141 research outputs found
What is "fair" pay for a chief executive?
No full textTo many of us, chief executives with lavish luxury lifestyles look overpaid. And why can’t they do their job well without extravagant incentives? Pierre Chaigneau, Alex Edmans and Daniel Gottlieb’s study suggests that bosses are paid handsomely not because they refuse to work hard without the carrot of an extra yacht, but because they wish to be recognised for a job well done
Diversity Project - Cognitive Diversity in Asset Management
No full textNew study by Professor Alex Edmans finds cognitive diversity can give investment teams a significant edge – but only if managed well. In 2024, the Diversity Project invited academics from around the world to submit research proposals to explore any linkage between cognitive diversity and the performance of investment teams. We stressed that we wanted to know what the evidence showed, not work backwards from any conclusion we might hope to see. We commissioned Professor Alex Edmans for this important research. The original common-sense goals behind diversity initiatives – to improve decision-making, mitigate the risk of groupthink, hire and develop the best people and give all talent a fair shot – have been lost amidst a politicised battle. Rather than discuss differences thoughtfully or objectively, debaters are divided along ideological lines. Professor Edmans’ new research reclaims this debate by considering the evidence. For the purpose of this research, Cognitive Diversity has been defined as the range of expertise, experience, perspectives, preferences, traits and ways of thinking within a team. It can arise from differences in educational background, professional background, life background, cognitive style or personality and demographics
Grow The Pie: How Great Companies Deliver Both Purpose and Profit
No full textWhat is a responsible business? Common wisdom is that it’s one that sacrifices profit for social outcomes. But while it’s crucial for companies to serve society, they also have a duty to generate profit for investors – savers, retirees, and pension funds.
Based on the highest-quality evidence and numerous real-life examples, Alex Edmans shows that it’s not an either-or choice – companies can create both profit and social value. The most successful companies don’t target profit directly, but are driven by purpose – the desire to serve a societal need and contribute to human betterment. The book shows how to embed purpose into practice so that it’s more than just a mission statement, and discusses the critical role of collaboration with a company’s investors, employees, and customers. Rigorous research also uncovers surprising results on how executive pay, shareholder activism, and share buybacks can be used for the common goo
Principi di finanza aziendale. Con Connect. Con e-book
No full textIl volume affronta in modo esaustivo e adattato alla realtà italiana i temi fondamentali della finanza aziendale
The Effect of Liquidity on Governance
No full textThis paper studies the effect of stock liquidity on blockholders’ choice of governance mechanisms. We focus on hedge funds as they are unconstrained by legal restrictions and business ties, and thus have all governance channels at their disposal. Since the threat of governance, not just actual governance, can discipline managers, we use Section 13 filings to measure governance intent rather than only studying instances of actual governance. We find that liquidity increases the likelihood that a hedge fund acquires a block in a firm. Conditional upon acquiring a stake, liquidity reduces the likelihood that a blockholder governs through voice (intervention) – as evidenced by the greater propensity to file Schedule 13Gs (passive investment) rather than 13Ds (active investment). Liquidity is more likely to lead to a 13G filing if the manager’s wealth is sensitive to the stock price, consistent with governance through exit (trading). A 13G filing leads to positive announcement returns, especially in liquid firms. These two results suggest that liquidity does not dissuade blockholders from governing altogether, but instead encourages them to govern through exit rather than voice. We use decimalization as an exogenous shock to liquidity to identify causal effects.
Matching Firms, Managers and Incentives
No full textWe exploit a unique combination of administrative sources and survey data to study the match between firms and managers. The data includes manager characteristics, such as risk aversion and talent; firm characteristics, such as ownership; detailed measures of managerial practices relative to incentives, dismissals and promotions; and measurable outcomes, for the firm and for the manager. A parsimonious model of matching and incentive provision generates an array of implications that can be tested with our data. Our contribution is twofold. We disentangle the role of risk-aversion and talent in determining how firms select and motivate managers. In particular, risk-averse managers are matched with firms that offer low-powered contracts. We also show that empirical findings linking governance, incentives, and performance that are typically observed in isolation, can instead be interpreted within a simple unified matching framework.
Blockholder Trading, Market Efficiency, and Managerial Myopia
No full textThis paper analyzes how blockholders can exert governance even if they cannot intervene in a firm's operations. Blockholders have strong incentives to monitor the firm's fundamental value because they can sell their stakes upon negative information. By trading on private information (following the "Wall Street Rule"), they cause prices to reflect fundamental value rather than current earnings. This in turn encourages managers to invest for long-run growth rather than short-term profits. Contrary to the view that the U.S.'s liquid markets and transient shareholders exacerbate myopia, I show that they can encourage investment by impounding its effects into prices. Copyright (c) 2009 the American Finance Association.
