Analytical Representations for the Basic Affine Jump Diffusion
Li, Lingfei; Mendoza-Arriaga, Rafael; Mitchell, Daniel. Operations Research Letters. Jan 2016, Vol. 44 Issue 1, p121-128.
The Basic Affine Jump Diffusion (BAJD) process is widely used in financial modeling. In this paper, we develop an exact analytical representation for its transition density in terms of a series expansion that is uniformly-absolutely convergent on compacts. Computationally, our formula can be evaluated to high level of accuracy by easily adding new terms which are given explicitly. Furthermore, it can be easily generalized to give an analytical expression for the transition density of the subordinate BAJD process which is more realistic than the BAJD process, while existing approaches cannot.
Cross-Buying After Product Failure Recovery? Depends on How You Feel About It
Umashankar, Nita; Srinivasan, Raji; Parker, Jeffrey R. Journal of Marketing Theory & Practice. Winter 2016, Vol. 24 Issue 1, p1-22.
Cross-selling to customers during product failure recovery (PFR) encounters can be challenging as customers are reluctant to cross-buy after having recently experienced a failure, despite it being recovered. We examine several models of cross-buying and failure/recovery characteristics using a large-scale experiment and secondary transaction data from a Fortune 100 computer systems firm. We find that customers’ integral-affective responses dominate their cognitive responses. Further, customers are more willing to cross-buy when the firm’s recovery effort increases for more severe product failures or those with unstable attributions. Yet, greater recovery effort does little to diminish the negative effect of attributing the failure to the firm. Overall, understanding the relative dominance of a sequence of affective versus cognitive factors and the critical role that contextual factors play in customer cross-buying decisions will help managers design PFR encounters to increase the odds of cross-selling.
Discussion of "Does the Identity of Engagement Partner Matter? An Analysis of Audit Partner Reporting Decisions"
Kinney Jr., William R. Contemporary Accounting Research. Dec 2015, Vol. 32 Issue 4, p1479-1488.
The authors of this provocative study apply commonly used audit quality surrogate measures to a large and unique set of financial and other data on statutory audits of small private companies in Sweden. The paper has received unparalleled attention by the financial press and the PCAOB for its presumed support for regulatory intervention in standards for U.S. public company audits. In this Discussant Comment, I review the paper's content, analyze its predictive validity, and discuss its multiple implications plus, following Conference instructions, I provide constructive suggestions for improvements. Based on predictive validity analysis, I conclude that engagement partner assignment strategy is an important and acknowledged omitted variable that affects the study's internal validity via both the independent variable (partner's prior performance measure) and the dependent variable (borrower's cost of debt capital). The omission also affects construct validities and, if audit firms are applying a plausible assignment strategy, then interpretation of the study's main results would be reversed. Finally, the lack of a standards intervention noted by the authors and the extreme size and other differences between audits of Swedish private companies and U.S. public companies impair external validity and generalization to the U.S. intervention. As to improvements, I suggest that the authors (i) ask Swedish lenders to validate their presumed use of partner performance ratings in determining a borrower's interest rate, and (ii) ask Swedish Big 4 audit firms to provide a few internal partner performance ratings for comparison with the external performance measures used in the study. This two-pronged, multimethod approach might confirm or deny critical assumptions underlying the present study and may substantively inform standards setters, evidence-based standards, and fellow researchers about the validity of commonly applied surrogates for audit quality and the study's stated conclusion.
Do Organic Results Help or Hurt Sponsored Search Performance?
Agarwal, Ashish; Hosanagar, Kartik; Smith, Michael D. Information Systems Research. Dec 2015, Vol. 26 Issue 4, p695-713.
We study the impact of changes in the competitors' listings in organic search results on the performance of sponsored search advertisements. Using data from an online retailer's keyword advertising campaign, we measure the impact of organic competition on both click-through rate and conversion rate of sponsored search advertisements. We find that an increase in organic competition leads to a decrease in the click performance of sponsored advertisements. However, organic competition helps the conversion performance of sponsored ads and leads to higher revenue. We also find that organic competition has a higher negative effect on click performance than does sponsored competition. Our results inform advertisers on how the presence of organic results influences the performance of their sponsored advertisements. Specifically, we show that organic competition acts as a substitute for clicks, but has a complementary effect on the conversion performance.
Does Use Tax Evasion Provide a Competitive Advantage to E-Tailers?
Hoopes, Jeffrey L.; Thornock, Jacob R.; Williams, Braden M. National Tax Journal. Mar 2016, Vol. 69 Issue 1, p133-168.
Many online retail firms (e-tailers) do not collect sales tax from the majority of their customers. This practice provides these firms with a potential competitive advantage over traditional retailers. We examine stock market returns and analysts sales forecast revisions surrounding federal legislative proposals, such as the Marketplace Fairness Act, that could erode this alleged competitive advantage for e-tailers. Following events that indicated an increased likelihood of federal sales tax legislation, we find negative abnormal stock returns for e-tail firms relative to traditional retail firms. We also find that analysts forecast a future reduction in sales revenue for e-tailers. These findings imply the existence of a competitive advantage for e-tailers that will potentially diminish with the enactment of federal sales tax legislation.