The Role of Principal-Agent Conflicts in the 1980s Thrift Crisis

Agency theory suggests that many of the costs incurred by the taxpayer during the 1980s thrift crisis were the result of conflicts between principals and their agents. This study models the costs associated with three distinct types of agency conflicts involved in closing an insolvent thrift—conflicts between creditors and owners, between owners and managers, and between taxpayers and government officials. Using a model that controls for sample-selection bias, the study presents strong evidence that thrift owners effected wealth transfers from creditors by undertaking high-risk investments, and that government officials pursued policies that increased losses to the thrift deposit insurance fund which ultimately were funded by the taxpayer. The results do not show that managers effected wealth transfers from owners through expense-preference behavior, but rather that inefficient management increased the losses of the deposit insurance fund.     

Do foreign entrepreneurs benefit their firms as managers?

Research summary: The entrepreneurship literature has extensively studied an individual's decision to found a new venture, but it has little to say about the individual's choice to operate this venture personally or hire an agent. This decision is particularly challenging for foreign entrepreneurs, who, in addition to traditional factors, such as agency costs and personal preferences, need to take into consideration the benefits and liabilities of foreignness. Using novel data on foreign entrepreneurial firms and instrumenting for the owner‐manager choice with a visa policy change, we find that managing foreign entrepreneurs significantly improve firm performance. Our results further suggest that foreign owner‐managers reduce operating costs but have no effect on the firm's productivity and growth. Managerial summary: Immigrants represent a significant part of the population in the United States and Europe and are often more entrepreneurial than local nationals. However, a person starting a firm in a foreign country faces unique challenges. One important choice that a foreign entrepreneur has to make is whether to operate the firm personally or hire a local agent. Foreign entrepreneurs are often believed to be worse managers because they have limited local knowledge and skills. However, our results point to the contrary: We find that managing foreign entrepreneurs significantly improve firm performance by decreasing firms' operating costs. This happens because foreign owner‐managers often have access to unique resources, higher work incentives, and superior management skills acquired at home. Copyright © 2016 John Wiley & Sons, Ltd.     

The effects of funding source and management ownership on the productivity of R&D

This study investigates the influence of the source of R&D funds and management ownership on R&D productivity. The lagged effect of the source of R&D funds on R&D output is investigated for a sample of US manufacturing firms in five industries over the 1996–99 period. Estimates based on 779 firm-years show that R&D productivity increases with the proportion of stock held by managers and directors of firms primarily in the Other Electronics industry. The estimates also show that recipients of government-sponsored R&D funds in the Chemicals industry have lower levels of output (sales) for each dollar committed to R&D. In addition, output for firms in the Chemicals industry worsens as management stockholding increases, implying an agency cost rationale for the observed difference in output. The implication is that firms with high manager-owner content are less productive with government-sponsored R&D than with company-financed R&D. The reported results suggest that potential agency costs should be incorporated in government-sponsored R&D contracts. It also suggests that the source of R&D funds should be disclosed and incorporated into the valuation of intangible assets attributable to research and development.     

Managerial Incentives: Implications for the Financial Performance of Real Estate Investment Trusts

In the face of informational asymmetry, REIT equity investors may bear the costs of agency. Hence, it is in shareholders' interests to pay incentive fees to induce managers to utilize their superior information and to take suitable actions that reduce these costs. In this paper, the relation between financial performance and fees paid, and between fees paid and contractual incentives, are examined to determine whether equityholder interests are being served by the decisions of REIT managers. The data reveal that fees paid and financial performance are positively related, indicating that financial performance is at least partially endogenous with respect to managerial action. Moreover, the evidence also suggests that the industry fee structure has changed over the period in a manner that appears to have reduced the agency costs borne by equityholders, and by the end of the sample period the fees paid in general seem to reflect incentives that are consistent with the wealth maximization goal of equityholders.     

Corruption in PPPs,incentives and contract incompleteness

We analyze risk allocation and contractual choices when public procurement is plagued with moral hazard, private information on exogenous shocks, and threat of corruption. Complete contracts entail state-contingent clauses that compensate the contractor for shocks unrelated to his own effort. By improving insurance, those contracts reduce the agency cost of moral hazard. When the contractor has private information on revenues shocks, verifying messages on shocks realizations is costly. Incomplete contracts do not specify state-contingent clauses, thereby saving on verifiability costs. This makes incomplete contracts attractive even though they entail greater agency costs. Because of private information on contracting costs, a public official may have discretion to choose whether to procure under a complete or an incomplete contract. When the public official is corrupt, such delegation results in incomplete contracts being chosen too often. Empirical predictions on the use of incomplete contracts and policy implications on the benefits of standardized contracts are discussed.     

