the value of corporate voting rights and control a cross country analysis this paper measures the value of corporate voting rights specifically of the control block of votes in a sample of 661 dual class firms in 18 countries in 1997 a consistent measure across countries is proposed the measure is adjusted for takeover probability block holding costs and dividend and liquidity differences between the share classes the value of controlblock votes varies widely across countries it is close to half of firm market value in south korea andclose to zero in finland the value of control block votes is interpretedas a lower bound for actual private benefits of the controlling shareholder the legal environment law enforcement investor protection takeover regulations andpower concentrating corporate charter provisions explain 68 of the cross country variation in the value of control block votes

collateral in credit rationing in markets with imperfect information note in their 1981 article joseph stiglitz and andrew weiss analyze adverse selection and incentive effects in the loan market the models considered are based on two crucial assumptions borrowers are subject to limited liability and lenders cannot distinguish borrowers projects of different risk stiglitz and weiss show that a bank that raises its interest rate may suffer adverse selection because only risky borrowers will be willing to borrow at the higher rate thus lenders may choose not to raise the interest rate to eliminate excess demand resulting in the possibility of a credit rationing equilibrium stiglitz and weiss also consider briefly the role of collateral in such credit rationing models they conclude that lenders may choose not to use collateral requirements as a rationing device an increase in collateral requirements like an increase in the interest rate potentially leads to a decrease in the lender s expected return on loans because of resulting adverse incentive and selection effects the purpose of this note is to further investigate the role of collateral in these models stiglitz and weiss discussion in section iii establishes that adverse selection effects can result from increases in collateral when borrowers are risk averse i will show by returning to a model they discussed earlier in section i that the adverse selection effects can also occur when borrowers are risk neutral stiglitz and weiss outline a model to consider the use of collateral as a rationing device section iii in that model all potential borrowers face the same array of risky projects each potential borrower chooses at most one of those projects to undertake the individuals are by assumption risk averse with decreasing absolute risk aversion and possess different amounts of initial wealth thus choice of project if any to undertake and the method of finance selffinance from initial wealth or loan finance will differ from one individual to the next stiglitz and weiss show that among those who undertake risky projects and who choose borrowing as the method of finance wealthier individuals undertake riskier projects an increase in collateral has two effects on the market for loans those individuals who remain in the market will choose to undertake less risky projects and those individuals who drop out of the market are less wealthy low risk borrowers if the second effect is sufficiently strong then increased collateral requirements will mean decreased expected returns for the lender thus a credit rationing equilibrium may occur since lenders may not choose to use collateral requirements or the interest rate to eliminate excess demand the adverse selection effect just described does not occur in this model if the individuals are risk neutral consequently the potential for a credit rationing equilibrium is limited to cases where borrowers are risk averse to see that increases in collateral requirements can also result in adverse selection if borrowers are risk neutral consider the model stiglitz and weiss used to analyze the adverse selection effects of increases in the interest rate section i pp 395 99 it differs from the section iii model discussed above in three ways first borrowers are risk neutral second all projects ar loan financed the analogy to the section iii model is that no individuals have sufficient wealth to self finance projects third in the section

credit risk measurement developments over the last 20 years abstract this paper traces developments in the credit risk measurement literature over the last 20 years the paper is essentially divided into two parts in the first part the evolution of the literature on the credit risk measurement of individual loans and portfolios of loans is traced by way of reference to articles appearing in relevant issues of the journal of banking and finance and other publications in the second part a new approach built around a mortality risk framework to measuring the risk and returns on loans and bonds is presented this model is shown to offer some promise in analyzing the risk return structures of portfolios of credit risk exposed debt instruments

taxes theft and firm performance this paper examines the interaction between income diversion and firm performance using unique russian banking transaction data i identify 42 483 spacemen fly by night firms created specifically for income diversion next i build a direct measure of income diversion for 45 429 companies and show that it is negatively related to firm performance i identify the main reason for the observed effect as managerial diversion rather than tax evasion per se i further show that stricter tax enforcement can improve firm performance a one standard deviation increase in tax enforcement corresponds to an increase in the annual revenue growth rate of 2 6

determinants of privatization prices generating government revenue is a common objective in privatization this paper asks what determines privatization prices using firm level data for all 236 mexican companies privatized between 1983 and 1992 there are three main reasons why net prices auction prices net of the cost of prior restructuring measures are low averaging 54 cents per dollar of assets first privatization prices are very sensitive to the level of competition in the auction and restrictions often limited participation second the privatization process took too long and lengthier privatizations are associated with lower premiums third firm prior restructuring measures absorbed an average of 33 percent of the auction price most restructuring measures do not increase price and delay privatization further net prices would have increased by 71 cents per dollar of assets if the government had emphasized speed succeeding in divesting assets in one year less than the average and firing the ceo were the only restructuring step taken

mutual holding companies evidence of conflicts of interest through disparate dividends abstract the mutual holding company mhc structure establishes a dual class stock that creates a unique opportunity to transfer wealth from thrift depositor owners to new minority shareholders through the disparate payment of dividends we show that mhcs are priced higher than comparable non mhcs and dividend policy is a significant component of this valuation we also show that mhc thrifts pay significantly higher dividends than non mhc thrifts and that an office of thrift supervision ots ruling reducing the potential for disparate dividends between the two classes of shareholders resulted in lower dividends these results have policy implications of special significance given that the ots reversed its position in 2000 and because of the current controversy over the use of the mhc structure in the financial service industry

