An agency-based perspective on the performance consequences of COO adoption

The aim of this study is to explain the performance consequences of the adoption of a Chief Operating Officer (COO) position by drawing from agency theory. Although, prior research has documented a performance penalty associated with the use of this position, we currently have an incomplete understanding of the factors explaining this penalty. This study suggests that the delegation of CEO decision rights to the COO is explained by information transfer and agency considerations. Largely consistent with agency theory, our empirical analysis suggests information transfer considerations are related to the likelihood of COO adoption, while CEO ownership and board characteristics mitigate the related performance penalty.     

R&D and Tobin's q in an emerging financial market: the case of the Athens Stock Exchange

This paper aims at providing further evidence on the consequences of R&D investment on Tobin's q for firms publicly traded in an emerging financial market. Panel data methodology is applied using data for the manufacturing and computer firms listed in the Athens Stock Exchange, a market classified as emerging by the major securities analysts, for the period 1996–2004. The empirical findings show first, that the Greek firms' R&D investment effect on the market value of a firm is consistent with other US and European studies. Second, the impact of the R&D investment on the market value is higher for small firms. The findings of this paper may have significant industrial and technological policy implications for other emerging markets sharing similar characteristics to Greece. Copyright © 2010 John Wiley & Sons, Ltd.     

The Association between Board Composition and Corporate Pension Policies

This study examines the role of board composition in the determination of pension policies. The results suggest that the proportion of outside directors serving on the board is positively related with pension plan funding levels. In addition, the proportion of outside directors mitigates the relation between financial distress risk and plan underfunding. Last, as firms approach distress, boards with a greater proportion of outside directors tend to allocate a lower fraction of plan assets to riskier securities. Together, our findings suggest that outside directors are mindful of their obligations toward pension plan beneficiaries.     

Measuring systemic risk in the European banking sector: a copula CoVaR approach

We propose a new methodology based on copula functions to estimate CoVaR, the Value-at-Risk (VaR) of the financial system conditional on an institution being under financial distress. Our Copula CoVaR approach provides simple, closed-form expressions for various definitions of CoVaR for a broad range of copula families and allows the CoVaR of an institution to have time-varying exposure to its VaR. We extend this approach to estimate other ‘co-risk’ measures such as Conditional Expected Shortfall (CoES). We focus on a portfolio of large European banks and examine the existence of common market factors triggering systemic risk episodes. Further, we analyse the extent to which bank-specific characteristics such as size, leverage, and equity beta are associated with institutions' contribution to systemic risk and highlight the importance of liquidity risk at the outset of the financial crisis in summer 2007. Finally, we investigate the link between macroeconomy and systemic risk and find that changes in major macroeconomic variables can contribute significantly to systemic risk.     

Does the size of the action set matter for cooperation?

We use the voluntary contribution mechanism to investigate whether smaller action sets lead to higher cooperation rates. We find that this is the case for groups of four players.     

Border tax adjustments and tariff‐tax reforms with consumption pollution

We develop a model of a small open economy, where pollution per unit of consumption between domestically produced and imported quantities of the same good differs. We show that the first‐best policy combination calls for consumption taxes on all polluting goods, and border tax adjustment (BTA) measures, that is, tariffs or import subsidies. We identify conditions under which well‐known tariff‐tax reform policies for developing economies, such as a consumer‐price‐neutral piecemeal reform of trade and a consumption tax, and a consumer‐price‐neutral reform of all trade and consumption taxes improve welfare. We also evaluate whether reforms of trade taxes alone are superior to consumer‐price‐neutral reforms of trade and consumption taxes.     

Is there selection bias in laboratory experiments? The case of social and risk preferences

Laboratory experiments are frequently used to examine the nature of individuals’ social and risk preferences and inform economic theory. However, it is unknown whether the preferences of volunteer participants are representative of the population from which the participants are drawn, or whether they differ due to selection bias. To answer this question, we measured the preferences of 1,173 students in a classroom experiment using a trust game and a lottery choice task. Separately, we invited all students to participate in a laboratory experiment using common recruitment procedures. To evaluate whether there is selection bias, we compare the social and risk preferences of students who eventually participated in a laboratory experiment to those who did not, and find that they do not differ significantly. However, we also find that people who sent less in a trust game were more likely to participate in a laboratory experiment, and discuss possible explanations for this behavior.     

The formation of forward freight agreement rates in dry bulk shipping: Spot rates,risk premia,and heterogeneous expectations

We examine the formation of forward rates in the dry bulk shipping industry. We illustrate that the bulk of basis volatility can be attributed to expectations about future physical market conditions rather than expectations about future risk premia. However, there exists significant predictability of risk premia by both price-based signals and economic variables. To explain this finding, we develop a dynamic asset pricing framework where, apart from having different objective functions, agents might also differ in the way they form expectations about future market conditions. Accordingly, we argue that the average investor should hold “near-rational” but slightly contrarian beliefs.     

Reverse stock splits and earnings performance

This paper presents evidence that reverse stock splits are preceded by significantly poorer earnings performance for splitting firms compared to a sample of matched control firms. Interestingly, the overall earnings-returns relationship becomes significantly stronger following the reverse stock split. I interpret this as evidence that reverse splits communicate to market participants that sub-par earnings performance before the split is not transitory and that it is expected to persist in the future. Together, the evidence in this paper provides an explanation as to why reverse splits, which are employed for reasons that are seemingly beneficial to shareholders, are assessed negatively, on balance, by market participants.