Inside Ownership, Risk Sharing and Tobin's q-Ratios: Evidence from REITs

We investigate relations among inside ownership, managerial expenses, risk sharing and equity valuations. Our engine of analysis—Real Estate Investment Trusts (REITs)—provides a unique and rich framework for analysis since we can calculate extremely accurate measures of asset replacement costs, and hence relative valuation (Tobin's q ). Further, the nature of the financial statements allows us to examine the impact of insider ownership on agency costs since we can accurately measure the costs of the entire management team. Our results show that firms with greater insider holdings tend to invest in assets with lower systematic risk and use less debt in their capital structure. At the same time, managerial expenses are lower as inside ownership increases. Finally, higher levels of insider ownership are associated with higher relative valuation as measured by both higher premiums to net asset value and higher multiples of cash flows. The results have implications for the design of optimal management contracts for both REITs and firms in general.     

The choice of organizational form: Vertical financial ownership versus other methods of vertical integration

Vertical integration is a fundamental corporate strategy of interest to the fields of strategic management and organizational economics. This paper synthesizes theoretical arguments and empirical findings from this literature to identify the underlying advantages and disadvantages of choosing vertical financial ownership relative to vertical contracts. It then suggests that in the absence of agency and transaction costs, vertical financial ownership and vertical contracting are equivalent governance structures for achieving corporate objectives. However, given a world of positive agency and transaction costs, the key theoretic question then becomes predicting when market mechanisms are sufficient, when intermediate forms of vertical contracting become necessary, and when vertical financial ownership becomes the preferred governance structure. The concluding section of the paper provides a framework for making this analysis based on a synthesis of agency and transaction costs perspectives.     

Restructuring diversified telecom operators

The paper examines restructuring cycles among diversified major telecom operators from two different perspectives, the governance deficiency perspective of agency theory and the governance efficiency perspective of transaction cost economics, the former being less consistent with the spirit of recent pro-competitive regulatory reforms than the latter. This restructuring cycle describes how incumbent operators grew larger and more diversified during the telecom boom before they were transformed into more efficient scale and scope either by economizing managers or by market forces along with actively intervening owners and bondholders during the subsequent telecom bust. A cycle whose expansion phase is characterized by highly acquisitive companies expanding into non-related activities followed by a delayed contraction phase where overdiversified companies are being restructured by market forces and intervening owners and bondholders is consistent with the reform-non-compliant governance deficiency thesis of agency theory. A cycle whose expansion phase is characterized by acquisitive companies expanding into related activities followed by a contraction phase where companies are restructured by their own managers after having realized that previously acquired assets have become more redeployable and their services more tradable is consistent with the reform-compliant governance efficiency thesis of transaction cost economics. Now, in the aftermath of the contraction phase of the business cycle, more narrowly focused incumbents are once again ready for another round of acquisitive expansion. Anecdotal evidence from five restructuring cases, along with available secondary information about the development of the industry, seems to support the reform-noncompliant governance deficiency thesis of agency theory rather than the reform-compliant governance efficiency thesis of transaction cost economics.     

顾客集中与管理层治理——基于薪酬契约和代理成本的视角

本文以创业板上市公司为研究样本，从薪酬契约和代理成本的视角，检验了顾客集中与管理层治理的关系。实证分析结果显示，顾客集中度与高管薪酬和代理成本存在显著负相关关系。结果表明：顾客集中显著影响公司薪酬契约，顾客集中降低了高管薪酬；顾客集中降低代理成本，减轻管理层代理冲突问题。这些研究结论丰富了公司治理的理论内容，同时对于缓解公司代理冲突、改善公司治理矛盾具有重要的现实意义。     

Owners on both sides of the deal: mergers and acquisitions and overlapping institutional ownership

Using a corporate governance lens, this study considers owners with a stake in both the acquiring and the target firms in the context of mergers and acquisitions. A possible agency problem arises with regard to monitoring implications as managers may be able to take advantage of compromised monitoring because overlapping owners may focus on the aggregate value for both the acquiring and the target firms and nonoverlapping owners may be interested only in the acquirer's side of the deal. The results suggest that when more owners overlap in their ownership of both the acquiring and target firms, the acquiring firms are more likely to experience decreased shareholder value through merger and acquisition deals. This effect, however, can be constrained by stronger board control. Copyright © 2010 John Wiley & Sons, Ltd.     

