Some behavioral aspects of budgeting for control: An empirical study

The research reported in this article empirically evaluated the relationships between perceived participation in the budget process, perceived reward dependency of budget performance, and perceived attainability of the budgeted goals, and the dependent variable of motivation to achieve the budget. The results indicated that there were two dimensions to a manager's effort expended (motivation) to achieve the budgeted goals for which he is responsible; they are a goal-directing effort and an evaluative effort. It was found that perceived participation had the most significant relationship with the goal-directing effort, whereas perceived reward dependency had the most significant relationship with the evaluative effort. The relationships between perceived attainability and both dimensions of effort expended (motivation) were either not significant or only moderately significant.     

The militarization of space: From passive support to active weapons systems

Space has become an essential element of the strategic balance. Large investments in passive satellites and a growing dependence on them have created potential new strategic problems and arms control challenges. there is also a resurgence of interest in ‘active’ weapon systems based on developments in laser and particle beam technology. This paper reviews the evolution of military space programmes, and explores the present and future challenges and dilemmas.     

CEO stock options and analysts’ forecast accuracy and bias

This paper investigates the relationship between CEO stock options and analysts’ earnings forecast accuracy and bias. A higher level of stock options may induce managers to undertake riskier projects, to change and/or reallocate their effort, and to possibly engage in gaming (such as opportunistic earnings and disclosure management). These managerial behaviors result in an increase in the complexity of forecasting and hence, less accurate analysts’ forecasts. Analysts’ optimistic forecast bias may also increase as the level of stock options pay increases. Because forecast complexity increases with stock options pay, analysts, needing greater access to management’s information to produce accurate forecasts, have incentives to increase the optimistic bias in their forecasts. Alternatively, a higher level of stock options pay may lead to improved disclosure because it better aligns managers’ and shareholders’ interests. The improved disclosure, in turn, may result in more accurate and less biased analysts’ forecasts. Our empirical evidence indicates that analysts’ earnings forecast accuracy decreases and forecast optimism increases as the level of CEO stock options increases. This evidence suggests that the incentive alignment effects of stock options are more than offset by the investment, effort allocation and gaming incentives induced by stock options grants to CEOs.     

Externalities, efficiency, regulation, and productivity growth in the U.S. electric utility industry

This paper examines the decomposition of total factor productivity growth for firms subject to regulation, given the production of a bad output. The production of good and bad outputs provides benefits and costs to society. Corporate socially responsible firms recognize the cost to society of producing the bad output. The paper separates the production technology and regulation effects from both the scale and technical change components. The paper also examines the measurement and decomposition of productivity growth when not accounting for production of the bad output. Using a 1992–2000 panel of 34 U.S. investor-owned electric utilities, results indicate that improvements in the scale, efficiency change, and technical change components contributed to positive growth. Not accounting for production of the bad output led to, on average, an overestimation of both the rate of productivity growth, and the contributions of scale economies and technical change to changes in productivity growth.

Contingent trade policy and economic efficiency

Review of World Economics - This paper models the competition for a domestic market between one domestic and one foreign firm as a pricing game under incomplete cost information. As the foreign...     

The impact of firm membership in an Independent System Operator (ISO) on production cost and cost efficiency in the generation sector of the U.S. electric utility industry

This paper examines how ISO membership impacts cost efficiency. Utilities joining ISOs can face more competition in selling electric power, possibly leading to lower profits, which can incentivize utilities to operate more cost efficiently to maintain a specified level of profits. The empirical model involves estimating a Probit model, then OLS regression, then a stochastic cost frontier. Using a 1992 to 2000 panel of 34 investor‐owned electric utilities, empirical results indicate that ISO membership contributed to higher production cost, lower cost efficiency, and ISO members subject to the 1990 Clean Air Act Amendments operated more cost efficiently than ISO members not subject to the Amendments.     

The consequences to managers for financial misrepresentation

We track the fortunes of all 2,206 individuals identified as responsible parties for all 788 Securities and Exchange Commission (SEC) and Department of Justice (DOJ) enforcement actions for financial misrepresentation from January 1, 1978 through September 30, 2006. Fully 93% lose their jobs by the end of the regulatory enforcement period. Most are explicitly fired. The likelihood of ouster increases with the cost of the misconduct to shareholders and the quality of the firm's governance. Culpable managers also bear substantial financial losses through restrictions on their future employment, their shareholdings in the firm, and SEC fines. A sizeable minority (28%) face criminal charges and penalties, including jail sentences that average 4.3 years. These results indicate that the individual perpetrators of financial misconduct face significant disciplinary action.     

Risk aversion and skewness preference

Empirically, co-skewness of asset returns seems to explain a substantial part of the cross-sectional variation of mean return not explained by beta. This finding is typically interpreted in terms of a risk averse representative investor with a cubic utility function. This paper questions this interpretation. We show that the empirical tests fail to impose risk aversion and the implied utility function takes an inverse S-shape. Unfortunately, the first-order conditions are not sufficient to guarantee that the market portfolio is the global maximum for this utility function, and our results suggest that the market portfolio is more likely to represent the global minimum. In addition, if we do impose risk aversion, then co-skewness has minimal explanatory power.