Columbia Business School Research

Alcohol impairs cognition, but it may help build rapport. Here's how to decide whether to partake during the deal-making process.

The pricing of corporate debt is still a challenging and active research area in corporate finance. Starting with Merton (1974), many authors proposed a structural approach in which the value of the assets of the firm is modeled by a stochastic process, and all other variables are derived from this basic process. These structural models have become more complex over time in order to capture more realistic aspects of bankruptcy proceedings.

Following a successful idea generation exercise, a company might easily be left with hundreds of ideas, generated by experts, employees, or consumers. The next step is to screen these ideas, and identify those with the highest potential. In this paper we propose a practical approach to involving consumers in idea screening. Although the number of ideas may potentially be very large, it would be unreasonable to ask each consumer to evaluate more than a few ideas. This raises the challenge of efficiently selecting the ideas to be evaluated by each consumer.

I quantitatively measure the interactions between the media and the stock market using daily content from a popular Wall Street Journal column. I find that high media pessimism predicts downward pressure on market prices followed by a reversion to fundamentals, and unusually high or low pessimism predicts high market trading volume.

Wepropose an exogenous measure of a country’s growth opportunities by interacting the country’s local industry mix with global price to earnings (PE) ratios. We find that these exogenous growth opportunities predict future changes in real GDP and investment in a large panel of countries. This relation is strongest in countries that have liberalized their capital accounts, equity markets, and banking systems.

The Financial Accounting Standards Committee of the American Accounting Association (the Committee) is charged with responding to requests for comment from standard setters on issues related to financial reporting. This paper summarizes the Committee's response to the Financial Accounting Standards Board's Exposure Draft, "Employers' Accounting for Defined Benefit Pension and Other Post-retirement Plans: An Amendment of FASB Statements No. 87, 88, 106, and 132(R)."

The Financial Accounting Standards Committee of the American Accounting Association (the Committee) is charged with responding to requests for comment from standard setters on issues related to financial reporting. The Committee is pleased to respond to the Financial Accounting and Standards Board (FASB) Exposure Draft, "The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115," issued in January 2006.

This paper addresses the issues that confront the FASB and IASB in developing a new conceptual framework document. First, we suggest characteristics that a conceptual framework ought to exhibit. Most of these suggestions are based on our critique of the existing framework and the FASB-IASB work in progress. Second, we present a model framework that exhibits these characteristics. We emphasize up front that this framework is quite explicit. It goes to the heart of what a framework document should do: it places specific restrictions on what constitutes admissible accounting standards.

Strategic requests for advice can transform disputes into amiable problem-solving ventures.

Several individual, social-setting, and choice-set factors have been shown to be related to satisfaction. This article argues that these factors operate through a set of choice goals. Using panel data on purchasers of consumer electronics, the authors examine how five goals (justifiability, confidence, anticipated regret, evaluation costs, and final negative affect) drive decision and consumption satisfaction, which in turn determine loyalty, product recommendations, and the amount and valence of word of mouth.

This paper develops numerical approximations for pricing collateralized debt obligations (CDOs) and other portfolio credit derivatives in the multifactor Normal Copula model. A key aspect of pricing portfolio credit derivatives is capturing dependence between the defaults of the elements of the portfolio. But, compared with an independent-obligor model, pricing in a model with correlated defaults is more challenging. Our approach strikes a balance by reducing the problem of pricing in a model with correlated defaults to calculations involving only independent defaults.

Surveys do! We examine the forecasting power of four alternative methods of forecasting U.S. inflation out-of-sample: time-series ARIMA models; regressions using real activity measures motivated from the Phillips curve; term structure models that include linear, non-linear, and arbitrage-free specifications; and survey-based measures. We also investigate several methods of combining forecasts. Our results show that surveys outperform the other forecasting methods and that the term structure specifications perform relatively poorly.

This paper uses a unique dataset from Denmark to investigate the impact of family characteristics in corporate decision making and the consequences of these decisions on firm performance. We focus on the decision to appoint either a family or external chief executive officer (CEO). The paper uses variation in CEO succession decisions that result from the gender of a departing CEO's firstborn child.

The article shows that two measures of the amount of private information in stock price — price nonsynchronicity and probability of informed trading (PIN) — have a strong positive effect on the sensitivity of corporate investment to stock price. Moreover, the effect is robust to the inclusion of controls for managerial information and for other information-related variables. The results suggest that firm managers learn from the private information in stock price about their own firms’ fundamentals and incorporate this information in the corporate investment decisions.

This paper lays out a decomposition of book-to-price (B/P) that derives from the accounting for book value and that articulates precisely how B/P "absorbs" leverage. The B/P ratio can be decomposed into an enterprise book-to-price (that pertains to operations and potentially reflects operating risk) and a leverage component (that reflects financing risk).

This paper furnishes robust evidence that the WTO has had a strong positive impact on trade, amounting to about 120 percent of additional world trade (or US$ 8 trillion in 2000 alone). The impact has, however, been uneven. This, in many ways, is consistent with theoretical models of the GATT/WTO. The theory suggests that the impact of a country's membership in the GATT/WTO depends on what the country does with its membership, with whom it negotiates, and which products the negotiation covers.

This paper develops a pure simulation-based approach for computing maximum likelihood estimates in latent state variable models using Markov Chain Monte Carlo methods (MCMC). Our MCMC algorithm simultaneously evaluates and optimizes the likelihood function without resorting to gradient methods. The approach relies on data augmentation, with insights similar to simulated annealing and evolutionary Monte Carlo algorithms. We prove a limit theorem in the degree of data augmentation and use this to provide standard errors and convergence diagnostics.

