bluuebunny/crossref_metadata_2025_split huggingface dataset:
MANAGEMENT FADS AND ORGANIZATIONAL ARCHITECTURE
Authors: Brickley James A. , Smith Clifford W. , Zimmerman Jerold L. 
Published: April 2005

This article applies and extends the three‐part organizational framework used in the preceding article to a broad range of management innovations. After furnishing some interesting evidence of the rise and fall of management techniques such as TQM, Reengineering, Just‐in‐Time Production, and Activity‐Based Costing, the authors raise and then attempt to answer a number of questions:What explains the popularity of these management innovations? Why do they often fail to produce the expected benefits? How can managers tell if a particular technique is right for them? What can managers do to increase the likelihood that an adopted technique will be successful?The persistent, and at times seemingly insatiable, corporate demand for management innovations is viewed by the authors as a “rational” economic response by senior managers to major changes in the external business environment—changes that in turn dictate changes in business strategy. For example, when confronted with external changes such as deregulation or heightened global competition, companies often find it necessary to refocus their efforts on improving product quality and operating efficiency. And such changes in business strategy tend to require a revamping of the three critical components of organizational architecture: (1) assignment of decision rights, (2) performance evaluation systems, and (3) compensation systems.As the authors argue, innovations such as TQM, outsourcing, Re‐engineering, and JIT typically involve major changes in just one or two of these critical elements of the organization, but not all three. The failure to coordinate organizational changes in such a way that these three elements are mutually consistent and reinforcing is one important reason why management innovations can fail to meet expectations. The framework described in this article is designed to help managers considering one potentially valuable set of organizational changes to identify other facets of the organization that also require attention and perhaps complementary adjustments.
EVA, ACCOUNTING PROFITS, AND CEO TURNOVER: AN EMPIRICAL EXAMINATION, 1985–1994
Authors: Lehn Kenneth , Makhija Anil K. 
Published: April 2005

A growing number of companies use EVA or related measures of economic profits as metrics for corporate planning and executive compensation. Unlike traditional accounting measures of performance, EVA attempts to measure the value that firms create or destroy by subtracting a capital charge from the cash returns they generate on invested capital. For this reason, EVA is seen by its proponents as providing the most reliable year‐to‐year indicator of a market based performance measure known as market value added, or MVA.Although EVA and MVA have received considerable attention in recent years, there has been little empirical study of these performance measures—and what studies have been produced have provided mixed results. This study joins the debate over EVA vs. conventional accounting measures by asking a different question: Which performance measures do the best job of explaining not only stock returns, but the probability that a CEO will be dismissed for poor performance?Using a sample of 452 firms during the period 1985–1994, the authors report that EVA has a somewhat stronger correlation with stock price performance than conventional accounting measures such as ROE and ROA. But, of greater import, EVA appears to be a considerably more reliable indicator of CEO turnover than conventional accounting measures.
Risks and Rewards in Emerging Market Investments
Authors: Smith Roy C. , Walter Ingo 
Published: April 2005

In light of the recent currency crises in East Asia, this article questions the accepted wisdom that emerging market securities deserve to be included in global portfolios primarily because of their low correlations with more conventional asset classes. The authors suggest that the basic cycle of emerging market loans and securities appears to have been compressed, and its swings accentuated, by the herd‐like behavior of global institutional investors. This is not the irrational behavior of crowds infected by investment euphoria, but the rational behavior (however volatile) of a large number of institutional investors with huge stakes in the market, each trying to outperform or at least keep up with the others.While stressing the benefits of foreign capital for emerging nations, Smith and Walter also point to the adverse consequences of abrupt shifts in investor sentiment and capital flows. Citing a recent World Bank study, the authors suggest that the effect of portfolio equity inflows on many developing economies has been a “glut” of foreign exchange and liquidity, which tends to cause inflationary pressure and appreciation of real exchange rates. Such currency appreciation can in turn have unwanted “real” effects, such as increases in trade deficits.Going somewhat “against the grain of the Washington Consensus,” the authors suggest that emerging nations undertake a gradual, though steady movement toward adoption of freemarket policies. In particular, they cite with approval attempts by more successful emerging nations such as Chile and South Africa to limit portfolio capital inflows to avoid this problem of excess liquidity. As the authors conclude, “At no point in their development did now‐established countries like Japan, Germany, South Korea, Taiwan, Singapore, Spain, and Chile adopt a totally free‐market approach. They moved purposefully over decades in that direction, but only at a pace that could be accommodated by the accompanying political thinking and infrastructure‐building.”
Are Open Markets Good for Foreign Investors and Emerging Nations?
Authors: Kim E. Han , Singal Vijay 
Published: April 2005

