Management succession and financial performance of family controlled firms

This paper examines the immediate and long-term impacts on financial performance of 124 management successions within Canadian family controlled firms. When family successors are appointed, stock prices decline by 3.20% during the 3-day (−1 to +1) event window, whereas there is no significant decrease when either non-family insiders or outsiders are appointed. However, a cross-sectional analysis indicates that the negative stock market reaction to family successors is related to their relatively young age which may reflect a lack of management experience rather than their family connection per se. Investors are uncertain about the “management quality” of family successors who have less established reputations than more seasoned non-family insiders and outsiders. Non-family member appointments tend to follow periods of poor operating performance implying that there might be more scope for improvement when a non-family successor is appointed. Unlike the US sample in McConaughy et al. [McConaughy, D.L., Walker, M.C., Henderson, G.V., Mishra, C.S., 1998. Founding family controlled firms: efficiency and value, Review of Financial Economics 7, 1–19.], which indicates that the median percentage of votes held by controlling families is less than 15%, the Canadian sample indicates a more concentrated ownership with the median percentage of family controlled votes exceeding 51%. Of the firms in our sample, 62% use dual class capitalization to maintain control within the family.     

THE DESIGN OF MULTI-YEAR STOCK OPTION PLANS

Despite the explosion in the corporate use of stock options, the incentives created by stock options are not well understood by either the boards who grant them or the executives who are meant to be motivated by them. A major source of confusion stems from the corporate practice of using multi-year stock option plans. Such multi-year grants create subtle, potentially important links between current performance and future grants that can significantly dilute incentives for better performance.
For example, so-called fixed value plans provide very weak, even perverse, incentives ex ante since the value of future option grants is completely insulated from current performance. Under such plans, an executive's reward for superior performance is to receive fewer options, and to receive more options for substandard performance. In contrast, the fixed number plan creates an intrinsic link between changes in this year's stock price and changes in the value of future option grants.
The author also reports the findings of new empirical research that shows that stock option plans, taken as a whole, have a pay-to-performance correlation that is eight times stronger than that of salary and bonus. But, consistent with the analysis above, fixed value option plans have pay-to-performance that is only six times that of salary and bonus, as compared to ten times for fixed number plans.     

Is Gold a Hedge or a Safe Haven? An Analysis of Stocks,Bonds and Gold

Is gold a hedge, defined as a security that is uncorrelated with stocks or bonds on average, or is it a safe haven, defined as a security that is uncorrelated with stocks and bonds in a market crash? We study constant and time‐varying relations between U.S., U.K. and German stock and bond returns and gold returns to investigate gold as a hedge and a safe haven. We find that gold is a hedge against stocks on average and a safe haven in extreme stock market conditions. A portfolio analysis further shows that the safe haven property is short‐lived.     

Forecasting employment : The role of forward-looking behaviour

Manufacturing output per head rose at an unprecedented rate in the UK in 1981/2, and conventional econometric relationships failed to forecast the associated falls in employment. In this paper we estimate manufacturing employment equations in which output expectations play a central role. These compare fabourably with alternative models, and are able to predict most of the large falls in employment over this period.     

Attention to Fairness versus Profits: The Determinants of Satisficing Pricing

We investigate determinants of the competitive behaviour of satisficing, non‐profit‐maximizing pricing. Taking a behavioural approach, we argue that pricing decisions are motivated by fairness objectives as well as the desire to achieve economic objectives. We draw from the attention‐based view to build our theoretical model explaining the contextual conditions that are most likely to be associated with attention to fairness relative to attention to achieving maximum profits when setting prices. Our hypothesized predictors of satisficing pricing decisions encompass the institutional context in which the firm is embedded, the exchange context with customers and suppliers, and the context internal to the firm. Hypotheses are tested with survey data of over 3000 firms from 15 countries. We find that the decision to set prices at a satisficing level is remarkably common, and its prevalence is associated with contextual factors that are consistent with greater attention to fairness concerns.     

Does servant leadership foster creativity and innovation? A multi-level mediation study of identification and prototypicality

The purpose of this multi-level study is to examine how servant leadership affects both employee creativity and team innovation. Drawing from social identity, in particular, relational identification theory, we found on the basis of a two-nation Asian sample of 154 teams that servant leadership promotes individual relational identification and collective prototypicality with the leader which, in turn, fosters employee creativity and team innovation. In addition, our study suggests that the mediated effect of leader identification is strongest when team climate for innovation is high.     

A genre-theoretic approach to financial reporting research

A genre is a category of texts marked out by the conventions employed in their production. A genre-theoretic approach draws out the complex, subtle and elusive nature of financial reporting as communication. It provides scope for examining the features of the reporting process that contribute to its complexities and subtleties in a systematic, comprehensive and integrated way, embracing both technical and social dimensions. This paper discusses aspects of genre theory, as employed in discourse analysis, and their application to financial reporting. Relevant features of the approach include financial statement composition as a challenging process; knowing users; an engaged discourse community; situated communication; intertextuality; and structural dynamism. A genre-based approach has a number of implications for financial reporting research, at both methodological and substantive levels, which are explored in the paper, and may ultimately offer the potential for integrating market-based and interdisciplinary work together with the best of the classical tradition.     

What factors influence buying center brand sensitivity?

Building on information processing theory (IPT), this empirical study investigates the factors that drive a buying center's level of sensitivity to brand information. The authors propose that buying center brand sensitivity is related in a curvilinear fashion with purchase importance and purchase complexity, and that these relationships are moderated by several environmental, firm, and product factors. Data provided by 273 organizational buying center members confirm the presence of an inverse U-shaped relationship between purchase importance and brand sensitivity, strengthened in conditions of high brand presence and high end-customer demand. Purchase complexity and brand sensitivity appear to relate in a U-shaped fashion but only in light of the moderating effects of product tangibility. The relationship between purchase complexity and brand sensitivity appears stronger when buying firms are small and have prior contractual ties with their selling partners. These results offer guidance to managers concerning when business-to-business (B2B) brand investments are likely to offer their greatest return.