portfolio management and appropriation of private benefits of control in many countries around the globe portfolio managers utilize well accepted models assuming that a partial stake of ownership is proportionally valued this assumption is incorrect in markets in which traded firms or publicly held firms are controlled by major owners who would take any possible measure to protect and maintain a lock on control so they can secure a sellable asset to another control seeker in this case estimation of key parameters such as volatility expected returns and diversification effect may be grossly distorted we would argue that a major trigger for the value of the benefits of control is the ability of control owners to transfer assets from their own portfolio to a controlled publicly traded firm while it is obvious that these transfers will take place if and only if it is beneficial to the control owners the impact on the minor shareholders may not necessarily be negative and may vary depending on several parameters thus the benefits of control are not entirely private i e appropriation and diversion of the resources of publicly traded firms for the benefit of the control owners this paper aims to model the effect of the benefits of control on the value of a minority held public firms it focuses on two related issues that are discussed in the literature on the benefits of control what drives the value of the benefits of control given the empirical evidence that control seekers are willing to pay a significant premium for control and secondly can these benefits be rationally modeled to better understand these issues it then models a specific drive on the part of control seekers who in addition to their stake in a publicly traded firm own a private portfolio it could be argued that they may transfer inferior investments to the public firms that they control exploiting less than perfect transparency however while they own this valuable option of transferring inferior investments into the public firm these actions may still be beneficial to the minority shareholders we establish a model and derive a simulation procedure that are applied to several cases in which transfers are made in exchange for cash or equity instances of full disclosure or partial transparency the likelihood that the control owners actions will be contested in court level of risk and other parameters then we will compare the results to empirical finding the final model will be greatly simplified so that the end formula can be easily used by practitioners

disproportional control rights and the governance role of debt we examine the governance role of debt in the context of u s based dual class ownership structures we hypothesize that the use of debt alleviates the conflict between shareholder classes by balancing the power of controlling insiders we document that dual class firms have higher leverage and a greater propensity to issue private debt they also more frequently use cash sweeps and performance based covenants dual class firms with greater agency conflicts and a greater need to access the capital market appear to rely more extensively on debt these findings are consistent with controlling insiders bonding against the agency costs associated with dual class ownership the governance role of debt is further corroborated by the valuation effect of debt for dual class companies private debt issuances trigger greater positive market reactions to the inferior dual class stock in relation to both the superior dual class stock and a matched sample of single class firms further leverage attenuates the previou

welfare estimation using aggregate and individual observation models a comparison using monte carlo techniques due to the weak behavioral foundations of aggregate demand models zonal travel cost models have been largely abandoned in favor of models based on individual observations however sample selection difficulties in individual observation models often require the use of distribution sensitive limited dependent variables estimators in this paper i use monte carlo simulations to investigate whether the bias from aggregation is worse than possible bias from these narrowly specified estimators somewhat surprisingly the results indicate that zonal models often outperform the individual observation models especially when using an aggregate model that incorporates intrazonal variance of the explanatory variables

corporate governance and equity prices evidence from the czech and slovak republics the 1992 czechoslavakia mass privatization program involving about 1 500 eneterprises and implemented through a voucher scheme with competitive bidding was a bold step in changing the ownership and governance of a large part of the economy it represents a clear test case of one approach and other countries may benefit from its lessons at the time much skepticisism was voiced about mass privatization it would lead to diffuse ownership and no effective corporate governance would result but innovative forces led to the emergence of investment funds that collected much of the individuals voucher points leading to a much more concentrated ownership structure it has been expected that this concentrated ownership would lead to improved corporate governance but the jury is still out so far only limited and largely anecdotal evidence is available on the impact investment funds have on the way firms are being managed too little time has passed and too many shocks have occurred for example the split of the czech and slovak republics to expect to find discernible changes in corporate governance on measures of actual firm performance an alternative approach is to investigate whether firms that ended up with more concentrated ownership and possibly improved governance sell for higher prices either in the last voucher round or in the secondary market since then in a forward looking financial market one can expect prices to incorporate the effects of better ownership on future firm performance and associated dividends to shareholders put differently one would expect that two firms with different shareholding structures but otherwise identical would trade at different prices with the firm with a more concentrated ownership and presumably better corporate governance trading at a higher price on a cross sectional basis ownership structure may thus be significant in explaining relative share prices the author explores this line of reasoning controlling for a number of firm and sector specific variables he finds 1 majority ownership by a domestic or foreign investor has a positive influence on firm prices 2 firms with many small owners have lower prices 3 ownership by many small scale investors makes it easier for any single investor to establish effective control but such control does not necessarily translate into higher prices the author also provides two possible explanations of why higher prices appear to be associated only with majority ownership by a single investor he finds 1 the corporate legal framework and the difficulty in collecting proxy votes in the czech and slovak republics may prevent a small investor from making the necessary changes in the way firms are managed thus keeping prices low and 2 commercial banks are both managers of invesment funds and creditors of individual firms funds managers may face conflicts of interest and not be interested in increasing the value of equity alone but also the value of credits this could explain why prices are relatively lower for those firms in which investment funds have effective control

foreign equity investment restrictions capital flight and shareholder wealth maximization theory and evidence this article provides a theory of foreign equity investment restrictions we consider a model where the demand function for domestic shares differs between domestic and foreign investors because of deadweight costs in holding domestic and foreign securities that depend on the country of residence of investors we show that domestic entrepreneurs maximize firm value by discriminating between domestic and foreign investors the model implies that countries benefitting from capital flight have binding ownership restrictions such that foreign investors pay a higher price for shares than domestic investors the empirical implications of this theory are supported by evidence from switzerland article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the determinants of the voting premium in italy the evidence from 1974 to 2003 abstract we examine the voting premium in italy in the period 1974 to 2003 when it ranged from 1 to 100 at firm level the measure of the price differential between voting and non voting stocks cannot be fully explained without taking into account the effect of the largest shareholder s identity family controlled firms have higher voting premiums especially when the family owns a large stake in the company s voting equity and the founder is the firm s ceo and or chairman we explain this result by showing that families attach greater importance to control and are more prone than other types of controlling shareholders to expropriate the non voting class of shareholders