Although policymakers of emerging nations routinely brand foreign capital as “hot money” and hold it responsible for the ills of their economies, this article suggests that the experience of opening up their markets to overseas investors has been largely beneficial for the host countries. Based on their own recent study, the authors report that when emerging economies open their markets, the level of stock prices tends to rise without an associated increase in volatility, and more capital becomes available for domestic investment at a lower cost. The stock markets also appear to become more efficient, thus resulting in a better allocation of resources. Furthermore, the inflow of foreign capital does not lead to higher inflation or stronger currencies, nor does the volatility of inflation or exchange rates increase. If some countries experience large capital outflows with damaging consequences, the culprit is not foreign investors, but rather policymakers' futile attempt to defy market forces and the failure of their economies to put the capital to productive uses.The authors' analysis also suggests that, when the recent turmoil in emerging markets is set in the context of a longer‐run historical perspective, nothing appears to have changed that would materially alter the prospects for investing in emerging markets. The recent market volatility and currency crises in emerging nations are by no means extraordinary—indeed, the currencies of many developing countries fall routinely. What distinguishes the Mexican and Thai currency crises from such run‐of‐the‐mill devaluations is that both governments resisted the inevitable until market forces brought about a crash. The recent emerging market currency crises should accordingly be viewed as more or less predictable “road bumps” that can be expected when the policymakers of emerging economies gradually—and grudgingly—relinquish their power to the markets.
Yankee Bonds and Cross‐Border Private Placements
Authors: Johnson Greg , Funkhouser Thomas 
Published: April 2005

With credit spreads and U.S. Treasury yields near historical lows and the recent relaxation of U.S. regulatory reporting requirements, the U.S. bond markets are more and more frequently the markets of choice for international issuers. Total cross‐border U.S. bond issuance is expected to top $200 billion in 1997, easily surpassing previous issuance levels.Overseas issuers have three primary forms through which they can participate in the U.S. long‐term debt markets: publicly traded, SEC registered bonds (commonly known as “Yankee” bonds); traditional private placements; and underwritten Rule 144A private placements. Each of these three financing methods has distinct benefits and limitations that should be thoroughly evaluated in light of the specific objectives of the issuer. Yankee bonds are typically the most cost‐efficient vehicle for large, investment‐grade issuers. The fastest growing segment is the rule 144A market, which accounted for 38% (by number, not dollar volume) of all U.S. cross‐border debt transactions in 1996. The Rule 144A structure is often used for complex structures requiring heavy rating‐agency involvement, such as future financial flow transactions and project financings. The 144A market has also become a particular favorite with international issuers because of its less formal disclosure requirements and streamlined execution process. The private placement market, which accounted for 24% of cross‐border transactions in 1996, continues to be the dominant choice of smaller issuers, companies with complicated “stories,” and firms that do not wish to submit to regular scrutiny by rating agencies. This article provides a detailed analysis of each type of bond issuance and the related issues facing a financial officer in trying to determine the most appropriate source of long‐term debt.
ACCOUNTING FOR DERIVATES: BACK TO BASICS
Authors: Benston George J. 
Published: April 2005

Public accountants have had a hard time deciding how to account for derivatives that are used to hedge risks, which in turn has given derivatives users and others a hard time. For about six years, the Financial Accounting Standards Board (FASB) has struggled with several, often diametrically opposed procedures, ranging from showing all derivatives at “fair” values to deferring realized losses or gains on derivatives until related gains or losses on the hedged transactions have been realized (a practice known as “hedge accounting”).What is behind the FASB's inability to come up with a decisive and authoritative ruling? Although the politics of self‐interest has fueled much of the debate, there is more to the problem than politics. The author argues that the underlying cause of the FASB's inability to reach a satisfactory and acceptable solution is not politics, but rather a flawed basic concept of how financial accounting should be done.In this article, the author recommends a procedure for derivatives accounting that was endorsed by the Financial Economists Roundtable in its 1995 “Statement on Accounting Disclosure about Financial Derivative Instruments.” The proposal, in brief, is this: Provided a company can satisfy its auditors that it is using derivatives primarily to hedge an offsetting price exposure, the firm should be given the option to use hedge accounting for that part of its derivatives position that is functioning as a hedge. All other investment or speculative uses of derivatives should be treated like other financial instruments and marked to market or fair value.Such a procedure, the author argues, is far more consistent than the FASB's recent proposals with fundamental principles of accounting that have been developed by accounting practitioners and scholars over several centuries.
Financial Innovation in the Management of Catastrophe Risk
Authors: Doherty Neil A. 
Published: April 2005

