Reaffirming the CEO effect is significant and much larger than chance: A comment on Fitza (2014)

A recent study by Fitza argued that the prior estimates of the Chief Executive Officer (CEO) effect are conflated with events outside the CEO's control, are largely the result of random chance, and that the true CEO effect is smaller than has been previously estimated. We suggest that the empirical methodology employed by Fitza to support these claims substantially overstates the “random chance” element of the CEO effect. We replicate Fitza's findings, highlight methodological issues, offer alternative conclusions, and using multilevel modeling (MLM), suggest that his analyses mischaracterize the CEO effect. Copyright © 2016 John Wiley & Sons, Ltd.     

Adding Value to Applied Policy Models： The Case of the WTO and OECD Support Classification Systems

Both the OECD and the WTO have accumulated systematic data on the magnitude of support going to farmers as a result of farm policies. The datasets are collected for different purposes, but both give a detailed picture of the evolution of these policies. This paper extends recent work on the compatibility or otherwise of the two attempts at policy monitoring by considering the categorization of individual policy instruments in Norway, Switzerland, the US, and the EU. The results show how the OECD dataset, particularly with respect to the link between direct payments and production requirements, complements that of the WTO. Many payments classified in the WTO Green Box require production, raising the possibility that they may distort production and trade. Though the issue of correct notifications to the WTO is the province of lawyers, the implications for modeling and policy analysis are of interest to economists, and the broader question of improving the consistency of the two datasets is of importance in the quest for transparency in the interpretation of changes in farm policies.     

New Product Development Practices and Early‐Stage Firms: Two In‐Depth Case Studies

New product development practices (NPD) have been well studied for decades in large, established companies. Implementation of best practices such as predevelopment market planning and cross‐functional teams have been positively correlated with product and project success over a variety of measures. However, for small new ventures, field research into ground‐level adoption of NPD practices is lacking. Because of the risks associated with missteps in new product development and the potential for firm failure, understanding NPD within the new venture context is critical. Through in‐depth case research, this paper investigates two successful physical product‐based early‐stage firms' development processes versus large established firm norms. The research focuses on the start‐up adoption of commonly prescribed management processes to improve NPD, such as cross‐functional teams, use of market planning during innovation development, and the use of structured processes to guide the development team. This research has several theoretical implications. The first finding is that in comparing the innovation processes of these firms to large, established firms, the study found several key differences from the large firm paradigm. These differences in development approach from what is prescribed for large, established firms are driven by necessity from a scarcity of resources. These new firms simply did not have the resources (financial or human) to create multi‐ or cross‐functional teams or organizations in the traditional sense for their first product. Use of virtual resources was pervasive. Founders also played multiple roles concurrently in the organization, as opposed to relying on functional departments so common in large firms. The NPD process used by both firms was informal—much more skeletal than commonly recommended structured processes. The data indicated that these firms put less focus on managing the process and more emphasis on managing their goals (the main driver being getting the first product to market). In addition to little or no written procedures being used, development meetings did not run to specific paper‐based deliverables or defined steps. In terms of market and user insight, these activities were primarily performed inside the core team—using methods that again were distinctive in their approach. What drove a project to completion was relying on team experience or a “learn as you go approach.” Again, the driver for this type of truncated market research approach was a lack of resources and need to increase the project's speed‐to‐market. Both firms in our study were highly successful, from not only an NPD efficiency standpoint but also effectiveness. The second broad finding we draw from this work is that there are lessons to be learned from start‐ups for large, established firms seeking ever‐increasing efficiency. We have found that small empowered teams leading projects substantial in scope can be extremely effective when roles are expanded, decision power is ground‐level, and there is little emphasis on defined processes. This exploratory research highlights the unique aspects of NPD within small early‐stage firms, and highlights areas of further research and management implications for both small new ventures and large established firms seeking to increase NPD efficiency and effectiveness.     

The Biodiversity Bargaining Problem

We employ cooperative bargaining theory and Nash’s ‘rational threats’ idea to cast light on the biodiversity bargaining problem. The problem of global environmental negotiations is argued to be of the nature of a bargaining problem, in which bargainers must agree on the distribution of cooperative surplus in order to move to the bargaining frontier. We discuss the importance of both efficiency (bargaining frontier) and fairness (recognition of characteristics of bargainers) in the choice of the appropriate contract. We show that the incremental cost contract, used to resolve the biodiversity bargaining problem, is of the form of an extreme point contract that fails to recognise the contributions of the South to the production of cooperative surplus. A rational response to such a contract is the use of threats of biodiversity destruction. Contracts must evince both efficiency and fairness in order to represent lasting solutions.     

