Gazelle Killed Its Electronics Trade-In Partnership With Walmart Last Year, And Now It’s Growing Like Crazy

Gazelle Killed Its Partnership With Walmart Last Year, And Now It’s Growing Like Crazy

MEGAN ROSE DICKEY JUL. 14, 2013, 10:22 AM 4,578 2

Gazelle is one of the preeminent players in the electronics trade-in space.

It became that way in part because it walked away from a partnership with Walmart — the exact opposite tactic that most companies adopt. Gazelle lets consumers send in their old iPads, iPhones, laptops, and other electronics for cash. Since launching in 2008, Gazelle has paid out $100 million to 600,000 consumers  When Gazelle was thinking about how to grow the business, the biggest challenge was awareness among consumers that there is an easy way to trade in devices and getarket value for them. “In the early days, one of the theories was if we could partner with retailers, OEMs, carriers, and operators, that would be a match made in heaven,” Gazelle CEO Israel Ganot tells Business Insider.  Consumers typically trade in their gadgets when they upgrade to a new one. Retailers are in the business of selling things, and Gazelle is in the business of buying them back, so that theory definitely made sense.  Read more of this post

Accounting Scandal Hooks Spanish Frozen Fish Giant; “It’s Enron, Spanish style. There was a tangle of subsidiaries set up solely and uniquely to hide the debt.”

Accounting Scandal Hooks Spanish Frozen Fish Giant

By Katell Abiven on 2:45 pm July 14, 2013.

A Pescanova’s store is pictured in Vigo, northwestern Spain, on June 26, 2013. The head of Spanish frozen fish giant Pescanova admitted on July 11, 2013 he may have made bad decisions after an auditor’s report said the group deliberately fabricated deals and financial results to disguise a 3.28-billion-euro ($4.3 billion) debt. (AFP Photo/Miguel Riopa)

Madrid. It boasts a fleet of 100 ships and 10,000 employees worldwide but suspected fraud at frozen seafood giant Pescanova is causing an embarrassing stink in export-hungry Spain. After years of posting growing sales, amounting to 1.7 billion euros ($2.2 billion) in 2011, the group that was among the world industry’s leaders and the pride of the northern region of Galicia has plunged into scandal. One evening in February, Pescanova was forced to reveal that it could not publish its 2012 accounts. Two months later, on April 25, it filed for bankruptcy. “That was a surprise,” said Francisco Vilar, regional secretary of the food-processing federation of the main union at Pescanova, the Workers’ Commissions (CCOO).  People who work here have been here for 30, 40 years, with good management. So it was an enormous surprise.” Pescanova is accused of false billing, hiding a debt of 3.3 billion euros that was more than double the declared figure, and its top managers of selling shares just before the scandal broke. “It’s Enron, Spanish style,” said one banking source, referring to the giant US energy group that collapsed in the 2000s in one of the biggest financial scandals in US corporate history. Read more of this post

Big data can help us make sense of absence; Managers should develop ways to predict when, why and ideally where staff are most engaged

July 15, 2013 4:19 pm

Big data can help us make sense of absence

By Andrew Hill

Managers should develop ways to predict when, why and ideally where staff are most engaged

It’s hard to hide from big data. After submitting its staff records for independent analysis, one retailer discovered it was paying more than 150 employees who had called in sick years earlier – and simply disappeared from the workplace. The human resources managers responsible were so terrified of the potential backlash if they revealed the figures to their chief executive, they decided to keep the job of handling absences in-house. Read more of this post

China Slump Ripples Globally; Slowed Growth Realigns Industries and Economies as Beijing Switches Strategies

Updated July 14, 2013, 9:34 p.m. ET

China Slump Ripples Globally

Slowed Growth Realigns Industries and Economies as Beijing Switches Strategies


ALEX FRANGOS in Hong Kong and ERIC BELLMAN in Jakarta

As the numbers pile up showing China’s sizzling growth cooling down, industries world-wide—from German paper-cutter makers to Indonesian palm-oil exporters—are confronting an altered landscape of winners and losers. The ones that benefited the most from China’s rise are now being hurt. Others, aiming at China’s 1.3 billion consumers, are faring better. Growth in China, the world’s second-biggest economy after the U.S., has been slowing since 2007’s peak, but that slowdown has accelerated recently. China’s second-quarter gross domestic product released early Monday showed the economy expanded 7.5% from the year earlier, slower than the 7.7% growth in the first quarter. That matches the government’s full-year growth target of 7.5%, a rate that would make this year the slowest since 1990. Some economists figure China will grow even slower than that.

