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on Business Economics |
| By: | Brian Bell; John Van Reenen |
| Abstract: | Would moving to relative performance contracts improve the alignment between CEO pay and performance? To address this we exploit the large rise in relative performance awards and the share of equity pay in the UK over the last two decades. Using new employer-employee matched datasets we find that the CEO pay-performance relationship remains asymmetric: pay responds more to increases in shareholders’ return performance than to decreases. Further, this asymmetry is stronger when governance appears weak. Second, there is substantial “pay-for-luck” as remuneration increases with random positive shocks, even when the CEO has equity awards that explicitly condition on firm performance relative to peer firms in the same sector. A reason why relative performance pay fails to deal with pay for luck is that CEOs who fail to meet the terms of their past performance awards are able to obtain more generous new equity rewards in the future. Moreover, this “compensation effect” is stronger when the firm has weak corporate governance. These findings suggest that reforms to the formal structure of CEO pay contracts are unlikely to align incentives in the absence of strong shareholder governance. |
| JEL: | J33 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22407&r=bec |
| By: | Söhnke M. Bartram; Gregory Brown; René M. Stulz |
| Abstract: | From 1963 through 2015, idiosyncratic risk (IR) is high when market risk (MR) is high. We show that the positive relation between IR and MR is highly stable through time and is robust across exchanges, firm size, liquidity, and market-to-book groupings. Though stock liquidity affects the strength of the relation, the relation is strong for the most liquid stocks. The relation has roots in fundamentals as higher market risk predicts greater idiosyncratic earnings volatility and as firm characteristics related to the ability of firms to adjust to higher uncertainty help explain the strength of the relation. Consistent with the view that growth options provide a hedge against macroeconomic uncertainty, we find evidence that the relation is weaker for firms with more growth options. |
| JEL: | G10 G11 G12 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22492&r=bec |
| By: | Thierry Mayer; Marc J. Melitz; Gianmarco I.P. Ottaviano |
| Abstract: | We document how demand shocks in export markets lead French multi-product exporters to re-allocate the mix of products sold in those destinations. In response to positive demand shocks, those French firms skew their export sales towards their best performing products; and also extend the range of products sold to that market. We develop a theoretical model of multi-product firms and derive the specific demand and cost conditions needed to generate these product-mix reallocations. Our theoretical model highlights how the increased competition from demand shocks in export markets – and the induced product mix reallocations – induce productivity changes within the firm. We then empirically test for this connection between the demand shocks and the productivity of multi-product firms exporting to those destinations. We find that the effect of those demand shocks on productivity are substantial – and explain an important share of aggregate productivity fluctuations for French manufacturing. |
| JEL: | D24 F12 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22433&r=bec |
| By: | Ian D. Gow; Steven N. Kaplan; David F. Larcker; Anastasia A. Zakolyukina |
| Abstract: | Based on two samples of high quality personality data for chief executive officers (CEOs), we use linguistic features extracted from conferences calls and statistical learning techniques to develop a measure of CEO personality in terms of the Big Five traits: agreeableness, conscientiousness, extraversion, neuroticism, and openness to experience. These personality measures have strong out-of-sample predictive performance and are stable over time. Our measures of the Big Five personality traits are associated with financing choices, investment choices and firm operating performance. |
| JEL: | D22 D23 G3 G34 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22435&r=bec |
| By: | Hernan Herrera-Echeverri; Jose Galli Geleilate; Sandra Gaitan-Riaño; Jerry Haar; Nidia Soto-Echeverry |
| Abstract: | In the context of greater market liberalization in Latin America, one issue that merits greater attention for empirical investigation is the international expansion of family-owned business. Specifically, the relationship between export behavior, family control and board composition in the Latin American context is absent in the literature. Using a large and unique database from Colombian firms (33,249 firms in the period of 2008 to 2013), we provide insightful information on the determinants of export behavior of family firms in emerging markets. Our empirical test confirms an endogenous relation between boards’ composition (specifically the presence of independent members) and export behavior in family firms. Firms with a higher participation of independent board members are more likely to exhibit higher levels of exports. A "virtuous cycle" was also detected whereby the introduction of independent members on the board can be expected to boost export behavior, which in turn will encourage the increase of independent members on the board of private firms. |
| Keywords: | export behavior, family firms, corporate boards, Colombia |
| JEL: | F20 G39 J12 |
| Date: | 2016–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:col:000122:014971&r=bec |
| By: | Philip Brookins; Jennifer Brown; Dmitry Ryvkin |
| Abstract: | Incentive schemes that reward participants based on their relative performance are often thought to be particularly risk-inducing. Using a novel, real-effort task experiment in the laboratory, we find that the relationship between incentives and risk-taking is more nuanced and depends critically on the availability of information about peers’ strategies and outcomes. Indeed, we find that when no peer information is available, relative rewards schemes are associated with significantly less risk-taking than non-competitive rewards. In contrast, when decision-makers receive information about their peers’ actions and/or outcomes, relative incentive schemes are associated with more risk-taking than non-competitive schemes. The nature of the feedback—whether subjects receive information about peers’ strategies, outcomes, or both—also affects risk-taking. We find no evidence that competitors imitate their peers when they face only feedback about other subjects’ risk-taking strategies. However, decision-makers take more risk when they see the gaps between their performance score and their peers’ scores grow. Combined feedback about peers’ strategies and performance—from which subjects may assess the overall relationship between risk-taking and success—is associated with more risk-taking when rewards are based on relative performance; we find no similar effect for non-competitive rewards. |
