherlands (CBS) and Statistics Europe (Eurostat), and (3) business partners. First, the results show that firms of different sizes, i.e. small, medium-sized and large firms, may all profit from offshoring strategies. Different theories, among which transaction cost economics, the resource-based view and entrepreneurship theory, help to explain the different rationales these firms may have their respective strategies. Second, this research indicates that well-established firms do not – or not yet – move beyond cost advantages to improve their competitive position. By applying learning theory, innovation is shown to have an impact on the relationship between offshoring strategy, i.e. function diversity and governance diversity, and competitive position. Third, the knowledge-based view of the firm helps to demonstrate that companies realize additional firm growth by offshoring core functions, while the effect of outsource offshoring on firm growth is contingent upon absorptive capacity. Fourth, the changes over time that firms exhibit in their location choice are explained by way of internationalization theory. While nearshore experience is important for farshoring, experience with farshoring also increases the likelihood of nearshoring, which is an indication of the importance of experience.

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Financial Services and Emerging Markets

This study addresses the organization and strategy of firms in emerging markets with an explicit application to financial services. Given the relevance of a well-functioning financial system for economic growth, understanding the organization and strategy of firms contributing to the development of sound financial services appears of utmost importance for emerging markets. Throughout the study, two main providers of financial services are distinguished, namely banks and stock markets, which are examined in the emerging market context of Central and Eastern Europe and China, respectively. For banking, the general focus is on the adopted strategies of multinational banks to expand across the Central and Eastern European region. The main findings indicate that, based on the degree of host market uncertainty and competition, multinational banks adopt different expansion strategies. Furthermore, it appears that multinational banks expand most effectively by establishing new subsidiaries in countries adjacent to a country where the bank already has a presence. For stock markets, the central theme is how the decision of mainland Chinese firms on where to list their shares reflects the attractiveness of the stock markets within the financial centers of Shanghai, Shenzhen and Hong Kong. The findings suggest an increasing segregation in the strategic listing decisions that mainland Chinese firms make, which indicates that the financial centers of mainland China and Hong Kong have become more specialized and complementary over time.

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In Money we Trust? Trust Repair and the Psychology of Financial Compensations

Despite the importance of trust in economic relations, people often engage in behavior that may violate their interaction partner’s trust. Given that transgressions in economic relations often result in distributive harm for the victim (i.e. loss of economic resources), a common approach in these relations consists of the transgressor providing a financial compensation to the victim: if a customer has complaints about a product, he is reimbursed; when a company is being sued, it often tries to make a financial settlement with the victims. Strangely enough, the high prevalence of financial compensations as a restorative response contrasts sharply with how little is known about their effectiveness. Can financial compensations actually increase trust again and what are the factors that determine their effectiveness? By taking an experimental approach, this dissertation aims to provide some first, much needed empirical answers regarding the effectiveness of financial compensations in restoring trust. In this venture, it was not only studied how aspects of the compensation itself (e.g. size) determine their effectiveness, but also how specific characteristics of the violation, the victim and the transgressor impact victims’ reactions to a compensation. The findings of this dissertation show that even in economic relations, where violations have a clear, quantifiable distributive harm, the process of trust repair is not simply determined by the material, financial value of a compensation. Rather, this dissertation reveals how immaterial aspects such as intent in the violation, whether a compensation was imposed or voluntarily provided or whether or not an apology accompanied the compensation, are all crucial in determining the actual value that victims attach to a financial compensation.

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Econometric Advances in Diffusion Models

This thesis gives new and important insights in modeling diffusion data in marketing. It addresses modeling multiple series instead of just one series such that one can learn from the differences and similarities across products and countries. Additionally, this thesis addresses the current availability of higher frequency diffusion data. The two issues provide challenges for modeling of diffusion processes. In this thesis we provide solutions to these challenges, and we also suggest another look at some older issues with a particular focus on parameter estimation. In the first chapters we deal with the estimation of diffusion parameters for a single series. We start with an overview of currently used estimation methods and we suggest that a new method is needed. In fact, our new method does not suffer from bias as it properly incorporates the source of noise and the observational frequency. In the next chapters we focus on modeling high-frequency diffusion data, where we specifically address mixed-frequency diffusion data and seasonality. Finally, we propose a new approach to jointly modeling many diffusion series, where we allow for cross effects between products and countries.

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Behavioral Strategy: Strategic Consensus, Power and Networks

Organizations are embedded in a network of relationships and make sense of their business environment through the cognitive frames of their employees and executives who constantly experience battles for power. This dissertation integrates strategic management research with organizational behavior to illuminate managerial cognition, intra-organizational power and interfirm networks. The collection of the studies presented in the present dissertation provides further insights into measurement of cognition, consensus formation process, optimal power differences, and social network theory with assumptions grounded on social cognition, behavioral decision theory, psychology and organizational behavior. These studies offered a new method to measure, visualize and aggregate individual cognition to group and between group level with a strong emphasis on multiple dimensions of cognition, shed light on micro-processes on consensus formation in relation to within-group power differences and psychological safety, a novel model of strategic decision making, and a new behavioral construct that refined existing theories from a behavioral perspective. Each study on its own laid down responses to core research questions of behavioral strategy. Consequently, this dissertation extends strategic management along behavioral lines and equips scholars and practitioners with novel methods and theoretical insights with respect to cognition, power and networks.

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Increasing Returns and Firm Performance: An Empirical Study

Hartigh, E. den 

This thesis is about increasing returns: positive feedback effects in markets and firms. Positive feedback means that success causes further success and failure causes further failure. There are two market-based mechanisms of increasing returns, network effects and social interaction effects, and two firm-based mechanisms of increasing returns, scale effects and learning effects. Empirical research into the relations between these mechanisms and into the consequences of increasing returns for firm performance is relatively scarce. The aim of the researcher with this thesis is to fill part of this gap. Concepts taken from economics and management sciences are used, building on the industrial organization theory of the firm. Three empirical studies were conducted for which new measurement models were constructed and tested and for which primary and secondary data was collected and analyzed. The results show that the presence of increasing returns in the market influences firm performance, but always through the realization of increasing returns in the firm. This means that in an increasing returns market, management is an important factor determining firm performance. It is therefore essential for managers to understand the mechanisms of increasing returns in their markets and firms and for them to be able to act strategically upon those mechanisms. This will enable managers to exploit business opportunities arising from increasing returns and to avoid pitfalls, which should result in better firm performance.

Download Full Text