Soft Information, Hard Sell: The Role of Soft Information in the Pricing of Intellectual Property

There is a growing literature on the differential impact of soft' vs. hard' information on organizational structure and behavior. This study is an attempt to empirically quantify the value of soft information, using a data-base on the market for screenplays. Script quality is difficult to estimate without subjective evaluation. Therefore soft information should be an integral part of the pricing of these intellectual assets. In our empirical analysis, we find that hard information' (reputation) variables as well as soft information' proxies are priced. Screenplays with high soft information content are priced significantly lower than high concept' harder information'- type scripts. We also follow the screenplays to production, and find that buyers seem to be able to forecast the success of a script, paying more for screenplays resulting in more successful films. In other words, high concept' (harder information) screenplays sell for more and result in more successful movies.

Privatization with Political Constraints: Auctions versus Private Negotiations

This paper investigates the design of privatization mechanisms in emerging market economies characterized by political constraints that limit the set of viable privatization mechanisms. Our objective is to explain the striking diversity of privatization mechanisms observed in practice and the frequent use of an apparently suboptimal privatization mechanism: private negotiations. We develop a simple model wherein privatization is to be carried out by a government agent who plays favorites among bidders and is potentially disciplined by forthcoming elections. We find that it is the degree of political constraints that determines which mechanism is more successful in raising funds. If the political environment is such that the privatization agent himself aims at raising the fair value for the company, then privatization auctions and private negotiations are equally successful in raising public revenues. If, however, political constraints distort the agent’s incentives, then one mechanism outperforms the other. In particular, if the distortion is moderate, then private negotiations can raise more value for a successful enterprise than privatization auctions. In this case the agent may play favorites among the bidders, but to the extent he cares about the price, he will use his bargaining power to negotiate his target price. If, however, the distortion is severe so that the agent lacks sufficient motivation to raise a fair price for the company, then privatization auctions will outperform private egotiations. Even though the agent may play favorites among the bidders, he would not put pressure on the bidders to raise the price during negotiations. In an auction, in contrast, the presence of other bidders, regardless how informed they are, induces competition and places a lower bound on the equilibrium winning bid. We also show that information disclosure laws may have negative welfare implications: they may help the privatization agent to collude with some of the bidders to the disadvantage of non-colluding bidders. Our theory provides further regulatory implications for privatization procedures in emerging market economies

Information, Blockbusters and Stars? A Study of the Film Industry

The purpose of this paper is to explore the role of stars and other potential informational signals in the movie business. In the first part of the paper, we explore two alternative economic explanations for the role of stars in motion pictures. The first approach is a signaling view; namely that informed insiders signal project quality by selecting an expensive star. The second approach is the 'rent capture' hypothesis, i.e. that stars receive their marginal value. These two approaches have different implications regarding stars' pay, movie revenues and return on investment. The second part of the paper contains an extensive empirical investigation of a sample of movies produced in the 90's. Univariate analysis seems to show that star-studded films bring in more revenues than other films. However, regression analysis only supports the notion that any big budget investment increases revenues. Sequels, highly visible films and 'family oriented' ratings also contribute to revenues. However, when we measure return on investment, we find that stars or big budgets are not associated with profits; if anything, low budget films seem to do better. This supports again, the 'rent capture' hypothesis. We identify some additional variables that are associated with profitable films

Leverage Changes and Product Pricing Incentives -- A Tax Induced Analysis

This paper provides a tax induced framework which can explain the linkage between pricing policies and capital structure choice documented in recent studies by Chevalier (1995a), (1995b) and Phillips (1995). The model proves that firms will optimally change their pricing decisions after taking on additional debt. The reason is that the value of debt related tax shelters and the probability of their use is dependent on revenues realized in the product market. The direction of change is shown to depend on several variables, importantly the elasticity of demand for the firm's product. In an ensuing section, the paper extends the analysis to provide some insights into the impact of pricing choices on the promised yield of debt

The Comparative Efficiency of Small-Firm Bankruptcies: A Study of the US and Finnish Bankruptcy Codes

