informative externalities and pricing in regulated multiproduct industries this paper addresses the issue of how to organise a two product industry with interdependent demands when the regulator cannot observe the demand level of the goods produced two industry structures are compared a multiproduct monopoly in which an informed firm produces both goods and a differentiated duopoly where two firms control one good each but the level of demand is known by one firm only focusing on the informative costs of regulation the paper shows that if goods are substitutes the regulator may achieve a better performance through integration of production with complements instead decentralisation tends to be preferred

conglomerates and regulation conglomerates operating integrated productions in different regulated and unregulated sectors may benefit of scope economies however the precise size of these synergies is often unknown to both rival firms and regulators we show that the conglomerate s private information on scope economies may negatively affect both the regulated and the unregulated sectors depending on the precise nature of competition strategic substitutes or complements we also unveil a novel effect of regulation that involves an informational externality to the conglomerate s rivals notwithstanding these complications and independently of the nature of competition we show that in our model it is desirable as for welfare to let the firm run integrated productions unless diseconomies of scope may realize jel l51 l43 l52

golden parachutes shark repellents and hostile tender offers a common view of golden parachutes and shark repellents is that they are designed by management to insulate itself from the discipline imposed by the market for corporate control and so are harmful to shareholders this paper offers an alternative view that these devicesare beneficial to shareholders because they allow better contracting between manager and shareholders evidence on the incidence of goldenparachutes and on the compensation tenure relationship for managers of golden parachute firms supports the alternative view copyright 1986 by american economic association

antitakeover charter amendments and stockholder wealth abstract many large corporations have recently adopted antitakeover charter amendments which make the transfer of corporate control more difficult this paper develops and tests competing theoretical explanations for the passage of these amendments in one view antitakeover provisions are adopted because incumbent management seeks job protection at stockholders expense the alternative hypothesis is that antitakeover provisions benefit stockholders perhaps by extracting greater payment in exchange for corporate control although inconclusive the evidence provides weak preliminary support for the hypothesis that antitakeover amendments are best explained as a device for managerial entrenchment

regulating horizontal diversification abstract this paper investigates the optimal design of diversification rules for regulated enterprises diversification generates profit in non core markets that can be shared with core customers however a diversified firm may divert its attention and effort to non core operations causing consumer welfare in core markets to decline diversification generally results in lower prices and higher powered reward structures in core markets surprisingly diversification is not always directed into the non core markets where the expected contribution of the regulated firm is most pronounced furthermore diversification may be permitted more often as the potential losses from effort diversion increase

foreign direct investment spillovers and technical efficiency in the indonesian pharmaceutical sector firm level evidence the spillovers of foreign direct investment fdi on domestic firms performances have been highly debated for many years this article contributes to this debate by analysing spillovers effects on technical efficiency of indonesian pharmaceutical sector using a unique unbalanced panel of highly disaggregated at five digit international standard industrial classification isic 210 firms over the period 1990 1995 1001 observations the stochastic production frontier spf and the data envelopment analysis dea based on malmquist productivity indices mpi have been used to test the spillovers effects of fdi on technical efficiency the empirical results from the spf show that foreign firms are more efficient than domestic competitors and the presence of the former increases the inefficiency of the latter similarly the results from the mpi demonstrate that fdi has a negative and significant impact on technical efficiency changes in domestic competitors but generate positive spillovers to domestic s

on countervailing incentives abstract this paper extends and unifies previous work on optimal contracts under countervailing incentives shedding light in particular on the relation between countervailing incentives and pooling inflexible rules our main result is that the nature of the optimal contract depends crucially on whether the agent s utility is quasiconcave or quasiconvex in the private parameter the optimal contract is separated in the former case and it may entail pooling in the latter case journal of economic literature classification number d82

shareholder wealth maximization business ethics and social responsibility the primary objective of this article is to develop a framework for analyzing the ethical foundations and implications of shareholder wealth maximization swm distinctions between swm and the more widely examined construct of profit maximization are identified the most significant being the central role played in swm by the market mechanism for pricing the corporation s securities it is argued that empirical tests concerned with evaluating the ethical implications of swm will almost surely involve a joint hypothesis a number of recent empirical studies aimed at testing hypotheses with explicit ethical content are reviewed

a note on price and quantity competition in differentiated oligopolies abstract in this note we show that the results developed in n singh and x vives 1984 rand j econ 15 546 554 are sensitive to the duopoly assumption if there are more than two firms prices may be higher under price competition than under quantity competition this will be the case if quality differences are large and goods are complements if goods are substitutes high quality firms may earn higher profits under price competition than under quantity competition hence it is not evident which kind of competition is more efficient journal of economic literature classification numbers d43 l13

institutional and legal context in natural experiments the case of state antitakeover laws we argue and demonstrate empirically that a firm s institutional and legal context has first order effects in tests that use state antitakeover laws for identification a priori the size and direction of a law s effect on a firm s takeover protection depends on i other state antitakeover laws ii preexisting firm level takeover defenses and iii the legal regime as reflected by important court decisions in addition iv state antitakeover laws are not exogenous for many easily identifiable firms we show that the inferences from nine prior studies related to nine different outcome variables change substantially when we include controls for these considerations

