MANAGERIAL INCENTIVES AND CORPORATE DIVERSIFICATION STRATEGIES

Because the break-up of conglomerates typically produces substantial increases in shareholder wealth, many commentators have argued that the conglomerate form of organization is inefficient. This article reports the findings of a number of recent academic studies, including the authors' own, that examine the causes and consequences of corporate diversification. Although theoretical arguments suggest that corporate diversification can have benefits as well as costs, several studies have documented that diversified firms trade at a significant discount from their single-segment peers. Estimates of this discount range from 10–15% of firm value, and are larger for “unrelated” diversification than for “related” diversification. If corporate diversification has generally been a value-reducing managerial strategy, why do firms remain diversified? One possibility, which the authors label the “agency cost” hypothesis, is that top executives without substantial equity stakes may have incentives to maintain a diversification strategy even if doing so reduces shareholder wealth. But, as top managers' ownership stakes increase, they bear a greater fraction of the costs associated with value-reducing policies and are therefore less likely to take actions that reduce shareholder wealth. Also, to the extent that outside blockholders monitor managerial behavior, the agency cost hypothesis predicts that diversification will be less prevalent in firms with large outside blockholders. Consistent with this argument, the authors find that companies in which managers own a significant fraction of the firm's shares, and in which blockholders own a large fraction of shares, are significantly less likely to be diversified. If agency problems lead managers to maintain value-reducing diversification strategies, what is it that leads some of these same firms to refocus? The agency cost hypothesis predicts that managers will reduce diversification only if pressured to do so by internal or external mechanisms that reduce agency problems. Consistent with this argument, the authors find that decreases in diversification appear to be precipitated by market disciplinary forces such as block purchases, acquisition attempts, and management turnover.     

Quasi‐rational and ex ante price expectations in commodity supply models: an empirical analysis of the US broiler market

A statistically optimal inference about agents' ex ante price expectations within the US broiler market is derived using futures prices of related commodities along with a quasi‐rational forecasting regression equation. The modelling approach, which builds on a Hamilton‐type framework, includes endogenous production and allows expected cash price to be decomposed into anticipated and unanticipated components. We therefore infer the relative importance of various informational sources in expectation formation. Results show that, in addition to the quasi‐rational forecast, the true supply shock, future prices, and ex post commodity price forecast errors have, at times, been influential in broiler producers' price expectations. Copyright © 2003 John Wiley & Sons, Ltd.     

Price rigidities and institutional variations in markets with posted prices

Summary Standard laboratory posted-offer markets respond slowly and incompletely to demand shocks. In these one-sided markets, where sellers control the setting of prices, very little information is transmitted via the process of exchange. For this reason, traders have trouble distinguishing randomness in their own experience from changes in market fundamentals. This paper reports the results of twelve laboratory markets conducted to assess whether some common variants to standard posted-offer rules can correct the adjustment deficiences. Although discounting, multiple postings and excess demand information all improve performance, we find that response remains poor, and efficiencies low.Support for this research was provided by the National Science Foundation (SBR 9319842 and SBR 9320044), and the University of Virginia Bankard Fund. Data are archived at FTP address: fido.econlab.arizona.edu. We wish to thank Charles Plott and Shyam Sunder for useful comments on an earlier draft of this paper. The usual disclaimer applies.     

Mapping the field: Retrospective of the federal universal service programs

The Telecommunications Act of 1996 (1996 Act) established the framework for four federal universal service programs: the High-Cost program, the Low-Income program, the Schools and Libraries (E-rate) program, and the Rural Health Care program. During the past 15 years, these programs have been examined from a number of perspectives in an attempt to measure their efficiency and effectiveness, including the funding mechanisms that support them. The Federal Communications Commission is in the process of restructuring the universal service programs to move support to broadband-based technologies. This is an opportune time to examine what is known about whether these programs have met the universal service objectives of the 1996 Act and have efficiently and effectively used universal service funding. To that end, this article surveys both oversight reports by federal government agencies and academic research literature drawn from a variety of sources to identify areas of concern regarding the mission, implementation, and impact of the federal universal service programs and support mechanisms. The article also includes research findings on how the economic incentives created by the federal universal service programs affect corporate investment and deployment decisions and consumer service and technology adoption decisions.     

Rural school access and the agricultural transformation

Improving children's access to primary and secondary education is a strategic goal for many global development agencies and government policymakers. Nevertheless, there is relatively little research examining how changes in rural school supply affect future labor markets. We leverage variation in the timing and location of secondary school construction in Southern Mexico to identify the effects of school supply on labor outcomes. We find that school construction increases expected education for school-aged children by about 4 years and raises the share of years working in the nonagricultural sector between the ages of 18–22 by 29.8 percentage points. The magnitude of the effects on share of years doing nonagricultural work is smaller for individuals from homes where an indigenous language is spoken. Our findings indicate that rural school construction in less-developed countries can accelerate the transformation from agricultural to nonagricultural economies, but there may be heterogeneous effects across socioeconomic groups and ethnicities.     

Attention Deficit/Hyperactivity Disorder in the Workplace Under the ADA in the Wake of Sutton and Its Companions

The terms Attention Deficit Disorder (ADD) or Attention Deficit/Hyperactivity Disorder (AD/HD) refer to a neurological impairment that affects the individual's ability to sustain attention and to behave in a calm, rational manner.³Although this disorder has long been considered to be restricted to childhood, recent research has demonstrated that many children carry it over into adult life and take it with them into the workplace. Most U.S. courts have treated AD/HD as a disability covered by the Americans with Disabilities Act (ADA).⁴However, in the summer of 1999, the U.S. Supreme Court made three decisions that will undoubtedly affect the future status of AD/HD and other impairments under the ADA. This article examines those decisions, how they affect the employment rights of AD/HD-afflicted employees, and the changes they will probably bring to litigation in this area. Because we have many reservations about the court's decisions, we not only voice our criticisms of the decisions, but also offer an alternative approach.     

Measuring Serious Leisure in Chess: Model Confirmation and Method Bias

The serious leisure inventory and measure (SLIM) was tested with 348 chess players to confirm the factors, assess the effects of method bias, and propose a set of the best-performing items for the 18 factor SLIM. The 54-item SLIM demonstrated acceptable fit and reliability values. The effect of method bias was evidenced in the sample and explained one-third of the variance. Inspection of factor loadings, when controlling for method bias, yielded one best-performing item per factor. Findings indicate method bias continues to be problematic for self-report measures such as the SLIM.