the value of voting rights to majority shareholders evidence from dual class stock unifications we study 84 dual class stock unifications where superior vote shareholders gave up their superior voting status all firm stocks became one share one vote and received in most cases compensation in the form of additional shares unifications are essentially intrafirm transactions of voting rights and afford observation of the intrafirm assessed price of vote the price of vote in unifications 1 increases with the percentage vote lost by the majority shareholders 2 is higher in family controlled firms 3 decreases with institutional investor holdings and 4 is similar to the outside price of vote implicit in the market prices of stocks the value of voting rights is an intriguing topic that has attracted extensive academic and practitioner interest before most of the existing evidence comes from examinations of dual class stocks in the dual class stock system the firm issues two classes of common stock superior and inferior vote stocks previous research documents a price premium of superior vote over inferior vote stocks which illustrates the positive value of voting rights 1 inrecent years manydual classfirmsdecidedtorecapitalizetheirequity into single class stocks this was done by transforming all common stock classesinto oneshareonevote the unification ofstockclassestrendis evidenced in canada amoako adu and smith 2001 and is gaining momentum in europe as well nokia and lufthanza are recent examples we examine 84 dual class share unifications on the tel aviv stock exchange unifications are essentially sales of voting power from one class of investorstoanother bymonitoringtheprices ofthesetransactions thatis by examining the compensation paid for the loss of the superior vote status we hope to provide relatively direct inferences on the value of vote

divergence of cash flow and voting rights opacity and stock price crash risk international evidence this study investigates whether and how the deviation of cash flow rights ownership from voting rights control or simply the ownership control wedge influences the likelihood that extreme negative outliers occur in stock return distributions which we refer to as stock price crash risk we do so using a comprehensive panel data set of firms with a dual class share structure from 20 countries around the world for the period of 1995 2007 we predict and find that opaque firms with a large wedge are more crash prone than opaque firms with a small wedge in addition we predict and find that the positive relation between the wedge and crash risk is less pronounced for firms with more effective external monitoring and for firms with greater growth opportunities the results of this study are broadly consistent with jin and myers s theory that agency costs combined with opacity exacerbate stock price crash risk

founders heirs and corporate opacity in the united states abstract we argue that information about firm activities can vary substantially in the presence of founder or heir ownership thereby influencing the risks borne by minority investors we explore two hypotheses with regard to these controlling shareholders and corporate transparency focusing on their role as monitor in place and their potential to exploit firm opacity to accrue private benefits of control to test these notions we create an opacity index that ranks the relative transparency of the two thousand largest industrial us firms and find founder and heir ownership in 22 and 25 of these firms respectively our analysis indicates that in large publicly traded companies both founder and heir firms are significantly more opaque than diffuse shareholder firms we also find that founder and heir controlled firms exhibit a negative relation to performance in all but the most transparent firms surprisingly additional tests reveal that concerns about divergences in ownership versus control management type dual class shares and board influence appear to be substantially less important than corporate opacity in explaining the performance impacts of founder and heir control finally we decompose corporate opacity into disclosure and market scrutiny components finding that the disclosure quality component appears to be of greater importance to investors however irrespective of whether these controlling shareholders create or stay in the firm because of corporate opacity our analysis suggests that founders and heirs in large publicly traded firms exploit opacity to extract private benefits at the expense of minority investors

bankadviser an industrial evaluation system abstract bankadviser is a multicriteria industrial evaluation system it provides evaluations of individual items such as firms industries companies industrial clients within a set of similar ones the evaluations take into account not only the own scores of the item but also those of the other ones in the set positioning the evaluation procedure is based on financial data from the balance sheet and the income statement of each item bankadviser is particularly useful for decision makers financial analysts banks insurance companies when they have to make decisions about their industrial clients the system allows one to manage the data about the clients to analyse their economic profile to detect their strong and weak features to evaluate any risk associated with them decisions such as whether or not to provide a loan fix the loan modalities interest terms offer guarantee for foreign activities cover some deficits can easily be finalized after the bankadviser evaluation bankadviser is a visual interactive modelling system it is interactive because for each item the user has the opportunity to run through one part of the information to another because he can ask for additional information on the strong or the weak features of the profile because comparison with similar items can be given on request it is a modelling system because an intricate multicriteria situation is modelled by using the extended promethee mcdm methodology bankadviser has been implemented on a microcomputer for the sake of an effective presentation the paper has been written according to the structure of the microcomputer software it is illustrated by data of a real world application

prediction of commercial bank failure via multivariate statistical analysis of financial structures the turkish case abstract the objective of this paper is to propose a methodological framework for constructing the integrated early warning system iews that can be used as a decision support tool in bank examination and supervision process for detection of banks which are experiencing serious problems sample and variable set of the study contains 40 privately owned turkish commercial banks 21 banks failed during the period 1997 2003 and their financial ratios well known multivariate statistical technique principal component analysis was used to explore the basic financial characteristics of the banks and discriminant logit and probit models were estimated based on these characteristics to construct iews also importance of early warning systems in bank examination was evaluated with respect to cost of failure results of the study show that if iews was effectively employed in bank supervision it can be possible to avoid from the bank restructuring costs at a significant amount of rate in the long run

bankruptcy prediction using terminal failure processes abstract traditional bankruptcy prediction models designed using classification or regression techniques achieve short term performances 1 year that are fairly good but that often worsen when the prediction horizon exceeds 1 year we show how to improve the performance of such models beyond 1 year using models that take into account the evolution of firm s financial health over a short period of time for this purpose we design models that fit the underlying failure process of different groups of firms our results demonstrate that such models lead to better prediction accuracy at a 3 year horizon than that achieved with common models

