A Test of the Persistence in the Performance of UK Managed Funds

We employ a United Kingdom data set of weekly returns from a sample of investment trust companies available on the Datastream database. We analyse the relative performance of the funds and determine whether a 'good' (above-median), past-performance is indicative of future performance. Our study focuses on within sample relative performance. We examine persistence in performance in the short and long run based on a number of tests. Overall we find that both raw and risk-adjusted returns exhibit evidence of persistence in performance in the long run but not in the very short run.     

Corporate Equity Ownership, Strategic Alliances, and Product Market Relationships

This paper examines long-term block ownership by corporations and performance changes in firms with corporate block owners. We also examine potential reasons for corporate ownership including benefits in product market relationships, alleviation of financing constraints, and board monitoring by corporate owners. We find the largest significant increases in targets' stock prices, investment, and operating profitability when ownership is combined with alliances, joint ventures, and other product market relationships between purchasing and target firms, especially in industries with high research and development. Our findings are consistent with the conclusion that block ownership by corporations has significant benefits in product market relationships.     

The Effect of Board Independence on Target Shareholder Wealth

We seek insights into whether, and if so how, an independent board enhances the bid premiums offered to target firm shareholders during a takeover. The results indicate that the presence of an independent board enhances the initial bid premium by, on average, 21.1%. However, the results of more refined analysis suggest that the enhanced bid premium is in fact driven by independent boards comprising non-executive directors who have reputation capital at stake. We also find that independent boards that resist takeovers or include voluntary independent expert reports in target statements, increase the bid premium revision by, on average, 15.6% and 16.2%, respectively.     

Bubbles, crises, and policy

In many recent cases financial liberalization has led to a bubblein asset prices. The bursting of the bubble results in a bankingcrisis and recession. It is suggested such bubbles are causedby an interaction of the risk-shifting problem arising fromagency relationships in intermediaries and uncertainty concerningthe expansion of credit. Two important policy objectives areidentified. The first is the prevention of bubbles in assetprices. The second is minimizing the impact of spillovers onto the real economy during post-bubble banking crises. The differentpolicy approaches taken in Norway and Japan are compared.     

A Transaction Cost Primer on Farm Organization

Agricultural economists, with their knowledge of farming, are well positioned to take advantage of the fertile ground of economic organization. The transaction cost paradigm is particularly useful in addressing such questions and is outlined in this paper. The overriding theme in the transaction cost approach is that patterns of ownership and contracts are chosen to mitigate transaction costs, which result from attempts to establish and maintain property rights. In agriculture, transaction costs are heavily influenced by Mother Nature. Nature's uncertainty, via weather and pests, leads to moral hazard and seasonal forces impose constraints on production cycles that are not often found in the production of most other commodities. Applications in land contracts, asset control, and business organization are discussed.     

REINVENTING A CORPORATION: THE "SATELLITE" STRUCTURE OF THERMO ELECTRON

Thermo Electron has created a unique–and highly productive—corporate structure by selling to the public minority equity interests in 19 of its business units over the period 1983 to 1996. Since 1983, the company has achieved extraordinary gains for stockholders, both those of the parent company and those of most of its publicly traded subsidiaries.
The company's "satellite" structure is intended to preserve the benefits enjoyed by small entrepreneurial organizations without sacrificing many of the advantages enjoyed by larger firms. Although decentralization is a key element of the organizational design, another important feature of the Thermo Electron approach is that administrative activities unrelated to the focus of the unit's operations continue to be managed at the parent level. The combination of an entrepreneurial atmosphere with the financial and administrative support of a larger organization is used extensively by the company to attract and retain management and technical talent. In fact, the company made the remarkable claim in a 1995 Forbes article that "no developer or entrepreneur has ever left Thermo Electron."
Another major contributor to the company's entrepreneurial culture is an incentive structure that is tied directly to the equity performance of both the public units and the parent. Managers of the publicly traded units are granted significant amounts of stock options, but only 40% of those options are based on the performance of their subsidiary. Of the remaining 60%, 40% are granted in the stock of the parent and the other 20% are in stock of the other subsidiaries.