Sales compensation governance: the last frontier of corporate reform

The area of sales compensation has remained relatively untouched by recent pressures for compensation reform. This article highlights some of the ways that sales organizations stumble in managing their compensation programs, and why it takes more than a simple tactical fix to address these problems effectively. The authors describe a more structured governance framework that not only identifies and resolves key sales compensation issues, but ultimately safeguards the effectiveness and financial integrity of the sales organization itself.     

Reinventing the Dutch tax-benefit system: exploring the frontier of the equity-efficiency trade-off

European governments aim to raise labour supply, cut unemployment and, at the same time, maintain social cohesion. Yet, economists have stressed the trade-off between these objectives. This paper reviews the key policy insights from optimal tax theory to identify options for reform in the tax-benefit system that can potentially improve the equity-efficiency trade-off. Using a comprehensive applied general equilibrium model, we then explore whether reforms along these lines in the Dutch tax-benefit system raise employment without sacrificing equality. The analysis reveals that selective tax relief for elastic secondary earners and low-skilled workers have this potential. A flat income tax structure, possibly combined with a negative income tax, worsens the equity-efficiency trade-off.      

Econometrical analysis of the sample efficient frontier

The efficient frontier is a parabola in the mean-variance space which is uniquely determined by three characteristics. Assuming that the portfolio asset returns are independent and multivariate normally distributed, we derive tests and confidence sets for all possible arrangements of these characteristics. Note that all of our results are based on the exact distributions for a finite sample size. Moreover, we determine a confidence region of the whole efficient frontier in the mean-variance space. It is shown that this set is bordered by five parabolas.     

Bank competition efficiency in Europe: A frontier approach

There are numerous ways to indicate the degree of banking competition across countries. Antitrust authorities rely on the structure-conduct-performance paradigm while academics prefer price mark-ups (Lerner index) or correlations of input costs with output prices (H-statistic). These measures are not always strongly correlated within or across countries. Frontier efficiency analysis is used to devise an alternative indicator of competition and rank European countries by their dispersion from a “competition frontier”. The frontier is determined by how well payment and other costs explain variations in loan-deposit rate spread and non-interest activity revenues. Overall, differences in competition appear to be small.     

Valuation of global IPOs: a stochastic frontier approach

This paper studies the impact of global offerings on US IPO firms’ offer price using the stochastic frontier approach. We find that the offer price valuation efficiency for global IPOs exceeds that of IPOs with purely domestic offers by 3.1%. In particular, the global offering approach is most appropriate to those IPO firms, which offer larger proportion of new shares to international investors, underwritten by less prestigious investment banks and with larger firm-specific return variance. Our findings are consistent with the demand inelasticity, certification effect and investor recognition arguments that account for the benefits of global offering.

Industry costs of equity: Evidence from frontier markets

Frontier markets are considered a good destination for international diversification due to their low level of integration with global markets. However, a diversification strategy into frontier markets with respect to country factors does not optimally capture their full diversification potential. Enhancing this strategy by simultaneously incorporating industry factors improves the ability to diversify portfolio risk. We investigate the industry costs of equity in frontier markets using five asset pricing models, taking into account the differences in five regions of frontier markets, namely, Africa, Eastern Europe, the Middle East, Latin America and Caribbean, and Asia. Additionally, we examine how well the explanatory factors of developed and emerging markets can explain industry returns in frontier markets. Our results precisely identified two industries in Africa, and two industries in Eastern Europe that exhibit segmentation from developed markets, and two industries in Africa and one industry in Asia show segmentation from emerging markets. However, we document the limited temporal variation in four regions of frontier markets indicating more precise estimates than US, UK, and European ones. Unlike previous studies, our findings show that the time-varying slopes in frontier markets follow a random-walk process.     

Testing for deliberate underpricing in the IPO premarket: a stochastic frontier approach

We reevaluate the IPO underpricing phenomenon using the stochasticfrontier methodology. The advantage of the stochastic frontieris that it can be used to measure the level of deliberate underpricingin the premarket without using after-market information. Thisis accomplished through the estimation of a systematic one-sidederror term that measures 'inefficiency' or the difference betweenthe maximum predicted offer price and the actual offer price.Data for the analysis are comprised of 1,035 IPOs of commonstock issued by firm commitment between 1975 and 1984. IPOsappear to be deliberately underpriced in the premarket in bothhot-market and nonhot-market periods. Moreover, the determinantsof the maximum IPO price have different effects in the two timeperiods.     

Confidentiality of student records in the electronic frontier: professors' and administrators' obligations

The Family Educational Rights and Privacy Act (FERPA) was created to provide parents and students over the age of 18 with access to education records and to limit disclosure of those records without proper consent. Recent changes in information technology and amendments to the law itself have put FERPA in a state of flux and uncertainty. In this article we describe the rights of students and obligations of professors and administrators. We provide guidance for maintaining student information, especially in light of advances in information technology. A number of recommendations are made to help protect the rights of students as well as to minimize the likelihood of violations under the Act.     

From authenticity to significance: Tourism on the frontier of culture and place

The tourism of the future will include greater demand on the part of citizens of economically emerging nations, as well as on the part of a growing number of retirement age persons in many of the more developed countries. There are important environmental, cultural, and social consequences associated with these demographic shifts. Trendsetters for the tourism of the near future are likely to be well-educated elites who are familiar with travel and comfortable in culturally diverse situations. They will have an understanding of the consequences of global economic development, and will better realize that their participation in tourism comes with a cost to communities and environments through which they pass. They will see value in tourism experiences that support principles of environmental sustainability, heritage preservation and cultural diversity, and human equality. This generation of tourists will have greater choice of travel venues and access to considerably more information on which to base their travel plans, and they will be more likely to expect travel experiences that have breadth as well as depth and that provide opportunities for self-improvement as well as leisure and entertainment.     

