Greenmail premia, board composition and management shareholdings

This paper investigates the association between premia paid in targeted share repurchases (greenmail) and the characteristics of the boards of directors. A nonlinear relationship is found between the premium paid and the proportion of shares held by the inside directors. The premium decreases as the proportion of unaffiliated outside directors increases.     

Income risk and farm consumption behavior

Using panel data from Illinois grain farmers, a direct test of the relationship between income risk and farm consumption behavior is conducted. The estimation results indicate that income risk significantly affects farm consumption and the results are robust using alternative risk measures. This finding casts doubt on the relevance of the conventional life-cycle permanent income hypothesis, which implies that risk has no effect on consumption.     

The Polycentric Character of Business Ethics Decisionmaking in International Contexts

Many ethical issues facing managers of multinational corporations are polycentric problems. That is, they involve a number of distinct centers -- each of which define rights and obligations of a multiplicity of affected parties -- and resolving matters around one center typically creates unpredictable repercussions around one or more of the other centers. Polycentricity is a normative phenomenon especially unsuited for adjudication, often requiring recourse to alternative processes of contract (or reciprocal adjustment) and managerial direction. This study explores how such concerns about the limits of adjudication (and its various moral counterparts) apply to international decisionmaking connected to human rights obligations of multinational companies. The focus is on ethical problems such as controlling child labor in LDCs such as Bangladesh, India and Pakistan; setting wages in developing countries like Honduras; and conducting business transactions with rights-violating regimes, such as the governments of Nigeria and Myanmar.     

Nonparametric Estimation of Returns to Scale: Method and Application

The paper describes a method of estimating variable returns to scale in production that adaptively fits spline functions, using model selection criteria, to determine the appropriate number and location of break points for a fixed factor of production. Unlike other approaches, the method obtains nonparametric estimates of variable returns to scale for small samples while ensuring global curvature and flexibility properties are maintained. An application of the method is presented using data from the British Columbia sablefish fishery.
Les auteurs décrivent une méthode d'estimation des variations de rentabilité en fonction de l'échelle de production susceptibles de s'ajuster è des fonctions spline, utilisant des critéres modèles de sélection pour déterminer le nombre et la situation des seuils de rentabilité pour unfacteur de production fixe. À la différence d'autres avenues d'analyse, la méthode permet d'obtenir des valeurs non paramétriques de la rémunération variable selon l'échelle, è partir de petits échantillons, tout en garantissant le maintien de la courbure générale et de la souplesse d'application. Les auteurs proposent une application de la methode, utilisant les données des pêches de morue charbonnière en Colombie-Britannique.     

Expectations Formation and Business Cycle Fluctuations: An Empirical Analysis of Actual and Expected Output in UK Manufacturing, 1975–1996

Direct measures of expectations, derived from survey data, are used in a Vector Autoregressive (VAR) model of actual and expected output in eight industries in the UK manufacturing sector. No evidence is found with which to reject rationality in the derived expectations series when measurement error is appropriately taken into account. The VAR analysis illustrates the importance of intersectoral interactions and business confidence in explaining the time profile of industrial outputs, examines the mechanisms by which shocks are propagated across sectors and over time and investigates the relative importance of sectoral and aggregate shocks of different types.     

Editorial

This July 2012 edition of Public Money &; Management publishes a range of articles debating matters of interest to academics and practitioners working in the provision of public services. The efficient use of public resources is a recurrent theme in our journal and this is reflected in different ways in this edition.     

Trust and development

In this paper we examine linkages between social trust and economic development using, for the first time, a panel of data. We confirm earlier cross-sectional studies finding that trust is a significant factor in development and also show for the first time that trust significantly interacts with both investment in physical and human capital. We provide a robustness analysis of our results via a set of jackknife experiments on our main equations, and the trust coefficients and interactions are very tightly distributed, indicating that the results are not highly sample dependent. We also consider whether trust directly influences investment and find that in a panel framework it does not unless we allow for a trust–education interaction in the investment equation.     

The Effect of Data Breaches on Shareholder Wealth

Many companies face the risk of a data breach exposing stored personal information of customers and employees. The frequency of such incidents has been increasing over time and can result in significant costs for the affected firm. This article examines the stock market's assessment of the cost of data breaches at publicly traded companies in which personal information such as customer and/or employee data are exposed. Using event study methodology on a sample of 77 events between the beginning of 2004 and the end of 2006, we find that the overall effect of a data breach on shareholder wealth is negative and statistically significant. Based on a cross-sectional analysis of the cumulative abnormal returns, we find a negative association between market reaction and firms that are less forthcoming about the details of the breach. We also find that firms with higher market-to-book ratios experience greater negative abnormal returns associated with a data breach. Further, we find that firm size and subsidiary status mitigate the negative effect of a data breach on the firm's stock price and that the negative market reaction to a data breach is more significant in the most recent time periods of the sample.