Leverage, volatility and executive stock options

This paper studies how an optimal wage contract can be implemented using stock options, and derives the properties of the optimal contract with stock options. Specifically, we show how the exercise price and the size of the option grant should change in response to changes in exogenous parameters. First, for a fixed exercise price of executive stock options, the size of the option grant decreases in the riskiness of a desired investment policy, decreases in the volatility of return from the risky project, and increases in leverage. Second, for a fixed size of the option grant, the optimal exercise price of managerial stock options increases in the riskiness of a desired investment policy, increases in the volatility of return from the risky project, and decreases in leverage. Several empirical predictions are drawn from these conclusions regarding the pay-performance sensitivity of management compensation.     

Duration of disability,job mismatch and employment outcomes

Workers with disabilities have functional limitations that affect their productivity in some, but not necessarily all, jobs. Workers who find a job that is a good match for their functional limitations (i.e. a job where their limitations have little or no impact on important job functions) should expect better employment outcomes (e.g. higher wages, longer job tenure) than workers with similar disabilities who are mismatched in their jobs. Merging data from the Survey of Income and Program Participation with O*Net data on job demands, we construct two continuous measures of job mismatch for workers with physical disabilities. We then extend the literature on disability and employment by exploring relationships between duration of disability, job mismatch, wages and hours worked. The results indicate that workers with long durations of disability are employed in jobs that are a better match to their physical limitations than are similar workers with shorter durations of disability. And, workers who are mismatched earn lower wages and work fewer hours than their counterparts whose jobs are a better match. Overall, the findings suggest that disability employment policies should include systematic efforts to help workers with disabilities find good job matches.     

Income inequality and crime in the United States

This paper investigates the relationship between income inequality and crime. Results show that there is a strong and robust effect of relative income inequality on burglary. Effect on robbery is also strong and robust in most cases.     

Understanding the Exhibition Attendees’ Evaluation of Their Experiences: A Comparison Between High Versus Low Mindful Visitors

In this paper we examine exhibition attendees’ experience and mindfulness within the exhibition industry, and identify the role of mindfulness on the evaluation of their experience. In the service industry, customer experience plays a central role in increasing satisfaction and loyalty, and the concept of mindfulness contributes to positive customer experience. The empirical results of the paper reveal that the on-site and post-evaluation of exhibition attendees’ experience are significantly different across various levels of mindfulness. In addition, several demographic and exhibition-related characteristics are statistically different between groups segmented by the level of mindfulness. Both theoretical and practical implications are covered in the discussion section.     

Northeast Asian economic regionalism: A Korean view

State failure is more common than generally assumed and often has distinctly negative consequences that may manifest themselves in neighboring countries. For this reason, it has attracted considerable attention in academic and policy circles alike. The researchers exploring the phenomenon have followed a rather narrow path, however, and there is substantial scope to broaden the breadth of inquiry. While the analytical efforts over the past decade to come to grips with the phenomenon of state failure have borne fruit in terms of identifying the key independent variables, the understanding of the mechanism through which they exert their influence on the dependent variable has not been significantly enhanced. The assertion is particularly valid with respect to adverse and abrupt regime transitions. The purpose of this paper is to examine, in light of the author's experience in grappling with state failure in the Chinese context, the potential for systematically expanding the research agenda in a conceptual/theoretical direction.     

Do Domestic Investors Have an Edge? The Trading Experience of Foreign Investors in Korea

We investigate whether domestic investors have an edge overforeign investors in trading domestic stocks. Using Korean data,we show that foreign money managers pay more than domestic moneymanagers when they buy and receive less when they sell for mediumand large trades. The sample average daily trade-weighted disadvantageof foreign money managers is 21 basis points for purchases and16 basis points for sales. There is also some evidence thatdomestic individual investors have an edge over foreign investors.The explanation for these results is that prices move more againstforeign investors than against domestic investors before trades.     

Incentive to Work versus Disincentive to Invest: The Case of China's Rural Reform, 1979–1984

An institutional change from the communal system to the household responsibility system in rural China brought about an increase in productivity during 1979–1984, but it has also opened up a set of new problems, including decreased investment. I argue that the new responsibility system is effective in providing work incentives to peasants by rendering residual claims, but not so in internalizing positive externalities of investment, resulting in underinvestment. Remedies such as agricultural investment subsidies, investment tax credits, the roles of such institutions as township and village enterprises in undertaking investment in agricultural infrastructure, and most fundamentally, well-defined property rights are discussed.     

Maturity and exercise price of executive stock options

Using a simple three-period model in which a manager can gather information before making an investment decision, this paper studies optimal contracts with various stock options. In particular, we show how the exercise price of executive stock options is related to a base salary, the size of the option grant, leverage, and the riskiness of a desired investment policy. The optimal exercise price increases in the size of grant and the base salary and decreases in leverage and the riskiness of a desired investment policy. Other things equal, the optimal exercise price of European options with a longer maturity should increase more for an increase in the base salary and the size of grant and decrease more for an increase in leverage than the one with a shorter maturity. The optimal exercise price of American options is determined by the optimal exercise prices of European options with different maturities. Given the fixed exercise price, the size of the option grant does not decrease in the face value of debt.     

Minimax after money-max: why major league baseball players do not follow optimal strategies

Using real-life sports data of Major League Baseball, this paper investigates whether professional players follow the minimax theorem in their strategies. Our empirical results using the 2010 regular-season data show that baseball players do not optimize their strategies: there is a significant difference in their payoffs across strategies, and the sequence of their strategy choices is predictable from their previous actions. Further analysis using individual salaries and key contract variables indicates that a higher salary has a positive impact on following minimax strategies in the regular season. By contrast, a longer contract decreases a player’s incentive to pursue optimal strategies in the postseason. These results have important implications for compensation practices in various fields.