It's so hard to be fair

When employees believe they are being treated fairly-when they feel heard, when they understand how and why important decisions are made, and when they believe they are respected-their companies will benefit. Research shows that practicing process fairness reduces legal costs from wrongful-termination suits, lowers employee turnover, helps generate support for new strategic initiatives, and fosters a culture that promotes innovation. What's more, it costs little financially to implement Yet few companies practice it consistently. Joel Brockner examines this paradox, exploring psychological and other reasons that cause managers to resist embracing process fairness. The fact that it's relatively inexpensive to implement, for instance, may be why some numbers-oriented executives undervalue it. Many managers believe that they practice process fairness, but 360-degree feedback tells another story. Some corporate policies actually undermine it--such as when the legal department won't let managers fully explain decisions for fear that disclosure could expose the firm to lawsuits. And, frequently, managers simply follow the all-too-human tendency to avoid uncomfortable situations. But the good news is that organizations can take concrete steps to promote greater process fairness. Many studies have shown that training programs make a big difference, and the author describes the most effective format. In addition, warning your managers that they may experience negative emotions when practicing fair process will help prepare them to cope with those feelings. Finally, role modeling fair process on the executive level will help spread the practice throughout the organization. The fact is, process fairness is the responsibility of all executives, at all levels and in all functions; it cannot be delegated to HR. The sooner managers realize that and work to make it a company norm, the better off the organization will be.     

Bootstrapping the Box–Pierce Q test: A robust test of uncorrelatedness

This paper describes a test of the null hypothesis that the first K autocorrelations of a covariance stationary time series are zero in the presence of statistical dependence. The test is based on the Box–Pierce Q statistic with bootstrap-based P-values. The bootstrap is implemented using a double blocks-of-blocks procedure with prewhitening. The finite sample performance of the bootstrap Q   test is investigated by simulation. In our experiments, the performance is satisfactory for samples of n=500$n=500$. At this sample size, the differences between the empirical and nominal rejection probabilities are essentially eliminated.     

The Revenue Consequences of Using Formula Apportionment to Calculate U.S. and Foreign-Source Income: A Firm-Level Analysis

This paper examines the 1989–1993 publicly available financial reports of 46 U.S.-based multinationals to estimate the revenue implications of implementing a U.S. federal formula apportionment system. Ignoring behavioral responses, we estimate shifting to an equal-weighted, three-factor formula would have increased their U.S. tax liabilities by 38 percent, with an 81 percent increase for oil and gas firms. We find the firms report a lower percentage of their worldwide profits as American profits than their American share of assets, sales, or payroll. The results may be attributed to more profitable foreign operations, tax-motivated income shifting, or measurement error.     

Cost-effectiveness of second-line atezolizumab in Canada for advanced non-small cell lung cancer (NSCLC)

Aim: To assess the cost-effectiveness in Canada of atezolizumab compared with docetaxel or nivolumab for the treatment of advanced NSCLC after first-line platinum-doublet chemotherapy.

Materials and methods: A three-state partitioned-survival model was developed. Clinical inputs were obtained from the phase III OAK trial comparing atezolizumab with docetaxel in patients with advanced NSCLC who progressed after first-line platinum-doublet chemotherapy. Overall survival (OS) and progression-free survival (PFS) were extrapolated beyond the trial period using parametric models. A cure model assuming a 1% cure fraction was fitted to the OS data for atezolizumab. Outcomes for nivolumab were informed by a network meta-analysis (NMA) vs atezolizumab. Resource use and costs were informed by clinical expert opinion and published Canadian sources. Utility values were obtained from the OAK trial. The perspective of the analysis was that of the Canadian publicly-funded healthcare system. The base case time horizon was 10?years, and the discount rate was 1.5% annually for both costs and effects. Scenario analyses were performed to test the robustness of the results and all analyses were performed probabilistically.

Results: Atezolizumab demonstrated a quality-adjusted life-year (QALY) gain of 0.60 compared with docetaxel at an incremental cost of $85,073, resulting in an incremental cost-effectiveness ratio (ICER) of $142,074/QALY. Atezolizumab dominated nivolumab (regardless of dosing regimen), based on modest differences in both QALYs and costs. Docetaxel was most likely to be cost effective at willingness-to-pay (WTP) thresholds below $125,000/QALY gained, while atezolizumab was most likely to be cost effective beyond this WTP threshold. In most scenario analyses, the results remained robust to changes in parameters. A reduced time horizon and alternative approaches to the NMA had the greatest impact on cost-effectiveness results.

