Motivating Through Delegating Tasks or Giving Attention

An important role of managers is to motivate subordinates. Monetaryrewards have been the focus of economic analysis. Managers alsouse other means to influence subordinates. If a manager canbetter assess the subordinate's ability than the subordinatehimself, and if ability and effort are complements, the managerfinds it hard not to overstate a junior's ability. Talk is cheap.We analyze under what conditions a manager can use organizationalpractices such as delegation and the selective provision ofattention to credibly communicate his assessment. We comparetheir desirability. Delegation is preferable in case the manager'sassessment is fairly accurate; attention is inescapable if itis inaccurate.     

Persistence of Output Fluctuations Under Different Exchange Rate Regimes

In a recent paper, Giugale and Korobow (2000) present evidence that suggests that the time required by output to return to trend following a financial shock is faster under a flexible exchange rate regime than under a fixed exchange rate. In this paper, we use vector autoregression models to measure the persistence properties of output for a number of countries in the Asia–Pacific region. Our results suggest that output persistence is not uniquely related to a country's choice of exchange rate regime. The two countries in our sample with the least persistent output following a financial shock are Australia, where the exchange rate is fully flexible, and Hong Kong, where it is rigidly fixed via a currency board.     

Chinese Walls in German Banks*

Analysts in a bank’s research department cover firms that have no relationship with the bank as well as companies in which the bank has a strategic interest. Officially, banks must establish Chinese Walls around their research departments to allow the analysts to work independently and to avoid the flow of insider information. We examine analyst behavior under long-term bank-firm relationships using ownership data and analysts’ earnings per share forecasts for German companies from 1994 to 2001. We find evidence that is consistent with analysts reconciling their employers’ interests with their own career concerns. They seem to use their information advantage strategically by releasing favorable and thereby more precise reports when the market underestimates earnings. In order not to jeopardize the bank-client relationship, they suppress negative information when the market is too optimistic. Combining situations where the market over- and underestimates earnings, we can replicate the unconditional positive bias in analyst forecasts found in the previous literature. Despite the bias in affiliated analysts’ forecasts, they nonetheless selectively communicate valuable information to investors. *We gratefully acknowledge the contribution of I/B/E/S International Inc. for providing earnings per share forecast data. This data has been provided as part of a broad academic program to encourage earnings expectations research. We thankfully acknowledge financial support from the Austrian National Bank (OeNB) under the Jubil?umsfonds grant number 8523. We thank Werner Antweiler, Michael Halling, Helmut Elsinger, Evelyn Hayden, Greg Hebb, Cornelia Kullmann, Kai Li, Colin Mayer, Stefan Pichler, Duane Seppi, Alex Stomper, Neal Stoghton, Michael Stutzer, Suresh Sundaresan, Yishay Yafeh, Josef Zechner, Christine Zulehner, an anonymous referee, and seminar participants at UBC, the Northern Finance Association meetings, the Western Finance Association meetings, and the European Finance Association meetings for helpful comments and Eva Smolen for excellent research assistance.     

In Defense of Boards

It is often assumed that bad corporate performance means a bad CEO. The task of a board of directors is then simple: dismiss the executive. If it fails to do so, the board is said to be indolent. We take a kinder approach to observed board behavior and point to the problems even well-intended boards would encounter. They face the twin task of disciplining and screening executives. We analyze the nature of the retention contract a board uses to discipline and screen executives. Consistent with empirical observation, we find that executives may become overly active to show their credentials, and that the link between bad performance and dismissal is weak.