Managerial Compensation and Capital Structure

We investigate the interaction between financial structure and managerial compensation and show that risky debt affects both the probability of managerial replacement and the manager's wage if he is retained by the firm. Our model yields a rich set of predictions, including the following: (i) The market values of equity and debt decrease if the manager is replaced; moreover, the expected cash flow affirms that retain their managers exceeds that affirms that replace their managers, (ii) Managers affirms with risky debt outstanding are promised lower severance payments (golden parachutes) than managers affirms that do not have risky debt. (Hi) Controlling for firm's size, the leverage, managerial compensation, and cash flow of firms that retain their managers are positively correlated, (iv) Controlling for the firm's size, the probability of managerial turnover and firm value are negatively correlated, (v) Managerial pay-performance sensitivity is positively correlated with leverage, expected compensation, and expected cash flows.     

On Nations’ Size and Transportation Costs*

This paper develops a noncooperative Nash model in which a closed border is opened to trade between countries that differ in size and transportation costs. the paper suggests an explanation as to why economists have not convinced policymakers to lift all barriers to free trade. the questions we pose are: Who will gain as a result of opening the borders? Is free trade beneficial to the two parties involved? Do they both share equally in the fruits of free trade? Which country, large or small, benefits most? It is shown that free trade is not beneficial to both countries.     

The Evolution Of Bank Resolution Policies In Japan: Evidence From Market Equity Values

We examine the evidence in equity markets concerning bank regulatory policies in Japan from 1995 to 1999. Our results support the presence of information‐based contagion in Japanese equity markets. When the failure of a bank of certain regulatory status was announced, it adversely affected excess returns on banks with equal or lower levels of regulatory protection. Market participants therefore initially behaved as if only second regional and smaller banks would be allowed to fail. As the situation deteriorated, however, banks that traditionally enjoyed greater regulatory protection were also perceived to lose their too‐big‐to‐fail status.     

Clever enough to tell the truth

We conduct a field experiment on 427 Israeli soldiers who each rolled a six-sided die in private and reported the outcome. For every point reported, the soldier received an additional half-hour early release from the army base on Thursday afternoon. We find that the higher a soldier’s military entrance score, the more honest he is on average. We replicate this finding on a sample of 156 civilians paid in cash for their die reports. Furthermore, the civilian experiments reveal that two measures of cognitive ability predict honesty, whereas general self-report honesty questions and a consistency check among them are of no value. We provide a rationale for the relationship between cognitive ability and honesty and discuss its generalizability.     

On the non-optimality of auctions—The case of profit sharing

Conclusion In this paper we have shown that a PSA in a competitive environment can result in a non-optimal allocation. A sufficient condition for the optimality of the PSA is that the owner gets an income, in a form of a lump sum payment only, and the operator collects all the variable profits which result from his activity. This conclusion suggests that an agent should act as an independent entity and obtain his full marginal product.An alternative suggestion is that, the division of ownership take the form of a FPSA. In other words, the partnership between the owner and the operator will be in a form of stock-ownership.     

Consumers' activism: the cottage cheese boycott

We study a consumer boycott on cottage cheese, organized in Israel on Facebook in the summer of 2011 following a steep price increase since 2006. The boycott led to an immediate decline in prices, which remain low even six years later. We find that (i) demand at the start of the boycott would have been 30% higher but for the boycott, (ii) own‐ and especially cross‐price elasticities increased substantially after the boycott, and (iii) post‐boycott prices are substantially below the levels implied by the post‐boycott demand elasticities, suggesting that firms were concerned with public backlash due to high prices.     

Managerial overload and organization design

This paper considers a firm's choice between a “divisional structure” and a “functional structure.” It shows that an increase in the number of projects which the firm can adopt creates a managerial overload, which favors the divisional structure.     

International financial remoteness and macroeconomic volatility

This paper shows that proximity to major international financial centers seems to reduce business cycle volatility. In particular, we show that countries that are farther from major locations of international financial activity systematically experience more volatile growth rates in both output and consumption, even after accounting for political institutions, trade, and other controls. Our results are relatively robust in the sense that more financially remote countries are more volatile, though the results are not always statistically significant. The comparative strength of this finding is in contrast to the more ambiguous evidence found in the literature.     

Asymmetric Information and News Disclosure Rules

When the imminence of news announcements is not public knowledge, many traders will lack information on both the mean and variance of private information. Our analysis of such a setting in both single and multisecurity contexts implies that disclosure of impending information events by firms can bound variance uncertainty and thereby improve investor welfare by mitigating the market breakdown problem. We also find that the equilibrium pricing functions are nonlinear; specifically, convex for small trades and concave for larger ones. In addition, we predict that large transactions will be followed by large levels of volatility. Journal of Economic Literature Classification Numbers: 022, 026, 522.