participation constraints in adverse selection models abstract this paper characterizes the optimal contract offered by an uninformed principal to an informed agent when the latter s reservation utility depends on his type the informational rent is nonmonotonic so that interior types may have a vanishing rent or be excluded from trade the paper identifies conditions for the optimal contract to be separating to be nonstochastic and to induce full participation it also discusses the nature of the solution when bunching occurs the results are applied to nonlinear pricing under price cap regulation and bypass competition and to competition in nonlinear pricing journal of economic literature classification numbers d82 d42 d23 d78 l51 l15

do short term objectives lead to under or overinvestment in long term projects we examine managerial investment decisions in the presence of imperfect information and short term managerial objectives prior research has argued that such an environment induces managers to underinvest in long run projects we show that short term objectives and imperfect information may also lead to overinvestment and we identify how the direction of the distortion depends upon the type of informational imperfection present when investors cannot observe the level of investment in the long run project suboptimal investment will be induced when investors can observe investment but not its productivity however overinvestment will occur there has been in recent years substantial public debate on the question of whether the long run investment decisions of the managers of publicly traded companies may be distorted by market pressures recent work by economists has tried to identify the potential source and nature of such distortions research has naturally focused on situations that are characterized by i short term managerial objectives the managers are concerned not only with the firm s long run stock price but also with the firm s short run stock price due to incentive schemes or the fear of losing control and ii imperfect information the market has less information than the firm s managers about the firm s long run projects the results of this research have indicated that in some situations short term objectives and imperfect information may lead to underinvestment in long run projects this paper seeks to extend prior work on the effects of short term objectives and imperfect information on long run investment decisions we demonstrate that imperfect information together with an emphasis on a firm s short run valuation may lead not only to underinvestment but also to overinvestment in long run projects the direction of the distortion depends

takeover threats and managerial myopia this paper examines the familiar argument that takeover pressure can be damaging because it leads managers to sacrifice long term interests in order to boost current profits if stockholders are imperfectly informed temporarily low earnings may cause the stock to become undervalued increasing the likelihood of a takeover at an unfavorable price hence the managerial concern with current bottom line the magnitude of the problem depends on a variety of factors including the attitudes and beliefs of shareholders the extent to which corporate raiders have inside information and the degree to which managers are concerned with retaining control of their firms

countervailing incentives in agency problems abstract we analyze countervailing incentives in agency problem countervailing incentives exist when the agent has an incentive to understate his private information for some of its realizations and to overstate it for others when countervailing incentives arise pooling generally characterizes the equilibrium contract furthermore performance is distorted both above and below efficient levels in addition the agent s rents generally increase with the realization of his private information over some ranges and decrease over other ranges we demonstate that the creation of countervailing incentives can enhance aggregate welfare

the value of information in a simple duopoly model abstract this paper is concerned with the evaluation of information in a duopoly model in which the cost functions are subject to uncertainty it explores how changes in information about the costs available to either firm affects the welfare of both firms along with the welfare of consumers by comparing the ten possible types of information structures it is shown that information may be detrimental that improved information for one firm may or may not benefit the other firm and or the consumer and that it may be more desirable for a firm to gather information about the rival s cost rather than its own all of these irregular results depend on the values of the variances of the costs and their correlation coefficient

competition and regulation in vertically related markets in an industry where naturally monopolistic and competitive activities are vertically related should the natural monopolist be allowed also to operate in the deregulated competitive sector unlike much of the literature on vertical integration this paper assumes that monopoly pricing behaviour is regulated and therefore the effect of vertical integration on the task of regulation is central to the analysis in the model there is both imperfect information and imperfect competition when vertical integration by the monopolist is allowed the regulator s task is made harder insofar as the monopolist has anticompetitive incentives to raise rivals costs on the other hand integration may lead to there being fewer firms in the deregulated sector and hence less duplication of fixed costs the overall welfare comparison between separation and integration is ambiguous as two simple examples illustrate various extensions to the analysis are also considered one of the central questions in debates on regulatory reform is how to organize industries that contain both naturally monopolistic and potentially competitive activities electricity transmission and distribution are characterized by natural monopoly cost conditions but electricity generation is not in the gas industry pipeline services may be naturally monopolistic but supply to larger customers is not in telecommunications natural monopoly is more a feature of local network operations than of long distance operations and is not present in apparatus manufacture and supply or in the provision of value added services in railways while the infrastructure of track and stations is naturally monopolistic the supply of train services might not be policy developments notably those associated with privatization in britain and deregulation in the united states have sometimes led to radical structural reform in these industries at t for decades a vertically integrated monopolist was required under the 1982 settlement of its long running antitrust case against the u s government to divest itself of its local network operations the central electricity generating board cegb in england and wales was restructured both vertically transmission grid activities were separated from generation and horizontally before privatization in 1990 1991 by contrast british telecom was privatized as a vertically integrated dominant firm bt now faces competition from mercury and others especially in the long distance market but its dominance of local network operations might affect competition there and in other areas such as apparatus supply the local network monopoly would of course have to be regulated in any event but its link via ownership to vertically related and potentially competitive activities poses additional regulatory questions many of the efforts of the regulatory body oftel notably in relation to interconnection between bt s and rivals 1 for a general account of the theory and british experience of regulatory reform in the utility industries

