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• Case | HBS Case Collection | November 2006 (Revised November 2017)

  Kerr-McGee

  Robin Greenwood and André Perold

  Activist investors Carl Icahn and Barry Rosenstein acquire a stake in Oklahoma-based company Kerr-McGee. They demand two board seats and ask the company to make several operational and financial changes, including the repurchase of equity and divestiture of their chemicals business. The case protagonist, Luke Corbett, CEO, opposes these changes.

  Keywords: Restructuring; Chemicals; Equity; Investment; Governance Controls; Managerial Roles; Chemical Industry; Energy Industry; United States;

  Citation:

  Greenwood, Robin, and André Perold. "Kerr-McGee." Harvard Business School Case 207-020, November 2006. (Revised November 2017.)  View Details

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• Article | Journal of Financial Economics | July 2017

  What Do Measures of Real-Time Corporate Sales Tell Us About Earnings Surprises and Post-announcement Returns?

  Kenneth A. Froot, Namho Kang, Gideon Ozik and Ronnie Sadka

  We develop real-time proxies of retail corporate sales from multiple sources, including approximately 50 million mobile devices. These measures contain information from both the earnings quarter (within quarter) and the period between that quarter's end and the earnings announcement date (post quarter). Our within-quarter measure is powerful in explaining quarterly sales growth, revenue surprises, and earnings surprises, generating average excess returns at announcement of 3.4%. However, surprisingly, our post-quarter measure is related negatively to announcement returns and positively to post-announcement returns. When post-quarter private information is directionally strong, managers, at announcement, provide guidance and use language that points statistically in the opposite direction. This effect is more pronounced when, post-announcement, management insiders trade. We conclude managers do not fully disclose their private information and instead message to shareholders and analysts something of opposite sign. The data suggest they may be motivated in part by subsequent personal stock-trading opportunities.

  Keywords: Announcements; Business Earnings; Sales; Retail Industry;

  Citation:

  Froot, Kenneth A., Namho Kang, Gideon Ozik, and Ronnie Sadka. "What Do Measures of Real-Time Corporate Sales Tell Us About Earnings Surprises and Post-announcement Returns?" Journal of Financial Economics 125, no. 1 (July 2017): 143–162. (Revised from NBER Working Paper No. 22366, June 2016, Harvard Business School Working Paper No. 16-123, April 2016.)  View Details

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• Working Paper | 2015

  Customers and Investors: A Framework for Understanding Financial Institutions

  Robert C. Merton and Robert T. Thakor

  Financial institutions have both investors and customers. Investors, such as those who invest in stocks and bonds or private/public-sector guarantors of institutions, expect an appropriate risk-adjusted return in exchange for the financing and risk-bearing that they provide. Customers of a financial intermediary, in contrast, provide financing in exchange for a specific set of services, and do not want the fulfillment of these services to be contingent on the credit risk of the intermediary, even when they are not small, uninformed agents lacking in sophistication. This paper develops a framework that defines the roles of customers and investors in intermediaries, and uses the framework to provide an economic foundation for the aversion to intermediary credit risk on the part of its customers. It further explores the implications of this customer-investor nexus for a host of issues related to how contracts between financial intermediaries and their customers are structured and how risks are shared between them, as well as the consequences of (unexpected) deviations from the ex ante optimal contractual arrangement. We show that the optimality of insulating the customer from the credit risk of the intermediary explains various contractual arrangements, institutions, and regulatory practices observed in practice. Moreover, customers and investors are often intertwined in practice, and so this intertwining provides insights into the adoption of "too-big-to-fail" policies and bailouts by regulators in general. Finally, the approach taken here shows that financial crises may be a consequence of observed but unexpected deviations from the ex ante optimal risk-sharing arrangement between financial intermediaries and their customers.

  Keywords: Financial Institutions;

  Citation:

  Merton, Robert C., and Robert T. Thakor. "Customers and Investors: A Framework for Understanding Financial Institutions." NBER Working Paper Series, No. 21258, June 2015.  View Details

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