Long-Term Financing Decisions: Views and Practices of Financial Managers of NYSE Firms

This paper reports the findings of a 1990 survey of a sample of NYSE firms conducted to learn about the managerial opinions and practices with respect to longterm financing decisions. Relying on a hierarchy of financing sources is discovered to be a far more common practice among the sample firms than maintaining a target capital structure. The risk-return dimensions of the investment being financed are found to be the most important inputs in determining financing decisions. In spite of the perceived lack of fairness in the market pricing of their securities, the sample firms do not report making financing decisions to signal a need for reevaluation of their securities. Financial managers display a much greater flexibility with capital structure decisions than with either dividend policy decisions or investment decisions. The firms which attempt to maintain target capital structures are found to perceive the average debt ratios in their respective industries to be important determinants of their own debt ratios. The firms which follow financing hierarchies on the other hand, are found to view their firms' past profits and past growth to be important determinants of their debt ratios.     

Partially suppressed markets: Controls,rent seeking and the cost of protection in the indian sugar industry

Zusammenfassung Partiell beschr?nkte M?rkte: Kontrollen, “ent seeking” und Protektionskosten der indischen Zuckerindustrie. -Dieser Aufsatz untersucht den indischen Zuckermarkt, der durch partielle Kontrollen und eine dualistische Preisbildung gekennzeichnet ist. Die aus der empirischen Analyse gewonnenen Sch?tzungen der Nachfrageund Angebotselastizit?ten werden benutzt, um die üblichen Protektionskosten der Produktion und des Konsums zu sch?tzen sowie die weniger konventionellen Kosten des “ent-seeking” à la Tullock. Diese Kosten deuten auf gro?e Effizienzverluste hin, die eintreten, wenn alle durch Kontrollen hervorgebrachten Renten durch kompetitives “ent-seeking” hinwegkonkurriert werden. Diese Kosten lagen in einigen Jahren zwischen Null und 55 vH des Wertes der Zuckererzeugung, woraus sich ergibt, da? Protektionskosten plus “nt-seeking” insgesamt in einigen Jahren sogar Wohlfahrtsverluste erbracht haben. Angesichts solch gro?er Verluste kann die politische ?konomie fortgesetzter Kontrollen der indischen Zuckerindustrie nur im Rahmen der Public-Choice-Theorie verstanden werden.

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Résumé Marchés partiellement supprimés: contr?les, ?rent-seeking? et les frais de protection de l’industrie indienne sucrière. -Dans cet article l’auteur analyse le marché indien sucrier sous des conditions des contr?les partiels et de la détermination de prix dual. Il applique des estimations d’élasticité de demande et d’offre obtenues de l’analyse empirique pour estimer les frais conventionnels de production et de consommation de la protection et les frais inconventionnels de ?rent-seeking? à la Tullock. Les derniers frais indiquent des grandes pertes d’efficience si toutes les rentes générées par les contr?les sont actuellement entra?nées sous un ?rent-seeking? compétitif. Ces frais rangent entre zéro et à peu près 55 pourcent de la valeur de production sucrière dans certaines années et cela indique que dans quelques années les frais de protection plus ?rent-seeking? ont résulté dans une valeur totale négative en termes de bien-être. En vue de ces grandes pertes de bien-être, l’économie politique de la continuation des contr?les dans l’industrie indienne sucrière ne peut être comprise que dans le contexte de la théorie du choix publique.

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Resumen Mercados parcialmente suprimidos: controles, ?rent seeking? y el costo de la protection en la industria azucarera de la India. -En este trabajo se analiza el mercado del azúcar en la India bajo condiciones de control y precios duales. Se utilizan estimaciones de elasticidades de demanda y oferta obtenidas del análisis empírico para estimar el costo de la protección por el lado de la producción y del consumo de la manera convencional como también según el método no convencional de Tullock para obtener el costo del ?rent seeking?. Este último indica importantes pérdidas de eficiencia si todas las rentas generadas por los controles desaparecen bajo un ?rent seeking? competitivo Estos costos son del orden del 0 al 55 % del valor de la producción de azúcar en ciertos a?os, lo cual significaría que en algunos a?os el costo de la proteccion más el del ?rent seeking? podrían haber contribuído a un valor total negativo en términos de bienestar. Dadas estas importantes pérdidas de bienestar, la economía política de una continuation de los controles en el industria azucarera de la India sólo puede ser comprendida en el contexto de la teoría del ?public choice? y la captura de regulaciones por los regulados.

