USING DIVIDEND POLICY AND MANAGERIAL OWNERSHIP TO REDUCE AGENCY COSTS

In this study we examine dividends and chief executive officer (CEO) stock ownership as interrelated mechanisms that may be used to reduce agency costs. We find a significant nonmonotonic relation between dividend yield and CEO stock ownership. Our evidence shows that until the CEO becomes entrenched, increased executive stock ownership reduces agency costs and decreases dividend yield. Beyond that point, increased stock ownership increases dividend yield. Whether additional stock ownership can reduce agency costs depends upon the CEO's degree of control in the firm.     

AN ECONOMETRIC ANALYSIS OF EQUITY COSTS AND RISK PREMIUMS IN THE ELECTRIC UTILITY INDUSTRY: 1971–1985

This paper develops a varying parameter econometric model that estimates the cost of equity of individual utility firms from 1971 to 1985. The equity costs estimated in this framework can be analyzed in terms of their statistical precision. The paper also examines, theoretically and empirically, the relationship between the econometric estimates of the equity risk premiums and the risk-free interest rates. The data do not support the hypothesis that risk premiums are independent of interest rates. Also, the relationship appears to vary over time. These results invalidate the risk premium approach in which equity costs are estimated by adding a constant, historical average risk premium to the prevailing interest rates.     

AN ECONOMIC ANALYSIS OF VALUE TO THE OWNER

This short paper applies the economists' concept of consumer surplus to the accountants' concept of value to the owner. It is shown that the two relevant concepts of consumer surplus - the equivalent consumer surplus and the compensating consumer - result in valuations that differ from the traditional Solomons, et al., analysis. This proposition is established by use of traditional neoclassical demand theory. It is also shown that whilst the analysis is essentially of a short run nature this is also true of the accountants' concept of value to the owner.     

EVALUATING THE FINANCE JOURNALS: THE DEPARTMENT CHAIRPERSON'S PERSPECTIVE

Finance department chairpersons report that the role of published research is more important than ever in influencing appointment and promotion decisions of finance professors. This study and one conducted 15 years ago focus on the pivotal role of finance chairpersons in the evaluation of their faculties' journal publications. These studies show that the major factor influencing the finance chairpersons' evaluations of publications is the journal in which an article is published. Journals of high merit are perceived to have low acceptance rates and vice versa. These estimates of perceived acceptance rates are not correlated with actual acceptance rates. Because perceived acceptance rates play a key role in evaluating faculty publications, there is a need for finance chairpersons to know the relative difficulties of publishing in leading finance and related journals.