| JEL: | C72 C91 C92 D81 G17 M52 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22486&r=bec |
| By: | Nicolas Salamanca (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; ARC Centre of Excellence for Children and Families over the Life Course, and; Institute for the Study of Labor (IZA)); Jan Feld (Victoria University of Wellington) |
| Abstract: | We extend Becker’s model of discrimination by allowing firms to have discriminatory and favoring preferences simultaneously. We draw the two-preference parallel for the marginal firm, illustrate the implications for wage differentials, and consider the implied long-run equilibrium. In the short-run, wage differentials depend on relative preferences. However, in the long-run, market forces drive out discriminatory but not favoring firms. |
| Keywords: | Wage gap, nepotism, firm preferences, long-run equilibrium |
| JEL: | J70 J31 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:iae:iaewps:wp2016n23&r=bec |
| By: | Britz, Wolfgang; Arata, Linda |
| Abstract: | We estimate a dual cost function together with farmers’ risk attitude in a programming model setup which allows for zero activity levels and not binding constraints. We use crop shares as decision variables in order to avoid scale bias and to shed light on farm risk management strategies. The model is estimated for three unbalanced panels of specialized arable farms observed for at least three consecutive years in Northern Italy, Cologne-Aachen region in Germany and the Grandes-Culture Region of France over the time period 1995-2008. Our estimated models show quite satisfactory fit with regard to crop shares and costs while results indicate that specialised arable farms from these regions use crop shares only marginally as a risk management instrument. The supply elasticities with respect to price show values in a reasonable range. The cost reducing effects of farm size measured in hectare is neglectable and, as expected, we find a positive correlation between farm size and the number of crops grown in a year. |
| Keywords: | risk behaviour, cost function estimation, programming model, Crop Production/Industries, Production Economics, Q12, C61, C33, |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aiea16:242316&r=bec |
| By: | Nathan Goldschlag; Stefano Bianchini; Julia Lane; Joseba SanMartin Sola; Bruce Weinberg |
| Abstract: | Public support of research typically relies on the notion that universities are engines of economic development, and that university research is a primary driver of high wage localized economic activity. Yet the evidence supporting that notion is based on aggregate descriptive data, rather than detailed links at the level of individual transactions. Here we use new micro-data from three countries - France, Spain and the United States - to examine one mechanism whereby such economic activity is generated, namely purchases from regional businesses. We show that grant funds are more likely to be expended at businesses physically closer to universities than at those farther away. In addition, if a vendor has been a supplier to a grant once, that vendor is subsequently more likely to be a vendor on the same or related grants. Firms behave in a way that is consistent with the notion that propinquity is good for business; if a firm supplies a research grant at a university in a given year it is more likely to open an establishment near that university in subsequent years than other firms. |
| Keywords: | Science policy, innovation, regional economic development, UMETRICS |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:16-32&r=bec |
| By: | Elena Sirotkina (National Research University Higher School of Economics); Svetlana Karandashova (National Research University Higher School of Economics) |
| Abstract: | Maintain autocratic regimes is widely acknowledged to require elite loyalty. However, does this imply that various elite groups equally contribute to the daily performance of an autocratic regime and to winning elections? Based on empirical evidence of recent gubernatorial elections in Russia we explore the effect of multilevel elite disloyalty on gubernatorial electoral results and voter turnout. Having examined the impact of major regional elites, we find that only conflicts between governors and the mayors of regional capitals hav¬¬e significant and robust negative effect on both electoral turnout and the voting for governor. Encouraging the loyalty of these mayors secures smoother political machinery in the most electorally significant areas of the region and thus can determine the outcome of an electoral campaign. This finding provides another confirmation of the paramount role of covert rather than open inter-elite competition for electoral autocracies maintenance. |
| Keywords: | electoral autocracy, Russian politics, Russian regions, regional politics, gubernatorial elections, elites |
| JEL: | Z |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:36/ps/2016&r=bec |
| By: | Escribano, Álvaro; Blazsek, Szabolcs |
| Abstract: | This paper suggests new Dynamic Conditional Score (DCS) count panel data models. We compare the statistical performance of static model, finite distributed lag model, exponential feedback model and different DCS count panel data models. For DCS we consider random walk and quasi-autoregressive formulations of dynamics. We use panel data for a large cross section of United States firms for period 1979 to 2000. We estimate models by using the Poisson quasi-maximum likelihood estimator with fixed effects. The estimation results and diagnostics tests suggest that the statistical performance of DCS-QAR is superior to that of alternative models. |
| Keywords: | quasi-maximum likelihood; dynamic conditional score; count panel data; research and development |
| JEL: | O3 C52 C51 C35 C33 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:23458&r=bec |
| By: | Eugen Tarnow |
| Abstract: | The majority of Medicare opioid prescriptions come from family practice and internal medicine providers. I show that the tendency of these providers to prescribe opioids has only a very small correlation with provider list prices suggesting that provider avarice is only weakly correlated with opioid prescribing. |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1608.02428&r=bec |