divestment of foreign production operations this study investigates some determinants fo the divestment of foreign manufacturing operations by norwegian companies to date very few studies have taken a closer look at what might influence whether foreign subsidiaries are divested or not although foreign direct investment in principle represent long term commitments to foreign manufacturing operations divestments are in fact quite common this study shows that more than half of a sample of foreig subsidiaries woned by norwegian companies in 1982 wee divested within a period of ten years the empirical findings indicate that foreign divestment is inversely related to economic growth in the host country and that the propensity to divest is significantly higher for subsidiaries that had been acquired than for greenfield establishments also related horizontal subsidiaries are less likely to be divested than unrelated non horizontal subsidiaries

repeated moral hazard and contracts with memory the case of risk neutrality we consider a repeated moral hazard problem where both the principal and the wealth constrained agent are risk neutral in each of two periods the agent can exert unobservable effort leading to success or failure incentives provided in the second period act as carrot and stick for the first period so that the effort level induced in the second period is higher after a first period success than after a failure if renegotiation cannot be prevented the principal may prefer a project with lower returns i e a project may be too good to be financed or similarly an agent can be overqualified this article offers a new perspective on dynamic moral hazard problems consider a riskneutral principal who can hire a risk neutral but wealth constrained agent the agent can exert unobservable effort which increases the likelihood of success in the one shot problem there is a well known trade off between effort incentives and rent extraction which leads to a downward distorted effort level compared to the first best solution we extend the standard model by assuming that there is a second period in which the principal can make an investment to continue the project and the agent can again exert unobservable effort it turns out that there are several interesting insights that so far have escaped the literature on repeated moral hazard which was focused on the case of risk averse agents in particular if the principal can commit not to renegotiate the second period incentives can be used to partially circumvent the limited liability constraint in the second period the principal induces the agent to choose a particularly high effort level following a first period success and a particularly low effort level following a first period failure the prospect of a higher second period rent following a first period success motivates the agent to exert more effort in the first period i e rents in the second period act as reward and punishment for the first period it should be emphasized that we assume no technological impact of a first period success or failure on the second period technology nevertheless an optimal dynamic contract exhibits memory hence if an outsider observed today a principal agent pair that was successful and another identical pair that was not successful he would be right to predict that the first pair also is more likely to succeed tomorrow in other words a serial correlation across periods which we sometimes refer to as a hot hand effect is generated endogenously merely based on incentive considerations 2

can oil prices forecast exchange rates an empirical analysis of the relationship between commodity prices and exchange rates we show the existence of a very short term relationship at the daily frequency between changes in the price of a country s major commodity export and changes in its nominal exchange rate the relationship appears to be robust and to hold when we use contemporaneous realized commodity price changes in our regression however when we use lagged commodity price changes the predictive ability is ephemeral mostly appearing after instabilities have been appropriately taken into account

the form of incentive contracts agency with moral hazard risk neutrality and limited liability the analysis obtains a complete characterization of the optimal agency contract with moral hazard risk neutrality and limited liability we introduce a critical ratio that indicates the returns to providing the agent with incentives for effort in each random state the form of the contract is debt a capped bonus when the critical ratio is increasing decreasing in the state an increasing critical ratio in the state space setting corresponds to the hazard rate order for the reduced form distribution of output which we term the decreasing hazard rate in effort property dhrep the critical ratio also yields insights into agency with adverse selection

reassessing the empirical relationship between the oil price and the dollar abstract this paper aims at reassessing the empirical relationship between the real price of oil and the u s dollar real effective exchange rate over the 1974 2015 period we find that changes in both variables are now linked by a negative relationship going from the dollar exchange rate to the real oil price however the same relationship is found positive when ending the sample in the mid 2000s in line with the previous literature to understand and investigate this evolution we rely on a nonlinear smooth transition regression model in which the oil price dollar nexus depends on the dynamics followed by the u s currency our results show that the relationship is negative most of the times but turns positive when the dollar hits very high values as in the early eighties

rank order contracts for a principal with many agents for a principal with many agents rank order contracts remain incentive compatible even when information about agents performance is known only to the principal because the total payment from the principal to all agents taken together is independent of the outcome that occurs under wider conditions than those considered previously in the literature there is shown to exist a rank order contract equivalent exactly or approximately to any nonlinear piece rate contract under those conditions therefore results that depend on the unenforceability of piece rates under such asymmetric information disappear if rank order contracts can be used in principal agent models compensation paid to agents is based on their outputs because their inputs are not public information in this context information is public if it is verifiable in court so that a contract contingent on it is legally enforceable rank order contracts also called tournaments and contests make each agent s compensation a function solely of the ranking of his output relative to the outputs of other agents in contrast individual piece rate contracts make each agent s compensation a function only of his own output lazear and rosen 1981 green and stokey 1983 and nalebuff and stiglitz 1983 all have results comparing the two when agents actions are not observed by the principal but only for the case in which the principal is risk neutral and the utility function of agents additively separable in income and action the main purpose of the present paper is to show that for the case of a continuum of agents these two kinds of contract are in fact formally equivalent or in some cases approximately equivalent under somewhat more general conditions than those considered so far in the