Does the stock market fully value intangibles? Employee satisfaction and equity prices
No full textThis paper analyzes the relationship between employee satisfaction and long-run stock returns. A portfolio of the 100 Best Companies to Work For in Americaearned an an-nual four-factor alpha of 4 % from 1984-2005. The portfolio also outperformed industry-and characteristics-matched benchmarks, and the results are robust to the removal of outliers and other methodological changes. Returns are even more signi\u85cant in the 1998-2005 sub-period, even though the list was widely publicized by Fortune magazine. The Best Companies also exhibited signi\u85cantly more positive earnings surprises and stronger earnings announcement returns. These \u85ndings have three main implications. First, consistent with human capital-centered theories of the \u85rm, employee satisfaction is posi-tively correlated with shareholder returns and need not represent excessive non-pecuniary compensation. Second, the stock market does not fully value intangibles, even when inde-pendently veri\u85ed by a publicly available and widely disseminated survey. Third, certain socially responsible investing (SRI) screens may improve investment returns
Short-term termination without deterring long-term investment: A theory of debt and buyouts
No full textAllowing early termination minimizes investor losses if the manager is unskilled. However, the possibility of termination deters a skilled manager from undertaking long-term projects that risk interim turbulence. This paper introduces a novel role of debt that allows it to overcome this tension. Leverage concentrates equityholdersstakes, creating incentives for them to \u85nd out whether short-term losses result from low ability or a temporary downturn in a pro\u85table project. If the \u85rm is fundamentally sound, it is not liquidated upon poor performance. Debt therefore allows termination without deterring investment. Unlike models of managerial discipline based on total payout, here dividends are not a substitute for debt as they only achieve termination without incentivizing monitoring. Debt can also signal managerial quality, and managers have ongoing incentives to maintain leverage even after initial funds have been raised. Dynamic consistency obtains as the manager bene ts from monitoring by a concentrated investor. In traditional thoeries, monitoring constrains the manager; here it frees him to take long-term projects
Essays in financial economics
No full textThesis (Ph. D.)--Massachusetts Institute of Technology, Sloan School of Management, 2007.This electronic version was submitted by the student author. The certified thesis is available in the Institute Archives and Special Collections.Includes bibliographical references.This thesis consists of three essays in financial economics. Chapter 1 is entitled "Inside Debt." Existing theories advocate the use of cash and equity in executive compensation. However, recent empirical studies have documented the prevalence of debt-like instruments such as pensions. This chapter rationalizes the use of such inside debt as an effcient solution to the agency costs of debt. Owing to its greater sensitivity to liquidation payoffs, inside debt is more effective at optimizing project selection than the bonuses, private benefits and reputational concerns advocated by prior literature. Contrary to intuition, it is typically inefficient to align the manager with firm value by granting him equal proportions of debt and equity. Chapter 2 is entitled "Sports Sentiment and Stock Returns" and co-authored with Diego Garcia and Oyvind Norli. We investigate the stock market reaction to sudden changes in investor mood. Motivated by psychological evidence of a strong link between soccer outcomes and mood, we use international soccer results as our primary mood variable. We find a significant market decline after soccer losses. For example, a loss in the world Cup elimination stage leads to a next-day abnormal stock return of -49 basis points. This loss effect is stronger in small stocks and in more important games, and is robust to methodological changes. We also document a loss effect after international cricket, rugby, and basketball games.(cont.) Chapter 3 is entitled "Leverage, Ownership Concentration, and the Tension Between Liquidation and Investment." Allowing early liquidation minimizes investor losses if the manager is unskilled. However, the possibility of liquidation deters a skilled manager from undertaking long-term projects that risk interim turbulence. This chapter introduces a novel role of debt that overcomes this tension. Leverage concentrates equity holders' stakes, creating incentives for them to find out whether short-term losses result from low ability or a temporary down-turn in a profitable project. If the firm is fundamentally sound, it is not liquidated upon poor performance. Debt therefore allows termination without inducing myopia. Unlike models of managerial discipline based on total payout, here dividends are not a substitute for debt as they achieve liquidation without incentivizing monitoring.by Alexander James Edmans.Ph.D
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