dual class shares a review the majority of firms traded in the world s three largest stock exchanges london new york and tokyo follow the one share one vote principle however in other countries dual classes of shares are common place for example 50 percent of the publicly traded dutch firms have non voting equity and approximately 75 percent of the publicly traded danish finnish and swedish firms have shares that differ in their voting rights this paper reviews the arguments as to why firms create dual classes of shares their effect on firm value and the relative prices of shares that differ only in their voting rights copyright 1992 by oxford university press

demutualization determinants and consequences of the mutual holding company choice we investigate the determinants and consequences of the mutual holding company mhc structure that allows mutual thrifts to issue stock to outside shareholders while maintaining the mutual form capital constrained firms with greater profit opportunities are more likely to choose a full demutualization demonstrating that the mhc choice can be used to control for over and under investment costs during periods of greater regulatory constraints mhc firms have lower offer day returns than full demutualizations mhc firms are also less likely to be acquired as the mhc structure provides protection from the market for corporate control demonstrating a clear preference by minority shareholders for the elimination of the mhc structure the announcement of a second stage conversion generates a 12 return

relative prices of dual class shares empirical studies of dual class shares indicate that superior voting shares svs sell at a premium relative to their counterpart restricted shares rvs this paper uses toronto stock exchange data to show that svs price premium over rvs reflects the expected takeover premium paid to shareholders outside the control block thus marginal shareholders pay a higher svs price in anticipation of receiving a differential takeover bid as suggested by the extra merger hypothesis further analysis indicates that voting power increases the price premium while ownership size and the higher trading liquidity of rvs are inversely related to the premium

what floats your boat preference revelation from lotteries over complex goods abstract we examine a type of lottery used to distribute some publicly held resource access rights the lottery provides participants with the opportunity to choose among a set of simple gambles over multi attribute goods participant choices result in an endogenous distribution of success rates over gambles that reflects tradeoffs between the relative desirability of the available goods and the probability of winning when lottery winnings are multi attribute goods lottery outcomes provide sufficient information to estimate hedonic prices marginal utility and marginal rates of substitution among attributes we develop a model for characterizing preferences from this information set we apply our model to idaho s four rivers whitewater recreation lottery which allows applicants to apply for one permit among a large set of alternative river day combinations that provide varying river and weather characteristics this lottery structure shows promise as a foundation for economic experiments for preference revelation

the diminishing benefits of u s cross listing economic consequences of sec rule 12h 6 on mar 21 2007 the u s securities and exchange commission sec passed exchange act rule 12h 6 to make it easier for cross listed firms to deregister from the u s market and escape its regulatory costs using difference in difference dd tests we find that on average rule 12h 6 s passage induced an increase in voting premium a decline in equity raising and a decline in cross listing premium these effects are observed for exchange listed firms and for firms from countries with weak investor protection we conclude that although cross listed firms are still valued at a significant premium over non cross listed firms the rule decreased the value of commitment to the u s regulatory system

economic evaluation of voting power of common stock this paper presents an economic evaluation of common stock voting rights an index of relative voting rights inequality for different classes of stock of the same corporation is constructed and the empirical relationship between the market premium on a superiorvoting stock and the voting inequality index is examined in only three out of the 25 cases could investors have arbitraged between the two classes of stock although in one case the arbitrage opportunity persisted for several months ownership and control of large corporations are two separate functions each shareholder typically holds a relatively small number of shares and hence lacks significant voting power as a result shareholders interest in the management of the firm is typically limited and a majority of them do not participate in the corporation s general meetings 1 thus the investment and financial decisions of the firm are made by a small group the management which effectively controls the firm the possible conflict of interest between these two groups and other various aspects of the separation of control and ownership are the subject of several studies 2 grossman and hart 5 show that even if the directors of the firm do not act in the best interest of the shareholders 3 it may be impossible for them to be disciplined and replaced by a takeover bid this raises the issue of whether theright to control the firm s activities has any economic value to focus the issue suppose a firm issues two classes of stock one with voting rights and the other with no voting rights and assume further that the two classes are entitled to the same pecuniary payoff in every state of the world according to traditional financial theory that asserts that two assets promising the same payoff in every state of nature must sell for the same price the voting rights would be worthless and we should expect the same market price for the two classes of stock however

misinformed speculators and mispricing in the housing market this paper examines the contribution of out of town second house buyers to mispricing in the housing market we show that demand from out of town second house buyers during the mid 2000s predicted not only house price appreciation rates but also implied to actual rent ratio appreciation rates a proxy for mispricing we then apply a novel identification strategy to address the issue of reverse causality we give supporting evidence that out of town second house buyers behaved like misinformed speculators earning lower capital gains misinformed and consuming smaller dividends speculators

ownership concentration in privatized firms the role of disclosure standards auditor choice and auditing infrastructure we rely on a unique data set to estimate the impact of disclosure standards and auditor related characteristics on ownership concentration in 190 privatized firms from 31 countries accounting transparency can help alleviate the agency conflict between minority investors and controlling shareholders which is evident in the extent of ownership concentration since the expropriation of corporate resources by insiders hinges on these private benefits remaining hidden after controlling for other country level and firm level determinants we find weak no evidence that extensive disclosure standards auditor choice reduce ownership concentration in contrast we provide strong robust evidence that ownership concentration is lower in countries with securities laws that specify a lower burden of proof in civil and criminal litigation against auditors consistent with ball s 2001 predictions collectively our research implies that minority investors worldwide value legal institutions that discipline auditors in the event of financial reporting failure over both the presence of a big five auditor and better disclosure standards