limited liability and incentive contracting with ex ante action choices abstract this article examines a principal agent model of financial contracting in which a risk neutral entrepreneur agent makes an unobservable ex ante effort choice while employing the investment funds of a risk neutral investor principal the key innovation is that the investment contract is subject to statutory liability limits given these liability limits two settings are considered one in which the investor payoff function is also constrained to be monotonically nondecreasing in firm profit and another in which no such monotonic contract constraint is imposed in the former case a standard debt contract is shown to emerge and a first best effort choice is not achieved in the latter setting the optimum is characterized by a live or die payoff function and a first best effort level may or may not be realized

union rents as a source of takeover gains among target shareholders this paper tests the hypothesis that the substantial gains enjoyed by shareholders in target firms during the corporate acquisition boom of the 1980s reflected in part shareholders recouping of the value of rents in the form of wage premiums higher fringe benefits and constraints on managerial authority held by unionized labor analyzing data on the merger and acquisition experience of nearly 300 large publicly traded target firms during the period 1982 86 the author finds consistent with that hypothesis that shareholders average returns from takeover activity were higher in unionized target firms 41 than in nonunion target firms 35 for unionized workers these effects are equivalent to an annualized employee loss approaching 8 of annual earnings or 50 of the wage premium conventionally associated with union coverage

internal competition for corporate resources and incentives in teams invoking thefree rider problem in teams many observersfind profit sharing in large organizations puzzling because it should have negligible incentive effects we show that a firm can be decomposed into two separate teams whose outputs can be observed thenprofit sharing combined with competition between these two teamsfor internal resourcesfrequently solves thefree rider problem using this result we endogenize thefirm s organizational structure and show that in the presence of economies of scale small firms tend to organize as unita y firms while largefirms choose the multidivisional organizationalform

competitiveness through management of diversity effects on stock price valuation this study s premise is that firms that can lower their costs and enhance their differentiation through the effective management of their human resources have a competitive advantage using data fr

learning from coarse information biased contests and career profiles an organization s promotion decision between two workers is modelled as a problem of boundedly rational learning about ability the decision maker can bias noisy rank order contests sequentially thereby changing the information they convey the optimal final period bias favours the leader reinforcing his likely ability advantage when optimally biased rank order information is a sufficient statistic for cardinal information the leader is favoured in every period in other environments bias in early periods may i favour the early loser ii be optimal even when the workers are equally rated and iii reduce the favoured worker s promotion chances this paper presents a model of boundedly rational learning by an organization the aims are to represent in a simple form the costs of gathering processing or transmitting information and to analyse their implications for the procedures selected to handle information as well as for the decisions actually made like other recent work on the internal organization of firms this work explores to what extent organizational structure and behaviour as well as organizational performance can be explained by adaptation to the costs associated with information in the learning model we formulate the decision maker not only selects a rule specifying what action to take as a function of his observations but also chooses sequentially the information partitions generating those observations this general problem is interpreted in the context of an organization which needs to make an important promotion decision and which attempts to maximize the value of the information generated during the observation periods that precede the decision one of the motivations for this analysis was the finding by organizational sociologists that earnings and promotions in the later stages of a worker s career are strongly correlated with earnings and promotions in the early stages kanter 1977 rosenbaum 1984 later success is positively associated with early success even when one controls for the effect of observable characteristics likely to affect performance such as education one obvious source of this correlation is differences in ability that persist over time and that are not captured by the observable covariates in this paper we focus on differences in ability which are initially unobservable by organizations and their workers as well as by researchers we present a simple model of an organization trying to learn about differences in ability and show

china and the relationship between the oil price and the dollar abstract we study cointegration and causality between the real price of oil and the real price of the dollar over the 1974 2004 period our results suggest that a 10 rise in the oil price coincides with a 4 3 appreciation of the dollar in the long run and that the causality runs from oil to the dollar through the development of a theoretical model we then investigate possible reasons why this relationship could be reversed in the future due to the emergence of china as a major player on both the oil and the foreign exchange markets

the response of real exchange rates to various economic shocks substantial fluctuations in real exchange rates i e deviations from purchasing power parity ppp which closely mirror movements in nominal rates have been one of the most notable international economic events since the breakdown of the bretton woods system dornbusch s disequilibrium theory 9 which presumes different speeds of adjustment in assets and goods markets offers an explanation for temporary deviations from ppp only models assuming ppp as a long run relationship have not been successful in interpreting the movements of the real exchange rates although studies conducted for countries experiencing high or hyper inflation provide evidence favoring ppp 42 30 29 the empirical evidence on ppp for industrialized low inflation countries is not generally favorable 1 this is consistent with the view that ppp may hold better in high inflation countries where the disturbances to their economies are mostly monetary in origin 31 123 24 but ppp may not hold well when the real disturbances which change equilibrium relative prices dominate statistical evidence indicates that the real exchange rates of many countries are likely to be nonstationary or have long memory that is changes in the real values of many currencies tend to persist for very long period of time this persistence implies that fluctuations in the real exchange rates are largely due to long lasting effect of real disturbances after revealing that ppp does not hold as a long run concept for several exchange rates flynn and boucher 12 121 suggest that one possible explanation is that there are time varying real factors that are omitted from the ppp relationship there are several well established reasons why the real exchange rates may change in response to real disturbances in the first place permanent exogenous shocks to the tradable sector of the economy call for changes in competitiveness for instance a rise in the real price of oil will worsen the balance of trade position of a net oil importing country and therefore call for a real depreciation of the currency of the country in order to improve its competitive position 32 second when countries are growing at different rates productivity bias will typically result in