Read more of this post

Netflix Should Read Amazon’s Script; Building a formidable subscriber base should be a more immediate concern than raising margins

Updated July 15, 2013, 4:49 a.m. ET

Netflix Should Read Amazon’s Script

Building a formidable subscriber base should be a more immediate concern than raising margins



It turns out ’13 has been lucky for Netflix NFLX +0.42% . The stock has surged 178% so far, the best performance in the Standard & Poor’s 500-stock index. But to keep the odds in its favor, the video-streaming and DVD-rental company will need to be more like AMZN -0.67% than an HBO. Netflix’s paid domestic streaming subscriber base has increased to nearly 28 million from 25.5 million at the start of 2013 and 22 million a year before. This puts it just below Time Warner‘sTWX -0.50% HBO. Meanwhile, Netflix’s domestic streaming margin on the basis of contribution profit, revenue less cost of sales and marketing, was 20.6% in the first quarter, up strongly from 14.3% a year earlier. But expanding margins may represent a risk for Netflix. Read more of this post

Altor to buy French ski maker Rossignol; Private equity group looks to revive and expand historic brand

July 15, 2013 2:09 pm

Altor to buy French ski maker Rossignol

By Anne-Sylvaine Chassany, Private Equity Correspondent


Ski maker Rossignol has brought production back to France

Rossignol, the world’s second largest ski manufacturer by sales, is to be sold to Swedish private equity house Altor Equity Partners, after a plan to recover from near bankruptcy involved repatriating 10 per cent of its production back to France from Taiwan. The move away from a country with lower labour costs has helped the century-old French company return to profit five years after California surf gear maker Quiksilver sold it to a group led by Macquarie of Australia. Altor now plans to diversify into outdoor clothing, with the aim of doubling the company’s €207m sales to counter a contracting ski market. The value of the deal was not disclosed. Read more of this post

From $177 Million to $2.6 Billion: Once teetering on the edge of bankruptcy, Restoration Hardware is turning into a bonanza for its private-equity owners.

Updated July 14, 2013, 7:58 p.m. ET

Restoration Hardware’s Renovation Is Private-Equity Boon

Restoration Hardware Holdings Inc. is turning into a bonanza for its private-equity owners.


MI-BX181_HARDWA_NS_20130714184203 MI-BX185_HARDWA_G_20130714184208

RH +1.01% Once teetering on the edge of bankruptcy and subject of a buyout bidding war during which offers shrank, Restoration Hardware Holdings Inc. RH +1.01% is turning into a bonanza for its private-equity owners. The firms that bought the luxury-home-furnishings retailer in 2008 are on track to make about eight times their initial investment, when including their remaining stock holdings in the company, according to a Wall Street Journal analysis of securities filings. This is a huge return among deals struck in the years leading up to and during the financial crisis. Five years ago, as the housing crash crimped the company’s profits, a group led by Connecticut private-equity firms Catterton Partners and Tower Three Partners LLC and the retailer’s chief executive took the company private for about $177 million. Restoration still doesn’t turn out consistent profits. But today the retailer, which returned to public ownership in a November initial public offering, has a stock-market value of about $2.7 billion. Read more of this post

Caution: Huge home supply in Singapore; Investment homes face declining rental yield

Caution: Huge home supply

Monday, Jul 15, 2013

Christine Li

My Paper

SINGAPORE – Three weekends ago, eager buyers snapped up all of the 738 units (498 condo units and 240 Soho-inspired units) of the J Gateway condominium in the west within 24 hours. The remarkable performance surprised market watchers, including many developers, because the last time a sizeable project was fully sold within such a short span of time was in 2009, with Optima@Tanah Merah. One question that figures is: “Why are people still buying when prices are at a record high?” Read more of this post

JPMorgan, Goldman eye sales of metal warehouse business; An upcoming dehoarding effect in metals?

