The Impact of Capital Markets on Compensation Incentives, Organizational Slack, and Firm Innovation PDF Download

Author: Michael N. Young
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Author: Julie Wulf
Publisher:
ISBN:
Category :
Languages : en
Pages : 58

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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:
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Category : Dissertations, Academic
Languages : en
Pages : 644

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Author: Yifat Aran
Publisher:
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Category :
Languages : en
Pages :

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This dissertation develops a regulatory framework for employee equity-based compensation at start-up companies. At first glance, equity-based compensation represents a break from the zero-sum game that typically characterizes the relationship between the "labor share" and the "capital share" of income. Employee equity compensation, at least ostensibly, aligns employee and investor interests, creating a scenario in which both constituencies benefit from shareholder value maximization. My research brings a realistic approach to the study of this labor-capital alignment thesis and suggests that market practices commonly diverge from this idealistic characterization in a manner unfavorable to employees. My dissertation examines the economic and legal conditions that facilitated the creation and widespread adoption of broad-based equity compensation schemes among venture-backed companies throughout the 1970s and 1980s and the evolution of these conditions through today. As such, it acknowledges the benefits of equity-based compensation to employees, issuers, and regional economies under some conditions but also identifies specific economic and regulatory practices that compromise the aligned-incentive model, reinstate the labor-capital divergence, and compromise market efficiency. My approach offers a new dimension in the securities regulation debate, as it seeks to integrate labor market considerations with the capital market considerations that have traditionally guided the Securities and Exchange Commission (SEC). Thus, it proposes broader efficiency-based insights that cannot be derived from the traditional exclusive focus on capital market efficiency. Such a paradigm shift is warranted due to two long-term trends: American households are currently more likely to acquire direct holdings in securities through an employment relationship rather than by purchasing securities on the exchanges, and highly skilled human capital is rapidly replacing financial capital as the limiting factor in economic development and technological progress. Facilitating an efficient allocation of talent, alongside efficient allocation of financial capital, is, therefore, a worthy goal for the securities regulatory regime, which requires a reconceptualization of underlying theory and practice. The first part of my dissertation, Beyond Covenants Not to Compete: Equilibrium in HighTech Start-Up Labor Markets (STANFORD LAW REVIEW, 2018) examines an understudied aspect in the literature on employee mobility and innovation--the impact of employee stock options on talent allocation. The regional economies literature has long recognized the benefits that arise from the proximity of firms and skilled workers in industrial clusters ("agglomeration economies"). When workers and firms in the same industry are located near one another, specialists are readily available, knowledge tends to spill over from one firm to another, and firms experience higher rates of innovation and productivity. However, the question of why some regions successfully capture these benefits while similar regions fail to do so remains unresolved. In an influential 1994 book, AnnaLee Saxenian examined why innovation boomed in Silicon Valley while the Cambridge-Boston area, which initially seemed better positioned to make that leap, wound up lagging. She argues that a culture of job-hopping, common among Silicon Valley engineers, allowed for the rapid spread of knowledge across the industry cluster. Building on this observation, Ronald Gilson argues that the difference between the regions is not merely cultural but also legal: engineers in Silicon Valley are more mobile because, unlike other states, California does not enforce non-compete agreements (even when they are reasonable in purpose and scope). Gilson's hypothesis stimulated a vigorous intellectual and political movement, led by Orly Lobel, that asserts that if other regions wish to become similarly attractive to entrepreneurial talent and to induce economic growth, they should abolish non-compete agreements too. This "new wisdom" against non-compete enforcement is highly influential; however, it contrasts with a more traditional economic analysis of non-compete agreements. According to conventional wisdom, these agreements are needed to prevent competitors from poaching employees after the employer has invested in training and research and development, thereby taking a free ride on these investments. The theory predicts that without the ability to secure some level of exclusivity over their employees' services by employing a non-compete, employers' incentive to provide on-the-job training and invest in innovation will diminish. My research reconciles these two schools of thought by highlighting the role of another aspect of Silicon Valley's business culture--the norm of granting stock options to virtually all employees. This custom emerged during Silicon Valley's inception as an alternative model to the more centralized and hierarchical organizational culture of East Coast corporate America, which held that companies should reserve equity grants solely to senior management. My work suggests that Silicon Valley start-ups can capture the returns on their investments in training and innovation despite California's ban on noncompetes because stock options generate a retention incentive that offsets employees' incentive to free-ride on these investments. However, unlike noncompete agreements, stock options induce retention in a highly selective manner: they temporarily suppress the mobility of employees of successful private companies (because, due to tax considerations, employees holding valuable options wait for a liquidity event, such as an initial public offering or acquisition, to cash out), but they do not limit the earning potential and mobility of laid-off employees and of employees of unsuccessful companies (whose stock options are virtually worthless). Stock options thus create an efficient breach mechanism that channels employees of less successful firms toward more promising ones and prevents inefficient retention. I end this part of my dissertation with a cautionary note on the crucial role of liquidity in the constant development of start-up ecosystems. Due to the retention effect of valuable but illiquid equity grants, companies' current tendency to delay holding liquidity events, a tendency facilitated by recent changes in the private capital market and the regulatory environment, might overly restrict the mobility of employees of large private companies and impair the talent allocation mechanism that gave Silicon Valley its competitive edge. The second part of my dissertation, Making Disclosure Work for Startup Employees (COLUMBIA BUSINESS LAW REVIEW, 2019), continues this line of investigation. The securities regulation regime has traditionally focused almost exclusively on financial capital investments. However, the widespread and growing practice of providing equity compensation has transformed high-skilled labor from a pure employment relationship into one that involves a significant investment component. I argue that it is therefore time for securities regulators to catch up with market dynamics and address the challenges of human capital investments by start-up employees. The article establishes, both on theoretical and empirical grounds, that, similarly to financial capital investments, human capital investments are susceptible to agency problems and information asymmetry. It argues that the current framework--namely, Rule 701, adopted by the SEC in 1988--fails to address these concerns. The article offers an outline for better regulation of the relationship between private issuers and their equity-compensated employees by tailoring the disclosure requirements under Rule 701 to the distinct attributes of venture capital-backed firms. The last part of my dissertation, Equity Illusions (work-in-progress) is aimed at better understanding of how employees form investment decisions regarding equity compensation, the kind of information employees rely on and the type of fallacies that might pervade the market. In an online experiment conducted with a sample of more than 1,000 U.S. workers with at least a college-level STEM degree, I examine employees' financial literacy regarding equity-based compensation and employees' willingness to trade off cash compensation in exchange for start-up equity. The findings indicate that employees commonly respond to economically irrelevant signals and misinterpret other important financial signals. Thus, respondents demonstrated a greater demand for equity grants when the number of shares offered was relatively large, even though the ownership percentage was fixed. Furthermore, respondents were less likely to favor working for a company with a relatively high private market valuation when the company was described as a "unicorn" compared with a similarly valued company not labeled as such. These tendencies are associated with low level of financial literacy regarding equity-based compensation as measured by a novel three-item test developed in this study. The findings suggest that employees harbor a range of "market illusions" regarding start-up equity that can cause inefficiencies in the labor market and that sophisticated employers can legally exploit. The study's results raise serious questions about the protection of employees in their investor capacity in a market in which highly sophisticated repeat players--namely, venture capital funds and other private equity investors -- interact with unorganized and uninformed retail investors.

