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Author: Julie Wulf Publisher: ISBN: Category : Languages : en Pages : 58
Book Description
Do multi-divisional firms structure compensation contracts for division managers to mitigate information and incentive problems in their internal capital markets? Using Compustat Segment financial data and compensation data from a proprietary survey, I find evidence that compensation and investment incentives are substitutes: firms providing a stronger link to firm performance in incentive compensation for division managers also provide weaker investment incentives through the capital budgeting process. Specifically, as the proportion of incentive pay for division managers that is based on firm performance increases, division investment is less responsive to division profitability. While these findings may be consistent with other explanations, they are generally consistent with a model of influence activities by division managers and the implied relative weights placed on imperfect, objective signals (i.e. accounting measures) versus distortable, subjective signals (i.e. manager recommendations) in inter-divisional capital allocation decisions.
Author: Julie Wulf Publisher: ISBN: Category : Languages : en Pages : 58
Book Description
Do multi-divisional firms structure compensation contracts for division managers to mitigate information and incentive problems in their internal capital markets? Using Compustat Segment financial data and compensation data from a proprietary survey, I find evidence that compensation and investment incentives are substitutes: firms providing a stronger link to firm performance in incentive compensation for division managers also provide weaker investment incentives through the capital budgeting process. Specifically, as the proportion of incentive pay for division managers that is based on firm performance increases, division investment is less responsive to division profitability. While these findings may be consistent with other explanations, they are generally consistent with a model of influence activities by division managers and the implied relative weights placed on imperfect, objective signals (i.e. accounting measures) versus distortable, subjective signals (i.e. manager recommendations) in inter-divisional capital allocation decisions.
Author: Tania Dey Publisher: ISBN: Category : Languages : en Pages : 398
Book Description
The majority of Australian firms listed on the Australian Stock Exchange are multi-segment rather than single-segment organisations. Relative to focused firms, multi-segment firms have advantages such as potential intra-firm synergies and flexibility in capital budgeting through the use of their internal capital markets. On the other hand, it is often argued that multi-segment firms are more prone to agency problems such as divisional rent-seeking, which could render their internal capital markets inefficient. On balance, it is an empirical question as to whether or not the benefits of multi-segment structure outweigh its costs. Compared to multi-segment firms in other developed economies, Australian firms have been doing quite well recently. Can one take this as evidence in favour of the multi-segment structure in Australia and, if so, what is special about multi-segment firms in Australia? Or is their relatively superior performance largely due to exogenous factors? This thesis empirically examines these issues by studying corporate diversification in Australia.Multi-segment firms can be subject to more influence activities by influential division managers, who may be able to affect the capital budgeting process. This thesis first analyses how influence activities in the form of signal jamming affect the capital budgeting process in corporate organisations in Australia. Following Wulf (2002), the specific focus is on how corporate headquarters allocates capital budget to a small division based on two types of information. The first type of information is the past performance of the small division, which is a noisy, public signal of its future performance, but which is not subject to manipulation. The second type of information is the private report about the small division's future prospects made by the manager of a large division, which may be more informative than the public signal but also subject to influence by the large division manager. Investment sensitivity is defined as how capital budget allocated to the small division depends on its past performance. The main findings are as follows. First, investment sensitivity is found to be positive, indicating that headquarters invests more in the small division as its past performance improves. Second, investment sensitivity decreases as influence problems become more severe, where the severity of influence problems is measured by several firm-level proxies. The second finding, which is counter-intuitive, may be due to the fact that, as influence problems become more severe, headquarters may proactively counter influence activities through explicit incentives given to the manager of the large division. In that case, headquarters can rely on a more informative private signal. This is examined by studying how compensation incentives for the