Does Audit Committee Accounting Expertise Help to Promote Audit Quality? Evidence from Auditor Reporting of Internal Control Weaknesses

In this study, we examine whether audit committee accounting expertise helps to promote audit quality by motivating auditors to conduct diligent internal control audits and make appropriate internal control assessments because audit committee accounting expertise safeguards auditors from dismissal following adverse internal control opinions. Among clients with existing and likely internal control material weaknesses (as proxied by future restatements of audited financial statements), we find a greater likelihood of adverse internal control audit opinions when the audit committee has greater accounting expertise (measured by the proportion of accounting experts on the audit committee). Among all clients, we find a lower likelihood of subsequent auditor dismissal following an adverse internal control audit opinion when the audit committee has greater accounting expertise. In further analyses, we find that this lower likelihood of subsequent auditor dismissal occurs when at least two audit committee members possess accounting expertise. We also find some evidence that CFO influence (but not CEO influence) over the audit committee negates the increased likelihood of adverse internal control opinions when internal control material weaknesses likely exist, as well as the decreased likelihood of auditor dismissal following adverse internal control opinions. These findings have important implications for regulators and corporate nominating committees interested in promoting audit committee effectiveness.     

The high/low divide: Self-selection by values in auction choice

Most prior theoretical and experimental work involving auction choice has assumed bidders find out their value after making a choice of which auction to enter. We examine whether or not bidders knowing their value prior to making a choice of which among multiple alternative auction formats to enter impacts their choice decision and/or the outcome of the auctions. The results show a strong impact on auction choice. Subjects with low values choose the first price sealed bid auction more often while subjects with high values choose the ascending auction more often. The number of bidders in each auction, revenue, efficiency and average bidder surplus all end up equalized.     

Price discovery and intermediation in linked emissions trading markets: A laboratory study

Many new and proposed emissions trading systems involve multiple countries and regions. The introduction of interregional trading raises questions about how flexible state- or national-level authorities should be in allowing individual firms to trade with firms or authorities in other states or countries. This paper uses laboratory methods to evaluate the efficiency and pricing performance of linking trading across regions at the firm-to-firm level. In one treatment, individual firms trade directly with firms or authorities in other regions. We compare performance in this treatment to an intergovernmental trading treatment, where emissions trading is restricted to occur only between intermediaries. A baseline treatment of autarky, where firms only trade with other firms in their country or region, provides a benchmark to assess the efficiency benefits of allowing linking. Although efficiency and price discovery are both improved by allowing intermediation in linked permit markets, we find that further gains can be realized through direct firm to firm trading. Buyers in high cost regions and sellers in low cost regions benefit the greatest from linking.     

Exploiting old customers and attracting new ones: The case of bank deposit pricing

Recent theoretical contributions suggest that deposit interest rates should be higher in geographic areas characterized by greater in-migration and lower for depositors at banks with greater shares of existing (or so-called “locked-in”) depositors. These hypotheses are tested using a rich data set obtained for the Spanish banking industry. Results confirm that, all else equal, banks offer higher deposit rates in territories characterized by greater in-migration, and also that they tend to offer lower rates, the larger the number of their locked-in depositors. These findings confirm the existence of the trade-off between exploiting old customers and attracting new ones.     

Charter value, Tobin's Q and bank risk during the subprime financial crisis

Charter value is important in the banking industry because of its ability to reduce the moral hazard incentives that result from government-provided deposit insurance. Previous research suggests that geographic deregulation in the 1970s and 1980s increased competition and eroded charter values. Yet, a common proxy for charter value, Tobin's Q, increased significantly in the 1990s and beyond even as bank deregulation continued. We show that Tobin's Q is a poor cardinal measure of charter value though it still has merit as an ordinal measure. Our findings suggest that charter value has been declining through time, contributing to the increase in risk-taking that led to the subprime financial crisis.     

The Challenges of Climate Policy

Climate policy planners and the public should be aware of both economic challenges and arguments that may influence the intensity of the climate policies with which they have to cope. This article examines six economic challenges: cap‐and‐trade versus taxes, non‐price regulations, energy efficiency policies, mitigation versus adaptation, trade effects, and transmission planning. Three additional challenges affect the end itself: ‘fat tails’, discount rates, and whether environmental protection should be evaluated by willingness to pay. If future generations cannot compensate the present for climate policy costs, climate policy is inherently redistributive and cannot be evaluated through cost–benefit analysis alone.