distinguishing between equilibrium and integration in spatial price analysis this article introduces a new spatial price analysis methodology based on maximum likelihood estimation of a mixture distribution model incorporating price transfer cost and trade flow data this method permits differentiation between market integration and competitive market equilibrium and derivation of intuitive measures of intermarket tradability competitive market equilibrium perfect integration segmented equilibrium and segmented disequilibrium one can also use these estimates to derive semiparametric measures of time varying regime probabilities to track changing market conditions an application to trade in soybean meal among pacific rim economies demonstrates the usefulness of the method copyright 2002 oxford university press

giving money to get money how ceo stock options and ceo equity enhance ipo valuations recent research has suggested that stock options and equity ownership have different motivational implications for executive risk taking we examined investors reactions to the differing incentive

business group affiliation and firm search behavior in india responsiveness and focus of attention this paper investigates the effects of organizational form on problemistic search we contrast how indian firms affiliated with business groups and unaffiliated firms evaluate performance and react by adjusting their internal technology search and external market search we propose that compared with unaffiliated firms business group affiliated bg affiliated firms are more externally oriented in setting aspiration levels and more likely to respond to low performance in the market domain we find support for an external orientation of bg affiliated firms and find that group affiliation determines the responsiveness to performance feedback in different search domains the findings suggest a need to add considerations of organizational form and governance to the theory of organizational search

ceo characteristics and firm r d spending over the past fifteen years a number of studies have examined the determinants of firm r d spending these studies however almost invariably focus on the role of firm or external ownership characteristics in predicting r d spending while overlooking the attributes of the top managers involved in allocating corporate resources in this study we change that focus by empirically examining how r d spending as compared to industry competitors varies at firms based on the characteristics of their ceos using a sample of publicly traded firms we find that ceo characteristics explain a significant proportion of the sample variance in firm r d spending even when corporate strategy ownership structure and other firm level attributes are controlled in terms of individual ceo characteristics we find that r d spending is greater at firms where ceos are younger have greater wealth invested in firm stock and signifacant career experience in marketing and or engineering r d in contrast to existing theory we find that the amount of a ceo s formal education had no significant association with r d spending once a ceo has attained a college degree however significant r d spending increases are found at firms where ceos have advanced science related degrees from subgroup analyses we further find that ceo effects on relative r d spending increase with longer ceo tenure implying that ceos over time may mold r d spending to suit their own preferences from these results we make implications for both research on determinants of r d spending and managerial practice

stochastic growth with correlated production shocks this paper extends the stochastic growth model of brock and mirman j econ theory 4 1972 497 513 to allow the production shocks to be correlated over time the resultant optimal savings and consumption policies depend not only upon the current level of output but also upon the most recent realization of the random shock the properties of these policy functions are studied and it is shown that the markov process on output capital stock and consumption resulting from the application of these policies converges to a stationary distribution

a behavioral theory of r d expenditures and innovations evidence from shipbuilding i base an integrated model of innovation development and launch on the behavioral theory of the firm this model specifies that research and development expenses are increased when low performance causes problemistic search and when excess resources cause slack search innovations generated by search are launched if low performance gives managers high risk tolerance using data from shipbuilding firms i show that high performance reduces r d intensity and innovation launches and high slack increases r d intensity as predicted

too risky to hold the effect of downside risk accumulated equity wealth and firm performance on ceo equity reduction although the alignment effect of equity ownership is often studied with emphasis on changes in firm strategy the exposure of ceos firm specific wealth to firm risk is more easily controlled by changing their level of equity holdings than by changing firm strategic risk we rely on prospect theory and the behavioral theory of the firm to examine the antecedents of ceo equity reduction and investigate whether it serves to decouple ceo wealth from firm risk given its central role in loss avoidance we underline the effect of the firm s downside risk and distinguish the total loss potential on equity holdings from the loss potential due to firm specific factors allowing for own performance referents we also consider firm performance and the value of a ceo s equity holdings in the analysis based on a sample of 208 u s ceos for the years 1997 1999 we find empirical support for the role of downside risk and firm performance in ceo equity reductions implications on incentive alignment through equity ownership are presented

friends acquaintances or strangers partner selection in r d alliances like governance structure and alliance scope partner selection may serve to safeguard firms intellectual assets in r d alliances we categorize potential alliance partners into friends acquainta

toward a model of risk in declining organizations an empirical examination of risk performance and decline scholars who study organizational decline have argued that declining organizations reduce or eliminate their riskier activities such as innovation further they cite reduced risk taking as a primary contributor to further decline scholars with an interest in risk per se come to the opposite conclusion low performing firms often take more risks than other firms and such risks reduce subsequent performance this study attempts to resolve these conflicting views by examining the risk of firms in decline our model based on cyert march s cyert r m j g march 1963 a behavioral theory of the firm prentice hall englewood cliffs nj behavioral theory of the firm includes six basic variables 1 performance 2 slack 3 aspirations 4 expectations 5 risk income stream uncertainty and 6 organization size as a measure of decline the estimated model includes prior levels of risk and performance in the risk and performance equations respectively as controls this study uses data on 34

diversification strategy and r d intensity in multiproduct firms this study provides empirical evidence that choice of diversification strategy systematically affects r d intensity in large multiproduct firms research and development intensity in dominant busin

