On the optimality of public signals in the presence of private information

Article Abstract:

The effect on the welfare of traders of the disclosure of public information is examined in the context of traders' access to private information sources. Public information now includes segmental and competitive performance, research and development, compensation and litigation indicators aside from traditional financial statements. However, access to costly private information such as forecasts and insider data affects the way in which traders react to public disclosures and how they acquire private information. Three different models are used to clarify the welfare effects of public information on traders with and without private information access, in the face of signal precision, asset multiplicity and error independence. The results show that uninformed traders prefer public disclosure in order to eliminate private information only when they are in the minority.

Information services, Financial markets, Business forecasting

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Latin American lending by major U.S. banks: the effects of disclosures about nonaccrual loans and loan loss provisions

Article Abstract:

The effects of accounting disclosure on the stockholders' returns of 13 major US money-center and regional banks in relation to the 1987 decision to place Brazilian debt on a nonaccrual status and acknowledge the greater chance of default and the decreased current value of future interest and principal by raising loan loss reserves is examined in this article. The study serves to augment bank literature concerning earnings and asset relations. The reclassification of loans to a nonaccrual basis elicited an unfavorable response from the stock market, while the increase of provisions for loan losses elicited a more favorable response. The literature provided is consistent with studies that assert the discriminating behavior stock markets exert over banks based on reported information on foreign loans.

Commercial Banks, Research, Banking industry, Case studies, Economic policy, Brazil, Central America, Latin America, South America, Foreign loans, Stock Market Crash, 1987

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Strategic transfer pricing

Article Abstract:

A study was conducted to analyze costs and transfer pricing systems using a model that supports the selection of cost-based transfer prices by two oligopolistic companies. The framework promotes decentralization by various factors, including communications, limited span of control and the use of local knowledge to respond quickly to market shocks. The cost-based transfer pricing model is characterized as a channel within a decentralized organization that is supported by a marketing manager who maximizes profits given by the marketing division. Results showed that the amount by which companies mark up their transfer prices over marginal costs is directly correlated with their market power. They also indicated that the size of a company's overhead allocation is associated with their market power.

Pricing Policy, Analysis, Pricing, Transfer pricing, Duopolies, Costs, Industrial, Industrial costs

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