Author: Magdalena Radulescu
Publisher: Frontiers Media SA
ISBN: 2832514154
Category : Science
Languages : en
Pages : 609

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Author: Al-Hakim, Latif
Publisher: IGI Global
ISBN: 1522501363
Category : Business & Economics
Languages : en
Pages : 772

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The global market is constantly evolving and it has become essential for organizations to employ new methods of appealing to customers in order to stay abreast on current trends within the world economy. The Handbook of Research on Driving Competitive Advantage through Sustainable, Lean, and Disruptive Innovation features theoretical development and empirical research in social media platforms, internet usage, big data analytics, and smart computing, as well as other areas of organizational innovation. Highlighting implementation challenges facing innovative processes, this publication is a critical reference source for researchers, students, professionals, managers, and decision makers interested in novel strategies being employed by organizations in an effort to improve their standings on the global market.

Author: Management Association, Information Resources
Publisher: IGI Global
ISBN: 1522592741
Category : Business & Economics
Languages : en
Pages : 2186

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The proliferation of entrepreneurship, technological and business innovations, emerging social trends and lifestyles, employment patterns, and other developments in the global context involve creative destruction that transcends geographic and political boundaries and economic sectors and industries. This creates a need for an interdisciplinary exploration of disruptive technologies, their impacts, and their implications for various stakeholders widely ranging from government agencies to major corporations to consumer groups and individuals. Disruptive Technology: Concepts, Methodologies, Tools, and Applications is a vital reference source that examines innovation, imitation, and creative destruction as critical factors and agents of socio-economic growth and progress in the context of emerging challenges and opportunities for business development and strategic advantage. Highlighting a range of topics such as IT innovation, business strategy, and sustainability, this multi-volume book is ideally designed for entrepreneurs, business executives, business professionals, academicians, and researchers interested in strategic decision making using innovations and competitiveness.

Author:
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Category : Dissertation abstracts
Languages : en
Pages : 784

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Author: Edmund H. Conrow
Publisher: AIAA
ISBN: 9781563475818
Category : Business & Economics
Languages : en
Pages : 560

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This important new text defines the steps to effective risk management and helps readers create a viable risk management process and implement it on their specific project. It will also allow them to better evaluate an existing risk management process, find some of the shortfalls, and develop and implement needed enhancements.

Author: Jeffrey J. Reuer
Publisher: Oxford University Press
ISBN: 0190683678
Category : Business & Economics
Languages : en
Pages : 752

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Organizational collaboration has played an important role in the field of strategic management in recent decades, including influential works on joint ventures, networks, and social capital. Likewise, the field of entrepreneurship has long recognized the value of collaboration, since young ventures often don't have the latitude to own or control all of the resources they need. Rather, the conditions of uncertainty and resource scarcity inherent in entrepreneurship push these ventures to creatively access resources, often through partnerships and collaborations that vary in formality. Though the importance of collaboration to entrepreneurship might seem apparent, research on it is distributed across multiple contexts, theoretical perspectives, and units of analysis. The Oxford Handbook of Entrepreneurship and Collaboration is a comprehensive volume that addresses the most important topics related to collaboration and connects them to unique challenges and opportunities related to entrepreneurship. Bringing together leading scholars from both areas, the volume takes stock of the current literature and aims to advance this body of research by highlighting the role that collaboration plays in value creation, resource acquisition, and the development of entrepreneurial ventures.