     

Does the use of peer groups contribute to higher pay and less efficient compensation?

We provide empirical evidence on how the practice of competitive benchmarking affects chief executive officer (CEO) pay. We find that the use of benchmarking is widespread and has a significant impact on CEO compensation. One view is that benchmarking is inefficient because it can lead to increases in executive pay not tied to firm performance. A contrasting view is that benchmarking is a practical and efficient mechanism used to gauge the market wage necessary to retain valuable human capital. Our empirical results generally support the latter view. Our findings also suggest that the documented asymmetry in the relationship between CEO pay and luck is explained by the firm's desire to adjust pay for retention purposes and is not the result of rent-seeking behavior on the part of the CEO.     

Boards: Does one size fit all?

This paper reexamines the relation between firm value and board structure. We find that complex firms, which have greater advising requirements than simple firms, have larger boards with more outside directors. The relation between Tobin's Q and board size is U-shaped, which, at face value, suggests that either very small or very large boards are optimal. This relation, however, arises from differences between complex and simple firms. Tobin's Q increases (decreases) in board size for complex (simple) firms, and this relation is driven by the number of outside directors. We find some evidence that R&D-intensive firms, for which the firm-specific knowledge of insiders is relatively important, have a higher fraction of insiders on the board and that, for these firms, Q increases with the fraction of insiders on the board. Our findings challenge the notion that restrictions on board size and management representation on the board necessarily enhance firm value.     

Public inputs and the credit market

This paper studies the impact of public goods provision in an adverse selection environment. Public inputs used collectively by firms have indirect spillovers in imperfect credit markets by affecting the random returns of borrowers in this market. Public inputs change the nature of the binding incentive constraint and mitigate distortions in the credit market. The magnitude of such indirect benefits depends upon the ‘type’ of the public input being considered. Public inputs targeted to benefit the less-efficient borrowers in the economy have greater indirect benefits as compared to pure public inputs that benefit all. These additional efficiency gains, emerging out of information-asymmetries in the credit market, should be considered in the cost-benefit analysis of such public inputs. JEL Classification: H4 · D8 · O16     

Medical resource utilization and costs for total hip arthroplasty: benchmarking an anterior approach technique in the Medicare population

Aims: The anterior approach (AA) for total hip arthroplasty (THA) is associated with more rapid recovery when compared to traditional approaches. The purpose of this study was to benchmark healthcare resource utilization and costs for patients with THA via AA relative to matched patients.

Materials and methods: This study queried Medicare claims data (2012–2014) to identify patients who received THA via an AA from experienced surgeons, and matched these patients to a control cohort (all THA approaches). Direct and propensity-score matching were employed to maximize similarity between patients and hospitals in the two cohorts. Hospital length of stay (LOS), the proportion of patients discharged to home or home health, and post-acute claim payments during the 90-day episode were assessed. Generalized estimating equations were applied to control for imbalances between the cohorts and clustering of outcomes within hospitals.

Results: A total of 1,794 patients were included after patient matching. Patients who received AA had significantly lower mean hospital LOS vs patients in the control group (2.06?±?1.36 vs 2.98?±?1.58 days, p?<?.0001). The adjusted proportion of patients discharged to home was nearly 20 percentage points higher in the AA cohort vs the control cohort (87.3% vs 68.7%, p?<?.0001). Post-acute claim payments for AA patients were nearly 50% lower than those for control patients ($4,139 vs $7,465, p?<?.0001).

Conclusion: AA patients had significantly lower post-acute care resource use when compared to control patients. Further research is warranted to evaluate the cost effectiveness of AA among surgeons of varying experience levels.     

Managerial incentives and risk-taking

We provide empirical evidence of a strong causal relation between managerial compensation and investment policy, debt policy, and firm risk. Controlling for CEO pay-performance sensitivity (delta) and the feedback effects of firm policy and risk on the managerial compensation scheme, we find that higher sensitivity of CEO wealth to stock volatility (vega) implements riskier policy choices, including relatively more investment in R&D, less investment in PPE, more focus, and higher leverage. We also find that riskier policy choices generally lead to compensation structures with higher vega and lower delta. Stock-return volatility has a positive effect on both vega and delta.