The consequences of private equity acquisitions for employees: new evidence on the impact on wages,employment and productivity

There is growing controversy on the HR consequences of private equity acquisitions, especially when the existing management team is replaced. Much of the debate thus far has centred on the use of limited panels of case studies and industry surveys. This article, in contrast, uses both in‐depth interviews with relevant stakeholders and objective company data to compare firms subject to private equity acquisitions against a control group of non‐acquired firms. Our interviews provide insights into key issues that are investigated in the subsequent empirical analysis. Our core findings are that firms subject to a specific type of private equity acquisition – institutional buyouts – are associated with job losses, lower wages and lower productivity. This evidence is consistent with the notion that this type of private equity acquisition has negative employment consequences without any corresponding improvement in productivity.     

DECISION THEORY UNDER AMBIGUITY

Abstract We review recent advances in the field of decision making under uncertainty or ambiguity. We start with a presentation of the general approach to a decision problem under uncertainty, as well as the ‘standard’ Bayesian treatment and issues with this treatment. We present more general approaches (Choquet expected utility, maximin expected utility, smooth ambiguity and so forth) that have been developed in the literature under the name of models of ambiguity sensitive preferences. We draw a distinction between fully subjective models and models incorporating explicitly some information. We review definitions and characterizations of ambiguity aversion in these models. We mention the challenges posed by some of the models presented. We end with a review of part of the experimental literature and applications of these models to economic settings.     

How to learn new tasks: Shop floor performance effects of knowledge transfer and performance feedback

We investigate how learning and the task performance of individuals are affected by different forms of knowledge transfer. Whereas previous research has proven the positive performance impacts of knowledge transfer, self-observation and feedback mechanisms individually, we explore the cumulative effect of these factors on learning and performance. With the help of two laboratory experimental studies reproducing manufacturing tasks that are typical for industrial production, we show that explicit knowledge transfer is superior to other forms of knowledge transfer. Externally provided performance feedback in the form of cost information and non-financial performance indicators has no effect on the order of different forms of knowledge transfer. Moreover, external feedback does not even have an additional significant performance effect on learning new tasks irrespective of the type of knowledge transfer.     

Does stable ownership create value? Evidence from the global financial crisis

We investigate the value of stable ownership for a sample of European firms using the global financial crisis as an exogenous shock and pre-and post-crisis years as benchmark periods. Consistent with the argument that stable ownership allows managers to focus on the creation of long-term value, we find that stable ownership resulted in higher stock returns and a higher market-to-book ratio during the crisis. This positive effect of stable ownership was not reversed after the crisis. Stable institutional blockholdings were more valuable in countries with weaker investor protection. However, the positive effect does not apply to firms in which a family is the largest blockholder. Finally, we also find that ownership stability was associated with a higher level of investments, illustrating that stable ownership affects real corporate decisions.

     

An Ex Post Assessment of Investor Response to Catastrophes

A large body of research has examined abnormal stock returns for insurance companies in the wake of major catastrophes. Most of these studies have investigated the ex ante factors that investors may consider when generating expectations of future profits, represented by postcatastrophe stock returns. We instead ask whether these expectations were ultimately correct by investigating the relationship between returns and the disaster’s effect on future earnings. We find that returns immediately following a disaster are not associated with future earnings. Approximately six days following a catastrophe, however, returns begin to show a significant positive relationship with future earnings. This relationship becomes stronger in subsequent days. We conclude that investors are unable to correctly predict a disaster’s net impact on profits immediately after a disaster because existing public information is insufficient or misunderstood. Only once insurers begin disclosing their estimated losses can investors make accurate predictions about a disaster’s effect on earnings. Our study shows that the investor expectations inferred in much of the existing literature are not predictive of future profits. Our findings are consistent with semistrong-form market efficiency in the wake of a major disaster.     

Exploring governance of the new European Banking Authority—A case for harmonization?

In the context of the proposed EU financial supervisory reforms, this paper focuses on the governance of the network of national supervisory banking agencies and the newly established Community supervisor (European Banking Authority, EBA). We assess to what extent lack of governance convergence nationally and with EBA could undermine the incentives for cooperation among supervisors. Convergence should particularly focus on (i) the issue of the presence of politicians on decision-making bodies; (ii) the need for clearly defining dismissal procedures of heads of supervision; (iii) autonomy from government in regulatory matters; (iv) supervisory autonomy in matters of licensing and withdrawing licenses; (iv) mechanisms for judicial accountability; (v) legal protection for supervisors handling in good faith. In the absence of full centralization of prudential supervision, early harmonization of national governance arrangements towards best practice would better align supervisors’ incentive structures and, hence, be beneficial for the effectiveness of European supervision.     

Competition in the presence of individual demand uncertainty

This article offers a tractable model of (oligopolistic) competition in differentiated product markets characterized by individual demand uncertainty. The main result shows that, in equilibrium, firms offer advance purchase discounts and that these discounts are larger than in the monopolistic benchmark. Competition reduces welfare by increasing the fraction of consumers who purchase in advance, that is, without (full) knowledge of their preferences.