economic consequences of deregulation evidence from the removal of voting cap in indian banks abstract we examine the effect of the 2005 banking regulation amendment bill and the 2011 banking laws amendment bill proposals for removal of the 10 percent voting rights cap in indian banks the 2011 banking laws bill was first introduced in 2005 but lapsed with the dissolution of the 14th lok sabha the bill was passed in december 2012 and raised the voting cap in private sector banks from 10 to 26 percent we present evidence that the removal of the voting cap enhances the value of votes of bank stocks by reducing the wedge between cash flow and control rights thus increasing monitoring and the probability of takeover post deregulation analysis reveals that the passage of the bill was followed by increasing blockholders number and percentage of shares held in larger and government banks furthermore a stronger negative relationship between banks profitability and size as well as share of non performing loans is observed this study makes an important contribution to the growing literature on the valuation impact and efficiency gains of liberalization of ownership restrictions in emerging markets as well as the rich literature on corporate governance and control relating to the value of voting privilege in companies with disparate voting rights

the nested collective lottery that maximizes welfare under consumption interdependence we develop a generalized lottery mechanism in this article that allows people to choose to succeed separately while retaining both merits fairness and options to succeed jointly of the collective lottery developed by chen et al 2010 we use the rationing of hunting permits in the us and canada as examples to show the applicability of this generalized lottery mechanism

underpricing in public lotteries a critique of user pay and all pay tariffs i introduction a body of literature spanning from medical ethics to public economics has amassed regarding the nonmarket rationing of public resources a dominant focus has surrounded the merits and shortcomings of alternative rationing mechanisms as gauged by their effectiveness distributive justness and allocative efficiency these instruments include administrative criteria such as need merit or seniority based rules queues or waiting lines whereby access to the rationed good or service is determined by arrival times and lotteries whereby chance dictates the distribution of the good while nonmarket rationing in any case may lead to the misallocation of resources compared to rationing solely by price e g glaeser and luttmer 2003 empirical observation reveals that public agencies commonly distribute underpriced goods and services to individual consumers and firms the current study takes nonmarket rationing as given and investigates the properties of alternative lottery mechanisms the use of lot teries dates to biblical times boyce 1994 elster 1992 with modern examples including the military draft fienberg 1971 medical services cookson and dolan 2000 recreational privileges on public lands and waterways scrogin 2005 residential housing following hurricane katrina the white house office of the press secretary 2005 and public school admission and voucher programs berry cullen jacob and levitt 2006 from a design perspective lotteries are intriguing because they can take a variety of forms with each possessing unique incentive and revenue generating properties however given the purported inefficiencies of lottery rationing it is natural to question how they have sustained in allocative situations entailing public resources two explanations have emerged in the literature the first historic explanation is attributed to the fairness of the classic lottery mechanism in which the probability of being drawn is uniform and endogenous to the number of participants because entrants are equally likely to be drawn the mechanism is perceived as being nondiscriminatory empirical evidence presented in kemp and bolle 1999 supports this hypothesis in the rationing of some types of goods and services to individual consumers the fairness of lottery rationing is also consistent with the distributive objective of specific egalitarianism put forth by tobin 1970 and discussed later by elster 1992 whereby specific goods and services are allocated such that a greater degree of equality is attained relative to that of a competitive market while egalitarianism and efficiency would appear to be at odds che and gale 2007 demonstrated that lotteries can be more efficient than markets when individuals face binding wealth constraints in a similar vein wijkander 1988 demonstrated that social welfare can be increased by lottery rationing under certain conditions a second more objective explanation for the sustained use of lotteries is that public agencies may be legally constrained by price controls particularly when rationing to individuals and households taylor tsui and zhu 2003 acting as a self sustaining regulated monopolist the agency is confronted with selecting a rationing mechanism and a pricing policy that are both politically feasible and financially viable compared to need merit and seniority based allocation rules lotteries and queues are administratively simple and low cost to implement alternatively lotteries eschew the waiting time and coordination costs confronted by potential entrants under queuing however the initial distribution under lottery rationing may prove allocatively inefficient collectively the literature suggests that agency objectives may deviate from revenue maximization in distributing some types of scarce public resources with lotteries proving to be superior in some settings to alternative nonmarket rationing mechanisms

incentive and entrenchment effects in european ownership in a large sample of european firms we analyze the value discount associated with disproportional ownership structures first documented by claessens et al 2002 consistent with a theoretical model of incentive and entrenchment effects we find higher value discount in family firms in firms with low cash flow concentration and in industries with higher amenity value furthermore the discount is higher in countries with good investor protection and higher for dual class shares than for pyramids we find no impact on operating performance likelihood of bankruptcy dividend policy or growth finally we discuss policy implications of these findings

evaluation of credit risk based on firm performance abstract this paper investigates whether productive inefficiency measured as the distance from the industry s best practice frontier is an important ex ante predictor of business failure we use samples of french textiles wood and paper products computers and r d companies to obtain efficiency estimates for individual firms in each industry these efficiency measures are derived from a directional technology distance function constructed empirically using non parametric data envelopment analysis dea methods estimating binary and ordered logit regression models we find that productive efficiency has significant explanatory power in predicting the likelihood of default over and above the effect of standard financial indicators

identifying control motives in managerial ownership evidence from antitakeover legislation this study uses the introduction of second generation antitakeover legislation as a natural experimental setting to infer the value that managers place on the control rights conferred by stock ownership we conjecture that managers will reduce their stockholdings in the post legislation period because they can ensure their prior level of control while holding fewer risky shares using a variety of specifications we find robust evidence consistent with this revealed preference hypothesis further demonstrating the key role played by control considerations in managers stockholding decisions the reductions in ownership are concentrated in management teams with higher levels of initial ownership and in firms without poison pills