Confidentiality of student records in the electronic frontier: professors' and administrators' obligations

The Family Educational Rights and Privacy Act (FERPA) was created to provide parents and students over the age of 18 with access to education records and to limit disclosure of those records without proper consent. Recent changes in information technology and amendments to the law itself have put FERPA in a state of flux and uncertainty. In this article we describe the rights of students and obligations of professors and administrators. We provide guidance for maintaining student information, especially in light of advances in information technology. A number of recommendations are made to help protect the rights of students as well as to minimize the likelihood of violations under the Act.     

Market structure and the efficiency of European insurance companies: A stochastic frontier analysis

This paper is motivated by the progressive liberalisation of the European insurance market in recent years. It uses stochastic frontier analysis to estimate Flexible Fourier cost functions for European insurance companies. Separate frontiers are estimated for life, non-life and composite companies. We adopt a maximum likelihood approach to estimation in which the variance of both one-sided and two-sided error terms is modelled jointly with the frontiers. This approach allows us to simultaneously control for the impact of heteroskedasticity on the estimation of scale economies as well as estimating the effect of firm size and market structure on X-inefficiency. The study draws on Standard & Poor’s Eurothesys data set of financial reports for the period 1995 to 2001. This provides technical and non-technical accounts at year-end for life, non-life and composite insurance businesses in 14 major European countries. Our estimates suggest that over this period most European insurers were operating under conditions of decreasing costs (increasing returns to scale), and that company size and domestic market share were significant factors determining X-inefficiency. Larger firms, and those with high market shares, tend to have higher levels of cost inefficiency.     

Explaining underpricing of IPOs in frontier markets: Evidence from the Nigeria Stock Exchange

The paper provides empirical analyses of IPO underpricing on the Nigerian Stock Exchange, from the period 1990 to 2006. The results indicate an average abnormal initial day returns of 43.1%. There is evidence of long-run underperformance of 0.6%. Results from our regression model explaining initial abnormal returns for the IPOs of Nigeria show that size of firm and audit quality are important variables affecting underpricing. The results also show the presence of a non-linear relationship between the offer price and underpricing.     

Feedback trading and the ramadan effect in frontier markets

We examine the presence of the Ramadan effect in feedback trading drawing on a sample of eleven majority Muslim markets for the period of 29/6/2001 to 1/8/2016. Feedback trading is significant in several of these markets, appearing stronger outside, rather than within, Ramadan. These results hold for the full sample period, including before and after the global financial crisis raising the possibility that Ramadan’s widely documented lower volatility is related to the reduced presence of feedback trading during that month. We attribute our findings to Ramadan’s traditionally documented low volumes rendering feedback trading less feasible during that month.     

Active portfolio management with benchmarking: A frontier based on alpha

Active portfolio management often involves the objective of selecting a portfolio with minimum tracking error variance (TEV) for some expected gain in return over a benchmark. However, Roll (1992) shows that such portfolios are generally suboptimal because they do not belong to the mean-variance frontier and are thus overly risky. Our paper proposes an appealing method to lessen this suboptimality that involves the objective of selecting a portfolio from the set of portfolios that have minimum TEV for various levels of ex-ante alpha, which we refer to as the alpha-TEV frontier. Since practitioners commonly use ex-post alpha to assess the performance of managers, the use of this frontier aligns the objectives of managers with how their performance is evaluated. Furthermore, sensible choices of ex-ante alpha lead to the selection of portfolios that are less risky (in variance terms) than the portfolios that active managers would otherwise select.     

Unintended regulatory consequences: Evidence from the Korean IPOs

We examine IPOs in Korea during the period August 2000–January 2002. We conclude that the high level of underpricing in Korean IPOs is the unintended consequence of regulations designed to promote fairness. Two aspects of the regulations distort the process — an “essential price” formula that severely understates the value of the firm; and, bid exclusion rules that give investors a strong incentive to cluster their bids so as to avoid being excluded from the offering. During our sample period the rules were changed somewhat. The result was a change to gaming behavior and somewhat less underpricing.     

Capital controls,competitive depreciation,and the technological frontier

This paper considers the internal and external welfare effects of international capital controls and real exchange rate undervaluation in a multi-country setting. I present a dynamic open-economy macro model with an endogenously determined rate of interest on internationally traded assets. All countries produce tradable and nontradable goods using technology that converges over time to a global frontier. The model quantifies the welfare effects of the unilateral implementation of capital controls that depreciate the real exchange rate in economies both already at and converging to the technological frontier. For developing economies, I demonstrate that such government interventions may constitute “beggar-thy-neighbor” policies.     

Idiosyncratic risk and expected returns in frontier markets: Evidence from GCC

We investigate the pricing of idiosyncratic volatility of seven frontier markets in six GCC countries. We find a significant (marginal) negative relationship between expected returns and lagged idiosyncratic volatility for individual stocks in Saudi Arabia (Qatar) but none in Kuwait and Abu Dhabi. However, when we estimate conditional idiosyncratic volatility either by EGARCH or AR Models, the relationship turns positive. Introducing unexpected idiosyncratic volatility as an explanatory variable to control for any unexpected returns uncovers the true relationship between expected idiosyncratic volatility and expected returns. The evidence turns out to be robust for return reversals and other control variables. Moreover, the pricing of idiosyncratic risk is less evident in higher country governance and seems to be unrelated to the degree of financial development.