Cooperating with competitors: Patent pooling and choice of a new standard

I examine the efficiency of patent pooling in a setting that allows for the interplay between the standards process, in which owners of essential intellectual property (IP) develop a new product, and the subsequent pooling decision, in which IP prices are coordinated. If one of the IP owners is also the incumbent of a product that employs the current competing standard – referred to as overlapping ownership – then the relationship among the IP owners will be both vertical through their IP, and horizontal through their competing interests in the final products. Consumers are better off when IP owners cooperate, even when these owners are effectively competitors, because of lower prices and greater product variety. Consumers prefer, however, that the agreements not admit firms with overlapping ownership. These results inform antitrust policy on cooperative agreements among competitors.     

Competing for government procurement contracts: The role of corporate social responsibility

Research Summary: This study examines whether corporate social responsibility (CSR) improves firms’ competitiveness in the market for government procurement contracts. To obtain exogenous variation in firms’ social engagement, I exploit a quasi‐natural experiment provided by the enactment of state‐level constituency statutes, which allow directors to consider stakeholders’ interests when making business decisions. Using constituency statutes as instrumental variable (IV) for CSR, I find that companies with higher CSR receive more procurement contracts. The effect is stronger for more complex contracts and in the early years of the government‐company relationship, suggesting that CSR helps mitigate information asymmetries by signaling trustworthiness. Moreover, the effect is stronger in competitive industries, indicating that CSR can serve as a differentiation strategy to compete against other bidders. Managerial Summary: This study examines how companies can strategically improve their competitiveness in the market for government procurement contracts—a market of economic importance (15–20% of GDP). It shows that companies with higher social and environmental performance (CSR) receive more procurement contracts. This effect is stronger for more complex contracts, in the early years of the government–company relationship, and in more competitive industries. These findings indicate that firms’ CSR can serve as a signaling and differentiation strategy that influences the purchasing decision of government agencies. Accordingly, managers operating in the business‐to‐government (B2G) sector could benefit from integrating social and environmental considerations into their strategic decision making.     

The Capitalization of School Quality into Renter and Owner Housing

Residential property amenities including school quality should be capitalized into both rent and property sale prices. Evidence of price and rent premiums for higher school quality is provided. The price premium for school quality for owners exceeds the premium for renters. The premiums paid by renters and owners vary with the likelihood the household directly uses school services, housing market conditions, whether the property is in an urban or suburban area and by the observed school quality in the years leading to the transaction. The larger price premium paid by owners is supported by enhanced liquidity and tempered price volatility for properties located in quality school districts.     

Economic Efficiency and Political Capture in Public Service Contracts

We consider contracts for public transport services between a public authority and a transport operator. We build a structural endogenous switching model where the contract choice results from the combined effects of the incentivization scheme aimed at monitoring the operator's efficiency and the political agenda followed by the regulator to account for the voice of private interests. Our results support theoretical predictions as they suggest that cost‐plus contracts entail a higher cost for society than fixed‐price contracts but allow the public authority to leave a rent to a subset of individuals. Accounting for transfers to interest groups in welfare computations reduces the welfare gap between cost‐plus and fixed‐price regimes.     

Agency problems as antecedents to unrelated mergers and diversification: Amihud and Lev reconsidered

Amihud and Lev (1981) are widely cited as providing evidence that managers, unless closely monitored by large block shareholders, will attempt to reduce their employment risk through unrelated mergers and diversification. These corporate strategies, however, may not be in shareholders' interests. Reconsidering the agency assumptions underlying Amihud and Lev's study and the methodology they used, we develop hypotheses regarding the association between ownership structure, board vigilance, corporate strategy, and corporate performance from management theory and test them using Amihud and Lev's data from the 1960s and new data from the 1980s. Neither study supports the conclusions of Amihud and Lev, nor the agency theory belief that monitoring efforts by principals affect the strategic behaviors of agents or the performance of firms that they manage. © 1998 John Wiley & Sons, Ltd.     

Asset ownership and incentives in early shareholder capitalism: Liverpool shipping in the eighteenth century