managerial ownership of voting rights abstract managers of firms with dual classes of common stock can choose different quantities of votes for a given cash flow interest by choosing different quantities of the two securities we study managerial stock holdings in 45 dual class firms and find that vote ownership per se is an important motivation for these holdings in that corporate officers and their families hold a median 56 9 of the votes and 24 0 of the common stock cash flows we also find significant family involvement in many sample firms and document four case studies in which explicit acquisition premiums were paid for superior voting shares

a more complete conceptual framework for sme finance abstract we propose a more complete conceptual framework for analysis of sme credit availability issues in this framework lending technologies are the key conduit through which government policies and national financial structures affect credit availability we emphasize a causal chain from policy to financial structures which affect the feasibility and profitability of different lending technologies these technologies in turn have important effects on sme credit availability financial structures include the presence of different financial institution types and the conditions under which they operate lending technologies include several transactions technologies plus relationship lending we argue that the framework implicit in most of the literature is oversimplified neglects key elements of the chain and often yields misleading conclusions a common oversimplification is the treatment of transactions technologies as a homogeneous group unsuitable for serving informationally opaque smes and a frequent misleading conclusion is that large institutions are disadvantaged in lending to opaque smes

the value of the corporate voting right evidence from switzerland abstract this paper analyzes the value of voting power of swiss firms which usually issue high voting rights stock low voting rights stock and non voting stock two variables measuring voting power inequality are constructed they are both useful in explaining the voting rights premia also the allocation of the voting rights is analyzed it is shown that majority shareholders hold the high voting rights stock

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

takeover bids and the relative prices of shares that differ in their voting rights the relative prices of shares that differ only in their voting rights are modelled in our model voting rights become valuable when a control contest is decided through takeover bids for outside votes the study shows how the value of the voting right depends on the initial ownership distribution the share structure and the ability of the incumbent manager versus a rival for control empirical support for the model is provided using swedish stock market data

the value of the voting right a study of the milan stock exchange experience i study the large premium 82 percent attributed to voting shares on the milan stock exchange the premium varies according to the ownership structare and the concentration of the voting rights and it can be rationalized in the presence of enormous private benefits of control a case study seems to indicate that in italy private benefits of control can easily be worth more than 60 percent of the value of nonvoting equity a tentative explanation for these findings is provided traditional finance theory disregards the value of voting rights in pricing common stock in most cases this omission does not seem harmful many studies of differential voting stocks in different countries have indicated that voting rights are generally worth between 10 percent and 20 percent of the value of common stock the italian evidence i present differs sharply from this view in italy voting shares that have inferior dividend rights trade at an average premium

price differences between equity classes corporate control foreign ownership or liquidity abstract this paper is the first comprehensive study of price differences for dual class equity at the oslo stock exchange it analyzes the relative importance of corporate control foreign ownership restrictions and stock market liquidity for the price differences the norwegian market has the peculiar feature that in part of the sample period non voting shares were trading at a premium to voting shares i e what is usually termed the voting premium was negative this result can be rationalized by restrictions on foreign ownership in the later part of the period with no regulatory restrictions on foreign ownership the voting premium is positive and related to corporate governance and liquidity

the value of creditor control in corporate bonds this paper introduces a measure that captures the premium in bond prices that is due to the value of creditor control we estimate the premium as the difference in the bond price and an equivalent synthetic bond without control rights that is constructed using credit default swap cds contracts we find empirically that this premium increases as firm credit quality decreases and around important credit events such as defaults bankruptcies and covenant violations the increase is greatest for bonds most pivotal to changes in control changes in bond and cds liquidity do not appear to drive increases in the premium

ownership structure governance and innovation abstract this paper tests the impact of firms ownership structure on innovation in a context featuring pronounced ownership concentration and conflicts between large and minority shareholders using data for 20 000 italian manufacturers and accounting for the possible endogeneity of ownership levels we find that ownership concentration negatively affects innovation especially by reducing r d effort conflicts between large and minority shareholders appear to be a determinant of this effect moreover risk aversion induced by lack of diversification exacerbates large shareholders reluctance to innovate family owners support innovation more than financial institutions but the benefits of financial institutions increase with their equity stakes

expropriation risk and technology abstract this paper develops a unified framework to analyze the dynamics of firm investment in countries with poor legal enforcement the firm s technology edge over the government generates endogenous property rights industry variation in the technology gap predicts a sectoral pecking order of expropriations long run investment distortions may be pareto superior relative to persistent investment at the static optimum the dynamics of investment and transfers depend on whether incentives backloading or efficiency frontloading concerns dominate at the initial division of surplus an increase in government efficiency may reduce its welfare the model provides a technology driven rationale for the widespread use of conglomerate structures in emerging market countries

a complete solution to a class of principal agent problems with an application to the control of a self managed firm this paper considers a class of principal agent problems which have the following features 1 there is adverse selection because the principal ignores the value of one parameter of the agent s true characteristics 2 leaving aside the information parameter the principal s welfare as well as the agent s welfare depend on two types of variables observable to both of them the first ones possibly multidimensional are called action variable s and the second one which is one dimensional has in general the meaning of a money transfer 3 the principal is a stackelberg leader of the two person game he can commit himself to decision rules which are admissible on informational grounds he optimizes within the adequate class taking into account besides the agent s reaction one constraint which has generally the meaning of an individual rationality constraint and sometimes of a feasibility constraint the optimization is limited to the class of non stochastic mechanisms 4 the problem can also receive an alternative interpretation the principal faces a continuum of agents of unknown characteristics the distribution being known however stylized principal agent problems of this type have often been considered in the economic literature in particular the reader will later be able to recognize that the standard income tax model a la mirrlees 1971 the quality or quantity choice model of the monopolist a la mussa and rosen 1978 or maskin and riley 1982 and the model of government regulation of the private monopolist of baron and myerson 1982 all belong to

