ERIC A. POSNER, University of Chicago - Law School
Email: eric_posner@law.uchicago.edu
ADRIAN VERMEULE, Harvard Law School
Email: avermeule@law.harvard.edu

This essay compares crisis governance and emergency lawmaking after 9/11 and the financial meltdown of 2008. We argue that the two episodes were broadly similar in outline, but importantly different in detail, and we attempt to explain both the similarities and differences. First, broad political processes and constraints operated in both episodes to create a similar pattern of crisis governance, in which Congress delegated large new powers to the executive. We argue that this pattern is best explained by reference to the account of lawmaking in the administrative state offered by Carl Schmitt, as opposed to the standard Madisonian view. Second, within the broad constraints of crisis politics, the Bush administration asserted its authority more aggressively after 9/11 than in the financial crisis. Rejecting competing explanations based on legal differences, the nature of the threat, or other factors, we attribute the difference to the Bush administration's loss of popularity and credibility over the period between 2001 and 2008 and to the more salient and divisive distributive effects of financial management.

VISHAL GAUR, Cornell University - Samuel Curtis Johnson Graduate School of Management
Email: vg77@cornell.edu
NIKOLAY OSADCHIY, Emory University Goizueta Business School
Email: nosadchiy@yahoo.com
SRIDHAR SESHADRI, University of Texas at Austin - Red McCombs School of Business
Email: Sridhar.Seshadri@mccombs.utexas.edu

We investigate how uncertainty in retail sales can be explained by the return on a financial market index. This information can be employed in forecasting, hedging, and risk management. Our forecasting model expresses the total sales of a retailer as a function of sales forecasts generated by equity analysts, the term of the forecast, and the return on an aggregate financial market index over the term of the forecast. Using a panel of annual firm-level sales forecasts for 97 retailers over 10 years, each year containing multiple forecasts of varying terms, we show that a large and significant part of the sales forecast errors is explained by market returns. Surprisingly, this information is not accounted for in the analysts’ forecasts. Therefore, we develop a method of augmenting sales forecasts with market returns thereby improving their accuracy. We conduct an extensive study of the model forecast updating performance and show that the accuracy improvement can exceed 15% in out-of-sample tests under various performance metrics, compared to both equity analysts and a standard time-series method. We also demonstrate the usefulness of the financial market data for operational hedging decisions.

MARIA GUADALUPE, Columbia Business School - Finance and Economics, Centre for Economic Policy Research (CEPR), Institute for the Study of Labor (IZA)
Email: mg2341@columbia.edu
JULIE WULF, Harvard Business School
Email: jwulf@hbs.edu

This paper establishes a causal effect of competition from trade liberalization on various characteristics of organizational design. We exploit a unique panel dataset on firm hierarchies (1986-1999) of large U.S. firms and find that increasing competition leads firms to become flatter, i.e., (i) reduce the number of positions between the CEO and division managers (DM), (ii) increase the number of positions reporting directly to the CEO (span of control), (iii) increase DM total and performance-based pay. The results are generally consistent with the explanation that firms redesign their organizations through a set of complementary choices in response to changes in their environment.

NICOLA DE LUCA, Second University of Naples
Email: nicola.deluca@unina2.it

This paper argues that a strong or rather mechanical equal treatment rule in share repurchases, distributions in kind or capital reductions is not efficient. An economic analysis of the law shows that disparate treatments of shareholders may increase shareholders' welfare. Disparate treatment, however, should not result in the oppression of minorities. Rather, oppression of minorities shall be prevented with the fairness standard. Fairness requires one to consider others' interests, but not to pursue others' interest to the detriment of one's own. Unfair is a disregard of the interests of the minorities which could be taken into consideration at no cost.

JOHN A. HASLEM, University of Maryland - Robert H. Smith School of Business
Email: jhaslem@rhsmith.umd.edu

The revelations of major scandals in the mutual funds industry brought intense feelings of betrayal and financial loss to millions of fund shareholders, whose assets were improperly and illegally appropriated. Shareholders need and deserve much greater protection and transparency of normative disclosure that meets their normative shareholder needs.

Investors need guidance in identifying stewardship funds that (hopefully) will remain so. Through application of five dimensions of analysis, investors are able to make an overall identification of stewardship funds. These dimensions are (1) return, risk and risk/return performance, (2) diversification risk, (3) management and culture, (4) Morningstar's Stewardship Grades, and (5) Bogle's Stewardship Quotient. The fund scandal has shown the identification of stewardship funds to be essential (now and in the future) to sound investing.

JEAN-MICHEL CHAPUIS, University of Paris 1
Email: jchapuis@free.fr

Revenue Managers usually nest the booking limits to avoid the situation in which high-fare bookings are rejected in favour of low-fare class (The Good). To date, there are both threshold nesting (The Bad) and net nesting (The Ugly) methods. However the consequence on revenues of each one is not clearly understood. This research investigates the underlying assumptions of each method and supports that the stationarity of the demand process is the key point. This paper also suggests a cointegration test and an event study methodology to know what is appropriate in practice.

THEOPHANIS C. STRATOPOULOS, University of Waterloo - School of Accounting and Finance
Email: tstratop@uwaterloo.ca
MIHIR A. PARIKH, University of Central Florida - Department of Management Information Systems
Email: mparikh@bus.ucf.edu

Recognizing the need to bridge the gap between the outsourcing and the IT capability literature, this study provides a framework for approaching outsourcing decisions from an IT-capable firm's perspective. The paper lays the foundation for a micro-economic framework for contrasting the value-adding proposition of three sourcing options: insourcing (hierarchy), outsourcing (market), and IT outsourcing alliances (hybrid). We use this framework to identify a small and suggestive set of necessary and sufficient conditions under which an IT-capable firm may be able to extract incremental value from an IT outsourcing alliance.

