We analyze the empirical power and specification of test statistics in event studies designed to detect long-run (one- to five-year) abnormal stock returns. We document that test statistics based on abnormal returns calculated using a reference portfolio, such as a market index, are misspecified (empirical rejection rates exceed theoretical rejection rates) and identify three reasons for this misspecification. We correct for the three identified sources of misspecification by matching sample firms to control firms of similar sizes and book-to-market ratios. This control firm approach yields well-specified test statistics in virtually all sampling situations considered.

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We investigate whether firms learn to manage interfirm alliances as experience accumulates. We use contract-specific experience measures in a data set of over 2000 joint ventures and licensing agreements, and value creation measures derived from the abnormal stock returns surrounding alliance announcements. Learning effects are identified from the effects of unobserved heterogeneity in alliance capabilities. We find evidence of large learning effects in managing joint ventures, but no such evidence for licensing contracts. The effects of learning on value creation are strongest for research joint ventures, and weakest for marketing joint ventures. These results are consistent with the view that learning effects are more important in situations characterized by greater contractual ambiguity. Copyright © 2000 John Wiley & Sons, Ltd.

I review empirical research on the relation between capital markets and financial statements.The principal sources of demand for capital markets research in accounting are fundamental analysis and valuation, tests of market efficiency, and the role of accounting numbers in contracts and the political process.The capital markets research topics of current interest to researchers include tests of market efficiency with respect to accounting information, fundamental analysis, and value relevance of financial reporting.Evidence from research on these topics is likely to be helpful in capital market investment decisions, accounting standard setting, and corporate financial

Does CEO overconfidence help to explain merger decisions? Overconfident CEOs overestimate their ability to generate returns. As a result, they overpay for target companies and undertake value-destroying mergers. The effects are strongest if they have access to internal financing. We test these predictions using two proxies for overconfidence: CEOs' personal overinvestment in their company and their press portrayal. We find that the odds of making an acquisition are 65 % higher if the CEO is classified as overconfident. The effect is largest if the merger is diversifying and does not require external financing. The market reaction at merger announcement (–90 basis points) is significantly more negative than for non-overconfident CEOs (–12 basis points). We consider alternative interpretations including inside information, signaling, and risk tolerance.

We study shareholder returns for firms that acquired five or more public, private, and0or subsidiary targets within a short time period. Since the same bidder chooses different types of targets and methods of payment, any variation in returns must be due to the characteristics of the target and the bid. Results indicate bidder shareholders gain when buying a private firm or subsidiary but lose when purchasing a public firm. Further, the return is greater the larger the target and if the bidder offers stock. These results are consistent with a liquidity discount, and tax and control effects in this market. Takeovers are one of the most important events in corporate finance, both for a firm and the economy. Extensive research has shown that shareholders in target firms gain significantly and that wealth is created at the announcement of takeovers ~i.e., combined bidder and target returns are positive!. However, we know much less about the effects of takeovers on the shareholders of acquiring firms. Evidence suggests that these shareholders earn,

two anonymous referees for comments. Mehmet Yalin provided excellent research assistance. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research.

Papers investigating Standard and Poor’s 500 has (when possible) an-nounced changes inStock Index (S&P 500) composition changes the composition of theover the 1976–88 period find a change-day posi-

Firms are undertaking growing numbers of e-commerce initiatives and increasingly making significant investments required to participate in the growing online market. However, empirical support for the benefits to firms from e-commerce is weaker than glowing accounts in the popular press, based on anecdotal evidence, would lead us to believe. In this paper, we explore the following questions: What are the returns to shareholders in firms engaging in e-commerce? How do the returns to conventional, brick and mortar firms from e-commerce initiatives compare with returns to the new breed of net firms? How do returns from businessto-business e-commerce compare with returns from business-to-consumer e-commerce? How do the returns to e-commerce initiatives involving digital goods compare to initiatives involving tangible goods? We examine these issues using event study methodology and assess the cumulative abnormal returns to shareholders (CARs) for 251 e-commerce initiatives announced by firms between October and December 1998. The results suggest that e-commerce initiatives do indeed lead to significant positive CARs for firms ’ shareholders. While the CARs for conventional firms are not significantly different from those for net firms, the CARs for businessto-consumer (B2C) announcements are higher than those for business-to-business (B2B) announcements.

* We thank the Corporate Library for providing the director data for this study. We also thank Melissa Boyle for her capable research assistance and workshop participants at UC Berkeley, Il-Horn Hann, and Maria Nondorf for their helpful comments. Does the Market Value Financial Expertise on Audit Committees of Boards of Directors? We examine 3-day cumulative abnormal returns (CARs) around the announcement of 850 newly appointed outside board members assigned to audit committees during 1993-2002, a period prior to the implementation of the Sarbanes-Oxley Act (SOX). Motivated by the SOX requirement that public companies disclose whether they have a financial expert on their audit committee, we test whether the market reacts favorably to the appointment of directors with financial expertise to the audit committee. In addition, because it is controversial whether SOX should define financial experts narrowly to include primarily accounting financial experts (as initially proposed), or more broadly to include non-accounting financial experts (as ultimately passed), we separately examine appointments of each type of expert. We find significantly positive CARs around the appointment of accounting financial