comparing welfare estimates of environmental quality changes from recreation demand models abstract this paper presents a procedure for examining the reliability of welfare estimates resulting from the estimation of multiple site recreation demand models a simulation approach is suggested where a utility function is combined with observations on individual and site characteristics to generate simulated data sets welfare measures associated with an improvement in site quality are calculated recreation demand models are estimated using the simulated data sets estimated welfare measures resulting from the recreation demand models are then compared to the true welfare measures calculated from the simulated data the procedure is demonstrated using two commonly employed recreation demand models

lottery rationed public access under alternative tariff arrangements changes in quality quantity and expected utility abstract a recent phenomenon is the emergence of quotas restricting individual access to public resources as regulators commonly ration access opportunities by lottery this paper extends the traditional open access destination choice framework for non market demand and welfare analysis conceptual results for one and two part tariff lotteries indicate that individuals may sustain welfare losses from improvements in quality or increases in the quota if aggregate demand is sufficiently responsive relative to individual utility nested random expected utility models reums are estimated with a panel dataset of individual choices of lottery rationed harvest rights for wild game empirical results indicate that the types and timing of tariff payments affect participation choices over rationed and open access alternatives and the benefits derived from changes in the quality and quantity of the lottery rationed access opportunities

the market value of corporate votes theory and evidence from option prices this paper proposes a new method using option prices to estimate the market value of the shareholder voting rights associated with a stock the method consists of synthesizing a nonvoting share using put call parity and comparing its price to that of the underlying stock empirically we find this measure of the value of voting rights to be positive and increasing in the time to expiration of synthetic stocks the measure also increases around special shareholder meetings periods of hedge fund activism and m a events the method is likely useful in studies of corporate control and also has asset pricing implications

allocation of goods by lottery i introduction many goods such as hunting permits oil drilling leases cellular telephone licenses and rights to fishing berths as well as some buds such as the military draft jury duty and who is to be thrown overboard on a sinking life raft are or have been allocated by lotteries in neo classical welfare economics the random distribution of property rights does not affect allocative efficiency as long as transferability is allowed and the transactions costs are non prohibitive lottery allocations however are generally not transferable thus lottery allocations are inefficient since the goods are not ultimately allocated to the users who value them the most a number of authors such as aubert 1959 fienberg 1971 eckhoff 1989 and elster 1989 36 122 have argued that lotteries are chosen as the allocative instrument because it represents a fair or just means of allocating the goods rawls 1971 374 and eckhoff 1989 have noted that where it is impractical to divide the goods equally among those who desire them a lottery serves to satisfy both the requirement that the process be fair and that the allocation problem be resolved relatively costlessly elster 1989 113 however notes that lotteries are not the only fair allocation mechanism for example he points out that in jewish ethics the problem of allocating an indivisible good such as life saving resources is resolved by denying it to everyone even economists would probably prefer a lottery to this resolution the fairness hypothesis has a rich history in the old testament lotteries are deemed a fair way of allocating goods such as the inheritance of land numbers 33 54 lotteries are also used to allocate bads in perhaps the most famous biblical example of use of lots jonah was chosen by lot to be sacrificed to appease god who had brought a storm that threatened to wreck the ship the story goes that the lot selected jonah because he was shirking his duties elsewhere and should not have even been on the vessel jonah 1 6 1 notice that fair here is taken to mean just given this theological foundation it is not surprising that the lottery has seen frequent use in legal history as well one of the most interesting cases occurred in swedish and finnish trials in the 17th and 18th centuries in cases where a man was murdered by a mob lotteries were used to allocate punishment since the law required an eye for an eye no more and no less eckhoff says that if it was impossible to ascertain which of them had dealt the mortal blow the courts determined that one of the responsible parties be sentenced to death and that the person be selected by lottery 1989 19 a similar use of lotteries occurs in military history to deal with cases of mass desertion in roman armies every tenth man was executed decimated and the remainder pardoned in more modern times the lottery has been used in u s law 2 first of course is the use of a lottery to decide who shall sit on a jury a connection between fairness and lotteries however has also appeared in the common law in an 1842 case u s v holmes which has been discussed by fienberg 1971 eckhoff 1989 and elster 1989 a ship sank in a heavy storm and the lone surviving life raft was in grave danger of sinking the crew threw overboard fourteen male passengers in an effort to save the rest when back in port after being rescued a crewman named holmes the only crew member who had not disappeared upon arrival to port was brought to trial for the deaths of the passengers the court ruled that the non essential members of the crew should have been thrown overboard before any passengers and if that was not sufficient then passengers should have been selected by lot which is the fairest mode elster 1989 65 the fact that a human life presumably a large cost was at stake ex post did not affect the decision 3 the environmental economics literature contains a number of references to the social preferences for and benefits of lottery allocations

what determines the value of corporate votes this paper studies the determinants of the value of voting rights in u s corporations results support the hypothesis that the price of a vote is determined by the expected additional payment vote holders will receive for their votes in case of a control contest the size of this differential payment is a function of the probability that a vote is pivotal in a control contest and the magnitude of the private benefits obtainable by controlling the company simple proxies for these two factors explain up to 30 percent of the variation of the voting premium across companies and through time my findings also suggest that the value of managerial perquisites are at least partially reflected in the price of votes

rationed access and welfare case of public resource lotteries pressures on public lands and waterways are resulting increasingly in the rationing of public access by lottery upon accounting for the uncertainties of random rationing discrete choice models lend themselves to analyzing participation in public resource lotteries and estimating welfare changes key to valuing lotteryrationed rights is accounting for changes in access probabilities that result from policy changes the empirical application models the discrete choices of more than 18 000 participants in a new mexico lottery system for elk harvest rights welfare estimates are obtained from simulated policy changes that affect individually and jointly the access probability and indirect utility