JPMorgan, Goldman eye sales of metal warehouse business: FT

5:54pm EDT

(Reuters) – JPMorgan Chase & Co (JPM.N: QuoteProfileResearchStock Buzz) is following a move by rival Goldman Sachs Group Inc (GS.N: QuoteProfileResearchStock Buzz) to explore sales of its metal warehouse business, the Financial Times said on Sunday. Citing people familiar with the matter, the newspaper said on its website on Sunday that both U.S. banks have in recent months informally started to seek potential buying interest for their warehouse units. A Goldman spokesman said the firm has no comment. A spokeswoman at JPMorgan did not immediately return calls for comment. In April, Reuters first reported Goldman has explored a sale of its metals warehousing business Metro International LLC, just three years after the investment bank bought the firm for $550 million. A proposed rule change by the London Metal Exchange (LME) to relieve bottlenecks that slow metal delivery out of warehouses could cut into profits for the metal warehouse industry, the FT said. Sources told the FT that JPMorgan has recently started a sales process for its warehousing unit, Henry Bath, although the discussions began before the LME’s rule change proposal. JPMorgan has also discussed sales of some of its physical metal trading book, although there is no direct connection between the two deals, the FT said. Several U.S. banks including Goldman are locked in discussions with the Federal Reserve over their right to keep owning and operating physical commodity assets like warehouses, oil storage tanks, and pipelines following their conversion to bank holding companies during the financial crisis. Under U.S. banking regulations, banks are usually barred from owning physical commodity assets that they operate.

An upcoming dehoarding effect in metals?

Izabella Kaminska

| Jul 15 13:54 | 15 comments | Share

An interesting bit of news, by way of the FT’s Jack Farchy and Daniel Schäfer this week:

JPMorgan Chase and Goldman Sachs are seeking to sell their metal warehousing units just three years after their controversial entry to the industry, even as a proposed rule change by the London Metal Exchange is likely to reduce the attractiveness of the business. Read more of this post

Smuggling rice to Thailand – like coals to Newcastle; “No one can differentiate which one is Thai rice and which one is Cambodian rice. That makes it easy to smuggle rice in and make a profit by selling it to the government”

Smuggling rice to Thailand – like coals to Newcastle

5:25pm EDT

By Apornrath Phoonphongphiphat and Naveen Thukral

SA KAEO, Thailand/SINGAPORE (Reuters) – Hidden in 18-wheeler trucks, carts and pick-up vans, hundreds of thousands of tonnes of rice are being smuggled from Cambodia and Myanmar into Thailand, although the country holds enough stocks to meet half the world’s annual trade in the commodity. A populist program to support prices has led to the Thai government paying its farmers almost double prevailing prices in Cambodia and Myanmar. Farmers and traders in the neighboring countries are trying to take advantage, sending their grain across the border to be sold into the Thai intervention scheme. The equivalent of 750,000 tonnes of milled rice is being smuggled into Thailand a year, mainly from Cambodia and Myanmar, according to estimates of analysts and traders who have studied the illicit shipments. “No one can differentiate which one is Thai rice and which one is Cambodian rice. That makes it easy to smuggle rice in and make a profit by selling it to the government,” said Kiattisak Kalayasirivat, managing director at Thai trader Novel Agritrade. Read more of this post

Hong Kong Horse Bets Exceed Las Vegas Casinos’: Chart of the Day

Hong Kong Horse Bets Exceed Las Vegas Casinos’: Chart of the Day


Bets on horse races in Hong Kong are poised to exceed wagers at Nevada’s casinos for a second straight year, with the city’s sole legal outlet for gambling seeking to lure punters from neighboring Macau.

The CHART OF THE DAY compares the Hong Kong Jockey Club’s annual betting totals with gaming revenue from Nevada’s casinos. Wagers of HK$93.8 billion ($12 billion) from 83 horse-race meetings in the fiscal year to June 30 were 19 percent more than Nevada’s combined take in the 11 months through May. Bets at the club, set up in 1884 when Hong Kong was under British rule, exceeded those in the U.S. gambling hub in fiscal 2012 for the first time in about a decade, according to data compiled from the club and Nevada regulators. Read more of this post

Arguments about whether China will grow at 7% or 7.5% are “pointless” because the economy is already in a financial crisis which may only worsen if the government doesn’t address the country’s crippling debt problem

SUNDAY, JULY 14, 2013 – 16:30

China Govt Advisor Says Economy In Crisis As Debt Costs Spiral

BEIJING (MNI) – Arguments about whether China will grow at 7% or 7.5% are “pointless” because the economy is already in a financial crisis which may only worsen if the government doesn’t address the country’s crippling debt problem, a senior government researcher has warned.