the impact of corporate governance practices on r d efforts a look at shareholders rights cross listing and control pyramid the paper considers the impact of multiple shareholder oriented governance practices on rd decisions based on a sample of 5 528 firms belonging to 110 large french listed business groups our results substantiate the idea that shareholder oriented governance practices and a lower position in a control pyramid are better for rd investment the introduction of any additional shareholder oriented practice is found to result in more rd we show however that this anglo americanization of the french corporate governance system is only partial we provide evidence of the co existence of an old french system of corporate governance with a hybrid model of corporate governance the lack of concrete results on complementarity among shareholder oriented governance practices casts doubt on the stability of this hybrid model in the french context

shark repellents and managerial myopia an empirical test since the proxy fights of the 1950s commentators have debated the welfare implications of corporate takeovers although observers such as manne 1965 jensen and meckling 1976 fama 1980 and jensen and ruback 1983 argue that the market for corporate control promotes efficiency and enhances wealth some critics such as managers of firms subject to hostile takeover attempts contend that takeovers destroy firm value the critics frequently assert that takeover pressure forces managers to sacrifice profitable but slowyielding long term investments in favor of less productive short term investments that offer immediate returns while the evidence supporting takeover induced shortsightedness is largely anecdotal a recent paper by stein 1988 develops a formal

staggered boards corporate opacity and firm value abstract we explore the effect of corporate opacity on the relation between staggered boards and firm value we find that through mitigating takeover pressure staggered boards become increasingly beneficial to firm value as opacity increases in addition we document that staggered boards reduce value only in transparent firms additional tests indicate that as opacity increases staggered boards bear an increasingly positive relation to research and development and ceo pay performance sensitivity taken together these results suggest that corporate opacity affects the value impact of takeover protection

plant closing decisions and the market value of the firm abstract we investigate the underlying causes and the announcement effects of plant closings the closing in our sample do not appear related to takeover activity instead they appear motivated by declining firm profitability firms announcing closings have lower earnings than market or industry medians earnings typically improve slightly after the announcement we find a negative stock market reaction to plant closing announcements

corporate governance and innovation we use tobin s q models of investments to estimate the relationship between corporate governance and the level of innovative activity simple ordinary least squares ols models suggest that poor governance reduces innovative activity however ols results are sensitive to controlling for serial correlation unobserved effects or using instrumental variables to control simultaneity controlling for these effects substantially reduces or eliminates the relationship between governance and innovative activity

productivity growth technical progress and efficiency change in industrialized countries this paper analyzes productivity growth in 17 oecd countries over the period 1979 1988 a nonparametric programming method activity analysis is used to compute malmquist productivity indexes these are decomposed into two component measures namely technical change and efficiency change we find that u s productivity growth is slightly higher than average all of which is due to technical change japan s productivity growth is the highest in the sample with almost half due to efficiency change jel c43 d24 in this paper we apply recently developed

diversification incentives under price based and cost based regulation this article considers two schemes of regulationforfirms that serve both monopoly markets and markets subjected to substantial competition the first form cost based regulation combines elements of rate of return regulation on monopoly markets with filly distributed cost pricing much like the form of regulation currently in place in the domestic telephone industry the secondform price based regulation would establish rate caps on noncompetitive services and allow the firm to enter into competitive markets and charge whatever prices it might like in those markets models of both forms of regulation are developed and analyzed with respect to incentives for cost misreporting choice of technology cost reducing innovation choices of prices and output levels and diversification into competitive markets

choosing among alternative cost function specifications an application to italian multi utilities abstract the paper investigates the cost properties of a sample of italian utilities providing in combination gas water and electricity services the estimates from a multi product composite cost function rev econ stat 74 1992 221 are compared with the ones coming from other traditional functional forms such as the standard translog st the generalized translog gt and the separable quadratic sq the results show that the composite model provides a better description of data and highlight the presence of global scope and scale economies for the median firm of the sample

an empirical investigation of the impact of antitakeover amendments on common stock prices abstract antitakeover amendments are amendments to a corporation s charter that impede the ability of an outsider to gain control of the firm a number of individuals and institutions have onjected to such amendments on the grounds that they are not in the best interests of the shareholders of the firms that adopt them this paper employs event time methodology to investigate the impact of antitakeover amendments on the common stock prices of firms that adopt them the results indicate that the announcement of such amendments is associated with a positive revaluation of stock price contrary to the concerns of their critics we conclude that antitakeover amendments are proposed by managers who seek to increase the value of the firm and are approved by stockholders who share that objective