This paper extends the Baker and Taylor approach to the reciprocal service cost problem by allowing for the existence of nonvariable costs. A sample problem is developed to show how a mixed integer programming approach can be used to account for nonvariable costs in make-or-buy decisions. Also, in order to better calculate the opportunity costs of not meeting demand because of service department bottlenecks, the Baker and Taylor model is converted into a profit maximization model and combined with the mixed integer approach.

Develops a theory for the demand for the advising and distribution services of investment banks when there is information asymmetry between an issuer of new securities and the investment bankers. The advising services of the investment banker are valuable when the banker has better information about the capital market, while the distribution services are useful when the banker is able to create demand for the issue. This analysis considers the delegation contract between the issuer and the banker in a negotiated, fixed price offering. The delegation contract exists when the issuer enlists the banker to both advise on the offering price and distribute the securities. In this case, the banker's decision as to whether the contract should be accepted is based on the banker's private information. Given these conditions, a model is presented, and an example is provided to illustrate the optimal delegation contract. Also examined are the situation in which the issuer only utilizes the distribution services of the banker and the situation in which the investment banker is not engaged at all. Results show that when the banker is better informed than the issuer, the new issues are underpriced. Further, those issuers of unseasoned securities who are less informed about the capital market than the issuers of seasoned securities are more likely to seek the advice of investment bankers. (SRD)

This paper presents a theory of the demand for investment banking advising and distribution services for the case in which the investment banker is better informed about the capital market than is the issuer, and the issuer cannot observe the distribution effort expended by the banker. The optimal contract under which the offer price decision is delegated to the better‐informed banker in order to deal with the adverse selection and moral hazard problems resulting from the informational asymmetry and the observability problem is characterized. The model demonstrates a positive demand for investment banking advising and distribution services and provides an explanation of the underpricing of new issues.

The purpose of this paper is to reexamine Reinganum's study which indicates that abnormal returns could not be earned unexpected quarterly earnings information, and to document precisely the response of stock prices to earnings announcements. This study, using a very large sample of stocks and daily returns, represents the most complete and detailed analysis of quarterly earnings reports that has been performed to date. Our results are contrary to those of Reinganum and show that abnormal returns could have been earned almost any time during the 1970's. Our analysis also indicates that risk adjustments matter little in this type of work. Finally, we find that roughly 50% of the adjustment of stock returns to unexpected quarterly earnings occurs over a 90-day period after the earnings are announced.

In this note the relationship between alternative concepts of noncausality is analyzed using the tool of conditional independence among a-fields. (For the reader who is unfamiliar with this technique, the Appendix sketches the proofs and the basic technical apparatus, along with some basic motivations.) Furthermore, the relationship between the concepts of noncausality and transitivity is made explicit in order to facilitate, in econometric modelling, the use of results already obtained in sequential analysis.

This paper develops a model of strategic communication, in which a better-informed Sender (S) sends a possibly noisy signal to a Receiver (R), who then takes an action that determines the welfare of both. We characterize the set of Bayesian Nash equilibria under standard assumptions, and show that equilibrium signaling always takes a strikingly simple form, in which S partitions the support of the (scalar) variable that represents his private information and introduces noise into his signal by reporting, in effect, only which element of the partition his observation actually lies in. We show under further assumptions that before S observes his private information, the equilibrium whose partition has the greatest number of elements is Pareto-superior to all other equilibria, and that if agents coordinate on this equilibrium, R's equilibrium expected utility rises when agents' preferences become more similar. Since R bases his choice of action on rational expectations, this establishes a sense in which equilibrium signaling is more informative when agents' preferences are more similar.