Conglomerate Industry Choice and Product Differentiation

We use text-based computational analysis of business descriptions from 10-Ks to examine in which industries conglomerates are most likely to operate and to understand conglomerate valuations. We find that conglomerates are more likely to operate in industry pairs that are closer together in the product space and in industry pairs that have profitable opportunities "between" them. Conglomerate firms have lower stock market valuations than matched single-segment firms when their products are easier to replicate with single-segment firms. Conglomerate firms have stock market premiums when they have higher product differentiation and produce in more profitable industries. These findings are consistent with successful conglomerate firms having higher product differentiation and lower cost entry into profitable markets when operating in strategically chosen industry pairs.

Real and Financial Industry Booms and Busts

We examine how product market competition affects firm cash flows and stock returns in industry booms and busts. In competitive industries, we find that high industry-level stock-market valuation, investment and new financing are followed by sharply lower operating cash flows and abnormal stock returns. We also find that analyst estimates are positively biased and returns comove more when industry valuations are high in competitive industries. In concentrated industries these relations are weak and generally insignificant. Our results suggest that when industry stock-market valuations are high, firms and investors in competitive industries do not fully internalize the negative externality of industry competition on cash flows and stock returns.

How Do Firm Financial Conditions Affect Product Quality and Pricing?

We analyze the interaction of firm product quality and pricing decisions with financial distress and bankruptcy in the airline industry. We consider an airline's choices of quality and price as dynamic decisions that trade off current cash flows for future revenue. We examine how airline mishandled baggage, on-time performance and pricing are related to financial distress and bankruptcy, controlling for the endogeneity of financial distress and bankruptcy. We find that an airline's quality decisions are differentially affected by financial distress and bankruptcy. Product quality decreases when airlines are in financial distress, consistent with financial distress reducing a firm's incentive to invest in quality. In contrast, in bankruptcy product quality increases relative to financial distress. In addition, we find that firms price more aggressively when in financial distress consistent with firms trying to increase short-term market share and revenues.

Asset Liquidity and the Cost of Capital

We study the effect of real asset liquidity on a firm’s cost of capital. We find an aggregate asset-liquidity discount in firms’ cost of capital that is strongly counter-cyclical. At the firm-level we find that asset liquidity affects firms’ cost of capital both in the cross section and in the time series: Firms in industries with more liquid assets and during periods of high asset liquidity have lower cost of capital. This effect is stronger when the asset liquidity is provided by firms operating within the industry. We also find that higher asset liquidity reduces the cost of capital by more for firms that face more competitive risk in product markets, have less access to external capital or are closer to default, and for those facing negative demand shocks. Our results suggest that asset liquidity is valuable to firms and, more generally, that operating inflexibility is an economically important source of risk.

Solving Tree Problems with Category Theory

Artificial Intelligence (AI) has long pursued models, theories, and techniques to imbue machines with human-like general intelligence. Yet even the currently predominant data-driven approaches in AI seem to be lacking humans' unique ability to solve wide ranges of problems. This situation begs the question of the existence of principles that underlie general problem-solving capabilities. We approach this question through the mathematical formulation of analogies across different problems and solutions. We focus in particular on problems that could be represented as tree-like structures. Most importantly, we adopt a category-theoretic approach in formalising tree problems as categories, and in proving the existence of equivalences across apparently unrelated problem domains. We prove the existence of a functor between the category of tree problems and the category of solutions. We also provide a weaker version of the functor by quantifying equivalences of problem categories using a metric on tree problems.Comment: 10 pages, 4 figures, International Conference on Artificial General Intelligence (AGI) 201

Platelet transfusions: trigger, dose, benefits, and risks

Over the last half century, platelet transfusion has been an effective therapy for the prevention and treatment of bleeding, particularly in patients with hematologic malignancies. Recent randomized trials have demonstrated that current practices may be suboptimal in a number of ways. The rationale for parsimony in the use of this powerful therapy includes previously described severe and fatal adverse outcomes (including refractoriness, hemolysis from ABO-mismatched transfusions, acute lung injury, and bacterial sepsis), newly described serious potential risks (including thrombosis and earlier leukemic recurrence), difficulty in maintaining adequate supplies of platelets, the need to place volunteer donors on cell separators to provide the product, and cost. Recent findings demonstrate that the platelet count threshold for prophylactic transfusion can be as low as 10,000/µL, and a therapeutic rather than a prophylactic strategy of transfusion for bleeding manifestations only may be equally safe for most patients. Another recently completed study suggests that very low doses of platelet transfusions (the equivalent of half a unit of apheresis platelets or two to three units of whole blood-derived platelets) are as effective at preventing bleeding as much higher doses. One question for which there are no randomized trial data is at what threshold prophylactic platelet transfusion should be given before invasive procedures or major surgery. The typically recommended threshold of 50,000/µL is based only on expert opinion, and substantial observational data indicate that this threshold leads to many transfusions that are likely unnecessary and therefore represent risk with little or no additional benefit