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.     

Reconciling Gray and Hotelling

A bstract .   Early exhaustible resource economics provides an important foundation for recent suggestions that firm-level economic modeling plays a larger role in the analysis of resource scarcity. The lack of empirical support for Hotelling's r -percent rule, introduced in 1931, and recent suggestions that industry behavior may not be reducible to firm behaviors are the primary motivating factors for examining the relative value of Gray's contribution to the field of exhaustible resource economics relative to Hotelling's contribution. Specifically, Gray's papers that appeared in the 1910s provide insight into the heterogeneity of deposits and their spatial dimensions, and offer the possibility that firms will be subject to fixed costs carried over between periods. In this paper, the arguments presented by Gray are formalized in a dynamic model, which allows the differences between Gray's and Hotelling's assumptions to be more fully explored. The results of the paper illustrate that by considering spatially identifiable heterogeneous deposits, fixed costs, and entry costs, in general Hotelling's r -percent rule is not a sufficient condition for firm-level decision making and that firms' extraction behavior cannot be linearly aggregated to describe industry behavior.     

Is there a bigger and better future for employer branding? Facing up to innovation,corporate reputations and wicked problems in SHRM

Employer branding is becoming an increasingly important topic for research and practice in multinational enterprises (MNEs) because it plays directly into their corporate reputation, talent management and employee engagement agendas. In this paper, we argue that the potential effects of employer branding have yet to be fully understood because current theory and practice have failed to connect this internal application of marketing and branding to the key reputational and innovation agendas of MNEs, both of which are at the heart of another strategic agenda – effective corporate governance. However, these agendas are characterised by ‘wicked problems’ in MNEs, which have their origins in competing logics in strategic human resource management (SHRM). These problems need to be articulated and understood before they can be addressed. This paper proceeds by (1) setting out a definition and model of employer branding and how it potentially articulates with corporate governance, innovation and organisational reputations, (2) discussing and analysing the ‘wicked problems’ resulting from the sometimes contradictory logics underpinning innovation and corporate reputations and SHRM in MNEs and (3) evaluating the potential of employer branding as a contribution to the third SHRM approach – HR strategy-in-action – as a way of resolving three particularly wicked problems in MNEs. We conclude with some ideas for research and practice on the future for employer branding.     

Forecasting the volatility of asset returns: The informational gains from option prices

A new class of forecasting models is proposed that extends the realized GARCH class of models through the inclusion of option prices to forecast the variance of asset returns. The VIX is used to approximate option prices, resulting in a set of cross-equation restrictions on the model’s parameters. The full model is characterized by a nonlinear system of three equations containing asset returns, the realized variance, and the VIX, with estimation of the parameters based on maximum likelihood methods. The forecasting properties of the new class of forecasting models, as well as a number of special cases, are investigated and applied to forecasting the daily S&P500 index realized variance using intra-day and daily data from September 2001 to November 2017. The forecasting results provide strong support for including the realized variance and the VIX to improve variance forecasts, with linear conditional variance models performing well for short-term one-day-ahead forecasts, whereas log-linear conditional variance models tend to perform better for intermediate five-day-ahead forecasts.     

Determinants and effects of sustainable CEO compensation: a structured literature review of empirical evidence

Management Review Quarterly - Sustainability-oriented CEO compensation is being widely discussed among policy makers, corporate practice, and academia. To date, management literature has yielded a...     

Behavioral agency and corporate entrepreneurship: CEO equity incentives & competitive behavior

Scholars have long studied drivers of entrepreneurial behavior among established firms. Yet little is known about how individual factors shape a firm’s choice to pursue entrepreneurship. We draw on behavioral agency theory to explore the role of equity incentives in driving corporate entrepreneurship. Our findings suggest CEOs avoid corporate entrepreneurial behaviors as their option wealth increases. However industry dynamics also prove to be an important contingency when predicting the effects of both restricted stock and stock options on the likelihood that the CEO engages in corporate entrepreneurship. Our findings provide a theoretical platform for predicting dimensions of entrepreneurial behavior and highlight effects of CEO equity ownership.

     

Estimating within‐cluster spillover effects using a cluster randomization with application to knowledge diffusion in rural India

Spillover effects within randomized clusters pose a challenge for identifying impacts of an individualized treatment. The paper proposes a solution. Longitudinal and intra‐household observations are combined in estimating the direct knowledge gain from watching an info‐movie in rural India, while randomized village assignment identifies knowledge sharing. Simulations on synthetic data and econometric tests provide support for the estimation method. We find evidence of information sharing, but far less so for disadvantaged groups, such as illiterate and lower‐caste individuals; these groups rely more on actually seeing the movie. Our results are consistent with sizeable biases in ordinary least squares, matching or instrumental variable impact estimators that ignore within‐cluster spillovers.     

Moral management in competitive markets

The intrinsic motivation of a firm’s management for engaging in prosocial behavior is an important determinant of a firm’s social conduct. I provide the first model in which firms run by morally motivated managers engage in corporate social responsibility (CSR) in a competitive setting. Moral management crowds out a competitor’s strategic CSR, increasing profitability and leading shareholders to strategically delegate moral managers, although necessary for socially optimal CSR is that shareholders be morally motivated as well. Shareholders appoint managers that engage in a socially excessive amount of CSR, counter to existing literature, whenever product‐market competition is sufficiently intense.     

Markets under the Microscope: Making Scientific Discoveries Valuable through Choreographed Contestations

This paper breaks new ground by revealing and conceptualizing the marketization of science as a process that transforms scientific discoveries and markets through a series of choreographed contestations: moments of valuation that occur when different social worlds collide. We follow a scientific discovery, from the moment it entered an incubator, to uncover how valuation practices and market devices enact and contest diverse social values (i.e., what is worth doing) to generate economic value (i.e., what is worth paying for) at the science‐market‐entrepreneurship nexus. In contrast with commercialization of science studies that focus on institutional arrangements, this study explicates the practices and devices used by multiple market actors to transform a scientific discovery into a marketable object. In so doing, we characterise choreographed contestations and the mechanisms through which they operate to explain how specific valuations are performed to work out innovative next steps that unfold the marketization of science.