Aligning Performance Measurement Systems With Strategy: The Case of Environmental Strategy

Alignment of an organization's performance measurement system with its strategy is widely advocated as a guiding principle in management control system design. Despite its importance, it is far from clear what strategic alignment of performance measures entails, whether and how organizations achieve it. In this article we explore the alignment of performance measures focusing on firms' use of environmental performance indicators as the consequence of pursuing an environmental strategy. Based on the economic and contingency literatures on management control system design and performance measurement, we propose that the use of such performance measures is a consequence of changing the design of the performance measurement system to accommodate the strategy, and by increasing the informativeness of performance metrics. We test these propositions in a sample of financial managers in manufacturing firms in The Netherlands. We find that alignment to environmental strategy is mostly achieved through the increased quantification of environmental performance measures and via their increased sensitivity to managerial actions.     

Does Global Liquidity Help to Forecast U.S. Inflation?

We construct a measure of global liquidity using the growth rates of broad money for the G7 economies. Global liquidity produces forecasts of U.S. inflation that are significantly more accurate than the forecasts based on U.S. money growth, Phillips curve, and autoregressive and moving average models. The marginal predictive power of global liquidity is strong at 3-year horizons. Results are robust to alternative measures of inflation.     

Twin Picks: Disentangling the Determinants of Risk‐Taking in Household Portfolios

This paper investigates risk‐taking in the liquid portfolios held by a large panel of Swedish twins. We document that the portfolio share invested in risky assets is an increasing and concave function of financial wealth, leading to different risk sensitivities across investors. Human capital, which we estimate directly from individual labor income, also affects risk‐taking positively, while internal habit and expenditure commitments tend to reduce it. Our microfindings lend strong support to decreasing relative risk aversion and habit formation preferences. Furthermore, heterogeneous risk sensitivities across investors help reconcile individual preferences with representative‐agent models.     

Bank Heterogeneity and Interest Rate Setting: What Lessons Have We Learned since Lehman Brothers?

A substantial literature has investigated the role of relationship lending in shielding borrowers from idiosyncratic shocks. Much less is known about how lending relationships and bank‐specific characteristics affect the functioning of the credit market in an economy‐wide crisis. We investigate how bank and bank–firm relationship characteristics have influenced interest rate setting since the collapse of Lehman Brothers. We find that interest rate spreads increased by less for those borrowers having closer lending relationships. Furthermore, firms borrowing from banks endowed with large capital and liquidity buffers and from banks engaged mainly in traditional lending were kept more insulated from the financial crisis.     

Carry Trades,Order Flow,and the Forward Bias Puzzle

We investigate the relation between foreign exchange (FX) order flow and the forward bias. We outline a decomposition of the forward bias according to which a negative correlation between interest rate differentials and order flow creates a time‐varying risk premium consistent with that bias. Using 10 years of data on FX order flow, we find that more than half of the forward bias is accounted for by order flow—with the rest being explained by expectational errors. We also find that carry trading increases currency‐crash risk in that order flow generates negative skewness in FX returns.     

Legal institutions,social norms,and entrepreneurship in Britain (c.1890–c.1939)1

This article analyses the functioning of debt‐discharge procedures in England and Wales in the light of the debate on entrepreneurial failure in the years between the late Victorian age and the interwar period. Using an original dataset and an empirical approach, it is argued that social norms, cultural elements, and class considerations influenced the outcome of decisions in a way that could have reduced the incentives for economic agents to engage with productive activity. Results show that over the entire period judges paid disproportionate attention to moral issues, and often gave lighter sentences to members of the elite who went into bankruptcy for personal reasons, and tougher ones to entrepreneurs who failed because of engagement with economic activity.