Ownership structure and golden parachutes: Evidence of credible commitment or incentive alignment?

Using a sample of S & P 500 firms, we find that golden parachutes are associated with concentrated external ownership, less concentrated internal ownership, and non-Delaware incorporation. We find little support that concentrated external owners use golden parachutes as credible commitment devices. The general multivariate results support the incentive alignment hypothesis, and reaffirm the view that golden parachutes are a mechanism used to align managerial and shareholder interests when there is a separation between ownership and control. (JEL G32)     

Memory recall errors in retrospective surveys: A reverse record check study

This paper reports on a study to compare self-reports during an interview with staff who attended a University health centre in Turkey, with the records of visits to the same health centre over the previous 12 months. Design of the study reflects the effects of importance of the event, duration since the event, frequency of the occurrence of the event, measurement scale of the event, and bounded and unbounded recalling. In order to assess the extent of recall error, responses to retrospective questions on health centre visits are compared with administrative records. Statistical models are proposed for short and long term human memory recall error effects on responses.     

Subjective recursive expected utility

We axiomatize a subjective version of the recursive expected utility model. This development extends the seminal results of Kreps and Porteus (Econometrica 46:185–200 (1978)) to a subjective framework and provides foundations that are easy to relate to axioms familiar from timeless models of decision making under uncertainty. Our analysis also clarifies what is needed in going from a represention that applies within a single filtration to an across filtration representation.Part of this research was conducted when Ozdenoren visited MEDS in Fall 2003. We thank Tapas Kundu, Costis Skiadas, Jean-Marc Tallon and Tan Wang for helpful discussions and also thank audiences at Koc University, Northwestern University, the CERMSEM conference “ Mathematical Models in Decision Theory” at Universite Paris I, and the FUR XI conference on foundations and applications of utility, risk and decision theory     

Completing the State Space with Subjective States

We define an opportunity act as a mapping from an exogenously given objective state space to a set of lotteries over prizes, and consider preferences over opportunity acts. We allow the preferences to be possibly uncertainty averse. Our main theorem provides an axiomatization of the maxmin expected utility model. In the theorem we construct subjective states to complete the objective state space. As in E. Dekel et al. (Econometrica, in press), we obtain a unique subjective state space. We also allow for preference for flexibility in some of the subjective states and commitment in others. Journal of Economic Literature Classification Number: D81.     

The Importance of Social Capital to the Management of Multinational Enterprises: Relational Networks Among Asian and Western Firms

Social capital is an important concept for multinational firms. Firms operating in global markets rarely have adequate resources to compete effectively in global markets; they access the needed resources through formal and informal relationships with other firms. The cultures in Asian countries have emphasized relationships much more strongly than Western firms. Thus, relational capital, based on guanxi (China), kankei (Japan) and inmak (Korea), provides the framework for business dealings in many Asian countries. As a result, the social capital of many Asian firms gives them a potential competitive advantage in global markets. Western firms must develop social capital and learn to manage relational networks to gain and sustain a competitive advantage in global markets. Western firms can learn how to develop and manage social capital from Asian firms. Alternatively, social capital has some disadvantages. Firms are limited by their networks and thus experience opportunity costs and path dependence. Additionally, while Asian firms often have strong network ties in their domestic markets, they have to develop many more ties globally to operate effectively in global markets. As a result, the development and management of social capital has become of critical importance for competitive advantage in global markets.     

Examining bank SEOs: Are offers made by undercapitalized banks different?

Despite extensive monitoring, banking operations are often considered opaque, and despite explicit capital adequacy regulation, banks may have substantial discretion in their financing. Both monitoring and capital regulation have changed substantially over time, with the adoption of FDICIA being one important breakpoint. This article empirically studies seasoned equity offerings (SEOs) by banks to understand how opacity and capital regulation interact to determine the timing of bank SEOs and their market valuation. SEOs both by banks that are undercapitalized relative to regulatory standards and also well-capitalized banks are fully discretionary when it comes to SEOs, even before FDICIA. Both undercapitalized and well-capitalized banks experience similar and significantly negative stock price reactions to SEO announcements, and also have similar prior patterns of insider trading and similar economic drivers of the issuance decision. Moreover, post-SEO abnormal stock returns are similar to benchmark returns for both types of issuers in the long run, suggesting that, contrary to the well-documented evidence for industrial SEOs, investors understand the value implications of bank SEOs upon announcement. The evidence implies that undercapitalized banks' SEOs are more discretionary and that all bank SEOs are less opaque than implied by earlier studies.     

Labor force participation of women left behind in Tajikistan

This paper examines the impact of male migration on the labor force participation of the women left behind in Tajikistan. Studies from many countries show that when men migrate, female labor force participation decreases and this is largely explained by the income effect from remittances. Our study challenges this finding. Using panel data from 2007, 2009 and 2011, we find that, in Tajikistan, migration has no significant effect on the number of hours that women work. We use panel data which allow us to control for unobservable heterogeneity, rather than the cross-sectional data used by others. We analyze several countervailing factors that may have neutralized the income effect, such as the need to substitute for the missing labor in the household. We also find that women work more when the household has a farm, regardless of the presence of a migrant in the household.     

Corruption’s impact on foreign portfolio investment

Corruption has significant effects on a nation’s financial markets through its adverse impact on foreign portfolio investment (FPI). Yet, the effects of corruption on FPI are nonlinear and reverse J-shaped, with intermediate levels of corruption yielding the most negative effects. Highly transparent nations, where a “level playing field” exists between foreign and local investors due to lack of information asymmetries related to corruption, attract the most foreign investment. However, at the margin, very corrupt countries attract more investment than moderately corrupt countries because a “perverse level playing field” in the former countries may put foreigners and locals on an even footing in terms of resolving asymmetric information problems. This nonlinear pattern is consistent with foreign investors’ desire to trade in markets where they are not at an informational disadvantage.