Environmental social controls and capital investments: Australian evidence

Environmental social controls (ESCs) such as mandatory disclosure, regulations, subsidies, and stakeholder opinion are intended to improve firm environmental performance. This paper reports ESC importance to Australian financial managers in making capital investment decisions. A decision‐making experiment showed managers to be most responsive to stakeholder opinion (42 per cent), followed by subsidization (26 per cent) and regulatory cost (22 per cent). Mandatory disclosure has very little influence (10 per cent). ESC interaction effects are limited so coordination of ESC policy is not a primary concern. High degrees of managerial self‐insight suggest policy changes would be enhanced by close consultations with the managers involved.     

Science and Environmental Policy-Making: Bias-Proofing the Assessment Process

Scientific assessment panels are playing increasingly influential roles in national and international policy formation. Although they typically appeal to the standard of journal peer review as their quality control criterion, there seems to be confusion about what peer review actually does. It is, at best, a necessary condition of reliability, but not a sufficient condition. There is also the problem that assessment panels may be biased in favor of one side or another when evaluating areas in which the science is unclear. In this paper I argue that additional checks and balances are needed on the information going into scientific assessment reports when it will be used to justify major policy investments. I propose two new mechanisms to bias-proof the outcome: an Audit Panel and a Counterweight Panel. The need for such mechanisms is discussed with reference to the "hockey stick" debate in climate change.     

Mutual fund separation in financial theory—The separating distributions

This paper finds necessary and sufficient conditions on the stochastic structure of asset returns for portfolio choice to be equivalent to choice among a limited number of mutual funds of assets, independent of investors' preferences. This type of separation result is central to modern financial theory and the distributions which satisfy these conditions, the separating distributions, form the underlying basis for much of this theory.     

How Might Companies Value ESOs?

There has been a steady growth in the use of employee equity compensation plans, and in the use of executive stock options (ESOs) in particular, along with a rise in shareholder and public perceptions that the values of compensation plans are not always fully disclosed. The IFSA of Australia recently called for separate reporting in financial statements of numbers and values of ESOs. Companies, when negotiating employment contracts, frequently agree to compensate an executive if a share option plan is subsequently not approved by shareholders. These facts suggest that reporting the value of an ESO plan is a useful and important exercise. We outline a model for the valuation of ESOs typically issued by Australian listed companies and illustrate the application of the model with a case study.