Research summary : We explore captain‐ownership and vessel performance in eighteenth‐century transatlantic shipping. Although contingent compensation often aligned incentives between captains and shipowners, one difficult‐to‐contract hazard was threat of capture during wartime. We exploit variation across time and routes to study the relationship between capture threat and captain‐ownership. Vessels were more likely to have captain‐owners when undertaking wartime voyages on routes susceptible to privateers. Captain‐owned vessels were less readily captured than those with nonowner captains, but more likely to forgo voyage profits to preserve the vessel's safety. These results are consistent with multitask agency, where residual claims to asset value rather than control rights influence captain behavior. This article is among the first to empirically isolate mechanisms distinguishing among major strands of organizational economics regarding asset ownership and performance. Managerial summary : Organizations face an enduring challenge: Owners hire an executive to act on their behalf, but it is difficult to ensure that the executive indeed acts in their interests. In this study, we exploit a useful historical context—eighteenth‐century transatlantic shipping from Liverpool—to explore the cause and effect of a captain's becoming part‐owner of his vessel. Captains became part‐owners for voyages likely to encounter enemy privateers. Captain‐owners were less likely to be captured, but were more willing to forgo cargo profits to preserve the vessel's safety. Our results provide a useful analogy to modern firm owners who must determine whether to award equity to executives, and to managers who must determine whether to provide assets to employees or rely on employee self‐provision of assets (e.g., tools for tradespeople). Copyright © 2016 John Wiley & Sons, Ltd.     

国有大中型企业产权多元化改革研究报告

产权多元化是指由诸多要素所有者将其产权分解组合之后形成的产权集合。企业的产权多元化意味着企业财产不再由单一出资者投资而成，而是众多出资者投资的组合。多元的产权主体通过外部完善的市场体系和内部健全的组织结构来监督经营者的日常经营活动，使经营者的经营不至于过大地偏离所有者的目标。这种机制是现代公司的生命力之所在，是企业制度的一项重大创新。     

隐性契约、专用性投资与资本结构

隐性契约以商品所有权分割为存在前提。专用性投资是企业传递履约动机与履约能力信息的重要通道，受资产专用性与隐性负债导致较高债务融资成本的双重约束，专用性投资应主要依靠权益融资。实证研究表明，专用性投资强度与资本结构呈负相关，隐性契约对资本结构产生影响。本文研究结论为企业融资政策选择提供了新依据。     

Equity‐based incentives and collaboration in the modern multibusiness firm

Research summary : This paper examines the role of equity‐based incentives in fostering cross‐business‐unit collaboration in multibusiness firms. We develop a formal agency model in which headquarters offers equity and profit incentives to business‐unit managers with the objective of maximizing total expected firm returns. The resulting compensation contract provides a rich mechanism for aggregating value from collaborative interactions across business units, aligning managers' efforts with the firm's growth prospects and organization structure and managing the dual risks in profits and firm market value. The inclusion of equity incentives elicits higher levels of own‐unit and collaborative efforts over the profits‐only contract. Our results suggest that equity‐based incentives are most beneficial when profitability is uncertain relative to long‐term growth prospects, in firms pursuing related diversification strategies, and in periods of rising equity markets. Managerial summary : Equity‐based compensation such as restricted stock grants and options are increasingly common, not only for CEOs and other top executives, but also for business unit managers and other non‐C‐suite employees. The paper studies the role of such “global” incentives in enabling multibusiness firms to benefit from cross‐unit collaboration. Results from our model show that managerial contracts that include appropriate levels of equity incentives, in addition to profit‐based incentives, generate higher own‐unit and collaborative efforts. We also find that equity incentives are likely to be most beneficial for large firms in high‐growth sectors, for firms pursuing a related diversification strategy, and in periods of rising stock markets. The model can also provide useful guidance on designing return‐maximizing compensation contracts for business unit managers in different firm, organizational, and industry contexts. Copyright © 2015 John Wiley & Sons, Ltd.     

External corporate governance and financial fraud: cognitive evaluation theory insights on agency theory prescriptions

R esearch summary : Agency theory suggests that external governance mechanisms (e.g., activist owners, the market for corporate control, securities analysts) can deter managers from acting opportunistically. Using cognitive evaluation theory, we argue that powerful expectations imposed by external governance can impinge on top managers' feelings of autonomy and crowd out their intrinsic motivation, potentially leading to financial fraud. Our findings indicate that external pressure from activist owners, the market for corporate control, and securities analysts increases managers' likelihood of financial fraud. Our study considers external governance from a top manager's perspective and questions one of agency theory's foundational tenets: that external pressure imposed on managers reduces the potential for moral hazard. M anagerial summary : Many of us are familiar with stories about top managers “cooking the books” in one way or another. As a result, companies and regulatory bodies often implement strict controls to try to prevent financial fraud. However, cognitive evaluation theory describes how those external controls could actually have the opposite of their intended effect because they rob managers of their intrinsic motivation for behaving appropriately. We find this to be the case. When top managers face more stringent external control mechanisms, in the form of activist shareholders, the threat of a takeover, or zealous securities analysts, they are actually more likely to engage in financial misbehavior. Copyright © 2016 John Wiley & Sons, Ltd.