STEFAN MITTNIK, University of Kiel - Institute of Statistics & Econometrics, Ludwig Maximilians University of Munich - Faculty of Economics, CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Email: mittnik@stat-econ.uni-kiel.de
TINA YENER, Ludwig Maximilians University of Munich
Email: tina.yener@stat.uni-muenchen.de

We show that the use of correlations for modeling dependencies may lead to counterintuitive behavior of risk measures, such as Value-at-Risk (VaR) and Expected Shortfall (ES), when the risk of very rare events is assessed via Monte-Carlo techniques. The phenomenon is demonstrated for mixture models adapted from credit risk analysis as well as for common Poisson-shock models used in reliability theory.

An obvious implication of this finding pertains to the analysis of operational risk. The alleged incentive suggested by the New Basel Capital Accord (Basel II), namely decreasing minimum capital requirements by allowing for less than perfect correlation, may not necessarily be attainable.

SANG HOO BAE, Clark University - Department of Economics
Email: sbae@clarku.edu
CHUNG SIK YOO, Yonsei University
Email: yooec@yonsei.ac.kr
JOSEPH SARKIS, Clark University - Graduate School of Management
Email: jsarkis@clarku.edu

Outsourcing decisions by organizations have strategic and operational implications. Strategically, understanding the market and competition is necessary to make effective outsourcing decisions. In this paper we recognize this concern and model the situation where an organization with quality and cost pressures and operational strategies may arrive at different outsourcing solutions based on competitor quality strategy traits. We develop a three-stage game-theoretic oligopolistic model based on differentiated product strategy and integrating quality expectations of the market. The model is solved for equilibrium points on price, outsourcing activity, and investments in quality. The results show that these decision factors are sensitive to market expectations and quality performance of competitors. Performance measures based on profitability and market share results are also presented within this model. Observations and insights are also presented.

AVNER BEN-NER, University of Minnesota - Twin Cities
Email: Abenner@csom.umn.edu
TING REN, University of Minnesota - Twin Cities
Email: tren@csom.umn.edu

We compare the structure and performance of for-profit (FP), nonprofit (NP) and local government (LG) organizations. These organizations differ in their ownership structure, objectives and agency relations. We conjecture that, compared to NP and LG, FP firms (a) delegate less decision-making power to employees, (b) provide more incentives and fewer fringe benefits, (c) monitor less, and (d) rely less on social networks to recruit employees. We also hypothesize that, relative to NP and LG, FP firms (i) are more efficient, (ii) provide similar levels of service elements that observable to their customers, (iii) provide lower levels of less-well observable elements, and (iv) provide less of the relational elements. Differences in structure and performance are likely to be tempered by regulation, market competition and institutional pressures for similarity. We study detailed performance outcomes for all the 369 Minnesota nursing homes included in federal and state datasets, and organization structure for a subsample of 105 homes that responded to our survey. Our empirical investigation generally supports our hypotheses. In particular, we find that FP homes serve more residents than NP and LG, after controlling for quality differences. However, FP homes provide lower quality services on a large array of attributes, especially those that are less observable by nursing home residents and their families. The differences among different types of organization are small, but significant.

JANELL L. BLAZOVICH, Texas A&M University (TAMU)
Email: Jblazovich@mays.tamu.edu
MURPHY SMITH, Murray State University - College of Business
Email: dr.murphy.smith@gmail.com

Ethical corporate citizenship and good corporate governance have received increased attention since the financial scandals prevalent at the beginning of the new millennium. This study first explores the relationship of ethical corporate citizenship to financial performance (i.e., greater profitability and efficiency, and lower cost of capital). Second, the study examines whether ethical corporate behavior is associated with a market-value premium. Results of prior studies are mixed. The results of our study contribute directly to the recent accounting literature in which specific aspects of ethical corporate behavior have been explored (Fukami et al. 1997; Ittner and Larker, 1998; Ballou et al., 2003; Clarkson et al., 2004). We use firms listed by Business Ethics as “The 100 Best Corporate Citizens� as our sample of ethical firms. The univariate results of our study indicate a significant relationship between ethical corporate behavior and financial performance (i.e., greater profitability and efficiency, and lower cost of capital). The results of multivariate tests, controlling for prior year market value of equity, yield results which indicate a marginally significant association between being recognized as ethical in that year and market value of equity, but no association between being recognized as ethical at least one time and market value of equity. Nevertheless, given our study’s findings of better financial performance and lower risk, we conclude that ethical corporate citizenship does indeed benefit a firm.

MICHELLE M. HARNER, University of Maryland Francis King Carey School of Law
Email: mharner@law.umaryland.edu

Activist institutional investors traditionally have invested in a company's equity to try to influence change at the company. Some of these investors, however, are now purchasing a company's debt for this same purpose. They may seek to change a company's management and board personnel, operational strategies, asset holdings or capital structure.

The chapter 11 bankruptcy cases of Allied Holdings, Inc. and its affiliates exemplify the strategies of activist distressed debt investors. In the Allied cases, Yucaipa Companies, a distressed debt investor, purchased approximately 66% of Allied's outstanding general unsecured bond debt. Yucaipa used this debt position to exert significant influence over Allied's chapter 11 cases and business operations, including its labor contract with the Teamsters. Yucaipa emerged as Allied's majority shareholder under Allied's confirmed plan of reorganization.

Allied is not an isolated example. In 2006, distressed debt investors raised a record $19 billion in investment funds. The research shows that some investors are using these investment funds for activist purposes. Indeed, activist distressed debt investing is on the rise in both the United States and the United Kingdom. This activism is changing the dynamics of corporate restructurings and presenting new challenges for corporate management and public policymakers.