Conclusion: Atezolizumab represents a cost-effective therapeutic option in Canada for the treatment of patients with advanced NSCLC who progress after first-line platinum doublet chemotherapy.     

The financialization of the non‐financial corporation. A critique to the financial turn of accumulation hypothesis

One aspect in which non‐financial corporations (NFCs) are said to be financialized is that they have been increasingly engaged in financial accumulation from which they derive a growing proportion of financial income. This is what we call the financial turn of accumulation hypothesis. In this article, we show that the evidence used to sustain it, in the U.S. setting, has to be reconsidered. Our findings show that, contrary to the financial turn of accumulation hypothesis, financial income averages 2.5% of NFCs’ total income since the 1980s, oscillating since the beginnings of the 1990s until 2005 and then declining. In terms of assets, some of the alleged financial assets might actually reflect other activities in which NFCs have been increasingly engaged, such as tax avoidance, internationalization of production, activities refocusing and M&As.     

Analysing the wealth effects of UK divestitures: An examination of domestic and international sales

Here we analyse divestiture announcement effects for UK multinational corporations accounting for the location of the unit sold. We find some bias in market reactions with larger abnormal returns for UK divestitures when compared to overseas sales. US sales generate larger returns than those in Continental Europe or the Asia-Pacific region. We analyse the determinants of abnormal returns using accounting and transaction data, supplemented with country specific data for overseas sales. Abnormal returns for UK sales are explained by financial characteristics of the selling firm but the size of the transaction relative to the firm is the most significant factor in overseas divestitures.     

A Look Back at Modern Finance: Accomplishments and Limitations

In a conversation held in June 2016 between Nobel laureate Eugene Fama of the University of Chicago and Joel Stern, chairman and CEO of Stern Value Management, Professor Fama revisited some of the landmarks of “modern finance,” a movement that was launched in the early 1960s at Chicago and other leading business schools, and that gave rise to Efficient Markets Theory, the Modigliani‐Miller “irrelevance” propositions, and the Capital Asset Pricing Model. These concepts and models are still taught at prestigious business schools, whose graduates continue to make use of them in corporations and investment firms throughout the world. But while acknowledging the staying power of “modern finance,” Fama also notes that, even after a half‐century of research and refinements, most asset‐pricing models have failed empirically. Estimating something as apparently simple as the cost of capital remains fraught with difficulty. He dismisses betas for individual stocks as “garbage,” and even industry betas are said to be unstable, “too dynamic through time.” What's more, the wide range of estimates for the market risk premium—anywhere from 2% to 10%—casts doubt on their reliability and practical usefulness. And as if to reaffirm the fundamental insight of the M&M “irrelevance” propositions—namely, that what companies do with the right‐hand sides of their balance sheets “doesn't matter”—Fama observes that “we still have no real resolution on the key questions of debt and taxes, or dividends and taxes.” But if he has reservations about much of modern finance, Professor Fama is even more skeptical about subfields now in vogue such as behavioral finance, which he describes as “mostly just dredging for anomalies,” with no underlying theory and no testable predictions. Although he does not dispute that a number of well‐documented traits from cognitive psychology show up in individual behavior, Fama says that behavioral economists have thus far failed to come up with a testable theory that links cognitive psychology to market prices. And he continues to defend the concept of “efficient markets” with which his name has long been closely associated, while noting that empirically based asset pricing models such as his (with Ken French) “three‐factor” CAPM have produced much better results than the standard CAPM.     

Optimal capital structures for private firms

This article shows how to construct an optimal capital structure for a private firm. Since the agents who supply the firm’s capital are risk averse, they diversify by holding both debt and equity. This can mitigate, or even eliminate, the classical risk shifting problem. There is a wealth effect since the optimal capital structure, which can involve multiple types of debt, depends on the amount of wealth that each agent contributes to the firm. However, it is shown that the agents’ equity holdings do not depend on the contributed amounts of wealth. Thus the model can produce a wedge between ownership rights and equity cashflow rights. These features are illustrated in a firm with three agents.