The capital structure puzzle revisited

Corporate finance researchers have long been puzzled by lowcorporate debt ratios given debt's corporate tax advantage.This article recognizes that firm value typically reflects agrowing stream of earnings, while current debt reflects a nongrowingstream of interest payments. Debt to value is therefore a distortedmeasure of corporate tax shielding. Even with very small debt-relatedcosts, this may explain the observed magnitude and cross-sectionalvariation of debt ratios. Since this variation may be independentof tax shielding, debt ratios provide an inappropriate frameworkfor empirically examining the trade-off theory of capital structure.     

The set-up-to-fail syndrome

Why do some employees perform poorly? Most managers would answer that question by ticking off a list that includes weak skills, insufficient experience, inability to prioritize assignments, and lack of motivation. In other words, they would contend that poor performance is the employee's fault. But is it? Not always, according to the authors. Their research with hundreds of executives strongly suggests that it is the bosses themselves--albeit unintentionally--who are frequently responsible for an employee's subpar achievement. According to the authors, bosses and their perceived weak performers are often caught in a dynamic called the set-up-to-fail syndrome, which tends to play out as follows: A boss begins to worry when a subordinate's performance is not satisfactory. He then takes what seems like the obvious action by increasing the time and attention he focuses on the employee. But rather than improve the subordinate's performance, the increased supervision has the reverse effect. The subordinate, in perceiving the boss's lack of confidence in him, withdraws from his work and from the boss. And the relationship spirals downward. What is a boss to do? First, he must accept the possibility that his own behavior could be contributing to the problem. Second, he must plan a careful intervention with the subordinate that takes the form of one or several candid conversations meant to untangle the unhealthy dynamics in the relationship. The intervention is never easy, but the time and energy invested in it usually yields a high payback.     

Trading volume with private valuation: evidence from the ex-dividend day

We test a theory of the interaction between investors' heterogeneity,risk, transaction costs, and trading volume. We take advantageof the specific nature of trading motives around the distributionof cash dividends, namely the costly trading of tax shields.Consistent with the theory, we show that when trades occur becauseof differential valuation of cash flows, an increase in riskor transaction costs reduces volume. We also show that the nonsystematicrisk plays a significant role in determining the volume of trade.Finally, we demonstrate that trading volume is positively relatedto the degree of heterogeneity and the incentives of the variousgroups to engage in trading.     

The self-enforcing provisions of oil and gas unit operating agreements: theory and evidence

This article extends the existing theory and empirical investigationof unitization contracts. It highlights the importance of incentive-compatibilityand self-enforcement and the bargaining problems faced in achievingviable, long-term contracts. We argue that only if the partiesto a unitization contract have unit production shares that arethe same as their cost shares will the contract be incentivecompatible. Using a database of 60 unit operating agreements,we measure the industry's actual behavior against the principlesof production from a common pool. Our survey of units that haveonly one production phase and that are relatively homogeneousreveals that such equal sharing rules are always found and theyappear to encourage the parties to behave optimally. In morecomplex units with multiple production phases and/or separateconcentrations of oil and gas (gas caps) we find deviationsfrom the theoretical ideal. In the case of multiphase units,we find equal cost and production shares within phases, butnot across phases. A preset trigger for shifting from one productionphase to the next helps to maintain optimal behavior. For gascap units, however, we generally do not find the equal sharingrule. Conflicts and rent dissipation follow as illustrated bythe case of the Prudhoe Bay Unit. The article describes thedesirable contract rules for avoiding moral hazard. It alsoshows how the effects of those rules can be replicated in difficultsituations.     

Prices, liquidity, and the information content of trades

We investigate the effect of asymmetric information on pricesand liquidity by analyzing trades, quotes, spreads, and depths.Information content should increase with trade size and theinformation asymmetry of the trading period. Results show thatprice and liquidity effects are significantly associated withinformation content as measured by both trade size and timingrelative to information events. Results are stronger for purchasesthan sales. Quoted prices are better measures of informationeffects than transaction prices, because they control for bid-askbounce. Finally, trades that a priori contain no informationhave no impact on prices and liquidity, despite their largesize.     

HAYEKIAN ECONOMIC INFRASTRUCTURE AS A FOUNDATION FOR SUSTAINED PROSPERITY

Rather than debate whether technical advances have created a ‘new economy’, economists should focus on the more interesting and useful question: How do we create the sort of environment in which innovation and the productive use of new technology thrive, thereby creating economic prosperity? Such an environment is the product of government laying the appropriate infrastructure, manifested in the culture of the institutions it supports. This article discusses the features governments must incorporate into their institutions in order to build an economic infrastructure that promotes prosperity.     

巧解董事会多元化冲突

当论及公司董事会与多样化问题时,传统观点通常会认为,多元化有利于董事会的发展。因为董事们行为背景相像,其想法就会比较相似,看待问题以及解决问题的方式也会较为一致。在这些董事之中,没有人敢质疑主流的观点,也没有人会就某些顾客和员工的切身问题大胆地说出自己的想法。     

Measurement effects and the variance of returns after stock splits and stock dividends

This article examines the relation between two factors affectingstock returns, the bid-ask spread and price discreteness, andthe increase in return variance after ex-dates of stock splitsand stock dividends. Controlling for these effects, the varianceof daily returns still increases significantly. The varianceof weekly returns also increases significantly, and the varianceof returns for a control sample of nonsplitting firms showsno significant increase. Variance ratio tests show that bid-askerrors are small for these stocks and therefore cannot explainthe large increase in variance. Spreads and price discretenessdo not explain increased variance after stock distributions.     

The making of a French manager

France's recent successes make it more important than ever to understand what makes its managers tick. This year, France surpassed Japan and the U.K. in acquisitions of U.S. companies. And many French companies are world leaders, including Michelin and L'Oreal. According to the authors, who have studied the French model of management development, the system stands as a coherent whole. Its clear logic and rules provide unambiguous signals that shape managerial action. Thus French industry has a focus and sense of purpose that the rest of the world should not underestimate as a key to strong economic performance. In France, management is a "state of mind" rather than an interpersonally demanding exercise. It is managers' cleverness, not skills, that distinguishes them. And these managers are not simply born. They are molded through an elaborate education and induction into the managerial elite. Alumni of the grandes écoles dominate the upper echelons. These elite colleges have grueling entrance exams resembling Japan's "examination hell." Graduates automatically enter the tight-knit cadre circle--the managerial elite who enjoy the same social prestige as doctors or lawyers. French managers prefer to put things in writing, even informal interactions. They excel in quantitative expression, at ease with putting figures to proposals. Hierarchy in French companies is often literal--the head of L'Air Liquide works on the top floor, while the typing pool is in the basement.(ABSTRACT TRUNCATED AT 250 WORDS)