Like the preceding article, this article argues that the high costs of reinsurance present the opportunity for hedging instruments to be offered to primary insurers that are both competitive with current reinsurance and that offer investors high rates of return. But the combination of high reinsurance premiums and the vast capacity of the capital market for diversification is not sufficient to ensure the success of these new instruments. If new instruments such as catastrophe options and catastrophelinked bonds are to compete successfully with reinsurance, they must provide a cost‐effective means of resolving incentive conflicts between the primary insurer and the ultimate risk bearer that are known as “moral hazard.” Without an effective solution of this moral hazard problem, the use of past insurance loss data to estimate the potential returns for purchasers of catastrophe bonds and other such instruments will be misleading and unreliable.As the author demonstrates, both traditional reinsurance and each of the new catastrophe hedging instruments presents insurance companies and other hedgers with the challenge of managing a different combination of moral hazard, credit risk, and basis risk. For example, traditional catastrophe reinsurance is subject to significant credit risk and moral hazard, but little if any basis risk. By contrast, both catastrophe options and bonds can be designed in ways that reduce moral hazard and credit risk, but at the cost of taking on some basis risk. The risk manager's task in such circumstances is to design an instrument that embodies the optimal, or cost‐minimizing, trade‐off among these three sources of risk.
Risk Management by Securities Settlement Agents
Authors: Culp Christopher L. , Neves Andrea M. P. 
Published: April 2005

As developing countries search for ways to promote capital formation through the establishment of organized exchanges, they will need to pay more attention to the role of risk management in the securities settlement process. The delivery‐versus‐payment (DVP) agents that facilitate the process of exchanging securities for funds in most world markets have both the incentive and comparative informational advantage to monitor, measure, and manage risks inherent in the securities settlement system.Unfortunately, most DVP agents have accomplished this task to date through the cumbersome use of position and net debit limits, capital requirements, and collateral requirements. Such limits and requirements are almost everywhere based on relatively arbitrary criteria that may have no relation to the actual replacement cost, principal, or liquidity risk of the transaction, portfolio, or participant on which they are imposed.To remedy this shortcoming in the current state of risk management at DVP agents, this article holds out the possibility of integrated, comprehensive risk management processes that emphasize and rely on forward‐looking measures of risk for individual brokers and across brokers. Many risk measures could serve the settlement agent's purposes, including “value at risk” (or “VaR”), “below target risk,”“below‐target probability,” and “downside semi‐variance.” The actual summary risk measure used for risk monitoring and control is not as important as the methodology used to generate that risk measure. “The goal of such a process,” as the authors put it, “is to ensure that the risks to which a settlement agent and its residual claimants are exposed are those risks to which the agent's shareholders think they are and want to be exposed.”
Market Based Management™*—A Key to Nucor's Success
Authors: Nobles William , Redpath Judy 
Published: April 2005

Ken Iverson, CEO of Nucor Corporation, transformed Nucor from the virtually worthless corporate shell that it was when he took over as president in 1966 into a Fortune 500 giant with current shareholder value in excess of $5 billion. How did Iverson do it? What are the secrets to his outstanding success?This article argues that an important part of the answer is Market Based Management, a relatively new set of management values and practices that aims to bring the power of a free‐market society inside companies. Stated in brief, Market Based Management attempts to replace the traditional “command‐and‐control” management approach with decentralized decision‐making that is designed to make full use of employees' “specific knowledge.” Employees' expanded decision‐making authority is reinforced by a powerful incentive compensation system that rewards them handsomely for achieving corporate goals. The result, according to the authors, is highly motivated employees who “take ownership” for their role in contributing to the success of the enterprise.
The End of Cost Allocations as We Know Them
Authors: Hodak Marc 
Published: April 2005