causal flows between oil and forex markets using high frequency data asymmetries from good and bad volatility abstract this paper investigates the causal linkages in volatility between crude oil prices and six major bilateral exchange rates against the u s dollar in the time frequency space using high frequency intraday data special attention is paid to the potential asymmetries in the causal effects between oil and forex markets the wavelet based granger causality method proposed by olayeni 2016 is applied to quantify the causal relations in the time and frequency domains simultaneously moreover the realized semivariance approach of barndoff nielsen et al 2010 is used to account for possible asymmetries in the transmission of volatility shocks the empirical results show that the significant causal links between oil prices and exchange rates are mainly concentrated in the long run and during periods of increased economic and financial uncertainty such as the global financial crisis and the subsequent european sovereign debt crisis further the causal effects from currency markets to the crude oil market are stronger than in the opposite direction consistent with the forward looking nature of exchange rates the role of the u s dollar as the key invoicing currency for global oil trading and the expanding financialization of the oil market since the mid 2000s in addition significant asymmetries coming from good and bad volatility are found at longer horizons specifically bad volatility seems to dominate good volatility in terms of the importance of transmission of volatility shocks

corporate combinations and common stock returns the case of joint ventures the gain to stockholders from mergers is well documented however there is little evidence as to whether the source of the gain is due to synergy or management displacement merger is just one of an almost limitless variety of ways in which firms combine resources to accomplish some objective a joint venture is another in addition to being of interest as an independent phenomenon because the original managements of the parent firms remain intact under a joint venture investigation of wealth gains from joint ventures provides an opportunity to isolate the management displacement hypothesis from the synergy hypothesis as the source of gains in corporate combinations our results are 1 there are significant wealth gains from joint ventures 2 the smaller partner earns a larger excess rate of return while the dollar gains are more equally divided and 3 the gains scaled by resources committed yield premiums similar to those in mergers we are inclined to interpret our results as supportive of the synergy hypothesis as the source of gain from corporate combinations this paper is an empirical investigation of the common stock returns of u s companies that enter into joint ventures with other u s companies we consider joint ventures in the context of what is by now a burgeoning literature examining the security returns of companies involved in intercorporate mergers and tender offers 1 in this context our objective is to provide evidence as to the source of the well documented gains to stockholders of firms involved in mergers and tender offers in addition joint ventures are an interesting economic phenomenon in their own right they are undertaken by many of the largest u s companies involve billions of dollars in capital expenditures annually and are subject to considerable scrutiny in the popular press in this regard our analysis provides data on what is as yet a relatively unexplored area of economic activity 2 a corporate merger represents the joining together of all the resources of two companies under a single management to accomplish some set of objectives empirical studies have found that mergers generally result in significant increases in the total market values of the merging firms with the stockholders of the

wti crude oil futures in portfolio diversification the time to maturity effect the aim of the paper is to analyze the diversification effect brought by crude oil futures contracts the most liquid commodity futures into a portfolio of stocks the studies that have documented the very low and essentially negative correlations between commodities and equities typically rely on normally distributed returns which is not the case for crude oil futures and stocks indexes moreover the particular time to maturity chosen for the future contract used as an investment vehicle is an important matter that needs to be addressed in presence of forward curves switching between backwardation and contango shapes our goal in this paper is twofold a we introduce copula functions to have a better representation of the dependence structure of oil futures with equity indexes b using this copula representation we are able to analyze in a precise manner the maturity effect in the choice of crude oil future contract with respect to its diversification benefits our finding is that in the case of distant maturities futures e g 18 months the negative correlation effect is more pronounced whether stock prices increase or decrease this property has the merit to avoid the hurdles of a frequent roll over while being quite desirable in the current trendless equity markets empirical evidence is exhibited on a database comprising the nymex wti crude oil futures and s p 500 index over a 15 year time period

economic contests comparative reward schemes contests are situations in which an individual s reward depends on his performance relative to others students are graded on a curve the candidate with the most votes gets the political office the underling who performs best is promoted to the executive position contests are useful in dealing with indivisible rewards reducing monitoring costs and minimizing risks from common uncertainties they are employed to sort potential participants and once they have entered to induce appropriate effort from them with monitoring precision and prize spreads as potential choice variables optimal contest structures are derived for fair and unfair contests among equal and unequal participants the converse problems of climbing low ability individuals enter the contest designed for high ability candidates and slumming are shown to be manageable

bonus pools and the informativeness principle abstract previous work on moral hazard problems has shown that under certain conditions bonus contracts create optimal individual incentives for risk neutral workers in our paper we demonstrate that if a firm employs at least two workers it may further benefit from combining worker compensation via a bonus pool contract and relative performance evaluation such combination leads to saved rents under a wide class of luck distributions in addition if the employer is wealth constrained complementing individual bonus contracts by the possibility of pooling bonuses can increase the set of implementable effort levels all our results hold even though workers outputs are technically and stochastically independent so that in view of holmstrom s informativeness principle individual bonus contracts would be expected to dominate bonus pool contracts

