Finance, Politics, and the Accounting for Stock Options

The politics of option accounting crosses party lines, reflecting both the interests of the affected constituencies and the desire for power over standard setting. House Bill HR-3574, which mandates an assumption of zero stock price volatility, runs counter to the recently passed Financial Accounting Standards Board (FASB) rule requiring fair-value expensing of stock options. For any option issued at or out of the money, where strike prices are normally set, expense recognition is zero under this bill's mandated assumption.
Besides excessive use of stock options, the lack of a "final peace" in the option accounting war appears to have encouraged another questionable corporate practice. This article examines a sample of "six-and-one restructurings," exchanges of options in which expensing of re-priced (deep out-of-the-money) options can be avoided if employees wait at least six months and one day before receiving new options. The authors found that market-adjusted stock prices tend to decrease during the six-month period before the strike price is reset. This result provides one more reason why companies should be required to use fair-value option pricing models to expense options.     

Demographic Ring Study Reports with GIS Technology

Market analysis that is performed in support of commercial real estate decisions has long included demographic ring study reports. Recent advancements in Geographic Information Systems (GIS) technology has spilled over to ring-study reporting. Contemporary ring studies have detailed breakdowns of populations by subgroup, include expenditure projections by product category, and are available for purchase for use on desktop computers at under $300. Two ring-study products are contrasted here: Site Reporter from CACI and CensusCD+Maps from GeoLytics.     

Leadership run amok. The destructive potential of overachievers

The desire to achieve is a major source of strength in business, and it is on the rise. The authors' consulting firm has seen a steady increase in the extent to which achievement motivates managers. There's a dark side to the trend, however. By relentlessly focusing on tasks and goals, an executive or company can damage performance. Overachievers tend to command and coerce, stifling subordinates. Psychologist David McClelland identified three drivers of behavior: achievement, meeting a standard of excellence; affiliation, maintaining close relationships; and power, having an impact on others. He said the power motive comes in two forms: personalized, in which the leader draws strength from controlling people, and socialized, where the leader derives strength from empowering people. Studies show that great charismatic leaders are highly motivated by socialized power. To look at how motives and leadership style affect a group's work climate and performance, the authors studied 21 senior managers at IBM.The leaders who created high-performing and energizing climates got more lasting results by using a broad range of styles, choosing different ones for different circumstances. Rather than order people around, they provided vision, sought buy-in and commitment, and coached. If you're an overachiever seeking to broaden your range, you can study your actions and ask your team, peers, and manager to give you honest feedback. You can adopt specific new behaviors, such as engaging your team in a discussion of how to achieve goals, rather than issuing a set of directives. The company as a whole can play a part, too: Organizations must learn when to draw on the achievement drive and when to rein it in.     

Corporate Equity Ownership, Strategic Alliances, and Product Market Relationships

This paper examines long-term block ownership by corporations and performance changes in firms with corporate block owners. We also examine potential reasons for corporate ownership including benefits in product market relationships, alleviation of financing constraints, and board monitoring by corporate owners. We find the largest significant increases in targets' stock prices, investment, and operating profitability when ownership is combined with alliances, joint ventures, and other product market relationships between purchasing and target firms, especially in industries with high research and development. Our findings are consistent with the conclusion that block ownership by corporations has significant benefits in product market relationships.     

Autonomy strategies of government owned business corporations in Canada

State-owned enterprises, referred to as “government owned business corporations” in this paper, are a common phenomenon in Canada, are increasing in number, and are contributing substantially to the economy. The environment for these corporations is examined to establish the principal components and to identify two dominating trends in public policy, privatization and commercialization. The paper suggests that these trends, plus management's desire for flexibility, are resulting in the formulation of autonomy strategies designed to increase management's decision making capability relating to operating and strategic management with less government interference. A final section integrates the environment and autonomy strategies discussions to develop a typology for classifying the behaviour of government owned business corporations. The paper concludes that managers of government owned business corporations in Canada are formulating and implementing autonomy strategies because of environmental factors, public policies, and management's desire for independence.     

Causality and the structure of Canada's balance of payments: Evidence from time series

Recent historical data on Canada's balance of payments reveals a persistent pattern of current account deficits and capital account surpluses. The theoretical interpretation and significance of this recurrent pattern are controversial issues among economists. The essence of this debate is, in our view, a disagreement of a more fundamental nature concerning the underlying causal relationship between the current and capital accounts. Three different causal viewpoints are identified and discussed. Then, an empirical investigation using both bivariate and multivariate time series analysis is conducted in order to help discriminate among the viewpoints. Our findings strongly suggest a feedback relation between the current and the long-term capital account indicating that unidirectional causal viewpoints are inconsistent with the Canadian experience. We are grateful to the editor and two anonymous referees for their valuable comments.     

Diminishing Returns and the Limit of Athletic Performance

The purpose of this paper is to estimate athletic performance profiles over time, to establish that diminishing returns is a characteristic of performance functions, to measure the rate of the marginal decline, and to measure the upper (lower) bound or limit of performance. The empirical results yield estimates of the limiting value of athletic performance and the frontier maximum (minimum) record. Since lower bounds in the running events have been shown to be sensitive to choice of the nonlinear model, logistic and an exponential model for the men's running and distance events are estimated as a cross-check on my differential equation model. The issue of the gender gap (whether women will ever catch men) in athletic performance is also explored.     

Evaluation of inventory management: Efficiency can affect success

In many manufacturing companies, top management analyzes inventories only when financial trouble is at hand. The average amount of money committed to inventories is about three times the amount held in cash. It is rare that a member of top management gives the sustained attention to inventories that he gives to the company's cash position. A troubled company can take important steps in retrenching by evaluating its inventory management. However, this evaluation can be a part of the continuing analysis of the company's operations, in most cases as an outgrowth of auditing services. The resulting efficiencies can have a favorable effect on the company's success and growth—especially if money formerly tied up in inventories is freed for investment in other resources.