Xia Bin, an economist with the State Council’s Development Research Center and government advisor, said Beijing needs to stop using bland rhetoric about “stabilizing the economy” and focus on tackling a debt burden whose interest payments alone tally nearly CNY6 trillion a year. Read more of this post

Once known as “Atomic Town” in China, Xihai has been transformed into a heaven for cyclists from home and abroad

Atomic Town” now heaven for cyclists   2013-07-13

XINING, July 13 (Xinhua) — Once known as “Atomic Town” in China, Xihai has been transformed into a heaven for cyclists from home and abroad. Xihai Town, where the country’s first atomic and hydrogen bombs were created in the 1960s, sits along the northern bank of the Qinghai Lake in northwest China’s Qinghai Province. The once-forbidden mysterious town has witnessed cyclists swarming to attend the Tour de Qinghai Lake, an international road cycling race since 2002. “They have come here every year for the past 12 years,” said Gyumtsho, a 77-year-old woman, who was sitting in the shade watching cyclists pass the finishing line of the fifth section of this year’s race, which kicked off on Sunday. Read more of this post

Experts skeptical of Old Summer Palace repairs

Xinhua Insight: Experts skeptical of Old Summer Palace repairs

by Xinhua writers Ji Shaoting, Dai Ying and Yue Ruifang   2013-07-13

BEIJING, July 13 (Xinhua) — The Old Summer Palace, an ancient royal garden that was nearly destroyed by British and French troops 150 years ago, is experiencing yet another change. The core area of the Old Summer Palace, or “Yuanmingyuan” in Chinese, is undergoing renovations and repairs. However, experts from the Society of Yuanmingyuan believe the repair project is doing more harm than good. The ruins of the palace are among 150 sites designated to be protected and repaired under a plan issued by the State Administration of Cultural Heritage on July 3. Read more of this post

China Protest Forcing Nuclear Retreat Shows People Power; China currently has 17 nuclear power-generating units in operation and 28 under construction

China Protest Forcing Nuclear Retreat Shows People Power

Protests in a southern Chinese city last week that forced local authorities to abandon plans for a uranium-processing facility highlight the growing willingness of ordinary people to challenge the state on environmental issues.

The proposed Longwan Industrial Park project won’t be approved “in order to fully respect the opinion of the masses,” the government of Heshan, Guangdong province, said in a statement on its website on July 13. A “social-stability risk assessment” of the proposal that was released for public awareness generated “much opposition,” it said. Read more of this post

Milk Price War Pits California Dairy Farms Against Cheesemakers

Milk Price War Pits California Dairy Farms Against Cheesemakers

Ray Souza’s voice cracks a bit when he says it, when he tells how his family’s Turlock, California, dairy farm is struggling to pay the bills.

“We go from black to red month by month,” the 66-year-old said. “For us, it’s break even at best.”

Souza is like many other dairy farmers in the state who say the price they’re paid for milk from cheese producers isn’t enough to cover the soaring cost of feeding cows. Those economics have caused a fifth of California’s dairies to shutter since 2007, according to state agricultural figures. Read more of this post

Granny’s Gold Bars Are Key to Vietnam Push to Boost Dong

Granny’s Gold Bars Are Key to Vietnam Push to Boost Dong

The target of Vietnam’s campaign to stabilize its currency is in the locked bedroom wardrobe of retired civil servant Vu Thi Huong: gold bars.

“It’s been my habit for ages, buying gold whenever I can save up some money,” said Huong, 57, who watches the financial news every day to monitor the price of the precious metal. “With gold, I can save my fortune and later on have something valuable to pass down to my children and grandchildren.”

Huong is among millions of Vietnamese who hold an estimated 300 tons to 400 tons of bullion to store their wealth — valued at as much as $19 billion at domestic prices and equal to official U.K. holdings — a legacy of more than a century of war, revolution and economic turbulence. The central bank wants to convert the hoard, much of it smuggled in, into dong deposits to strengthen the currency, which has slid 21 percent against the dollar in five years. Read more of this post

Stella International Takes on LVMH to Expand in Paris

Stella International Takes on LVMH to Expand in Paris

Stella International Holdings Ltd. (1836), the Asian shoemaker that manufactures for companies such as Prada SpA (1913), plans to expand its own brands in Paris, turning into a lower priced competitor to luxury clients there.