external debt and real exchange rates adjustment in the euro area new evidence from a non linear natrex model in this paper we revisit medium to long run real exchange rate determination within the euro area focusing on the role of external debt accordingly we rely on the natrex approach which provides an explicit framework of the external debt real exchange rates nexus in particular given the indebtedness levels reached by the euro area economies we investigate potential non linearity in real exchange rates dynamics according to the level of the external debt our results evidence that during the monetary union gross and net external debt positions of the euro area countries have exerted pressures on real exchange rate dynamics within the area moreover we find that beyond a threshold reached by the external debt euro area countries are found to be in a vulnerable position leading to an unavoidable adjustment process nevertheless the adjustment process while effective is found to be low and occurs slowly

managerial incentive problems a dynamic perspective the paper studies how a person s concern for a future career may influence his or her incentives to put in effort or make decisions on the job in the model the person s productive abilities are revealed over time through observations of performance there are no explicit output contingent contracts but since the wage in each period is based on expected output and expected output depends on assessed ability an implicit contract links today s performance to future wages an incentive problem arises from the person s ability and desire to influence the learning process and therefore the wage process by taking unobserved actions that affect today s performance the fundamental incongruity in preferences is between the individual s concern for human capital returns and the firm s concern for financial returns the two need be only weakly related it is shown that career motives can be beneficial as well as detrimental depending on how well the two kinds of capital returns are aligned it is well understood by now that informational externalities may place special demands on the organization of economic exchange simple price mediated markets will frequently fail in the presence of asymmetric information in that case more elaborate contractual arrangements have to be used as substitutes for the price system lately considerable effort has been devoted to the analysis of contracting under incomplete information with the objective to understand the range of economic institutions that emerge in response to the failure of the price system the analysis of moral hazard has played a prominent role in this development moral hazard problems arise when for some reason or another transacting parties cannot contract contingent on the delivery of the good for instance in buying labour services it may be that the amount of labour supplied is not directly observable precluding a simple exchange of wage for labour as a partial remedy to this problem an imperfect mutually observed signal about the supply of labour can be used as a proxy in the contract frequently output is taken as such a proxy the drawback is that output is often influenced by other factors than labour input which induce undesirable risk into the contract one is therefore faced with a tradeoff between allocating risk associated with incomplete observability and providing incentives for a proper supply of labour gaining insight into this tradeoff is important not only for understanding contracting in the small e g managerial incentive schemes but also because it is closely related to the fundamental tension between equity and efficiency in the society as a whole while our understanding of moral hazard has advanced a lot in past years it is clear that much work remains an important question that has received little attention until

antitrust policy and mergers the wealth effect of supreme court decisions many believe that antitrust policy has had a dramatic impact on merger strategies in the united states for this to be true enforcement of antitrust laws must affect a wide range of firms not just those firms whose mergers are contested this study tests whether or not firms engaged in uncontested mergers are affected by antitrust enforcement as signalled by supreme court decisions using event study methodology we find that antitrust policy against mergers was binding during the 1960s and 1970s as it ulowered the value of targets in ucontested ongoing mergers

a resource based perspective on corporate environmental performance and profitability drawing on the resource based view of the firm we posited that environmental performance and economic performance are positively linked and that industry growth moderates the relationship with the returns to environmental performance higher in high growth industries we tested these hypotheses with an analysis of 243 finns over two years using independently developed environmental ratings results indicate that it pays to be green and that this relationship strengthens with industry growth we conclude by highlighting the study s academic and managerial implications making special reference to the social issues in management literature

asymmetric tournaments equal opportunity laws and affirmative action some experimental results this paper assesses whether affirmative action programs and equal opportunity laws affect the output of economic agents more precisely we find that equal opportunity laws and affirmative action programs always benefit disadvantaged groups equal opportunity laws also increase the effort levels of all subjects and hence the profits of the tournament administrator usually the firm the effects of affirmative action programs depend on the severity of a group s cost disadvantage when the cost disadvantage is severe these programs significantly increase effort levels and hence profits the opposite is true when the disadvantage is slight

collusion delegation and supervision with soft information this paper derives an equivalence principle between organizational forms of supervisory and productive activities we consider an organization with an agent privately informed on his productivity and a risk averse supervisor getting signals on the agent s type in a centralized organization the principal can communicate and contract with both the supervisor and the agent however these two agents can collude against the principal in a decentralized organization the principal only communicates and contracts with the supervisor who in turn sub contracts with the agent we show that the two organizations achieve the same outcome we discuss this equivalence and provide various comparative statics results to assess the e ciency of supervisory structures

on the design of piece rate contracts we characterize the optimal piece rate contract in the canonical moral hazard setting with a wealth constrained risk averse agent the contract is shown to have a simple intuitive characterization in a structured but broad class of settings

can exchange rates forecast commodity prices we show that commodity currency exchange rates have surprisingly robust power in predicting global commodity prices both in sample and out of sample and against a variety of alternative benchmarks this result is of particular interest to policy makers given the lack of deep forward markets in many individual commodities and broad aggregate commodity indices in particular we also explore the reverse relationship commodity prices forecasting exchange rates but find it to be notably less robust we offer a theoretical resolution based on the fact that exchange rates are strongly forward looking whereas commodity price fluctuations are typically more sensitive to short term demand imbalances

