UNIVERSAL INVESTMENT IN MARKETS WITH TRANSACTION COSTS

In this paper we investigate growth optimal investment in two-asset discrete-time markets with proportional transaction costs and no distributional assumptions on the market return sequences. We construct a policy with growth rate at least as large as any interval policy. Since interval policies are ε-optimal for independent and identically distributed (i.i.d.) markets ( Iyengar 2002 ), it follows that our policy when employed in an i.i.d. market is able to "learn" the optimal interval policy and achieve growth optimality; in other words, it is a universal growth optimal policy for i.i.d. markets.     

Return on investment and corporate capital expenditures: Empirical evidence

It is well known (e.g., Gordon 1996, Chapter 8) that maximizing a firm's ROI is not equivalent to maximizing the value of the firm. This fact notwithstanding, it is often claimed that many managers use ROI in making capital expenditure decisions. The purpose of our paper is to empirically examine this claim. The primary findings presented in this paper offer substantial evidence demonstrating the positive association between ROI and capital expenditures. The positive association between ROI and capital expenditures occurs even where the interests of owners and managers are apparently in conflict.     

Sensitivity of executive pay to accounting performance measures in all-equity firms

We investigate the relation between chief executive officer compensation and accounting performance measures as a function of the firm's capital structure. We specifically analyse pay–performance relationships for all‐equity firms relative to high‐levered firms. We find a significant positive association between return on equity and the level of compensation for all‐equity firms. Consistent with optimal contracting theory, we cannot discern any such relationship for high‐levered firms. Because of agency costs of debt, managerial compensation in high‐levered firms plays the role of a precommitment mechanism in addition to its conventional role of aligning management incentives with shareholder interest.     

Transformative capacity: Continual structuring by intertemporal technology transfer

The ability to maintain internally developed technology over time is important for corporate vitality. We label this ability transformative capacity and suggest that it depends on how well a firm accomplishes three tasks, These tasks are: the choice of technologies, their maintenance over time, and their reactivation and synthesis when required. To establish the need for transformative capacity, we first discuss time lags in the development of technologies and markets to suggest that not all technologies developed by firms can be utilized immediately. We then examine dimensions of technological knowledge that affect knowledge transfer over time. Next, we build on the resource-based view of the firm to discuss how firms can create transformative capacity. The concluding discussion focuses on the implications of transformative capacity for the analysis and management of technological investments as a way to maintain corporate vitality.