large division manager are related to investment sensitivity. A negative relationship is found between short-term incentives and investment sensitivity, which indicates that firms that provide large short-term incentives rely more on managerial recommendations than on noisy accounting measures. Finally, the empirical analyses are repeated using five new measures of diversification that are constructed based on information such as relatedness between segments, number of segments in the firm, and Herfindahl indices constructed from sales and assets. Estimations using these new measures also show similar results.The second theme of this thesis is the Australian evidence on diversification discount/premium. It examines whether the existence of diversification discount/premium is a measurement issue. First, the existing methodologies (Lang and Stulz, 1994; Berger and Ofek, 1995) are followed and mixed evidence is found: diversified firms in Australia trade at a discount in some cases and at a premium in others. Second, new and more informative measures of diversification are constructed as compared to the existing measures, based on which the diversification discount/premium is re-estimated. Mixed results are found when using industry adjusted q and the sales multiplier as dependent variables. When the asset multiplier is used as a dependent variable, however, a significant premium is found throughout. This premium obtained using the asset multiplier as the dependent variable is robust to standard control variables such as firm size, profitability and growth opportunity. Collectively, these results may imply that diversified firms in Australia trade at a premium and the existence of diversification discount may be a measurement issue. Finally, compensation incentives, which have not been explicitly considered in existing studies, are incorporated into the study. Incorporating compensation incentives for CEOs and division managers, long-term versus short-term in particular, shows that the diversification premium is robust after controlling for long-term incentives. However long-term incentives do contribute to the diversification premium. Indeed, effective long-term incentives positively affect this premium. In the sample of Australian firms in this study, such effective long-term incentives are shown to be 30% or more of total remuneration. Short-term incentives, on the other hand, are shown to be at best neutral and in some cases reduce the size of the diversification premium. In particular, the diversification premium switches to a discount in firms paying 90% or more as short-term incentives to division managers. Overall, the results suggest that at least part of diversification discount/premium can be explained by compensation incentives; without explicitly incorporating compensation incentives, the reported diversification discount/premium can be either over- or under-estimated.
Author: G. Constantinides Publisher: Elsevier ISBN: 9780444513632 Category : Business & Economics Languages : en Pages : 698
Book Description
Arbitrage, State Prices and Portfolio Theory / Philip h. Dybvig and Stephen a. Ross / - Intertemporal Asset Pricing Theory / Darrell Duffle / - Tests of Multifactor Pricing Models, Volatility Bounds and Portfolio Performance / Wayne E. Ferson / - Consumption-Based Asset Pricing / John y Campbell / - The Equity Premium in Retrospect / Rainish Mehra and Edward c. Prescott / - Anomalies and Market Efficiency / William Schwert / - Are Financial Assets Priced Locally or Globally? / G. Andrew Karolyi and Rene M. Stuli / - Microstructure and Asset Pricing / David Easley and Maureen O'hara / - A Survey of Behavioral Finance / Nicholas Barberis and Richard Thaler / - Derivatives / Robert E. Whaley / - Fixed-Income Pricing / Qiang Dai and Kenneth J. Singleton.
Author: George M. Constantinides Publisher: Elsevier ISBN: 0080495079 Category : Business & Economics Languages : en Pages : 654
Book Description
Volume 1A covers corporate finance: how businesses allocate capital - the capital budgeting decision - and how they obtain capital - the financing decision. Though managers play no independent role in the work of Miller and Modigliani, major contributions in finance since then have shown that managers maximize their own objectives. To understand the firm's decisions, it is therefore necessary to understand the forces that lead managers to maximize the wealth of shareholders.
Author: Robert S. Gibbons Publisher: Princeton University Press ISBN: 0691132798 Category : Business & Economics Languages : en Pages : 1248
Book Description
(E-book available via MyiLibrary) In even the most market-oriented economies, most economic transactions occur not in markets but inside managed organizations, particularly business firms. Organizational economics seeks to understand the nature and workings of such organizations and their impact on economic performance. The Handbook of Organizational Economics surveys the major theories, evidence, and methods used in the field. It displays the breadth of topics in organizational economics, including the roles of individuals and groups in organizations, organizational structures and processes, the boundaries of the firm, contracts between and within firms, and more.
