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Purpose – Marketers are under increasing pressure to demonstrate the financial return associated with marketing expenditures. Concurrently, more attempts at measuring return on investment from marketing as well as achieving other long-term goals such as building brand equity and increasing shareholder value have been made. As a result of this emphasis, the degree to which advertising budgets are spent efficiently and the impact of these expenditures on the bottom line are an important topic to study.

Methodology/approach – This study applies data envelopment analysis (DEA) to a group of large firms to assess the degree to which companies spend advertising dollars efficiently and to examine the impact of advertising efficiency on investor behavior and, ultimately, stock prices.

Findings – The analysis reveals that firms that advertise more efficiently are rewarded by investors by positive stock returns.

Research limitations/implications (if applicable) – The study is limited to large enterprises with strong brands within a time frame of only four years.

Practical implications (if applicable) – The results imply that it is advisable for marketing managers not to limit their focus to increasing market-based assets at any cost. The efficiency of their efforts can send a positive signal to investors and contribute to shareholder value enhancement.

Originality/value of the chapter – The chapter finds investors to pay attention not only to the effectiveness of advertising activities but also to their efficiency. The study also demonstrates how DEA and stock return response modeling can be combined to investigate the link between advertising efficiency and investor behavior.

The economic doctrine of market efficiency plays an essential role in securities fraud litigation. In lawsuits alleging violations of SEC Rule 10b-5, the plaintiffs typically must argue that the market for the relevant security is efficient, and therefore that the “fraud on the market” doctrine applies. However, the term “market efficiency” is often applied imprecisely. In this chapter, we discuss properties of efficient markets that have been proposed in academic research, legal scholarship, and case law. We explore what must be assumed about capital markets for each of these properties to hold. We then ask how, in practice, each property could be rebutted.

Using a large sample of diversified firms from 38 countries we investigate the influence of several national-level institutional factors or “institutional voids” on the value of corporate diversification. Specifically, we explore whether the presence of frictions in a country’s capital markets, labor markets, and product markets, affects the excess value of diversified firms. We find that the value of diversified firms relative to their single-segment peers is higher in countries with less-efficient capital and labor markets, but find no evidence that product market efficiency affects the relative value of diversification. These results provide support for the theory of internal capital markets that argues that internal capital allocation would be relatively more beneficial in the presence of frictions in the external capital markets. In addition, the results show that diversification can be beneficial in the presence of frictions in the labor market.

Following the Supreme Court’s 1988 decision in Basic, securities class plaintiffs can invoke the “rebuttable presumption of reliance on public, material misrepresentations regarding securities traded in an efficient market” [the “fraud-on-the-market” doctrine] to prove classwide reliance. Although this requires plaintiffs to prove that the security traded in an informationally efficient market throughout the class period, Basic did not identify what constituted adequate proof of efficiency for reliance purposes.

Market efficiency cannot be presumed without proof because even large publicly traded stocks do not always trade in efficient markets, as documented in the economic literature that has grown significantly since Basic. For instance, during the recent global financial crisis, lack of liquidity limited arbitrage (the mechanism that renders markets efficient) and led to significant price distortions in many asset markets. Yet, lower courts following Basic have frequently granted class certification based on a mechanical review of some factors that are considered intuitive “proxies” of market efficiency (albeit incorrectly, according to recent studies and our own analysis). Such factors have little probative value and their review does not constitute the rigorous analysis demanded by the Supreme Court.

Instead, to invoke fraud-on-the-market, plaintiffs must first establish that the security traded in a weak-form efficient market (absent which a security cannot, as a logical matter, trade in a “semi-strong form” efficient market, the standard required for reliance purposes) using well-accepted tests. Only then do event study results, which are commonly used to demonstrate “cause and effect” (i.e., prove that the security’s price reacted quickly to news – a hallmark of a semi-strong form efficient market), have any merit. Even then, to claim classwide reliance, plaintiffs must prove such cause-and-effect relationship throughout the class period, not simply on selected disclosure dates identified in the complaint as plaintiffs often do.

These issues have policy implications because, once a class is certified, defendants frequently settle to avoid the magnified costs and risks associated with a trial, and the merits of the case (including the proper application of legal presumptions) are rarely examined at a trial.