The contract manufacturer plans to add two shops in Paris by end of this year and expand into other locations in Europe, Stephen Chi, chief executive officer of the company’s women’s footwear and retail business division, said in a July 10 phone interview. The company, which was founded in Taiwan and trades on the Hong Kong stock exchange, already has one Paris store. Read more of this post

China Wealth Eluding Foreigners as Equities Earn 1% for 20 Years

China Wealth Eluding Foreigners as Equities Earn 1% for 20 Years

China’s 20-year economic boom has boosted the wealth of its 1.3 billion citizens at the fastest pace worldwide and spawned some of the biggest companies in history. Foreigners earned less than 1 percent a year investing in Chinese stocks, a sixth of what they would have made owning U.S. Treasury bills.

The MSCI China Index has gained about 14 percent, including dividends, since Tsingtao Brewery Co. (168) became the first mainland company to sell H shares to international investors in Hong Kong in July 1993. That compares with a 452 percent return in the Standard & Poor’s 500 Index, 322 percent in the MSCI Emerging Markets Index and 86 percent from Treasuries. Only the MSCI Japan Index had a weaker performance among the 10 largest markets, losing about 1 percent. Read more of this post

Serendipity and Samples Can Save Barnes & Noble

Serendipity and Samples Can Save Barnes & Noble

Turmoil at Barnes & Noble Inc. (BKS), where Chief Executive Officer William Lynch resigned last week after the company posted an unexpectedly large loss in the quarter ended April 30, has people in the publishing industry worried. “We’re all forced to ask: What would the book discovery environment look like without Barnes & Noble?” writes Rich Fahle, a former Borders executive who runs a marketing agency for authors.

The question zeroes in on a growing problem for the U.S. book industry. Although readers increasingly purchase books online, they still rely on physical bookstores to discover what to buy. In-store displays are the most common way, after personal recommendations, that frequent buyers find new books, accounting for about 20 percent of purchases, according to a survey by the Codex Group. Yet brick-and-mortar stores are disappearing, as customers defect to the convenience and, in many cases, lower prices of Inc. Read more of this post

Dymocks: out of the ashes; The reports of the iconic bookshop’s demise have been greatly exaggerated

Dymocks: out of the ashes

July 15, 2013

Belinda Williams

The reports of the iconic bookshop’s demise have been greatly exaggerated. There are many lessons to be learnt from a notoriously gloomy prediction made two years ago that online shopping would see the end of Australian bookstores. “In five years, other than a few specialist booksellers in capital cities, we will not see a bookstore; they will cease to exist,” then federal small business minister Nick Sherry stated at the time while launching a program to encourage small businesses to expand online. Today, Dymocks bookstores are still standing. In fact, the iconic bookstore claims to have sold more books last year than ever before. But customers’ reading appetites cannot be solely credited for the 130-year-old bookseller’s endurance. The collapse of REDgroup (parent of Borders and Angus & Robertson chains) saw the abrupt departure of Dymocks’ sidewalk competition. Read more of this post

Young professionals in Malaysia struggle to own property

Young professionals in Malaysia struggle to own property

Now with rising house prices and a shorter home loan repayment period, some say it has become an impossible struggle. -The Star/ANN
Christina Chin
Sun, Jul 14, 2013
The Star/Asia News Network

Chua pondering the possibility of ever owning his first apartment in Penang. Malaysia – Wanting and actually being able to afford your own place are two very different things. With the oversupply of high-end condominiums shadowing the property market, fresh graduates and young professionals may have to either send out an SOS to their parents for cash or live at home because having “my own space” just got a little tougher. Fresh graduate K.T.S. Chua, 23, who recently took out a RM30,000 personal loan to start a hotdog business, is relieved at narrowly missing the July new personal loan cap ruling but the shorter home loan repayment period has dampened the budding entrepreneur’s plan for a bachelor pad. He currently lives at home with his parents and two brothers. “I was looking to get a place of my own; unfortunately, the new ruling will gravely affect my plans to purchase a home. Without the new cap, it is already so hard for me to buy property and I will have to put it on hold. Read more of this post

Why Economics Cannot Explain the Modern World

Why Economics Cannot Explain the Modern World

Deirdre Nansen McCloskey University of Illinois at Chicago – Department of Economics

June 2013
Economic Record, Vol. 89, pp. 8-22, 2013

Why indeed? Because the Great Fact, 1800 to the present, incomes rising by a factor of a factor of 30, and higher if quality is acknowledged, cannot be explained by piling brick on brick, or BA on BA, in the absence of new ideas. As Keynes said, the marginal product of capital would be driven quickly down to zero. If the key were accumulation, which economists love, the Great Fact of modern growth would have happened earlier, or in China. Only ideas, in an environment of liberty and dignity for ordinary people, historically unique to northwestern Europe, work.