Author: Daniel Hjorth Publisher: Edward Elgar Publishing ISBN: 1781009058 Category : Business & Economics Languages : en Pages : 497
Book Description
ÔDaniel Hjorth is justifiably famous for thinking differently about those things Òwe all knowÓ, and this Handbook adds fuel to that fire. The Handbook reasserts the intellectual and practical primacy of organizational creation as the driving force of entrepreneurship. By getting some of the best minds in entrepreneurship to explore and speculate on the organizational aspects of entrepreneurship, this Handbook reframes and repositions entrepreneurship as the organizing trope for the postindustrial age.Õ Ð Jerome Katz, Saint Louis University, US This Handbook brings together pioneering, original work on organisational entrepreneurship. It provides a broad coverage and rich agenda for future research and teaching on the entrepreneurship-organisation relationship. Organisational entrepreneurship represents an interdisciplinary field of research that relates organisation, entrepreneurship and innovation studies in new ways. This Handbook establishes the scope of this interdisciplinary domain, challenges our perception of relationships between organisation(s) and entrepreneurship, and asks new questions central to our capacity to describe, analyse and understand organisational entrepreneurship. Providing a broad and rich set of examples of interdisciplinary research and bridging the fields of strategic management, organisation studies, entrepreneurship, innovation, art and aesthetics, this important compendium will prove invaluable to graduate students and scholars in these fields.
Author: Irene M. Duhaime Publisher: Oxford University Press ISBN: 019009091X Category : Business & Economics Languages : en Pages : 785
Book Description
An authoritative overview of the prior development, current state, and future opportunities in strategic management The strategic management field, now a vibrant arena that offers valuable knowledge for managerial practice, has experienced significant growth in the more than forty years since its inception. And, until now, there has not been a book that captured the rich breadth and depth of knowledge of the discipline, while also looking to the future. Strategic Management provides a critical overview of the prior development, current state, and future opportunities in the strategic management field. Editors Irene M. Duhaime, Michael A. Hitt, and Marjorie A. Lyles bring together an exceptional group of scholars to explore specialized topics such as corporate strategy, strategic entrepreneurship, cooperative strategies, global strategy, strategic leadership, governance, innovation, strategy process and strategy practice, and strategic human capital. The book focuses heavily on the future developments and research opportunities available in the field, while also providing a solid base of knowledge for understanding strategic management as a whole. With articles from major leaders in the field, this authoritative volume will be useful to every strategic management scholar.
Author: Mercer, LLC Publisher: John Wiley & Sons ISBN: 047047811X Category : Business & Economics Languages : en Pages : 288
Book Description
The numerous incentive approaches and combinations and their implications can be dizzying even to the compensation professional. Pay for Results provides a road map for developing and implementing executive incentives that drive business needs and strategy. It is filled with specific analytic tools, including tables, exhibits, forms, checklists. In addition, it uncovers myths in performance measurement strategy and design. Timely and thorough, this book expertly shows businesses how to drive their specific needs and strategy. Human resources and compensation officers will discover how to apply performance metrics that align with shareholder investment.
Author: Julie Wulf Publisher: ISBN: Category : Languages : en Pages : 42
Book Description
I show that performance incentives vary by decision-making authority of division managers. For division managers with broader authority, i.e., those designated as corporate officers, both the sensitivity of pay to quot;globalquot; performance measures and the relative importance of quot;globalquot; to quot;localquot; measures are larger, relative to non-officers. There is no difference in sensitivity of pay to quot;localquot; measures by officer status. These results support theories suggesting that authority over project selection combined with incentives designed to maximize firm performance, as well as induce effort for the division, are important in incentive design for division managers. Consistent with earlier findings, the evidence strongly supports one of the main predictions of the principal-agent model, that is, a negative tradeoff between risk and incentives.
Author: Julie Wulf
Author: Julie Wulf
Author: Tania Dey
Author: G. Constantinides
Author: George M. Constantinides
Author: Robert S. Gibbons
Author: Daniel Hjorth
Author: Irene M. Duhaime
Author: Mercer, LLC
Author: Julie Wulf
Author: