Myopic Corporate Behaviour with Optimal Management Incentives

Existing models in which stock markets lead to corporate 'short-termism' rely on an exogenously imposed objective for top managers. This paper endogenizes both managers' concern for short-term stock prices and the resulting distortions. We show that when the manager can trade on her own account on the stock market in a way that is observable to market participants but which is not verifiable in court, shareholders will choose an incentive contract which induces a bias towards short-term returns. Consistent with recent evidence, the short-term bias is greater when the optimal contract provides low-powered management incentives.     

Earnings Management and Antitrust Investigations: Political Costs Over Business Cycles

This paper examines evidence of earnings management pertaining to regulatory-imposed wealth transfers (i.e., political costs) over business cycles. The sample consists of firms subject to merger-related antitrust investigation under Section 7 of the Clayton Act. Industrial organization literature, together with the political cost hypothesis, suggests that these firms' earnings management incentives may vary over national business cycles. Our results indicate that investigated firms do indeed choose income-decreasing discretionary accruals during expansions but not during recessions, in order to reduce the political costs associated with Clayton Act cases.     

The Greek financial crisis: Growing imbalances and sovereign spreads

We discuss the origins of the Greek financial crisis as manifested in the growing fiscal and current-account deficits since euro-area entry in 2001. We then extend a model typically used to explain risk premia to assess the extent to which credit ratings captured these premia. Next, we estimate a cointegrating relationship between spreads and their long-term fundamental determinants and compare the spreads predicted by this estimated relationship with actual spreads. We find that spreads were significantly below what would be predicted by fundamentals from end-2004 up to the middle of 2005; by contrast, since May 2010, actual spreads have exceeded predicted spreads by some 400 basis points.     

Integration of inventory and transportation decisions in a logistics system

This paper addresses some of the challenges faced by a company which is responsible for delivering coal to its four subsidiaries situated along a river, through river hired or self-owned vessels. We propose to adopt a vendor managed inventory concept that involves establishment of a central warehouse at the port, and apply the Markov Decision Process (MDP) to formulate both ordering and delivery problems, considering different transportation modes, costs, and inventory issues. An efficient algorithm is developed for solving the MDP models. Our computational tests show that the proposed strategy can significantly reduce the overall system costs while maintaining smooth Just-in-Time supplies of coal to the subsidiaries.     

Marriage and Family Therapy in NPD Teams: Effects of We‐ness on Knowledge Sharing and Product Performance

Drawing on marriage and family therapy (MFT), this paper introduces the concept of we‐ness to new product development (NPD). We‐ness is the shared sense of togetherness family members feel toward each other. We apply we‐ness to NPD as the construct through which people share knowledge at the team, between‐team, and between‐organization levels. The results support the hypotheses that we‐ness increases knowledge sharing and that knowledge sharing increases product performance. In this study, we used regressions to analyze the hypotheses. We found that the greater in‐team we‐ness (H1, t = 3.786, p = .000), between‐team we‐ness (H2, t = 5.411, p = .000), and between‐organization we‐ness (H3, t = 2.940, p = .004) activities there were, the more knowledge sharing in NPD. Results also indicate that knowledge sharing is related to better NPD performance. This paper contrasts team and family as the foundation metaphor to organize people engaged in product development. We argue the team metaphor can be counterproductive in settings where difficult decisions must be made. Teams can lead to individual members suppressing their opinions to “help” the team achieve its goal. Members are expected to sacrifice for the good of the team. That can be adaptive when the task is straightforward. The family metaphor suggests that the group sacrifices for the individual. In a family environment, members protect minority opinions, and in cases where complex, ambiguous decisions must be made individual expertise and insight may come from one person. High‐trust family‐like settings can facilitate sharing sensitive information and norms that can be challenged. The family metaphor suggests a more flexible and tolerant approach to new ideas. At the same time, it is recognized that families can have dysfunctions that can detract from performance. Therefore, managers must carefully apply the use of family‐like settings. The importance for family‐like approaches across organizations seems to be more important as technology complexity increases. Between‐team we‐ness was revealed significantly higher in goods manufacturers than service firms in this study. Small companies need to make extra effort to increase between‐team we‐ness. The idea of approaching product development from a family relations perspective opens up new alternatives for managing people in teams, between teams, and even between organizations. MFT tools to address behaviors and individual performance issues increase the number and nature of managerial tools to increase product performance.