Going short‐term or long‐term? CEO stock options and temporal orientation in the presence of slack

Research summary: We draw on behavioral agency theory to explain how decision heuristics associated with CEO stock options interact with firm slack to shape the CEO's preference for short‐ or long‐term strategies (temporal orientation). Our findings suggest CEO current option wealth substitutes for the influence of slack resources in encouraging a long‐term orientation, while prospective option wealth enhances the positive effect of slack on temporal orientation. Our theory offers explanations for non‐findings in previous analysis of the relationship between CEO equity based pay and temporal orientation and provides the insights that CEO incentives created by stock options (1) enhance the effect of available slack upon temporal orientation and (2) can both incentivize and de‐incentivize destructive short‐termism, depending upon the values of current and prospective option wealth. Managerial summary: We explore how compensation design can play a role in affecting the CEO's preference for short‐ or long‐term strategic projects. When the CEOs have accumulated option wealth, they are more likely to invest in the long term. Yet when they have a large number of recently granted options with the potential to generate significant wealth in the event of successful risk taking, the CEO is more likely to prefer the short term in order to achieve personal wealth gains more quickly. The more liquid assets the firm holds, the weaker both of the aforementioned effects. An implication for boards is that they should anticipate CEO short‐termism if the CEO has been granted new options, underlining the potential negative consequences of option compensation. Copyright © 2015 John Wiley & Sons, Ltd.     

The political economy of public debt

Public debt (as opposed to current taxation) alters the inter-temporal pattern of tax rates??it reduces current rates and increases future rates. Accordingly, whether the share of the cost of a given public expenditure is reduced or increased by debt for a given individual depends on the time profile of that individual??s income (tax base) vis-à-vis others?? incomes. Therefore, given the age-profile of income in virtually all Western countries, individuals will tend to be better off under current taxes the younger they are. If (as most standard models of political economy assume) individuals vote according to their economic interests, and if they are tolerably well-informed, then the pattern of support for public debt will track age. And increases in the median age of the population will lead to larger public debt. In other words, public debt policy collapses to a kind of demographic politics. This explanation may, however, be sensitive to assumptions about motives for bequest. Specifically, if bequestors seek to leave positive bequests and are motivated exclusively by the lifetime consumption of their heirs (as well as themselves) then the aged may, under plausible assumptions about the age of their heirs, prefer current taxes over debt.     

Investment and emission control under technology and pollution externalities

This paper studies incentives to develop advanced pollution abatement technology when technology may spillover across agents and pollution abatement is a public good. We are motivated by a variety of pollution control issues where solutions require the development and implementation of new pollution abatement technologies. We show that at the Nash equilibrium of a simultaneous-move game with R&D investment and emission abatement, whether the free rider effect prevails and under-investment and excess emissions occur depends on the degree of technology spillovers and the effect of R&D on the marginal abatement costs. There are cases in which, contrary to conventional wisdom, Nash equilibrium investments in emissions reductions exceed the first-best case.     

How professional service firms compete in the market: an exploratory study

Abstract

This study investigates how professional service firms (PSFs) compete in the market. Drawing on strategic marketing literature, a managerial rather than customer perspective is adopted. The study investigates the competitive positions sought by professional service providers and the specific marketing activities actually undertaken to achieve these positions. Thirty-seven depth interviews with senior management from a range of PSFs indicate that firms seek to differentiate themselves by developing long-term relationships, providing better service quality and greater value, and developing brands with strong reputations. Organisations typically seek such interrelated competitive positions simultaneously. A list of marketing activities used by the PSFs to achieve these competitive positions offers practical insights into the specific activities needed to achieve the various competitive positions sought.     

Harmonious Society and Chinese CSR: Is There Really a Link?

In 2005, Chinese President Hu Jintao instituted a “Harmonious Society” policy marking a new China’s approach toward development. This generated intense excitement among observers of Corporate Social Responsibility (CSR) who perceive an overlap in objectives between CSR and Harmonious Society and believe that Harmonious Society will lead to increased CSR engagement in China. However, there is little exploration of how Harmonious Society will contribute to increasing CSR engagement. This article seeks to explore whether Harmonious Society will meet this promise. It does so by drawing up a list of actions that if taken by the government would increase the level of CSR in China and make Harmonious Society a relevant factor in the development of Chinese CSR. To do so, my article studies comparative literature on CSR development to develop a framework that divides causes of CSR in a country into environmental constraints and discretionary responses. Understanding what drives the development of CSR allows us to understand what measures the Chinese government can take to influence the level of CSR. Using this framework, my article suggests that Harmonious Society is unlikely to promote CSR in China’s growing private sector because policy measures that affect the “constraints” driving CSR are bounded by other political considerations.     

Land Development under the Threat of Taking

This paper presents a model of the land developer's response to the threat of regulatory taking. It shows that the threat of regulation affects development timing and density differently than the regulation imposed with certainty. Planned development proceeds at a more rapid pace under the taking threat, whereas the development density varies systematically by location in a spatial land market. Further, property on which regulations are actually imposed will be developed later than planned when the demanded density is falling over time. Regulated property, however, may be developed even more quickly than planned when the demanded density is rising over time.     

New Economic Indicators for Australia, 1949-84

This article attempts to identify and describe the main characteristics of Australia'a business cycles during the period 1949 to 7984 with the aid of leading, coincident, and lagging indicators, using the methodology of the International Economic lndicator project at the Center for lnternational Business Cycle Research, Columbia University, New York. The methodology to identify Australia's classical cycle and growth cycle chronologies is discussed. Reviews are made of the lead-lag patterns of, first, both chronologies in relation to the specific cycles of the individual coincident indicators, and second, the growth chronology in relation to the leading and lagging indicators. Australia's growth cycle chronology is compared with the chronology of other countries, notably of United States, United Kingdom, and Japan. The general uses of an indicator analysis are reviewed. An appendix compares the reference cycle chronologies previously available for Australia and the indicators used to obtain them.