Performance compensation contracts and CEOs’ incentive to shift risk to debtholders: An empirical analysis

The paper investigates the relationships among CEO incentive contracts, manager ownership, charter value, and bank risk taking. We analyze whether the presence and magnitude of incentive contracts induce CEOs of financially distressed firms and firms with high manager ownership to take unprofitable risks that shift wealth from debtholders to equity holders. Our sample focuses on banks that had both the incentive and opportunity to shift risks, and compares them with those that did not. We compare weak and strong banks in periods when the banks’ principal creditor, the FDIC, was a lenient and then a stringent monitor. The evidence is consistent with bonus compensation inducing CEOs of financially weak firms to shift risk to debtholders only if they do not have large insider ownership. The evidence is also consistent with these contracts rewarding CEOs for their effort to manage unforeseeable risk albeit not their ability. Low charter value banks with high managerial ownership took profitable risk during the lenient regulatory period.     

An in-depth exploration of residents’ perceived impacts of transient vacation rentals

ABSTRACT

The recent explosion of transient vacation rental (TVR) accommodations has been aided by websites like AirBnB, Vacation Rentals By Owner (VRBO), and HomeAway and this segment continues to grow in popularity. Many communities have enacted bans on TVRs with little empirical data to support decisions. This study explores TVR-related impacts as perceived by residents, and why those particular impacts are perceived. A series of 12 semi-structured, in-depth interviews of key resident stakeholders on Oahu, Hawai’i, United States (US) were conducted. Thematic analysis revealed residents perceived both positive and negative impacts in the economic, environmental, and sociocultural realms. Extended quotes from interviewees reveal the connection of perceived impacts to the presence of TVRs in residential zoned areas and the lack of a proprietor to manage the property and tourists like a traditional bed and breakfast (B&B). Findings provide a baseline for future research examining the unique impacts of this area of rapid tourism growth. Marketing implications are discussed.     

Return decomposition and the Intertemporal CAPM

The Intertemporal CAPM (ICAPM) from Merton (1973) has had a strong impact in empirical asset pricing leading to numerous multifactor models. This paper shows that the explanatory power of the ICAPM application by Campbell and Vuolteenaho (2004) relies critically on the computation of Dimson (1979) covariances (betas). If one employs the standard factor covariances (excluding lagged factors), the two-factor ICAPM has virtually no explanatory power for the average returns of the 25 size/book-to-market portfolios. More specifically, it is the covariance with the lagged innovation in one of the state variables (the value spread) that drives the explanatory power of the model. These results are inconsistent with the central economic intuition from the ICAPM. By specifying a more general version of the ICAPM, the fit of the model improves relative to the Campbell and Vuolteenaho (2004) model.