Embracing Co-Creation Thinking in Economics

Embracing Co-Creation Thinking in Economics

Avik Chakrabarti University of Michigan – Stephen M. Ross School of Business

Venkatram Ramaswamy Stephen M. Ross School of Business at the University of Michigan

June 2013
Ross School of Business Paper No. 1188

Economics without the lens of co-creation, in the new evolving economy, blurs visibility. We provide a framework that can reshape economic thinking with co-creation at the core. In particular, an individual’s experience from co-creation is at the foundation of our economic apparatus. This is consistent with the mounting evidence on the new evolving economy where the conventional firm-centric view is of little relevance. We compare and contrast key elements of our co-creation thinking with conventional economic thinking. We show how fundamental economic concepts, such as surplus and efficiency, must be modified in order to incorporate co-creation experiences. We also posit a principle of co-creative advantage to guide efficient co-creation.

The Network Origins of Large Economic Downturns

The Network Origins of Large Economic Downturns

Daron Acemoglu Massachusetts Institute of Technology (MIT) – Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Asuman E. Ozdaglar Massachusetts Institute of Technology (MIT) – Department of Electrical Engineering and Computer Science

Alireza Tahbaz-Salehi Columbia Business School – Decision Risk and Operations

June 13, 2013
Columbia Business School Research Paper

This paper shows that large economic downturns may result from the propagation of microeconomic shocks over the input-output linkages across different firms or sectors within the economy. Building on the framework of Acemoglu et al. (2012), we argue that the economy’s input-output structure can fundamentally reshape the distribution of aggregate output, increasing the likelihood of large downturns from infinitesimal to substantial. More specifically, we show that an economy with non-trivial intersectoral input-output linkages that is subject to thin-tailed productivity shocks may exhibit deep recessions as frequently as economies that are subject to heavy-tailed shocks. Moreover, we show that in the presence of input-output linkages, aggregate volatility is not necessarily a sufficient statistic for the likelihood of large downturns. Rather, depending on the shape of the distribution of the idiosyncratic shocks, different features of the economy’s input-output network may be of first-order importance. Finally, our results establish that the effects of the economy’s input-output structure and the nature of the idiosyncratic firm-level shocks on aggregate output are not separable, in the sense that the likelihood of large economic downturns is determined by the interplay between the two.

Governance Through Threat: Does Short Selling Improve Internal Governance?

Governance Through Threat: Does Short Selling Improve Internal Governance?

Massimo Massa INSEAD – Finance

Bohui Zhang The University of New South Wales – School of Banking and Finance; Financial Research Network (FIRN)

Hong Zhang INSEAD – Finance

July 9, 2013
INSEAD Working Paper No. 2013/83/FIN

We explore the relationship between internal governance and the disciplining mechanisms created by the threat of short selling (i.e. “short-selling potential”). We argue that the presence of short selling increases the cost of agency problems for shareholders and incentivizes them to improve internal governance. Our stock-level tests across 23 developed countries during 2003-2009 confirm that the threat of short selling significantly enhances the quality of internal governance. This effect is stronger for financially constrained firms and more pronounced in countries with weak institutional environments. The governance impact of short selling leads to an improvement in firms’ operating performance.

Investor Awareness and PSY-chology Surrounding ‘Gangnam Style’

Investor Awareness and PSY-chology Surrounding ‘Gangnam Style’

Y. Han (Andy) Kim Nanyang Technological University (NTU)

Ho Sung Jung Bank of Korea

July 11, 2013

The historically unprecedented success of “Gangnam Style,” the 18th K-pop single by the South Korean rapper musician PSY that went global in 2012, was an exogenous shock to investor awareness and enthusiasm about DI Corp., the company founded by the Korean rapper’s father. Equipped with Korean microstructure data that identifies non-resident foreign individual investors by their country of origin, we study the impact of investor awareness and enthusiasm about DI Corp.’s stock and related individual investor behavior. We find that the number of unique countries where non-resident foreign institutional investors place orders for the DI Corp. stock (excluding offshore Koreans) more than doubled after “Gangnam Style” was released, which supports Merton (1987). In addition, using the count of parody videos and flash mobs uploaded on YouTube from each country as a proxy for the enthusiasm of individual investors about DI Corp., we find that non-resident (resident) foreign individual investors become net buyers (sellers) when the count of the uploads increases in their country. In contrast, we find that non-resident foreign institutional investors short sell the stock after the release of the song, except for a period of excessive cost of arbitrage.

