Competition For Board Seats Following Stock‐For‐Stock Mergers

We examine the board structure of firms following stock‐for‐stock mergers. We find that former target inside (outside) directors are more likely to join the combined firm board when target insiders (outsiders) have a relatively strong position on the pre‐merger target board. The relative size of the target firm, target firm profitability, and target blockholder ownership also influence whether target directors join the combined board. We conclude that competition for board seats on the combined board is won by target directors with greater bargaining positions.     

TRADE LIBERALIZATION AND COMPENSATION*

Liberalization harms some groups while generating aggregate benefits. We consider various labor market policies that might be used to compensate those who lose from freer trade. Our goal is to find the policy that compensates each group of losers at the lowest cost to the economy. We argue that wage subsidies should be used to compensate those who bear the adjustment costs triggered by liberalization whereas employment subsidies should be used to compensate those who remain trapped in the previously protected sector. Our analysis indicates that the cost of compensation is low, provided that the right policy is used.     

Internal governance structures and earnings management

This paper investigates the role of a firm's internal governance structure in constraining earnings management. It is hypothesized that the practice of earnings management is systematically related to the strength of internal corporate governance mechanisms, including the board of directors, the audit committee, the internal audit function and the choice of external auditor. Based on a broad cross‐sectional sample of 434 listed Australian firms, for the financial year ending in 2000, a majority of non‐executive directors on the board and on the audit committee are found to be significantly associated with a lower likelihood of earnings management, as measured by the absolute level of discretionary accruals. The voluntary establishment of an internal audit function and the choice of auditor are not significantly related to a reduction in the level of discretionary accruals. Our additional analysis, using small increases in earnings as a measure of earnings management, also found a negative association between this measure and the existence of an audit committee.     

Problems with the estimation of moving average processes

As a consequence of the well-known underidentification of the moving average model unless the parameter space is restricted, Maximum Likelihood and other estimators possess properties which can pose problems for estimation when a root of the process is close to the unit circle. The behaviour of the estimators is studied both through the analytic properties of their criterion functions and by Monte Carlo simulation. Conclusions about the choice of estimator are drawn, in particular regarding the treatment of the pre-sample residuals.     

INFORMATION SHARING IN UNION–FIRM RELATIONSHIPS*

Large firms often negotiate wage rates with labor unions. When they do, an ex ante agreement to share information should make it more likely that they will reach an agreement and capture the gains from trade. However, if the firm refuses to share information, the union may shade down its wage demand to increase the probability of acceptance. This reduction in the wage can increase the joint surplus of the agents and increase social welfare. As a result, there are some circumstances in which bargaining with incomplete information can be better for the agents and society than bargaining with complete information.     

Capital City Museums and Tourism Flows: an Empirical Study of the Museum of New Zealand Te Papa Tongarewa

This study uses time series analysis to explore the extent to which the opening of the Museum of New Zealand in 1998 contributed to tourism growth in the nation's capital, Wellington. With the use of a series of different measures for tourism and major events in the city, econometric regressions are undertaken to better understand the relationship between visitors to the museum and tourism growth in the city's short‐term commercial accommodation sector. The findings are consistent with the museum having a positive impact on tourist arrivals and overnight stays. These results contribute valuable empirical evidence of the positive role of museums in attracting tourists to urban centres. Copyright © 2012 John Wiley & Sons, Ltd.     

A Review of“BUSINESS INVESTMENT POLICY”* A Critical Review GEORGE TERBORGH: Machinery and Allied Products Institute and Council for Technological Advancement, 1200 Eighteenth Street,N.W., Washington,D.C., 1958. 260 pp. $6 (A MAPI Study and Manual)

In my previous article on “Project Justification in a Multi-product Chemical Plant”, which appeared in the Fall 1959 issue of The Engineering Economist, I discussed the underlying causes for equipment acquisition and replacement in the chemical industry, and followed with a presentation of the payout-time technique for evaluating capital expenditure, as designed by a leading dye and pharmaceutical plant. Many other well-known techniques, such as the Annual Cost method, the Discounted Cash Flow, and the MAPI approach, are also available to management. However, none of the techniques mentioned relieves management of the basic responsibility for making the ultimate decisions regarding capital acquisition for expansion or replacement. The methods do present management with an analysis pointing up the relative merits of a given type of investment, and give some indication as to which alternative is the more desirable. Management, nevertheless, must assume responsibility for the final decision.