Columbia Business School Research

We survey and interview more than 400 executives to determine the factors that drive reported earnings and disclosure decisions. We find that managers would rather take economic actions that could have negative long-term consequences than make within-GAAP accounting choices to manage earnings. A surprising 78% of our sample admits to sacrificing long-term value to smooth earnings. Managers also work to maintain predictability in earnings and financial disclosures.

We develop an equilibrium model to understand how the efficiency of capital allocation depends on outside investor protection and the external financing needs of firms. We show that when capital allocation is constrained by poor investor protection, an increase in firms' external financing needs may improve allocative efficiency by fostering the reallocation of capital from low to high productivity projects. We also find novel empirical support for this prediction.

While recent research has emphasized the desirability of studying effects of changes in marginal tax rates on taxable income, broadly defined, there has been comparatively little analysis of effects of marginal tax rate changes on entrepreneurial entry. This margin is likely to be important both because of the likely greater elasticity of entrepreneurial decisions with respect to tax changes (relative to decisions about hours worked) and because of recent research linking entrepreneurship, mobility, and household wealth accumulation.

We perform an econometric analysis of the effect of new drug launches on longevity, using data from the IMS Health Drug Launches database and the WHO Mortality Database.

Adaptive metric utility balance is at the heart of one of the most widely used and studied methods for conjoint analysis. We use formal models, simulations, and empirical data to suggest that adaptive metric utility balance leads to partworth estimates that are relatively biased—smaller partworths are upwardly biased relative to larger partworths. Such relative biases could lead to erroneous managerial decisions.

This article critically examines McGraw and Tetlock's (2005) notion of relational framing and offers directions for future development of the conceptual model. I begin by discussing the inherent limitations of scenario studies and show how the emergence of attribution analysis in real interpersonal interactions may qualify the results obtained in these studies. I then discuss the norm consistency and social identity maintenance mechanisms proposed in the article and advance several alternative mediators of the phenomenon, including affect and anticipated interaction.

Information markets are markets for contracts that yield payments based on the outcome of an uncertain future event, such as a presidential election. The prices in these markets provide useful information about a particular issue, such as a president's reelection probability. The purpose of this paper is to suggest how the use of information markets can improve the quality of public policy.

We study a model of imperfect competition and limited production capacity, in which a choice of low product quality enables firms to increase total production. We find that in the presence of limited capacity, such reduced quality often results in increased social welfare. We also explore the relation between the extent of competition and the choice of quality. We find that, in some cases, reduced competition leads to increased production, decreased average quality, increases total welfare, and makes consumers better off.

Many important activities, such as charitable giving, voting, and paying taxes, are difficult to explain by the narrow self-interest hypothesis. In a large number of laboratory experiments, the self-interest hypothesis was rejected with respect to contributions to public goods (e.g., John O. Ledyard, 1995). Recent theories on pro-social behavior focus on "conditional cooperation": people are assumed to be more willing to contribute when others contribute. This behavior may be due to various motivational reasons, such as conformity, social norms, or reciprocity.

Does country transparency affect international portfolio investment? We examine this question by constructing new measures of transparency and by making use of a unique microdata set on portfolio holdings of emerging market funds around the world. We distinguish between government and corporate transparency. There is clear evidence that funds systematically invest less in less transparent countries. Moreover, funds have a greater propensity to exit nontransparent countries during crises.

Mental state inferences - judgments about what others think, want, and feel - are central to social life. Models of such "mind-reading" have considered main effects, including social projection and stereotyping, but have not specified the conditions that govern when these tools will be used. This paper develops such a model, claiming that when perceivers assume an initial general sense of similarity to a target, they engage in greater projection and less stereotyping. Three studies featuring manipulations of similarity supported this claim.

According to Wardrop's first principle, agents in a congested network choose their routes selfishly, a behavior that is captured by the Nash equilibrium of the underlying noncooperative game. A Nash equilibrium does not optimize any global criterion per se, and so there is no apparent reason why it should be close to a solution of minimal total travel time, i.e., the system optimum. In this paper, we offer positive results on the efficiency of Nash equilibria in traffic networks.

The current experiment explored the effect of activating a counterfactual mind-set on the discussion of unique information and group judgment accuracy. Evidence suggests that a counterfactual mind-set is characterized by a focused, analytic mental state and, when activated at the group level, improves group judgment accuracy in the murder mystery paradigm (a hidden profile task).

We investigate the ability of a tax-based fundamental –the ratio of tax-to-book income– to predict earnings growth and stock returns and to explain the earnings-price ratio. This tax fundamental reflects both temporary and permanent book-tax differences as well as tax accruals, such as changes in the tax valuation allowance. We find that the tax-to-book income ratio predicts subsequent five-year earnings changes, both before and after the implementation of Statement of Financial Accounting Standards (SFAS) No. 109 in 1993. For the pre-SFAS No.