BACKGROUND: Delays for appointments are prevalent, resulting in patient dissatisfaction, higher costs, and possible adverse clinical consequences. A "just-in-time" approach to patient scheduling, called advanced access, has been effective in reducing delays in multiple clinical settings. Offering most patients appointments on the same day requires achieving an appropriate balance between supply of and demand for appointments, but no methods have been previously proposed to determine what this balance should be.

The Financial Accounting Standards Committee of the American Accounting Association (the Committee) is charged with responding to requests for comment from standard setters on issues related to financial reporting. This paper summarizes the Committee's response to the Financial Accounting Standards Board’s (FASB) exposure draft, "Accounting for Uncertain Tax Positions: An Interpretation of FASB Statement No. 109."

Our two-stage framework predicts that, during impression formation, individuals who hold ambivalent attitudes toward an issue are influenced by other sources regardless of their perceived reliability on the target issue. Less ambivalent individuals are presumed likely to check the reliability of the message's source before accepting it. Experiment 1 finds that highly ambivalent participants do not differentiate between a more versus less reliable source when forming impressions of a political candidate, whereas less ambivalent participants do.

In the present research, the authors hypothesized that additive counterfactual thinking mind-sets, activated by adding new antecedent elements to reconstruct reality, promote an expansive processing style that broadens conceptual attention and facilitates performance on creative generation tasks, whereas subtractive counter-factual thinking mind-sets, activated by removing antecedent elements to reconstruct reality, promote a relational processing style that enhances tendencies to consider relationships and associations and facilitates performance on analytical problem-solving tasks.

Contrary to the common perception that operating cash flows are better than accounting earnings at explaining equity valuations, recent studies suggest that valuations derived from industry multiples based on reported earnings are closer to traded prices than those based on reported operating cash flows.

This study investigates the determinants of the expected stock-price volatility assumption that firms use in estimating ESO values and thus option expense. We find that, consistent with the guidance of FAS 123, firms use both historical and implied volatility in deriving the expected volatility parameter. We also find, however, that the importance of each of the two variables in explaining disclosed volatility relates inversely to their values, which results in a reduction in expected volatility and thus option value.

We consider importance sampling simulation for estimating rare event probabilities in the presence of heavy-tailed distributions that have polynomial-like tails. In particular, we prove the following negative result: there does not exist an asymptotically optimal state-independent change-of-measure for estimating the probability that a random walk (respectively, queue length for a single server queue) exceeds a "high" threshold before going below zero (respectively, becoming empty).

Public/private partnerships have become a favored strategy for implementing complex urban developments in the United States and Western Europe, but the large volume of literature on the topic falls short of providing city planners, development experts, and policy analysts the knowledge needed for either teaching or practice. In the late 1970s, the blurring of lines between public and private action spurred significant intellectual debate in the U.S.

Three experiments investigate the emotions that arise from buying or not buying at an unintended purchase opportunity and how they color evaluations of affective advertising appeals that are viewed subsequently. We demonstrate that buying can cause happiness tempered with guilt, while not buying causes pride. Consistent with the felt affect, respondents who had bought at time 1 subsequently prefer happiness appeals to pride appeals, while those who had refrained prefer pride appeals.

We give a short proof of a result of Tovey ["Non-approximability of precedence-constrained sequencing to minimize setups," Discrete Appl. Math. 134:351–360, 2004] on the inapproximability of a scheduling problem known as precedence-constrained class sequencing. In addition, we present an approximation algorithm with performance guarantee (c+1)/2, where c is the number of colors. This improves upon Tovey's c-approximation.

Three studies support the proposal that need for closure (NFC) involves a desire for consensual validation that leads to cultural conformity. Individual differences in NFC interact with cultural group variables to determine East Asian versus Western differences in conflict style and procedural preferences (Study 1), information gathering in disputes (Study 2), and fairness judgment in reward allocations (Study 3).

Interest rate swap pricing theory traditionally views swaps as portfolios of forward contracts with net swap payments discounted using the LIBOR curve. Current market practices of marking-to-market and collateralization question this view. Collateralization and marking-to-market affects discounting of swap payments (through altered default characteristics) and introduces intermediate cash-flows. This paper provides a theory of swap valuation under collateralization and we find evidence supporting the presence of costly collateral.

We propose and test a new approach for modeling consumer heterogeneity in conjoint estimation based on convex optimization and statistical machine learning. We develop methods both for metric and choice data. Like hierarchical Bayes (HB), our methods shrink individual-level partworth estimates towards a population mean. However, while HB samples from a posterior distribution that is influenced by exogenous parameters (the parameters of the second-stage priors), we minimize a convex loss function that depends only on endogenous parameters.

In this paper, we propose a method of accounting for stock options that tracks the effect of the options on shareholder value. The accounting approach we outline can be applied not only to employee stock options but to all claims that are effectively convertible into common shares, including convertible preferred stock, warrants, and call and put options on the firm's own stock. Our proposal also aims to make accounting consistent with stock prices, since the market surely takes account of the (potential) valuation effects of these claims when setting stock prices.

We investigate and compare two dual formulations of the American option pricing problem based on two decompositions of supermartingales: the additive dual of Haugh and Kogan (Oper. Res. 52:258-270, 2004) and Rogers (Math. Finance 12:271-286, 2002) and the multiplicative dual of Jamshidian (Minimax optimality of Bermudan and American claims and their Monte-Carlo upper bound approximation. NIB Capital, The Hague, 2003).

Purpose — The purpose of this paper is to develop a comprehensive model that combines brand knowledge and brand relationship perspectives on brands and shows how knowledge and relationships affect current and future purchases.

Design/methodology/approach — The paper uses structural equation modeling to test the significance of the overall model and the specified paths.