This is the first paper in a volume devoted exclusively to antitrust law and economics. It summarizes the other papers and addresses two issues. First, after showing that the federal courts generally view consumer welfare as the ultimate goal of antitrust law, it asks what they mean by that term. It concludes that recent decisions appear more likely to equate consumer welfare with the well-being of consumers in the relevant market than with economic efficiency. Second, it asks whether a buyer must possess monopsony power to induce a price discrimination that is not cost justified. It concludes that a buyer can often obtain an unjustified concession simply by wielding bargaining power, but the resulting concession may frequently – though not always – improve consumer welfare.

Internal capital markets of diversified firms have been associated with inefficient allocation of investment funds across divisions, leading to value losses. Utilizing a sample of diversified firms that adopted or eliminated Residual Income (RI) plans between 1990 and 2009, we show that adoptions of these plans mitigate investment distortions and lead to value gains. Following the adoption of RI plans, diversified firms start allocating investment funds based on growth opportunities of their divisions. RI plan adopters lower their divisional investment levels, especially in segments with below-average growth opportunities. The overall investment allocation efficiency improves, and the diversification discount diminishes after the adoption of RI plans. However, RI plans appear to be used only as temporary tools for assessing corporate performance. The plans are adopted primarily by firms expected to immediately generate plan bonuses for management, and they are frequently eliminated by firms with bad accounting performance and low managerial bonuses. The study contributes to the literature on organizational efficiency, internal capital markets, and on the importance of measures based on economic profits or RI.

The purpose of this chapter is to assess the notion, measurement, and impact of institutional “public value” in an effort to determine its relevance, origin, and implementable government focus to create, maintain, and stimulate national productivity/wealth.

A literature review is presented along with the conceptualization of the public value thinking; an empirical analysis (in force of accredited official dataset-information) will test research assumptions.

The chapter identifies both the main features of “public value” and the possible impacts of public domain on the quality of private institutions and relating markets functioning (financial, labor, goods, technology), through aggregate statistics.

The public value dynamics may be affected variously by the different context factors/cultures characterizing the international economies/years examined. Nonetheless, global statistics/indicators appear as interesting as significant.

The endeavor of this chapter is to invite scholars, administrators, and practitioners to take into consideration the findings and stimulate the government/management of public value (which is more and more entrepreneurial) also for facilitating doing business.

This study contributes to shed light on the complex mechanisms of accumulation and diffusion of public value addressing future research on the role of property rights, ethicality, undue influence, institutional efficiency, and security.

The hendiadys “Value” and “Public” has been for several years examined mostly from the normative viewpoint. This chapter moves on to the field of practical assessment of public institutions by adopting an econometric model which points to identify concrete drivers and relating effects on productivity.

This paper aims to develop and test a new way of modeling airline operations and apply it to measure and compare the efficiency of international airlines, with a special focus on deregulation effects. The paper elaborates on the choice of variables, following the early work of Schefczyk (1993) and Scheraga (2004). The value chain of the airlines determines the variables included in three different models. Using data envelopment analysis, the efficiency scores show that North American airlines are more efficient in producing services offered to customers. Few differences are found between regions in allocating service output to match demand. One plausible explanation for this difference is that airlines operate within competitive environments. In a highly competitive market, management decisions focus on productive actions and cost reduction. In a less competitive environment, there is a higher degree of adjustments of the services produced. Using the Malmquist productivity index, measurements reveal that there is a catch-up effect for the European and Asian/South American airlines service production during the studied time period, which was from 1990 to 2003.

Many banking efficiency studies have focused on conventional banks. Recently, Islamic banks have opened in many countries and operated in similar fashion to traditional banks. This chapter measures and compares Islamic banking efficiency to conventional banking efficiency represented by three European countries – Germany, Turkey and the United Kingdom. The study covers the period from 2005 to 2008 in measuring the X-efficiency using the non-parametric method, known as Data Envelopment Analysis (DEA). It reveals that Islamic banks are technically more efficient than conventional banks but are beset by lower allocative efficiency. This results in lower cost efficiency for Islamic banks in comparison to the more conventional banks in Europe.