concession bargaining the impact on shareholders equity this analysis of bargaining settlements in 1982 83 shows that on average shareholders in those firms that negotiated concessionary settlements enjoyed an 8 to 10 percent increase in the value of their holdings the author interprets this result to mean not that the value of the firm increased but rather that concessions enlarged the shareholders portion of the firm s value at the expense of the workers portion on the other hand concession bargaining does not seem to have reallocated business risk between shareholders and labor finally the evidence suggests that firm specific sources of risk can explain in part not only the magnitude of the concession effects but also the probability that concession bargaining will occur

the jump component of s p 500 volatility and the vix index much research has investigated the differences between option implied volatilities and econometric model based forecasts implied volatility is a market determined forecast in contrast to model based forecasts that employ some degree of smoothing of past volatility to generate forecasts implied volatility has the potential to reflect information that a model based forecast could not this paper considers two issues relating to the informational content of the s p 500 vix implied volatility index first whether it subsumes information on how historical jump activity contributed to the price volatility followed by whether the vix reflects any incremental information pertaining to future jump activity relative to model based forecasts it is found that the vix index both subsumes information relating to past jump contributions to total volatility and reflects incremental information pertaining to future jump activity this issue has not been examined previously and expands our understanding of how option markets form their volatility forecasts

effect of announcements of withdrawal from south africa on stockholder wealth in this study we analyzed investor reaction to corporate announcements of withdrawal from south africa to determine whether such announcements increased or reduced firms market value we also exa

do new brooms sweep clean when and why dismissing a manager increases the subordinates performance abstract if a manager stays in office for a long time he will have learned much about his subordinates thus competition among them will be weak as the manager has made up his mind who is suited best for which position with a new manager the race for favorable tasks is restarted leading subordinates to exert higher effort but for the firm owner the trade off arises that with a new manager effort is larger but the quality of task allocation is worse since information is lost the optimal dismissal policy will be nonmonotonic in the expected heterogeneity of the subordinates abilities

the role of promotion in inducing specific human capital acquisition workers routinely carry out activities that increase their productivity with their current employer for which they are not directly compensated for example a worker may be asked to develop relationships with clients or shop floor staff or he may develop a better understanding of how his firm operates firmspecific human capital of this type is difficult to quantify so that it is likely to be difficult to directly compensate the worker for its acquisition this paper is concerned with designing compensation schemes for employees to induce them to collect nonverifiable firm specific human capital if firms develop reputations for fairly compensating workers for skill collection the vagueness of these skills may not provide a significant incentive problem i consider the case where firms do not have the opportunity to develop reputations as a result the acquisition of human capital is subject to a dual moral hazard problem first noted in kahn and huberman 1988 first a worker only collects skills if there is a promise of a higher wage if he does so second the employer has an incentive to claim that the worker has not collected these skills even when he in fact has in order to save on wage costs so on the one hand it is difficult to repay the worker after skills are collected as the firm has an incentive to renege however the worker cannot be repaid before collecting skills as he has no subsequent incentive to collect them following the institutional literature i assume that the firm can commit to a labor contract which attaches wages to different tasks the principal purpose of the paper is to show that the firm can use this ability to commit to a wage scale for different tasks to induce a worker to collect firm specific human capital in the presence of this dual moral hazard problem where the worker is rewarded for skill acquisition by promotion to another job assume that a worker can be assigned to one of two jobs d and

work incentives hierarchy and internal labor markets this paper argues that contracts with payment based on a ranking of employee performance can provide performance incentives even under asymmetric information that prevents payment based on individual performance only being enforceable such contracts also fit with five features of labor markets that have aroused considerable interest 1 hierarchical wage structures 2 internal promotion 3 wage rates that rise with seniority and experience more than productivity 4 the variance of earnings increasing with experience and 5 wage rates attached to jobs rather than individuals with differentials set by administrative procedures rather than by reference to external market wages

on corporate governance a study of proxy contests abstract this paper examines a sample of firms experiencing proxy contests for seats on their board of directors dissident shareholders usually fail to obtain a majority of board seats nevertheless they capture some seats via mechanisms such as cumulative voting in over half of the sample contests regardless of proxy contest outcome positive and statistically significant share price performance is associated with the contest that finding is predicted by the standard economic analysis of proxy contests in which the challenges benefit shareholders by improving corporate performance the finding runs counter to the claim of berle 1962 that the economists view of proxy contests is a wholly imaginary picture a portion of the positive share price changes taking place in the early stages of some proxy contests is not permanent however and as suggested by manne 1962 is at least partially attributable to temporary increases in the market value of the vote attached to corporate shares

characterizing nonlinearities in business cycles using smooth transition autoregressive models during the past few years investigators have found evidence indicating that various time series representing business cycles such as production and unemployment may be nonlinear in this paper it is assumed that if the time series is nonlinear then it can be adequately described by a smooth transition autoregressive star model the paper describes the application of these models to quarterly logarithmic production indices for 13 countries and europe tests reject linearity for most of these series and estimated star models indicate that the nonlinearity is needed mainly to describe the responses of production to large negative shocks such as oil price shocks

limited liability contracts between principal and agent abstract the optimal strategy of the principal is examined in an environment where there are ex post limitations on the maximum penalty that can be imposed on a riskneutral agent contrary to the case in which such limitations are not imposed it is in the principal s interest to deliberately forego the opportunity to induce socially efficient behavior and to instead design a contract that induces the agent to realize an efficient outcome only in the most productive state of nature and perhaps in certain very unproductive states the properties of the contract are examined in detail

