What determines stock option contract design?

We analyze the factors that drive exercise price policy for executive option plans (ESOPs) and their scope in a country where firms are not subject to the tax and accounting considerations that seem to have led to the dominance of at-the-money options in the US Our “unbounded” data for Finland provide us with an excellent opportunity to investigate whether contract design is consistent with compensation theory. Our findings are largely consistent with predictions from the optimal contracting literature. The size of the plan is negatively related to Tobin's Q and firm size and positively related to proxies for monitoring costs, which also influence the probability of launching premium ESOPs. Our results also show that the premium (out-of-the-moneyness) is negatively related to prior stock returns and cash flow-to-assets, which may be an indication of high-water mark contracting, or alternatively, of managerial power. Finally, we also find some support for a positive relation between the premium and the length of the vesting period when maturity is fixed, which indicates an effort to keep the incentives for management from falling over time.     

The employment environment for youth in rural South Africa: A mixed-methods study

South Africa has high youth unemployment. This article examines the predictors of youth employment in rural Agincourt, Mpumalanga Province. A survey of 187 out-of-school 18 to 24 year olds found that only 12% of women and 38% of men were currently employed. Men with skills/training were significantly more likely to report employment, mostly physical labour (adjusted odds ratio: 4.5; confidence interval: 1.3, 15.3). In-depth interviews with 14 of the youth revealed that women are perceived more suitable for formal employment, which is scarce, informing why women were more likely to pursue further education and yet less likely to be employed. Ten key informants from local organisations highlighted numerous local youth employment resources while, in contrast, all youth in the sample said no resources were available, highlighting a need for the organisations to extend their services into rural areas. Because these services are focused on entrepreneurship, programmes to increase financial literacy and formal employment opportunities are also needed.     

The Impact of the Inpatient Prospective Payment System and Diagnosis-Related Groups

Abstract

The outpatient prospective payment system for the Medicare program became effective Aug. 1, 2000, as mandated by the Balanced Budget Act of 1997. This outpatient program complements Medicare’s inpatient prospective payment system, which was introduced in 1983. A survey of the literature over the past 20 years is undertaken to review the effects of the inpatient prospective payment system and diagnosis-related groups (DRGs) on inpatient hospital utilization, expenditures, and outcomes. The level of the DRG payment has been questioned, as well as the process of adjusting the payment levels from one year to the next. In addition, past research has speculated that the DRG classification may not be sensitive to severity and is subject to coding ambiguities. These conclusions can be used as input to future research on the new outpatient program, as well as updating research on the inpatient program.     

Why a new malpractice crisis is coming

This article predicts escalating premiums and a greater risk of malpractice suits based on the increasing frequency and cost of claim payouts. The number of insurance claims increased by 12% in 1978 after a decrease of 11% in 1976 and by 2% in 1977. The percentage of premium income paid out has followed the same pattern. It was a high of 66.5% in 1975 and then fell into the 40% range in the next two years. Last year it bounced back to 60.6%. Some insurance authorities view the 1976-77 drop in claims as artificial and attribute it to a reluctance to file suits during the period immediately following new malpractice laws. The reluctance to sue has apparently relaxed. About 16% of the cases actually go to court. Out of those, 90% of the verdicts favor doctors. The rise in cases going to court shows that reform! legislation passed in several states to reduce malpractice litigation is not yet working. The average payout was up 20% between 1976 and 1978 with the greatest rise in large awards; million-dollar settlements are not uncommon. Escalating payouts are attributed to general inflation anf rising medical costs. In addition, the public has become better medically informed and been taught that for every wrong ther is a remedy.     

Forecasting derived product demand in commercial construction

This article presents a practical scheme for forecasting derived demand for an industrial product used in the nonresidential construction industry. The method proposed includes a basic product requirement model to be used in conjunction with lagged construction award data. Twelve-month moving averages are used to smooth the basic construction contract award data which is analyzed by construction type and by geographic region.The methodology described enables accurate product sales potential estimation, and when compared with smoothed historical sales data, provides a means of evaluating market penetration. Although the method presented is concerned primarily with forecasting in the relatively short term, the scheme may be extended to a medium term corresponding roughly to the construction cycle. The article deals with application to a specific industry segment. However, the forecasting and evaluation procedure is adaptable to other industrial products.