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.     

Making sense of complex data using interactive data visualization

An important role for accountants today is to provide decision support to senior management by assisting them in the analysis of large, complex data sets. Interactive data visualization (IDV) facilitates this process by allowing users to navigate, select, and display data via an easy-to-use interface often used as a component of data analytics. Given the increasing popularity of IDV as a tool for making sense of complex data, it is important that accountants become familiar with and learn how to use this technology. This case provides a hands-on opportunity to organize complex accounting data to create IDVs for decision makers to use. Further, the case enables students to understand the potential impact of IDVs on preparers and users of accounting information. Students will assume the role of a division controller in a hypothetical company and create an IDV to assist the chief executive officer (CEO) in decision making.     

Canadian Consumer Willingness to Pay for Omega-3 Meat

This study analyzes Canadian consumer willingness to pay for omega-3 enhanced beef, pork, and chicken. Using a nationwide survey conducted by ACNielsen in 2006 and choice modeling framework, results indicate that smaller household, households with high incomes, and households that have previously purchased an omega-3 product are willing to pay a premium for omega-3 beef, pork and chicken. The results also suggest that consumers that have previously purchased an omega-3 product are willing to pay a higher premium for the respective omega-3 meats compared to households that have never purchased an omega-3 product. Also, premiums are highest for omega-3 beef, followed by omega-3 pork, and last, omega-3 chicken.     

Reviews

TECS AND SMALL FIRMS.

Curran, J. 1993: TECs and Small Firms: Can TECs Reach The Small Firms Other Strategies Have Failed To Reach? Kingston University.

URBAN PLANNING TODAY.

Rydin, Y. 1993: The British Planning System: An Introduction. London: MacMillan, £14.99, paper, 404pp.

COMMUNITY PARTNERSHIP.

Macfarlane, R. and Laville, J-L1993: Developing Community Partnerships in Europe. London: Directory of Social Change/Calouste Gulbenkian Foundation, £12.95.

LOCAL LABOUR.

Campbell, M. and Duffy, K. 1992: Local Labour Markets: Problems and Policies. Harlow: Longman, £22.00, paper.

MARGINAL REGIONS.

Flogenfeldt, T., Hansen, J.C., Nordgreen, R. and Rohr, J.M. (eds) 1993: Conditions for Development in Marginal Regions, Proceedings of the XI International Seminar on Marginal Regions August 1991, Oppland College, Norway, Price NKr. 300, paper.

MARGINAL REGIONS.

Flogenfeldt, T., Hansen, J.C., Nordgreen, R. and Rohr, J.M. (eds) 1993: Conditions for Development in Marginal Regions, Proceedings of the XI International Seminar on Marginal Regions August 1991, Oppland College, Norway, Price NKr. 300, paper.     

The thrust to free trade: Conviction or fashion

Recently many developing countries flocked to free trade because the forces that led policymakers to resist trade reforms in the past have weakened. Apart from obvious external pressures from lending institutions, developing countries may simply have seen that cooperation promises more benefits than conflict in the area of international trade. The ideological debate between market forces and government planning has been decided in favor of market forces. However, another possibility not much considered is that trade reform is in vogue and this provides the motivation for following suit. Thus, trade reform can precipitate a cascade effect (Hirshleifer's term) of countries queuing up to adopt trade reform policies. A country is more likely to favor the notion of trade reform if two or more other countries have already successfully moved in that direction.     

The ownership and use of small kitchen domestic appliances: case study,Liverpool

The nutritional habits of UK consumers have become a cause for concern with an increasing number of people suffering from diseases related to nutrition. The way in which food is prepared may contribute to the nutritional content of the diet. Traditional methods of cooking and eating are being influenced by increased ownership of domestic appliances. This study aimed to carry out a cross sectional study of people living on Merseyside to determine the ownership and use of small kitchen domestic appliances in relation to the possible consequences the appliances may have on the nutrient intake of the individual. An opportunistic sample of 276 female adults aged 25–70 years was recruited from amongst university staff and community groups within Merseyside. Data were collected using a self‐completion questionnaire consisting of questions concerning personal details, the ownership and use of domestic appliances that may influence nutrient intake. The Liverpool John Moores University Ethics Committee granted ethical approval. Microwave ovens, electric toasters and grills were owned by 80% of the population. Coffee makers, handheld electric food mixers, sandwich makers, blenders and food processors although owned by over 45% were used by the majority only once a week or less. Newer items such as a bread maker were owned by 9% who were significantly more likely to have a professional occupation. Those with unskilled occupations were significantly more likely to own a deep fat fryer and least likely to own a food processor. Those aged 25–34 years were significantly least likely to own a handheld food mixer. Households comprised of couples with or without children were significantly more likely to own sandwich makers, bread makers, food processors and handheld food mixers. No difference in the use of the appliances was found with occupational group or age. A large percentage of people own a variety of domestic appliances, the use of which may have a beneficial effect on their nutrient intake, however, it is of concern that those in the lower socio‐economic group were more likely to own appliances that will have a negative effect on their diet.