tournaments with gaps a standard tournament contract specifies only tournament prizes if agents performance is measured on a cardinal scale the principal can complement the tournament contract by a gap which defines the minimum distance by which the best performing agent must beat the second best to receive the winner prize we analyze a tournament with two risk averse agents under unlimited liability the principal strictly benefits from a gap by partially insuring the agents and thereby reducing labor costs if the agents are protected by limited liability the principal sticks to the standard tournament

opec saudi arabia and the shale revolution insights from equilibrium modelling and oil politics why did opec not cut oil production in the wake of 2014 s price fall this study aims at aiding the mostly qualitative discussion with quantitative evidence from computing quarterly partial market equilibria q4 2011 q4 2015 under present short term profit maximisation and different competition setups although the model performs reasonably well in explaining pre 2014 prices all setups fail to capture low prices which fall even beyond perfect competition outcomes this result is robust with respect to large variations in cost parameters rejecting present short term profit maximisation as well as a qualitative discussion of saudi arabian politics and the shale oil revolution lead to the conclusion that the price drop of 2014 16 was most plausibly the result of an attempt to defend market shares and to test for shale oil resilience besides being fuelled by other factors such as rising competitiveness of alternative technologies although shale oil might have increased competition permanently as supported by model results the agreement of december 2016 should not be misunderstood as an opec defeat

on the efficiency of least squares regression with security abnormal returns as the dependent variable monte carlo procedures are used to compare the finite sample performance of several estimators that may be used in cross sectional regressions with security abnormal returns as the dependent variable alternative models of event induced increases in stock return variance are examined for the event clustering scenario event clustering implies crosssectional correlation and heteroskedasticity in market model prediction errors violating one of the fundamental ordinary least squares ols assumptions i i d disturbances nonetheless provided that the conditions for asymptotic validity derived by greenwald 1983 are met the ols estimator is well specified in finite samples further for sufficiently large cross sections there is no advantage to several other more complex estimators

value event studies this paper discusses appropriate methodology for measuring the effect of an event on the value of a firm s equity th e key points are 1 cumulative abnormal returns do not measure the effect of an event on firm value if there are dividends during the event window 2 it is generally appropriate to use pre event parameters of the return generating process even if the event alters the parameters during the event window and 3 controlling for fact ors other than the return on the market portfolio improves the power of the estimation the formula for the effect of an event on the value of a firm when there are dividends during the event window is developed a nd applied to a study of the effect of the bhopal disaster on the value of union carbide copyright 1992 by mit press

glass houses market reactions to firms joining the un global compact we examine market reactions to publicly held multinational firms announcing their affiliation with the united nations global compact ungc the ungc is a voluntary initiative to support four areas of united nations viz human rights labor environmental and anti corruption because firms must file annual communication on progress cop reports toward these initiatives we argue this creates a differentiating transparency of interest to stakeholders using a sample of 175 global firms we find support to the theory for joining the ungc returns differ markedly however between multinational firms headquartered in the united states negative and europe positive we also find that failing to complete the annual cop generates a negative market reaction

a prisoner s dilemma model of collusion deterrence abstract we examine a hierarchy formed by a principal a supervisor and an agent wherein the supervisor and the agent can collude we consider a case where collusion free supervisors are not available we demonstrate first that it is easy for the principal to deter collusion by introducing a second supervisor and designing a mechanism similar to the prisoner s dilemma so that the two supervisors control each other since it could prove too costly for the principal to send two supervisors a new question arises whether it would be possible to deter collusion by sending the second supervisor with a probability less than one we find that under reasonable assumptions on the size of rewards and punishments the principal can prevent collusion only by creating a new type of supervisor through sometimes informing the second supervisor of his position

predictable events and excess returns the case of dividend announcements abstract this paper hypothesizes that the risk per unit of time and the required rate of return are higher than normal during an event period whose timing can be predicted consistent with this hypothesis this paper presents empirical evidence indicating that the unconditional mean rate of return the variance of stock returns and their systematic risk are higher than usual during dividend announcement periods however the documented increases in the systematic risk are not large enough to fully explain the excess returns this finding is puzzling and hard to reconcile with existing theory

optimal incentives for teams much of the existing theory of incentives describes a static relationship that lasts for just one transaction this static assumption is not only unrealistic but the resulting predictions appear to be at odds with many work organizations the current paper introduces possible long term interaction among agents and studies how the design of explicit incentives and work organizations can exploit and interact with the implicit incentives generated by the repeated interaction of the agents the optimal incentive scheme is shown to display observed features of the increasingly popular teams such as the use of low powered group incentives

do hostile takeovers reduce extramarginal wage payments hostile takeovers may have significant implications for long term employment contracts if they facilitate the opportunistic expropriation of extramarginal wage payments we test the expropriation hypothesis by studying the relationship between proxies for extramarginal wage payments and subsequent hostile takeover activity this paper improves on existing research by using firm and establishment level data from a salary survey of employers in addition we observe characteristics of wage and employment structures both before and after the occurrence of a hostile takeover and hence can see whether the data are consistent with reductions in extramarginal wage payments following such takeovers results from this ex post experiment provide evidence consistent with the hypothesis that hostile takeovers result in reductions of extramarginal wage payments to more tenured workers mostly through cutbacks in senior positions at firms with relatively steep wage profiles