We use a sample of small firms to compare efficiency aspects of the creditor oriented old (pre-1993) Finnish bankruptcy code and the debtor oriented US code. We find that although the same economic factors affect liquidations in both the US and Finland, under the Finnish code firms are somewhat more likely to be liquidated piecemeal. We also find that the costs of going concern sales and of liquidations under the Finnish code tend to go toward the higher end of the range found in US studies; and that payments to creditors in the US reorganizations are higher than the payoffs under the Finnish bankruptcy regime

Regulation of peptide import through phosphorylation of Ubr1, the ubiquitin ligase of the N-end rule pathway

Substrates of the N-end rule pathway include proteins with destabilizing N-terminal residues. These residues are recognized by E3 ubiquitin ligases called N-recognins. Ubr1 is the N-recognin of the yeast Saccharomyces cerevisiae. Extracellular amino acids or short peptides up-regulate the peptide transporter gene PTR2, thereby increasing the capacity of a cell to import peptides. Cup9 is a transcriptional repressor that down-regulates PTR2. The induction of PTR2 by peptides or amino acids involves accelerated degradation of Cup9 by the N-end rule pathway. We report here that the Ubr1 N-recognin, which conditionally targets Cup9 for degradation, is phosphorylated in vivo at multiple sites, including Ser300 and Tyr277. We also show that the type-I casein kinases Yck1 and Yck2 phosphorylate Ubr1 on Ser300, and thereby make possible (“prime”) the subsequent (presumably sequential) phosphorylations of Ubr1 on Ser296, Ser292, Thr288, and Tyr277 by Mck1, a kinase of the glycogen synthase kinase 3 (Gsk3) family. Phosphorylation of Ubr1 on Tyr277 by Mck1 is a previously undescribed example of a cascade-based tyrosine phosphorylation by a Gsk3-type kinase outside of autophosphorylation. We show that the Yck1/Yck2-mediated phosphorylation of Ubr1 on Ser300 plays a major role in the control of peptide import by the N-end rule pathway. In contrast to phosphorylation on Ser300, the subsequent (primed) phosphorylations, including the one on Tyr277, have at most minor effects on the known properties of Ubr1, including regulation of peptide import. Thus, a biological role of the rest of Ubr1 phosphorylation cascade remains to be identified

Toehold Strategies and Rival Bidders

Prior to the announcement of a tender offer, the bidding firm is legally allowed to acquire shares in the open market, subject to some limitations. These pre-announcement purchases are known as toeholds. This paper presents a simple model that describes the bidder's optimal toehold acquisition strategy, within an environment that closely parallels the present legal institutions. The model shows that toeholds and bids interact in a complex manner even without the presence of asymmetric information. By examining a simple environment the paper provides a useful alternative hypothesis for tests of other, presumably more complex, models. One of the main implications of our model is that if no competing bidders are expected, no toeholds should be purchased. the paper demonstrates that the correct specification of an empirical model can be critical. For example, under some parameter values toehold purchases may exhibit a negative cross-sectional correlation with the pre-announcement run up in the stock price. This occurs even though prices are strictly increasing the size of the toehold. Several implications concerning various aspects of merger legislation are considered. We show that corporate charters that affect the number of shares necessary to complete a merger will have an impact only if competition among bidders is expected. The paper further shows that a rule similar to a 'fair price' provision has the desirable property that a second bidder arrives and winds if and only if he places a higher value on the target than the initial bidder. Several additional comparative statics are derived as well

The Effect of Leverage on Bidding Behavior: Theory and Evidence from the FCC Auctions

This paper investigates how firms’ bidding behavior in various auctions is affected by capital structure. A theoretical model is developed where the first price sealed bid and the English auction are examined. We find as debt levels increase, firms tend to decrease their bids. The lower bids give the competition incentives to decrease their bid as well. These results are then investigated empirically using the recent FCC spectrum auctions. Consistent with the theoretical model, larger debt levels of the bidding firm and the competition tend to lead to lower bids. Additional determinants of bidding behavior in these auctions are also analyzed