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.     

Inference with Dependent Data in Accounting and Finance Applications

We review developments in conducting inference for model parameters in the presence of intertemporal and cross‐sectional dependence with an emphasis on panel data applications. We review the use of heteroskedasticity and autocorrelation consistent (HAC) standard error estimators, which include the standard clustered and multiway clustered estimators, and discuss alternative sample‐splitting inference procedures, such as the Fama–Macbeth procedure, within this context. We outline pros and cons of the different procedures. We then illustrate the properties of the discussed procedures within a simulation experiment designed to mimic the type of firm‐level panel data that might be encountered in accounting and finance applications. Our conclusion, based on theoretical properties and simulation performance, is that sample‐splitting procedures with suitably chosen splits are the most likely to deliver robust inferential statements with approximately correct coverage properties in the types of large, heterogeneous panels many researchers are likely to face.     

POSTERIOR‐PREDICTIVE EVIDENCE ON US INFLATION USING EXTENDED NEW KEYNESIAN PHILLIPS CURVE MODELS WITH NON‐FILTERED DATA

Changing time series properties of US inflation and economic activity, measured as marginal costs, are modeled within a set of extended New Keynesian Phillips curve (NKPC) models. It is shown that mechanical removal or modeling of simple low‐frequency movements in the data may yield poor predictive results which depend on the model specification used. Basic NKPC models are extended to include structural time series models that describe typical time‐varying patterns in levels and volatilities. Forward‐ and backward‐looking expectation components for inflation are incorporated and their relative importance is evaluated. Survey data on expected inflation are introduced to strengthen the information in the likelihood. Use is made of simulation‐based Bayesian techniques for the empirical analysis. No credible evidence is found on endogeneity and long‐run stability between inflation and marginal costs. Backward‐looking inflation appears stronger than forward‐looking inflation. Levels and volatilities of inflation are estimated more precisely using rich NKPC models. The extended NKPC structures compare favorably with existing basic Bayesian vector autoregressive and stochastic volatility models in terms of fit and prediction. Tails of the complete predictive distributions indicate an increase in the probability of deflation in recent years. Copyright © 2014 John Wiley & Sons, Ltd.     

The evolution of the monetary transmission channels in Turkey: evidence from a TVP-VAR model

This article investigates the evolution of the monetary transmission mechanisms in Turkey for the period from January 1986 to December 2016. To this aim, the impacts of monetary variables on the prices and economic activity are investigated with a time-varying vector autoregressive model based on. The evidences from the time-varying responses indicate that the adoption of inflation targeting policy has markedly affected the functioning of transmission channels. The results also suggest that local and global financial crises may magnify the impact of monetary policy shocks on the overall economy.