Choosing to Cofinance: Analysis of Project-Specific Alliances in the Movie Industry

We use a movie industry project-by-project dataset to analyzethe choice of financing a project internally versus financingit through outside alliances. The results indicate that projectrisk is positively correlated with alliance formation. Moviestudios produce a variety of films and tend to develop theirsafest projects internally. Our findings are consistent withinternal capital market explanations. We find mixed evidenceregarding resource pooling, i.e., sharing the cost of largeprojects. Finally, the evidence shows that projects developedinternally perform similarly to projects developed through outsidealliances.     

The Impact of Capital Requirements and Managerial Compensation on Bank Charter Value

This paper examines the joint impact of capital requirements and managerial incentive compensation on bank charter value and bank risk. Most of the previous literature in the area of banking and agency theory has focused on asymmetric information between either banks and regulators, (and therefore on the role of bank capital), or between bank shareholders and bank managers, (and therefore on the role of managerial ownership). In this paper we unify these issues and present empirical results from the regression of capital requirements jointly with measures of incentive compensation on Tobin's Q, our proxy for bank charter value, and on the standard deviation of total return, our proxy for bank risk. In a sample of 102 bank holding companies we find that capital levels are consistently a significant positive factor in determining bank charter value and a significant negative factor in determining risk. On the other hand, we find our six measures of incentive compensation to be generally insignificant relative to charter value but do provide some evidence consistent with a theory relating types of incentive compensation with risk.     

Managerial ownership and firm performance: A re-examination using productivity measurement

The role of productivity in firm performance is of fundamental importance to the US economy. Consistent with the corporate finance approach, this paper uses the ownership stake of a firm's managers as an argument in estimating the firm's production function. Accordingly, this paper brings together the corporate finance and productivity literature. Using a large sample of randomly selected manufacturing firms that does not suffer from any survivorship or large firm size biases, we find that managerial ownership changes are positively related to changes in productivity. We also find a higher sensitivity of changes in managerial ownership to changes in productivity for firms who experience greater than the median change in managerial ownership. These results are robust to including lagged estimates of production inputs, year dummies and separate dummies for each firm to control for unobservable firm characteristics. In addition, we find that the stock market rewards firms with increases in firm value when these firms increase their level of productivity.     

Changing multinational corporation — nation state relationship: The case of IBM in India

During 1977, IBM was asked to withdraw from India due to its unwillingnesss to comply with the Foreign Exchange Regulation Act (FERA) of 1973. However, with (1) the signing of Memorandum of Understanding between the U.S. and India, (2) the easing of trade restrictions by the Government of India against foreign firms, (3) the declining value of the U.S. dollar, (4) the slump in the U.S. computer market, (5) the rapid growth in the Indian computer market, and (6) changes in other environmental factors, IBM again began actively seeking and securing new business. By the mid-1980s, IBM had secured a number of large contracts and was on the verge of re-entry into the burgeoning Indian computer market.The purpose of this study is to examine the underlying factors that influence both the divorce and reunification between host country government and the multinational corporation. The study, conducted through personal interviews with chief executives of IBM, government officials, and other knowledgeable persons, examines the social-political aspects of the FERA and its implications for multinationals in India and elsewhere in developing countries.     

Are Initial Returns and Underwriting Spreads in Equity Issues Complements or Substitutes?

The objective of this paper is to analyze the joint behavior of underwriting spreads and initial returns on equity issues for a large sample of issues over a 21-year period. Traditional empirical approaches to the determination of these direct and indirect issuing costs view them as independent. Using a three-stage least squares approach, we find these costs to be positively and significantly related. In the case of seasoned equity offerings, our results are robust to replacing initial returns with the offer price discount. We also find that low quality issuers are charged higher underwriting spreads and initial returns when compared to high quality issuers.     

Securitizing Accounts Receivable

This paper provides an optimal contracting framework to determine the equilibrium structure of receivables securitization in the presence of moral hazard. An incentive compatible contract is designed where the seller monitors at an efficient level and retains an equity interest in a portion of the receivable to be sold. The seller retains the riskier tranches and sells the safer ones. The equilibrium proportion of the receivable sold will be increasing with the seller's cost of internal funding. Moreover, for sellers with sufficiently high ex-ante probabilities of solvency, the equilibrium proportion of the receivable sold will be decreasing with the seller's probability of solvency.     

The Endogeneity of Managerial Compensation in Firm Valuation: A Solution

Much of the empirical literature that has examined the functionalrelationship between firm value and managerial ownership levelsassumes that managerial ownership levels are exogenous and arethe only component of managerial compensation related to firmperformance. This assumption is contrary to the theoreticaland empirical literature wherein managerial compensation isendogenously determined and includes both shares and options.Using instruments for managerial compensation and panel datato control for unobservable heterogeneity in the firm's contractingenvironment, we estimate a system of simultaneous equations.We find that firms are in equilibrium when they endogenouslyset their chief executive officer's compensation.     

Recent trends in Australian countertrade: A cross-national analysis

This paper presents and analyses data on recent trends in both voluntary and government-mandated countertrade in Australia. The analysis reveals that compensation is the most frequently used form of countertrade. The USSR and the PRC are the major nations involved. The primary category of Australian imports are capital goods. Inputs and capital goods are the major categories of Australian exports. Both Australian imports and exports are primarily finished products. Aerospace products, computer software systems, and hardware components are the major categories of civil offsets. The aerospace and weapons-related industries are the major categories of defence offsets. A familiarity with recent trends in Australian reciprocal trade will enable international marketing managers to identify and take advantage of emerging opportunities in the Australian marketplace.     

Founders versus non-founders in large companies: financial incentives and the call for regulation

This paper is intended to question some of the premises in the ever increasing calls to regulate executive pay. We focus on founders, and extend Shleifer and Vishny’s (1989, Journal of Political Economy, 94, 461–488) manager-specific investments model by explicitly modeling managerial effort and pay performance sensitivity. Tests of this model on a data set of large companies, controlling for the endogeneity of managerial compensation, indicate that founders tend to be less responsive to performance incentives and generally more entrenched. At the same time, founders’ led firms are more valuable, supporting our predictions. This suggests that for founders, regulation of compensation may not be very effective.