THE 1996 STERN STEWART PERFORMANCE 1000

The most striking aspect of the most recent Stern Stewart MVA rankings is the consistency of the top performers. But, if the identity of the top 10 companies shifted only slightly in 1995 (Exxon was the only newcomer to this group), there are a number of new EVA case studies in this year's set of company profiles: Monsanto; R. R. Donnelley, the Chicago-based printing company; Herman Miller, the well-known furniture manufacturer; SPX, a large manufacturer of specialty auto tools and parts; Allwater Environmental Services; and Vitro, S.A., the giant Mexican glass manufacturer. Also among the latest converts to EVA are the research staffs of a number of Wall Street investment banking houses such as First Boston and Goldman Sachs.     

STERN STEWART ROUNDTABLE ON CAPITAL STRUCTURE AND STOCK REPURCHASE

This roundtable brings together a small group of finance theorists and practitioners to discuss two important—and in most companies closely related—financial policy decisions: (1) the optimal mix of debt and equity and (2) the amount (and form) of cash distributions to shareholders. The result is an interesting set of comments and exchanges that show current theory and corporate practice to be consistent in some respects, but at odds in others. In the first part of this two‐part discussion, the University of Rochester's Clifford Smith presents a broad theoretical framework in which companies set leverage targets by weighing tax and other benefits of debt against potential costs of financial distress, particularly in the form of underinvestment. According to this theory, mature companies with stable cash flows and limited investment opportunities should make extensive use of debt, while growth companies should be funded primarily (if not entirely) with equity. But, as becomes clear in the case study of PepsiCo that follows the opening discussion, putting theory into practice is far from straightforward. Consistent with the theory, Pepsi does have a target leverage ratio, and management has attempted to adhere to that target through a policy of regular stock repurchase. But if the company's decision‐making process appears consistent with the framework mentioned above, it also relies on conventional ratingagency criteria to an extent that surprises some of the panelists. Moreover, Pepsi's policy of maintaining a single‐A credit rating sets off an interesting debate about the value of preserving access to capital markets “under all conditions.” In the second part of the discussion, Rice University's David Ikenberry begins by offering four main corporate motives for stock repurchases: (1) to increase (or at least maintain) the target corporate leverage ratio; (2) to distribute excess capital and so prevent managers from destroying value by reinvesting in low‐return projects; (3) to substitute for dividends, thereby providing a more flexible and tax efficient means of distributing excess capital; and (4) to “signal” and, in some cases, profit from undervaluation of the firm's shares. As in the first part of the discussion, the case of Pepsi largely supports the theory. Assistant Treasurer Rick Thevenet notes that, in 2000, the company generated free cash flow of $3 billion, of which $800 million was paid out in dividends and another $1.4 billion in stock buybacks. And each of the four motives cited above appears to have been at work in the design or execution of Pepsi's buyback policy. There is also some discussion of a fifth motive for buybacks—the desire to boost earnings per share. Although this motive is perhaps the most widely cited by corporate managers, the idea that EPS considerations should be driving corporate buyback programs is shown to rest on flawed reasoning. Moreover, questions are raised about what appears to be an EPS‐driven phenomenon: the corporate practice of attempting to buy back as many shares at the lowest price possible—and the lack of disclosure that often surrounds such a practice. In closing, Dennis Soter offers the novel suggestion that corporate buyback policy should not be designed to transfer wealth from selling to remaining shareholders, but rather to “share the gains from value‐creating transactions.” Through more and better disclosure about their repurchase activities (and Pepsi's policy appears to be a model worth emulating), companies are likely to establish greater credibility with investors, thereby increasing the liquidity and long run value of their shares.     

The stern Stewart PERFORMANCE 1000

The big news in Stern Stewart's annual performance rankings is the unseating of Coca-Cola, the top-ranking company for the past three years, by General Electric—and Microsoft's dramatic rise into third place. Besides presenting the full rankings (the top 100 of which were published by Fortune this fall), this article complements the preceding roundtable by describing the inroads of EVA into Europe and Latin America.     

“高段位”绩效管理

在绩效管理的过程中,管人理事不是重点,重点在于引领教导,即人力资源通过一些管理手段,让员工本人认右岗位的重要性,个人存在的价值以及本人优缺点,以帮助员工提升。     

ON IMPROVING THE PERFORMANCE OF THE MARKET MODEL

Data on 4,087 securities from 1988 to 1990 are used to test the relation between market model R² and trading volume. Eliminating high-volume observations increases R² by about 10 percent, confirming results previously reported. This study indicates that this improvement is possible by eliminating a small number of observations. It also indicates that this relation between R² and volume is unrelated to firm size.     

NEW PUBLIC MANAGEMENT: PERSPECTIVES ON PERFORMANCE AND THE USE OF PERFORMANCE INFORMATION

Performance information is a key‐element of NPM, but politicians and managers rarely use this information. On the basis of three case studies, this paper seeks to explain the use of the newly developed performance information. The paper argues that there is a distinction between the customer perspective and the citizen perspective on performance. NPM implies a customer and an internal perspective on performance. These perspectives may be relevant to managers, but politicians are primarily interested in a citizen perspective and a financial perspective. Two situations are identified in which governmental organizations more actively use performance information with a customer perspective and an internal perspective (as implied in NPM): (1) a crisis in the organization's internal processes with political and/or financial consequences and (2) loose coupling of the performance reports to politicians and to managers, which stimulates the information use by both politicians and managers.     

THE LONG-RUN PERFORMANCE OF CONVERTIBLE DEBT ISSUERS

We examine the long-run operating and stock price performance of 828 convertible debt issuers. Relative to matched, nonissuing firms, convertible debt issuers have small improvements in operating performance before the offer and significant declines in operating performance from pre- to post-issue. We examine the relation between several factors and operating performance. We find that for some pre- to post-issue periods, operating performance changes are positively related to firm leverage and the callability of the bond, and negatively related to performance run-up before the offer and investment in new assets. We also find some evidence that firms that issued equity in the three years before their convertible debt issue have larger declines in performance after the offer. Relative to matched, nonissuing firms, convertible debt issuers have superior stock price performance before the offer and significantly poor performance after the issue.     

THE CHAIRMAN'S STATEMENT AND CORPORATE FINANCIAL PERFORMANCE

Agency theory and signalling theory both suggest that firms are motivated to disclose excellence of financial performance in an unambiguous manner. We might expect, therefore, that good financial performance is associated with a clear and readable Chairman's narrative and poor performance with an obscure or misleading message. Extant work linking corporate performance with clarity of executive narrative fails to distinguish sample cases by industry or financial status. This paper seeks to overcome the consequences of such deficiencies explicitly, by conducting a systematic analysis of the relationship between narrative complexity and alternative measures of financial performance, for a matched sample of failed/non-failed companies across common industries. This study employs separate measures of the readability and the understandability of the chairman's narrative and finds them to be significantly related to overall financial performance and individual measures of performance, most notably liquidity. Poor readability is strongly associated with poor financial performance and ease of readability with relative financial success. The implication is that firms actively signal good news while obscuring, perhaps deliberately, messages which convey bad news.