collusion and biased tournaments abstract tournaments are vulnerable to collusion this paper finds that biased tournaments can be more effective at preventing collusion than unbiased ones when agents can collude to exert low effort introducing some bias into tournaments generates opposite effects on favored and disfavored agents respective incentives to exert high effort and provides strong incentives for the favored agent to deviate from collusion introducing an adequate degree of bias reduces the principal s incentive cost for preventing collusion however granting excessive bias instead increases the incentive cost we show that the optimal level of bias can be endogenously determined

does euro or dollar pegging impact the real exchange rate the case of oil and commodity currencies the aim of this paper is to investigate the equilibrium exchange rates for commodity and oil currencies as well as the discrepancies of their observed exchange rates to these equilibriums to this end first we estimate a long term relationship between the real effective exchange rate and economic fundamentals including the commodity terms of trade the estimation relies on panel cointegration techniques and covers annual data from 1980 to 2007 our results show that real exchange rates co move with commodity prices in the long run and respond to oil price somewhat less than to commodity prices second we assess the degree of misalignment of these currencies as the gap between their observed exchange rate and the estimated equilibrium exchange rate we show that these misalignments are not significantly related to the exchange rate regimes adopted by the countries either pegged or floating however for pegged currencies the size of misalignments significantly depends on the anchor currency either the euro or the dollar a comparison of misalignments of pegged commodity and oil currencies across different periods confirms these results during periods of dollar euro overvaluation currencies pegged to the dollar euro tend to be overvalued the reverse being true when the dollar euro is undervalued consequently pegged currencies are often driven away from their equilibria by wild fluctuations in the key currencies on which they are anchored

event studies in management research theoretical and empirical issues we examined the use of event studies in management research and found that there was inadequate attention paid to theoretical and research design issues this lack of attention may lead to false in

performance promotion and the peter principle this paper considers why organizations use promotions rather than just monetary bonuses to motivate employees even though this may conflict with efficient assignment of employees to jobs when performance is unverifiable use of promotion reduces the incentive for managers to be affected by influence activities that would blunt the effectiveness of monetary bonuses when employees are risk neutral use of promotion for incentives need not distort assignments when they are risk averse it may sufficient conditions for this are given the distortion may be either to promote more employees than is efficient the peter principle effect or fewer

oil prices and exchange rates the quotations show a sharply divergent pattern in the response of the foreign exchange market to announcements of oil price increases during the first oil shock news about oil price rises led to a strengthening of the dollar whereas during the i979 surge of oil prices the reverse was generally true when the news was not so bad as feared the dollar fell back in i974 but rose in i979 in 1980 the pattern shifted once again back to dollar appreciation is there a rational fundamental explanation for the behaviour of the foreign exchange market or is it a matter of traders responding to what other traders arbitrarily think it is difficult to resolve this question but some insight can be provided through an analytical examination of the relationship between oil price increases and exchange rates the paper begins with a theoretical framework for analysing the relation between oil prices and exchange rates and then uses the theory to explain the behaviour of the foreign exchange market

security price reactions around corporate spin off announcements abstract we examine security price reactions around the announcements of 123 voluntary spin offs by 116 firms between 1963 and 1981 involving a pro rata distribution of the common stock of a subsidiary to the stockholders of the parent firm the median spin off in the sample is 6 6 of the original equity value and is associated with an abnormal return of 7 0 from 50 days prior to the announcement through completion of the spin off no evidence is found to indicate the gains to stockholders represent wealth transfers from senior securityholders over the entire event period we find positive gains for firms engaging in spin offs to facilitate mergers or to separate diverse operating units but negative returns to firms responding to legal and or regulatory difficulties in the two day interval surrounding the first press announcement we find positive average excess returns for all groups

the multilateral relationship between oil and g10 currencies abstract the relationship between oil and currencies is expected to be multilateral in nature however the use of the us dollar price of oil to measure this relationship can suffer from aggregation bias which is caused by the well known numeraire effect the quotation of oil in us dollars in this paper we remove the numeraire effect from the us dollar price of oil by creating a global multilateral price of oil which is quoted relative to multiple currencies this allows us to estimate an unbiased multilateral relationship between oil and g10 currencies we find that the global price of oil moves multilaterally with a group of oil currencies the norwegian krone the australian dollar the canadian dollar and the british pound in contrast the japanese yen and the swiss franc move multilaterally against the group of oil currencies and not against the global price of oil

un principles for responsible investment signatories and the anti apartheid sri movement a thought experiment there appears to be a growing disquiet amongst academics surrounding the ascendancy of responsible investment that is egoist or self interested in character business case responsible investment this ascendancy has in no small measure been associated with the uptake of united nations principles for responsible investment pri as a de facto standard for mainstream responsible investment this article contributes to this disquiet it does this by examining how egoist responsible investors as endorsed by the pri might have behaved had they been around in the 1970s 1980s and early 1990s during days of the anti apartheid socially responsible investment sri movement armed with near perfect hindsight grade enhanced analytics it is clear that the signals that such egoist responsible investors would have sent to company management in terms of the apartheid issue would have been highly muddled and therefore ineffective the net conclusion is that there is nothing inherently or inevitably responsible about egoist investment and that the aversion to behaving ethically amongst institutional investors must be challenged and not swept under a carpet of rhetoric