investment and the behavioral theory of the firm evidence from shipbuilding investment in production assets is a strategic decision that results from organizational search and risk taking the behavioral theory of the firm predicts that performance below the aspiration level and slack resources initiate organizational search risk theory predicts that performance below the aspiration level increases risk tolerance this paper integrates these theories to form a theory of problem and slack driven strategic change and applies it to the growth of production assets the predictions are tested by analyzing the growth of production assets in the japanese shipbuilding industry yielding clear evidence that high performance causes low asset growth but no effect of slack copyright 2003 oxford university press

fixed versus variable reference points in the risk return relationship abstract researchers using prospect theory in explaining bowman s risk return paradox have typically assumed a single fixed reference point normally the industry median in defining two decision contexts gain and loss our findings suggest this reference point is elevated above industry median performance and varies over time and across industries independent of industry performance consistent with the prospect theory firms above this reference point were risk averse and those below it were risk seeking we found no evidence of a second survival reference point for firms in trouble

performance feedback and firm risk taking the moderating effects of ceo and outside director stock options we contribute to the behavioral theory of the firm and the behavioral agency model by developing a theoretical framework that predicts the differential interaction effects of performance feedback and values of stock option grants of multiple agents on firm risk taking we explain how chief executive officers ceos versus outside directors awarded with stock option grants perceive negative or positive deviations from prior performance we argue that in a negative attainment discrepancy context high values of option grants will increase the risk aversion of ceos who already bear excessive employment and compensation risks resulting in less risk taking however it will enhance the risk taking propensity of influential outside directors who increase monitoring and support for risky projects because their risk preferences are better aligned with those of shareholders in a positive attainment discrepancy context high values of option grants will amplify risk aversion in both ceos and outside directors who

moving closer to the action examining compensation design effects on firm risk we examine the influence of ceo equity based compensation on strategic risk taking by the firm building off the behavioral agency model agency theory and prospect theory we develop arguments about when equity based compensation elements will increase or decrease executive risk propensity and in turn strategic risk taking incorporating a behavioral perspective into our models of incentive alignment provides us with new and potentially more accurate predictions about how individual elements of ceo pay will influence risk selection as well as how equity compensation interacts with cash compensation and with other factors to influence risk preferences in general this study provides evidence that ceo equity based compensation significantly influences strategic risk but that this influence is more nuanced and complex than conventional treatments of executive compensation assume in particular we find that different forms of equity based pay exhibit dissimilar influences on strategic risk and that their influence changes as their value and vesting status change second we find that cash based forms of pay moderate the incentive properties of equity based pay indicating that cash based pay may affect how executives perceive risks associated with equity pay finally we find that stock price volatility and board actions each also moderate the incentive effects of equity based pay in sum our results argue for increased recognition of a behavioral perspective on executive compensation and greater precision in how we measure and model the incentive alignment properties of ceo compensation

swinging for the fences the effects of ceo stock options on company risk taking and performance we unpack the concept of managerial risk taking distinguishing among three of its major elements the size of an outlay the variance of potential outcomes and the likelihood of extreme loss we

determinants of firms backward and forward looking r d search behavior this study develops and operationalizes a behavioral forward looking search model by incorporating prospect theory organizational risk literature and the logic of the behavioral theory of the firm with recognition of the bounded rationality of decision makers and the goal directed rule based nature of organizations this model suggests that a comparison between firms performance expectation and performance target translates the cognitive representation of the firms future into their subsequent actions by examining the research and development r d expenditures of u s manufacturing firms from 1980 to 2001 this study explores how performance aspirations expectations and slack affect decision making about firms r d search investments the findings show that both performance feedback and performance prospect are important determinants of firms search behavior after controlling for firm industry and time effects in addition backward and forward looking determinants have interactive effects on search behavior firms problem driven search activity further increases when firms feel unlikely to achieve the performance target for another year in contrast search intensity is reduced when firms expect to improve their performance from an underperforming situation to an outperforming situation the findings suggest that future research on performance feedback and experiential learning should also consider the effect of forward looking prospects on firm behavior

managerial incentives and investment in r d in large multiproduct firms incentives for division managers in large firms affect their risk orientation and thus their decisions to invest in r d this paper reviews theory and hypothesizes that division managers incentive compensation that is based on financial performance is negatively related to risk taking as measured by r d intensity results of a study of 184 major u s firms suggest that incentives based on short term annual division financial performance are negatively related to total firm r d intensity after controlling for industry r d intensity firm diversification size and group structure furthermore the results suggest that an emphasis on long term financial incentives may mitigate the negative relationship between these incentives and r d intensity but does not promote risk taking the results suggest the importance of emphasizing strategic controls evaluating division managers based on operational understanding of strategies proposed strategic criteria as opposed to the use of financial controls evalua

corporate performance and managerial remuneration an empirical analysis abstract economic theories of efficient compensation predict a positive relationship between executive pay and corporate performance and yet efforts to document this relationship have been largely unsuccessful in this paper we argue that previous cross sectional studies have omitted important variables which seriously bias their results using data that focus on individual executives over time we find that executive compensation is strongly positively related to corporate performance as measured by shareholder return and growth in firm sales the results are robust to the stock market performance measure utilized

variable organizational risk preferences tests of the march shapira model march and shapira s 1987 1992 model of managers risk preferences allows for shifts in attention between survival and aspiration levels our study provides initial empirical tests of their model

testing a causal model of corporate risk taking and performance the determinants of organizational risk taking and its impact on economic performance are critical issues in strategic management using a model that included risk performance performance expecta