This article proposes an empirically tractable way to incorporate intra-day noise into a VWAP trading rule. In volatile markets, news arrives unexpectedly and rapidly. This should influence a trader’s trading decisions. However, the literature has not incorporated such information into an algorithmic trading framework. Subsequently, this paper presents a Dynamic VWAP (DVWAP) framework that allows informed traders to utilize random news; and thus, improve trade-execution.

We address whether the joint bidding by private equity consortiums facilitates collusion in the takeover market. We employ a sample of 870 takeovers of publicly traded targets in the 2003 to 2007 period, the time period which is the focus of investigation by the Justice Department and the source of cases for class action lawsuits. A unique aspect of our analysis is that we determine the identification of private equity bidders from actual merger documents rather than rely on sources such as Securities Data Corp and that we analyze both prominent private equity bidders as well as smaller private equity firms. Our analysis finds competitive reasons for consortium formation based on scale, risk and bidder expertise. We also find that both single private equity bidders and private equity consortiums are associated with significantly greater levels of takeover competition than other types of bidders. While we find some evidence that target abnormal returns are lower in private equity consortium deals for narrow windows around the initial takeover-related announcement date, we find that these results do not hold for longer event windows that better account for the differences in the takeover process across types of bidders. Analysis that controls for the endogenous selection of consortium formation also fails to find any negative effect of consortiums on either takeover competition or target returns. We also do not find any negative effects of consortiums formed by prominent private equity firms. We interpret the evidence to be inconsistent with a collusive explanation for consortium formation in the 2003 to 2007 period and to be consistent with competitive reasons for consortium formation.

The market for corporate control is generally regarded as an important disciplinary mechanism in well developed economies. Entrenchment mechanisms commonly used by US firms in the form of anti-takeover provisions (ATPs) may offer some protection from disciplinary action, facilitating entrenchment and value-reducing behavior. One manifestation of entrenchment is poor acquisitions, with the literature reporting significant losses to large acquirers, and to acquirers with a higher number of ATPs. We examine the profitability of acquisitions in Australia, a market where US-style ATPs are prohibited. The results show that unlike their US counterparts, large Australian acquirers earn significant value for their shareholders, both in terms of announcement returns and long-run operating performance improvements. Takeover premiums are also substantially lower than those reported for the US and UK, and do not differ between large and small acquirers. Premiums are also positively correlated with long-run operating performance, indicating that they reflect real synergies, as opposed to hubris or overpayment. We also find that bidders who destroy value in takeovers are likely to be subsequently acquired. However, unlike US evidence, larger acquirers are just as likely to be targeted for takeover as smaller acquirers, indicating that size is not an effective impediment to the disciplining function of the market for corporate control in Australia. The findings are robust to several econometric issues common to the type of models used in our analysis.

ABSTRACT We use incremental and joint implementation of multiple SOX‐based control effectiveness disclosure and audit mandates to assess relative performance of alternatives for small U.S. public companies. Using data from several low‐ and high‐effort management disclosure and audit regimes implemented from 2003 to 2008, we find substantial and statistically significant increases in material weakness disclosure rates for small firms undergoing initial SOX 404(b) internal control audits, but find quantitatively and statistically similar increases for initial management reports of small firms exempt from such audits. As to audit cost, fees more than double for initial 404(b) audits in 2004 and remain high, while 404(b)‐exempt firms’ fees grow about 10% annually. Our results support the view that, for small firms, management internal control reports and traditional financial audits may be a cost effective disclosure alternative to full application of SOX 404(b). Also, our results suggest that, even without management reports on internal control, analysis of the cause of known accounting mistakes may yield substantial material weakness disclosures.

Although prior research presents employees’ subjective valuations of their stock options as being either below or above firms’ opportunity cost of issuing options, we examine subjective valuations in terms of their distribution around cost. We argue that variation of subjective valuations within this distribution is at least partly attributable to employees’ failure to fully incorporate the time-value component of options and their tendency to, instead, anchor on readily-available components of option value. Using both “real-world” and experiment data, we show that a significant proportion of both employees (30 percent) and experiment participants (47 percent) anchor on three readily-available values, two of which lie below cost (zero value, intrinsic value) and one of which lies above (stock price). We further find that a stock option education program aimed at mitigating the tendency to disregard the time-value component leads to a significant change in valuations (in terms of both median values and dispersion) and lower reliance on simple anchors. Education in the form of cognitive feedback has a greater effect on subjective valuations of additional options with differing characteristics as compared to education in the form of outcome feedback on the original option holdings.

By using an existing and a new convergence measure, this paper assesses whether bank loan and bond interest rates are converging for the non-financial corporate sector across the euro area. Whilst we find evidence for complete bond market integration, the market for bank loans remains segmented, albeit to various degrees depending on the type and size of the loan. Factor analysis reveals that rates on large loans and small loans with long rate fixation periods have weakly converged in the sense that, up to a fixed effect, their evolution is driven by common factors only. In contrast, the price evolution of small loans with short rate fixation periods is still affected by country-specific dynamic factors. There are few signs that bank loan rates are becoming more uniform with time.

We study the price-setting problem of a firm in the presence of both observation and menu costs. The firm optimally decides when to “review” costly information on the adequacy of its price. Upon each review, the firm chooses whether to adjust its price, one or more times, before the next price review. Each price adjustment entails paying a menu cost. The firm's choices map into several statistics: the frequency of price reviews, the frequency of price adjustments, the size distribution of price changes, and the hazard rate of price adjustments. The simultaneous presence of observation and menu costs produces complementarities that change the predictions of simpler models featuring one cost only. For instance, infrequent observations may reflect a high menu cost rather than high observation costs: in spite of these complementarities, we show that the ratio of the two costs is identified by several statistics on price observations and adjustments.

We show that the effects of taxes on labor supply are shaped by interactions between adjustment costs for workers and hours constraints set by firms. We develop a model in which firms post job offers characterized by an hours requirement and workers pay search costs to find jobs. We present evidence supporting three predictions of this model by analyzing bunching at kinks using Danish tax records. First, larger kinks generate larger taxable income elasticities. Second, kinks that apply to a larger group of workers generate larger elasticities. Third, the distribution of job offers is tailored to match workers' aggregate tax preferences in equilibrium. Our results suggest that macro elasticities may be substantially larger than the estimates obtained using standard microeconometric methods.