contests with draws axiomatization and equilibrium we introduce and axiomatize a class of single winner contest success functions that embody the possibility of a draw we then analyze the game of contest that our success functions induce having different prizes delivered in the occurrence of a win and a draw we identify conditions for the existence and uniqueness of a symmetric interior nash equilibrium and show that equilibrium efforts and equilibrium rent dissipation can be larger than in a tullock contest with no possibility of a draw due to increased competition even if the draw prize is null these results suggest that a contest designer may profit from introducing the possibility of a draw finally we show that this approach naturally extends to multiprize contests with multiple draws across different subsets of the set of players jel c72 d72 d74

contests with three or more heterogeneous agents abstract we study monotone equilibrium behavior in contests with observable effort bid where three or more participants have distinct risk attitudes and the monetary value for the prize of each is drawn independently from a distinct distribution these differences can either cause a player to drop out that is always choose zero effort regardless of his valuation or use all or nothing strategies with discontinuous effort choice neither complete drop out nor discontinuous bidding with finitely many gaps is consistent with pure strategy monotone bayesian nash equilibrium in a contest with either ex ante identical players or only two distinct participants

the impact of strikes on shareholder equity from an analysis of data for 1962 82 the authors find that strikes substantially affect shareholder equity as measured by the change in stock prices associated with strikes over that period the a

moral hazard with bounded payments we study the moral hazard problem with general constraints on how little or much the agent can be paid as a function of output we provide a characterization and existence result using only very simple methods in the dual problem of minimizing costs for a given effort level a constraint that harms the principal will always result in a contract that pays according to the constraint on some range of outcomes for the case of a simple fixed minimum feasible payment the resultant contract will be option like we show how the strike price and intensity of incentives once the strike price is exceeded vary in the minimum payment and the outside option of the agent when the principal can also choose the effort to induce then even if the constraint harms the principal he may optimally choose a contract that never pays the minimum or maximum we show that this can only occur if the problem without the payment constraints fails a form of concavity

job design with conflicting tasks reconsidered a principal wants two sequential tasks to be performed by wealth constrained agents suppose that there is an outcome externality i e a first stage success can make second stage effort more or less effective if the tasks are conflicting the principal s profit maximizing way to induce high efforts is to hire one agent to perform both tasks so that the prospect to get a larger second stage rent after a first stage success motivates the agent to work hard in the first stage in contrast when there is an effort externality i e first stage effort reduces or increases the probability of a second stage success then the principal prefers to hire two agents whenever the tasks are conflicting

safety crises and r d outsourcing alliances which governance mode minimizes negative spillovers abstract this study examines how r d alliance governance affects both the probability and magnitude of negative spillovers triggered by a partner s safety crisis i show that hierarchical governance leads to a lower probability that a partner will suffer a crisis and thus trigger a negative spillover yet this governance mode leads to negative spillovers of greater magnitude should they happen because expected spillover costs are calculated as the probability of occurrence times the magnitude of such costs it is not clear which governance mode best minimizes expected spillover costs i combine transaction costs economics and signaling theory to develop a contingency model that identifies which effect is more likely to dominate as a way to address the reported dilemma i found evidence in support of the described dilemma and the contingency model in a sample of 296 r d outsourcing alliances in the biopharmaceutical industry

investor response to health care cost containment legislation is american health policy designed to fail two failed congressional attempts to control escalating health costs are examined the data show that investors apparently anticipated their failure with the implementation of a policy encouraging market competition however investors expected larger firms to benefit and firms with previously high profit growth rates to lose from the viewpoint of the politics of structural choice it appears that identifiable structural flaws were deliberately designed into both laws in ways that would promote failure and protect key interest groups

the effects of oil price shocks on asian exchange rates evidence from quantile regression analysis abstract this paper investigates the effects of oil price shocks on asian exchange rates we employ quantile regression analysis and allow for structural breaks and asymmetry our results indicate that positive and negative oil price shocks have asymmetrical effects on exchange rate returns that vary in significance size and sign throughout the distribution of exchange rate returns the impact of oil price shocks is also affected by market conditions bearish and bullish currency markets during bullish markets in domestic currencies at lower quantiles of currency movements in terms of u s dollar exchange rates rising oil prices cause further appreciation for indonesia korea the philippines and thailand currencies during bearish markets in the domestic currencies at higher quantiles of exchange rate movements in terms of u s dollar exchange rates rising falling oil price causes further currency depreciation for indonesia malaysia thus currencies respond differently to oil price shocks under extreme bullish or bearish currency market conditions and the impact of rising or falling oil prices on foreign exchange markets can vary by country and market conditions

ex post unbalanced tournaments tournaments create strong incentives under the assumption that the competition between the agents is balanced if at the outset one agent is stronger than the other the tournament is ex ante unbalanced and incentives break down handicaps can in this case restore incentives in practice competing agents are often overall equally strong but have different sorts of strengths then competition will typically be unbalanced ex post and incentives break down but handicaps cannot be used we show how a simple means introducing the possibility of a tie can often resolve the problem we examine under what conditions incentives are maximized by ties

incentives in lottery contests with draws abstract we investigate the incentive consequences of introducing the possibility of draws into lottery contests equilibrium total effort unambiguously decreases when draws are introduced whereas the equilibrium expected winner s effort increases when the contestants valuations of the prize become sufficiently dispersed