creator: Chakraborty , Atreya
0-5 of 5
Poison Pills, Optimal Contracting and the Market for Corporate Control: Evidence from Fortune 500 Firms
description- – The rationale for issuing poison pill securities remains unclear, despite the findings of a large body of prior research that these defenses adversely affect shareholder wealth. This paper investigates the hypothesis that the adoption of such defenses may reflect shareholders?desire to contract efficiently with their managers in an environment characterized by hostile takeovers and uncertainty about the managers?true performance. Unlike previous research, we focus on financial characteristics of firms as they relate to the motives for adopting such defenses. Our empirical research does not support the optimal contacting hypothesis. We interpret our results as supportive of the managerial entrenchment hypothesis.
- – WP393
- – 1997-11-01
- – application/pdf
Product Differentiation and the Use of Information Technology: New Evidence from the Trucking Industry
description- – Since the mid-1980s many authors have investigated the influence of information technology (IT) on productivity. Until recently there has been no clear evidence that productivity increases as a result of IT spending. This productivity paradox is partly due to the difficulty in correctly identifying outputs, particularly in the service sector such as the trucking industry. Products are often differentiated by quality attributes of the service provided, rather than merely the physical content of the good delivered by motor carriers. A carrier's primary marketing objective, e.g. on-time-performance vs. lowest rate carrier, are precisely what differentiates a trucking firm's service. This paper uses cross-sectional data to show that the use of increasingly sophisticated IT by trucking firms varies depending upon marketing objectives. Our empirical results imply that in order to measure the impact of IT on productivity it is crucial to account for how the firm differentiates its product. We conclude that the productivity paradox can be alleviated if measures of output incorporate firms' marketing objectives.
- – 1999-11-22
- – application/pdf
Portfolio Allocation of Precautionary Assets: Panel Evidence for the United States
description- – Economic theory predicts that earnings uncertainty increases precautionary saving and causes households to include relatively liquid assets in their portfolios. Risk avoidance and the demand for liquidity cause these portfolio choices. Studies investigating United States evidence of precautionary portfolio allocation are nonexistent. With panel data, our results confirm the precautionary motive, and indicate that the desire to moderate total exposure to risk (temperance) and the demand for liquidity each affect the household's portfolio. Both permanent and transitory earnings uncertainty boost total wealth, and this precautionary wealth tends to be invested in safe, liquid assets. These results are particularly pronounced for people facing borrowing constraints. Such behavior is consistent with consumer utility functions that exhibit decreasing absolute risk aversion and decreasing strength of the precautionary motive (prudence). Our findings are important because both unemployment compensation and income taxes provide insurance that reduce earnings uncertainty. As a result, precautionary saving is both curtailed and reallocated. These policies could have large effects on capital formation and interest rates, through changes in the composition of household asset demand.
- – 1999-08-30
- – application/pdf
Uncertainty in Executive Compensation and Capital Investment: A Panel Study
description- – We test whether uncertainty in the CEO's compensation influences the firm's investment decisions, using panel compensation data and cross-sectional invetsment data. Given the prospect of bearing extra risk, a rational agent reacts to minimize the impact of such risk. We provide evidence that CEOs with high earnings uncertainty invest less. As expected, the negative impact of permanent earnings uncertainty on firm investment is larger than that of transitory earnings uncertainty. The results are robust to several alternative specifications and lend support to Stulz' over-investment hypothesis. Knowing how investment is tied to the CEO's earnings uncertainty helps in building the correct compensation package.
- – 1999-07-12
- – application/pdf
Takeover Defenses and Dilution: A Welfare Analysis
description- – This paper highlights the role of takeover defenses in the acquisition process. If managerial defensive effort is fixed, the unregulated level of takeover activity is lower than socially desirable since shareholders regard the financial incentives given to raiders to stimulate takeover activity as a cost, while society views them as a transfer. We show that this result no longer holds if defensive effort is variable -- the unregulated market for corporate control will generate excessive takeovers. One implication of our analysis is that in the presence of substantial anti-takeover related expenditures the gains from takeover will be overestimated. These gains include the benefits from dismantling defenses which were installed because of the takeover threat.
- – WP351
- – 2000-10-06
- – application/pdf
0-5 of 5