This article pursues a statistical study of the Hough transform, the celebrated computer vision algorithm used to detect the presence of lines in a noisy image. We first study asymptotic properties of the Hough transform estimator, whose objective is to find the line that "best" fits a set of planar points. In particular, we establish strong consistency and rates of convergence, and characterize the limiting distribution of the Hough transform estimator.

Many fundamental questions in oligopoly models reduce to the analysis of the monotonicity properties of various performance measures under the model's Nash equilibrium, with respect to specific exogenously specified parameters. These strategic parameters may have an impact on the demand functions of the various competitors, their cost structures or both.

We hypothesized that the activation of a counterfactual mind-set minimizes group decision errors caused by the failure of groups to discuss unshared, uniquely held information. In two experiments, we manipulated the salience of counterfactual thoughts in a pre-task scenario and then had groups of three individuals discuss a murder mystery case. In both experiments, counterfactual mind-sets increased the discussion of unshared information and helped groups to identify the correct murder suspect.

Participants in 401(k) retirement plans violate the basic principle of diversification by investing significant fractions of their savings in their employers' equity. This paper characterizes investors' active changes to their company stock investment over time by analyzing new inflows and transfers. The average investor seems to base active changes on salient information, paying attention to past returns, volatility, and business performance.

This paper describes a practical algorithm based on Monte Carlo simulation for the pricing of multi-dimensional American (i.e., continuously exercisable) and Bermudan (i.e., discretely-exercisable) options. The method generates both lower and upper bounds for the Bermudan option price and hence gives valid confidence intervals for the true value. Lower bounds can be generated using any number of primal algorithms.

This paper studies recurrence properties of autoregressive (AR) processes with "super-heavy-tailed" innovations. Specifically, we study the case where the innovations are distributed, roughly speaking, as log-Pareto random variables (i.e. the tail decay is essentially a logarithm raised to some power). We show that these processes exhibit interesting and somewhat surprising behaviour.

The contribution of the feelings-as-information hypothesis to our understanding of the role of affect in judgment and decision making is discussed. Basic principles and regularities in how affective feelings guide judgments and decisions are then identified. Based on these principles and regularities, it is argued that the role of feelings in judgment and decision making may be more adaptive than has been assumed in most academic circles.

This empirical investigation tests the hypothesis that the benefits of personal choosing are restricted to choices made from among attractive alternatives. Findings from vignette and laboratory studies show that, contrary to people's self-predictions, choosers only proved more satisfied than non-choosers when selecting from among liked alternatives. When selecting from among disliked alternatives, the reverse is observed - that is, non-choosers proved more satisfied with the decision outcome than choosers.

The compromise effect denotes the finding that brands gain share when they become the intermediate rather than extreme option in a choice set. Despite the robustness and importance of this phenomenon, choice modelers have neglected to incorporate the compromise effect in formal choice models and to test whether such models outperform the standard value maximization model. In this article, the authors suggest four context-dependent choice models that can conceptually capture the compromise effect.

This paper explores the motivations and desirability of off-balance sheet financing of credit card receivables by banks. We explore three related issues: the degree to which securitizations result in the transfer of risk out of the originating bank, the extent to which securitization permits banks to economize on capital by avoiding regulatory minimum capital requirements, and whether banks'' avoidance of minimum capital regulation through securitization with implicit recourse has been undesirable from a regulatory standpoint.

Building on the work of Dhar, Menon, and Maach (2004), this commentary describes how the compromise effect models developed in the work of Kivetz, Netzer, and Srinivasan (2004) can be extended to predict complex (business-to-business) purchase decisions and additional behavioral context effects. The authors clarify their general modeling approach and outline how it applies to choices among solutions (augmented products) and group decision making.

While the goal of OR/MS is to aid decision makers, implementation of published models occurs less frequently than one might hope. However, one area that has been significantly impacted by management science is emergency response systems. Dozens of papers on emergency service management appeared in the OR/MS literature in the 1970s alone, many of which were published in Management Science. Three of these papers won major prizes. More importantly, many of these papers led to the implementation of substantially new policies and practices, particularly in policing and firefighting.

Disputes by their nature involve contentious behavior. If one attributes such behavior to underlying personality traits, these attributions can be quite damning. The current research investigated negative trait attributions and their impact on dispute resolution decisions. We hypothesized that judging one's opponent to be low in agreeableness and high in emotionality (e.g. stubborn and volatile) shifts one's preference towards more formal procedures ? formal in the sense that a third party judge controls the process and outcome.