on optimal congestion abstract a number of classic papers conclude that if a congestible facility is the property of a profit maximizing entrepreneur he will impose a charge for use that induces the socially optimal level of use and congestion all these papers happen to deal with a special case in which that conclusion holds but it is not true in general in general the socially optimal level of use of a congestible facility is the level at which the marginal cost of providing the service is equal to the sum of the decreases in the users willingnesses to pay for a unit of service when the level of congestion is optimal and need not coincide with the level resulting from a profit maximizing charge this sum is derived from the integral under a fictitious demand curve constructed by imagining that the level of congestion is the same and optimal at all levels of the use charge

risk preferences over simple and compound public lotteries abstract lottery choice experiments with monetary payoffs have a long tradition for eliciting risk preferences this note demonstrates how risk preferences over multi attribute public lotteries may be estimated consistent with experimental findings results from simple and compound lottery choice models indicate significant differences in the degree of risk aversion between male and female applicants

differentiated bids for voting and restricted voting shares in public tender offers abstract this paper develops a model for takeover bid premiums of voting and restricted voting shares when the bidder wants 100 of the target firm for this special case a higher bid premium may be offered either to the voting or to the restricted voting shareholders we also analyze consequences of the equal offer and one share one vote principles and investigate the model s explanatory power on swedish data

efficiency and productivity of the food and beverage listed firms in the pre recession and recessionary periods in greece this study uses data envelopment analysis to examine the liquidity and sales efficiency of the food and beverage listed firms in athens exchange in the period 2006 2012 the liquidity efficiency of the firms is higher than the sales efficiency but the results indicate that there are not statistical significant differences in the rankings estimated by the two models in each period the malmquist productivity index reveals that over the period of the study firms have experienced an annual average increase in productivity of 0 5 a slight progress on examining the components of this productivity change it becomes evident that firms have experienced an annual average of 2 increase in technology combined with a decrease in technical efficiency of 1 5 the results indicate that 52 4 of the firms experienced productivity gains in the examined period and this was mainly the result of technological gain rather than efficiency improvement more than 90 of the firms in the sample shift the efficiency fron

risk sharing and industrial specialization regional and international evidence the authors provide empirical evidence that risk sharing enhances specialization in production to the best of their knowledge this well established and important theoretical proposition has not been tested before the empirical procedure is summarized as follows first the authors construct a measure of specialization in production and calculate an index of specialization for each of the european community ec and non ec oecd countries u s states canadian provinces japanese prefectures latin american countries and regions of italy spain and the united kingdom then they estimate the degree of capital market integration a measure of risk sharing within each of these groups of regions the ec countries the non ec oecd countries the united states canada japan italy spain and the united kingdom and rely on another author s estimate for latin america finally they perform a regression of the specialization index on the degree of risk sharing controlling for relevant economic variables they find a positive and significant relation between the degree of specialization of individual members of a group of countries provinces states or prefectures and the amount of risk that is shared within the group the authors perform regressions using variables such as shareholder rights and the size of the financial sector relative to gdp as instruments for the amount of inter regional risk sharing these regressions confirm that risk sharing facilitated by a favorable legal environment and a developed financial system is a direct causal determinant of industrial specialization this abstract was borrowed from another version of this item

unintended consequences of the market risk requirement in banking regulation abstract we analyze a bank that operates under the basel credit and market risk requirements and that maximizes its value through recapitalizations dividends and liquid asset investments according to our model the market risk requirement may postpone recapitalization and this way increase the bank s default probability we show that this is indeed the case if the expected return and volatility of the liquid asset portfolio are high i e then the market risk requirement raises the default probability of the bank in this sense the market risk requirement is inefficient

donate money but whose an empirical study of ultimate control rights agency problems and corporate philanthropy in china using empirical evidence gathered from chinese listed companies this article explores the relationship between micro governance mechanisms and corporate philanthropy from a corporate governance perspective in china s emerging market ultimate controlling shareholders of state owned enterprises soes are reluctant to donate their assets or resources to charitable organizations in private enterprises pes marked by more deviation in voting and cash flow rights such donations tend to be more likely however the ultimate controllers in pes refuse to donate assets or resources they control or own which implies that corporate philanthropy by pes comes at the cost of others through assets or resources owned by minority shareholders even after devastating natural disasters such as the 2008 wenchuan earthquake the controlling shareholders continue to express reluctance to donate any assets they control despite widespread evidence that corporate philanthropy boosts corporate growth and profitability these ultimate controllers indicate no intention to donate their own money as a means to improve corporate performance

optimal pricing of public lotteries and comparison of competing mechanisms this article establishes optimal pricing rules for rationing indivisible units of rival and otherwise nonexcludable goods by lottery or a hybrid of a lottery and outright sale by posted price given the distributional objective of maximizing expected consumer surplus the solutions to unconstrained and constrained versions of the pricing problem may be expressed in classic inverse elasticity form with the lottery price appearing as an entry fee user fee or a combination of the two numerical analysis of a rich class of private value distributions indicates that sizable gains in expected consumer surplus can be realized over competitive pricing and zero pricing

lottery or waiting line auction abstract this paper studies the efficiencies of the two most widely used non price allocation mechanisms lotteries and waiting line auctions as our analysis suggests in addition to the fairness of the mechanism the use of lotteries in lieu of waiting line auctions can be also justified from an efficiency point of view in particular we show that the less dispersed consumers time valuations are the more efficient is a lottery relative to a waiting line auction in addition we identify four conditions under which a lottery dominates a waiting line auction in expected social surplus preserving furthermore the numerical simulations we conduct indicate that over a predominantly wide range of circumstances a lottery is more socially efficient than a waiting line auction as an allocative mechanism in the absence of a conventional price system