The Twilight Zone: OTC Regulatory Regimes and Market Quality

The Twilight Zone: OTC Regulatory Regimes and Market Quality

Ulf Brüggemann Humboldt University of Berlin – School of Business and Economics

Aditya Kaul University of Alberta – Department of Finance and Statistical Analysis

Christian Leuz University of Chicago – Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); University of Pennsylvania – Wharton Financial Institutions Center; CESifo Research Network

Ingrid M. Werner The Ohio State University – Fisher College of Business

July 9, 2013
Fisher College of Business Working Paper No. 2013-03-09
Charles A. Dice Center Working Paper No. 2013-09

We analyze a comprehensive sample of more than 10,000 U.S. stocks in the OTC market. As little is known about this market, we first characterize OTC firms by trading venue and provide evidence on survival, success, frequency of venue changes, reporting status, and trading activity. A large number of new firms appear on the OTC market each year. With few exceptions, these new firms exhibit poor performance and rarely rise to trade on traditional exchanges. We analyze how market liquidity, price efficiency and crash risk, all of which capture aspects of market quality, differ across OTC venues and firms subject to different regulatory regimes, including federal securities and state blue sky laws. We show that OTC firms that are subject to stricter regulatory regimes have higher market liquidity and price efficiency, and lower return skewness. We also analyze OTC market features that are potential substitutes for SEC registration, such as publication in a securities manual or state merit reviews, and provide evidence on their capital-market effects. This evidence is relevant in light of the JOBS Act and the ensuing relaxation of SEC registration requirements. Overall, our results suggest that investors consider information and regulatory differences when trading OTC stocks.

Enforcement of Accounting Standards in Germany: The Pre- and Post-Misstatement Development of Censured Firms

Enforcement of Accounting Standards in Germany: The Pre- and Post-Misstatement Development of Censured Firms

Manuel Strohmenger University of Wuerzburg

June 20, 2013

This paper focuses on implementation of a two-tiered external financial reporting enforcement mechanism in Germany 2004. The first objective of the study is the systematically evaluation of the information contained in 151 disclosed error announcements. I find that error announcement on average contain 3.64 single errors and 77% affect the reported profit. Small, high levered and relatively unprofitable firms are overrepresented by the sample of misstatement firms. In a second step, I investigate the development of censured firms over time; I track the pre- and post-misstatement development of the firms in terms of balance sheet data, financial ratios and (real) earnings management. The analysis detects increasing leverage ratios and a decline in profitability overtime. In the year of misstatement firms report large total and discretionary accruals, indicating earnings management. Compared to matched control firms, significant differences in profitability, market valuation, earnings management and real activities manipulations are observable. A major contribution of this study is the examination of trends in financial data and (real) earnings management over a number of years round misstatement as well as the elaboration of the distinction to non-misstating firms. My results show the meaning of the enforcement of IFRS for the quality of financial reporting to standard setters, policy makers, and investors in Germany.

Executive Compensation and Corporate Fraud in China

Executive Compensation and Corporate Fraud in China

Martin J. Conyon University of Pennsylvania – The Wharton School; European Corporate Governance Institute (ECGI)

Lerong He SUNY College at Brockport; University of Pennsylvania – The Wharton School

July 11, 2013

This study investigates the relation between CEO compensation and corporate fraud in China. We document a significantly negative correlation between CEO compensation and corporate fraud using data on publicly traded firms between 2005 and 2010. Our findings are consistent with the hypothesis that the firm’s owners and the board of directors penalize CEOs for fraud by awarding lower pay. We also find that executive compensation is lower in firms that commit more severe frauds. Panel data fixed effects and propensity score methods are used to demonstrate these effects. We also show that CEOs of privately controlled firms, firms that split the posts of CEO and chairman, and CEOs of firms located in developed regions, suffer larger compensation penalties for committing financial fraud. Finally, we show that CEOs at firms that commit fraud are more likely to be replaced (lose their jobs) compared to non-fraud firms.

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