The Use of Debt to Prevent Short-Term Managerial Exploitation

This paper emphasizes the versatility of debt by presenting a setting in which debt is used to assuage a manager. Our result is driven by the option-like feature of shareholder ownership in the presence of debt and the detrimental effect of diversification (reduced volatility) on option value. The diversification effect is introduced in our model when the shareholders use a “portfolio of managers” over the firm’s life. In contrast, retaining the existing manager is a riskier strategy. Debt makes this risky strategy desirable for the shareholders and, thus, serves to commit them to be more patient in firing decisions. Viewed broadly, the paper stresses the interaction between capital structure, information system design, and control systemsWe thank C.D. Aliprantis (Editor), Tim Baldenius, Joel Demski, Ron Dye, John Fellingham, Hans Frimor, Ronen Israel, Chandra Kanodia, Brian Mittendorf, James Peck, Doug Schroeder, Lixin Ye, workshop participants at Carnegie Mellon, Columbia University, Ohio State University, and the European Summer Symposium in Financial Markets, and two anonymous referees for helpful comments. Anil Arya gratefully acknowledges assistance from the John J. Gerlach Chair     

A Test for Symmetry with Leptokurtic Financial Data

Most of the tests for symmetry are developed under the (implicitor explicit) null hypothesis of normal distribution. As is wellknown, many financial data exhibit fat tails, and thereforecommonly used tests for symmetry (such as the standard test based on sample skewness) are not valid fortesting the symmetry of leptokurtic financial data. In particular,the test uses third moment, which may not be robust in presence of gross outliers. In this article wepropose a simple test for symmetry based on the Pearson typeIV family of distributions, which take account of leptokurtosisexplicitly. Our test is based on a function that is boundedover the real line, and we expect it to be more well behavedthan the test based on sample skewness (third moment). Resultsfrom our Monte Carlo study reveal that the suggested test performsvery well in finite samples both in terms of size and power.Simulation results also support our conjecture of the teststo be well behaved and robust to excess kurtosis. We apply thetest to some selected individual stock return data to illustrateits usefulness.     

Competitive capitalism and cooperative labor management in a dynamic nutshell

Competitive capitalism and co-operative labor management are both formulated as differential games: The former, as a game between capitalists and workers, and the latter as one between an elected council and workers. The two systems are compared against the background of neoclassical optimal growth theory, at their respective equilibria and in terms of their rates of approach toward these states, all within a dynamic “nutshell” model extended from the static one of Dirickx and Sertel (1979).     

The effect of scale and mode of ownership on the financial performance of the Turkish banking sector: results of a DEA-based analysis

Turkey and the International Monetary Fund (IMF) agreed to a stand-by arrangement at the outset of 2000. Consequently, Turkey implemented an exchange-rate based stabilization program to combat its high inflation. However, two financial crises followed: one in November, 2000 and the other in February, 2001. As the result some banks became problematic. This necessitated restructuring of the banking sector to increase its financial efficiency.This paper presents a financial performance index for commercial banks. The index allows one to observe the effects of scale and of the mode of ownership (public/domestic, private/domestic/foreign) on bank behavior and, therefore, on bank performance in a developing economy. It documents the effects of financial liberalization, cross-country movements, and the impact of financial crises originating in neighboring countries e.g. Russia. The study applies Data Envelopment Analysis (DEA) to selected fundamental financial ratios using 1989-99 data from commercial banks in Turkey. Year-by-year results explain the effects on this sector of major shifts in both national macro-economic policy and various international developments. The banks that were taken over by the regulatory government agency most recently in the analyzed period were observed to perform poorly with respect to their DEA performance index values.     

Managerial incentives for undertaking exchange offers

This paper empirically examines management's motivation to convey information regarding firm value through exchange offers. We report a positive relation between stock price reactions to announcements of exchange offers and managerial stockholdings, and a weak negative relation with salary plus bonus. These findings are consistent with the incentives required for managers to signal firm value through exchange offer-induced leverage change.     

Efficient tests for normality,homoscedasticity and serial independence of regression residuals

We use the Lagrange multiplier procedure to derive efficient joint tests for residual normality, homoscedasticity and serial independence. The tests are simple to compute and asymptotically distributed as χ².     

Nutrients: Impacts and Determinants

Understanding the determinants of nutrient intake and the influenceof nutrition on performance is critical in designing policiesto alleviate hunger and malnutrition. A series of studies undertakenby the authors, which are synthesized here, analyzes the influenceof prices, income, and women's schooling on the nutrient intakeof those in developing countries and the effect of nutritionon health, productivity, wages, and fertility. These studiessuggest that the impact of food price increases may be strong,particularly among those with the lowest incomes, that the growthof income may be less likely to improve nutrient intake thanhas been suggested by others, and that women's schooling isimportant in improving nutrition. These studies also indicatethat nutrition exerts a positive influence on wages, productivity,and fertility. Our limited knowledge of the role and determinantsof nutrition is reflected in the finding of unduly strong effectsof seasonality on price-nutrition relations and the lack ofa direct association between nutrition and health.