This paper develops a formal model of the effect of time-varying asymmetric information on the timing and pricing of equity issues when managers are better informed than outside investors. We assume that as time passes, the adverse selection problem becomes more severe as more managers receive a private signal. Under this assumption, the model predicts temporal variation in the quantity of issues, with a bunching of issues after information releases. It also predicts that the price drop at issue announcement increases with the time since the last information release. These predictions are consistent with several recent empirical studies relating equity issues to earnings and dividend announcements.

In a recent study, Tinic and West (1986) empirically reexamine the risk-return relationship posited by the traditional mean-variance CAPM. They find a positive nonlinear relationship between risk and return, except during January when the market rewards bearing nonsystematic risk. This study examines the hypothesis that nonnormality of return distributions may account for some of these anomalous results. We compare Shalit and Yitzhaki's (1984) mean-extended Gini CAPM—an equilibrium asset pricing relation that is independent of the form of the underlying asset distribution—with the traditional CAPM. Our results indicate that the nonlinear risk-return relationship and the size and January effects are robust to nonnormality of return distributions.

This paper evaluates a nonparametric sign test for abnormal security price performance in event studies. The sign test statistic examined here does not require a symmetrical distribution of security excess returns for correct specification. Sign test performance is compared to a parametric t-test and a nonparametric rank test. Simulations with daily security return data show that the sign test is better specified under the null hypothesis and often more powerful under the alternative hypothesis than a t-test. The performance of the sign test is dominated by the performance of a rank test, however, indicating that the rank test is preferable to the sign test in obtaining nonparametric inferences concerning abnormal security price performance in event studies.

A number of recent papers have reported evidence that stock prices are more volatile than is consistent with efficient markets. We argue that the excess volatility tests address a definition of efficient markets that makes an extreme information assumption. We go on to test a weaker definition of efficient markets, due to Jensen (1978). We show the existence of a profitable trading rule that earns a significantly higher rate of return than a buy-and-hold strategy, and so conclude that stock prices are too volatile, even when judged by this weaker definition.

Michael Lewis’ book, Liar's Poker, presents a scary picture of behavior within the investment community. While this portrayal is interesting in its own right, it presents us with an opportunity to subject real business behavior to analysis and suggestions for reform. As such, the issues raised here transcend a mere review of the book's plot and prose. Real business behavior, described in gory detail by Lewis, will provide the basis for a moral analysis. Machiavelli's The Prince will provide the framework for most of this analysis.

This article argues that Thomas Edison and George Westinghouse, despite some shared characteristics in their approach to technical problems and a common interest in electric power, pursued distinct markets for innovation. Edison sold novelties to upper-class urbanites, whereas Westinghouse provided equipment to railroads and other industrial customers. As a consequence, the two entrepreneurs consistently exhibited different attitudes toward the process of innovation and different inclinations as businessmen. Westinghouse, more than Edison, foreshadowed the coming of corporate research and development.

The dominant values of the business system—economizing and power-aggrandizing—are manifestations of natural evolutionary forces to which sociocultural meaning has been assigned. Economizing tends to slow life-negating entropic processes, while power-aggrandizement enhances them. Both economizing and power-aggrandizing work against a third (non-business) value cluster— ecologizing—which sustains community integrity. The contradictory tensions and conflicts generated among these three value clusters define the central normative issues posed by business operations. While both economizing and ecologizing are antientropic and therefore life-supporting, power augmentation, which negates the other two value clusters, is pro-entropic and therefore life-defeating. Business ethicists, by focusing on the contradictions between personal values, on the one hand, and both economizing and power-aggrandizing, on the other hand, have tended to overlook the normative significance of nature-based value systems. Learning to reconcile economizing and ecologizing values is the most important theoretical task for business ethicists.

–Tom Peters, “The Ethical Debate” Ethics Digest Dec 1989, p. 2.

We are gratefully past that embarrassing period when the very title of a lecture on “business ethics” invited—no, required—those malapert responses, “sounds like an oxymoron” or “must be a very short lecture.” Today, business ethics is well-established not only in the standard curriculum in philosophy in most departments but, more impressively, it is recommended or required in most of the leading business schools in North America, and it is even catching on in Europe (one of the too rare instances of intellectual commerce in that direction). Studies in business ethics have now reached what Tom Donaldson has called “the third wave,” beyond the hurried-together and overly-philosophical introductory textbooks and collections of too-obvious concrete case studies, too serious engagement in the business world. Conferences filled half-and-half with business executives and academics are common, and in-depth studies based on immersion in the corporate world, e.g. Robert Jackall’s powerful Moral Mazes, have replaced more simple-minded and detached glosses on “capitalism” and “social responsibility.” Business ethics has moved beyond vulgar “business as poker” arguments to an arena where serious ethical theory is no longer out-of-place but seriously sought out and much in demand.