Cost allocation issues have befuddled management around the world for over a century. And, because of “informational asymmetries” and agency conflicts between operating management and headquarters, there is no clear theoretical solution to the problem. Nevertheless, there are good reasons for allocating costs. If properly structured, transfer‐pricing schemes can serve the same purpose as a market price. By communicating useful information about the relative scarcity of resources within an organization, they can serve to balance supply and demand for the product or service being priced.Unfortunately, most transfer‐pricing approaches, like Activity Based Costing, attempt to solve the problem by refining standard cost measures. In contrast to ABC, this article begins by recognizing that efforts to develop more precise cost allocations are bound to be frustrated by the information and incentive problems noted above. And in place of more precisely formulated measures of cost, the author proposes a process of negotiation between two parties to an exchange—a process that is reinforced by a performance measurement system that gives both parties incentives to reveal their “reservation” prices for the good or service in question. For transfers involving multiple users of a given service or products, the author recommends a transfer auction process that is also designed to make would‐be users reveal their assessments of value.
The Capital Structure Puzzle: The Evidence Revisited
Authors: Barclay Michael J. , Smith Clifford W. 
Published: April 2005

Since the formulation of the M&M propositions almost 50 years ago, financial economists have been debating whether there is such a thing as an optimal capital structure—a proportion of debt to equity that maximizes shareholder value. Some finance scholars have followed M&M in arguing that both capital structure and dividend policy are largely “irrelevant” in the sense that they have no significant, predictable effects on corporate market values. Another school of thought holds that corporate financing choices reflect an attempt by corporate managers to balance the tax shields and disciplinary benefits of greater debt against the costs of financial distress. Yet another theory says that companies do not have capital structure targets, but simply follow a financial “pecking order” in which retained earnings are preferred to outside financing, and debt is preferred to equity when outside funding is required.In reviewing the evidence that has accumulated since M&M, the authors argue that taxes, bankruptcy (and other “contracting”) costs, and information costs all appear to play an important role in corporate financing decisions. While much of the evidence is consistent with the argument that companies set target leverage ratios, there is also considerable support for the pecking order theory's contention that firms are willing to deviate widely from their targets for long periods of time. According to the authors, the key to reconciling the different theories—and thus to solving the capital structure puzzle—lies in achieving a better understanding of the relation between corporate financing stocks (the levels of debt and equity in relation to the target) and flows(or which security to issue at a particular time).
Do Managers Have Capital Structure Targets? Evidence from Corporate Spinoffs
Authors: Mehrotra Vikas , Mikkelson Wayne , Partch Megan 
Published: April 2005

The two main theories of capital structure—the tradeoff theory and the pecking order theory—have opposite predictions about the expected relationship between corporate leverage and profitability. According to the tradeoff theory, companies that earn higher profits will use more debt both to shield their income from corporate taxes and to discipline corporate investment policy. In contrast, the pecking order theory predicts that more profitable companies will borrow less mainly because they have less need to borrow.Corporate spinoffs provide a unique opportunity to investigate the influence of profitability and other asset characteristics on the design of capital structure. In their study of 98 spinoffs over the period 1979–1997, the authors began by investigating the popular argument that managers routinely assign more debt to subsidiaries than parents in order to leave the parents less encumbered—a possibility they reject after finding that the average leverage ratios of the parents and spunoff units were roughly equal. At the same time, the authors reported large differences in the leverage ratios among both parents and spun‐off units, and that the variation was explained primarily by differences in three factors: asset tangibility and the level and variability of cash operating profits. Consistent with the tradeoff theory (but not the pecking order), the study found a significantly positive correlation between a post‐spinoff company's cash profitability and its assigned debt load, as well as a negative correlation between debt and the variability of operating cash flow.
Trade, Jobs, and the Economic Outlook for 2005
Authors: Plosser Charles I. 
Published: April 2005

From newspaper accounts, one might think that the U.S. economy is on the verge of collapse. But the economy performed well in 2004, with real GDP growth of 3.9%, inflation at only 2.2%, unemployment down to 5.4%, and over two million jobs added to the payrolls (performance that is the envy of America's trade partners in Europe). And much the same, perhaps with moderate increases in interest rates, is expected in 2005.Concerns about the trade deficit in particular have given rise to familiar calls to protect U.S. industries and jobs. But job losses due to “offshoring” amount to just 1% of total job losses each year, with little effect on the growth in overall employment. Manufacturing jobs have declined, but the value of manufactured goods as a share of real GDP has remained steady because of productivity growth in the manufacturing sector. Rather than spending vast amounts of money to protect jobs that are destined to go overseas, the correct policy response is to help people retrain and find employment elsewhere.Trade deficits arise in countries that experience either investment booms or declines in savings. Thus, trade deficits are not necessarily an indication of economic failure. Foreigners invest in America because the U.S. is still the world's largest and most productive economy. And provided that the U.S. continues to offer such investment opportunities, foreign investors' search for low‐risk assets will continue to be a major (if not the main) cause of the U.S. trade deficit.