Banks with something to lose: the disciplinary role of franchise value

As protectors of the safety and soundness of the banking system, banking supervisors are responsible for keeping banks' risk taking in check. The authors explain that franchise value--the present value of the stream of profits that a firm is expected to earn as a going concern--makes the supervisor's job easier by reducing banks' incentives to take risks. The authors explore the relationship between franchise value and risk taking from 1986 to 1994 using both balance-sheet data and stock returns. They find that banks with high franchise value operate more safely than those with low franchise value. In particular, high-franchise-value banks hold more capital and take on less portfolio risk, primarily by diversifying their lending activities.Bank holding companies ; Bank management ; Retail trade

An examination of the relationship of governance structure and performance: Evidence from banking companies in Bangladesh

Corporate governance has become increasingly important in developed and developing countries just after a series of corporate scandals and failures in a number of countries. Corporate governance structure is often viewed as a means of corporate success despite prior studies reveal mixed, somewhere conflicting and ambiguous, and somewhere no relationship between governance structure and performance. This study empirically investigates the relationship between corporate governance mechanisms and financial performance of listed banking companies in Bangladesh by using two multiple regression models. The study reveals that a good number of companies do not comply with the regulatory requirements indicating remarkable shortfall in corporate governance practice. The companies are run by the professional managers having no duality and no ownership interest for which they are compensated by high remuneration to curb agency conflict. Apart from some inconsistent relationship between some corporate variables, the corporate governance mechanisms do not appear to have significant relationship with financial performances. The findings reveal an insignificant negative impact or somewhere no impact of independent directors and non-independent non-executive directors on the level of performance that strongly support the concept that the managers are essentially worthy of trust and earn returns for the owners as claimed by stewardship theory. The study provides support for the view that while much emphasis on corporate governance mechanisms is necessary to safeguard the interest of stakeholders; corporate governance on its own, as a set of codes or standards for corporate conformance, cannot make a company successful. Companies need to balance corporate governance mechanisms with performance by adopting strategic decision and risk management with the efficient utilization of the organization’s resources

2003 Manifesto on the California Electricity Crisis

The authors, an ad-hocgroup of professionals with experience in regulatory and energy economics, share a common concern with the continuing turmoil facing the electricity industry ("the industry") in California. Most ofthe authorsendorsed the first California Electricity Manifesto issued on January 25, 2001. Almost two years have passed since that first Manifesto. While wholesale electric prices have moderated and California no longer faces the risk of blackouts, in many ways the industry is in worse shape now than it was at the start of 2001. As a result, the group of signatories continues to have a deep concern with the conflicting policy directions being pursued for the industry at both the State and Federal levels of government and the impact the uncertainties associated with these conflicting policies will have, long term, on the economy of California. Theauthorshave once again convened under the auspices of the Institute of Management, Innovation and Organization at the University of California, Berkeley, to put forward ourtheir ideas on a basic set of necessary policies to move the industry forward for the benefit of all Californians and the nation. The authors point out that theydo not pretend to be "representative." They do bring, however, a very diverse range of backgrounds and expertise.Technology and Industry, Regulatory Reform

Ownership, Activism and Engagement: Institutional Investors as Active Owners

Research Question We research two questions: First, why do some institutional investors operate at a distance from organizations seemingly acting only to “exit” and “trade” shares while others actively engage through various means of “voice”? Second, what processes and behaviour are associated with active ownership? Research Findings/Insights We develop the concept of active ownership by drawing on contrasting theories and images of ownership, identifying antecedents of active ownership and distinguishing between alternative processes of active ownership. Theoretical/Academic Implications Alternative pathways to active ownership contrast the distant, sometimes adversarial nature of shareholder activism with an engaged, collaborative relationship between investors and corporations. Few studies examine active ownership as a process of engagement and mutual exchange between parties taking a generally longer-term perspective towards investment in the firm and its affairs. After modelling active ownership, we develop a research agenda of substantive issues ranging from market and institutional conditions, through investment organization and practice, to board and investor relations. Practitioner/Policy Implications Opening up the multidimensionality of engagement and relations between investors and corporations is crucial to promoting good corporate governance. Policymakers and practitioners require such knowledge when anticipating and developing adjustments to institutions of corporate governance. This article is protected by copyright. All rights reserved

Firm-size distribution and price-cost margins in Dutch manufacturing

Industrial economists surmise a relation between the size distribution of firms and performance. Usually, attention is focused on the high end of the size distribution. The widely used 4-firm seller concentration, C4, ignores what happens at the low end of the size distribution. An investigation is presented of the extent to which the level and the growth of small business presence influence price-cost margins in Dutch manufacturing. A large data set of 66 industries for a 13-year period is used. This allows the investigation of both small business influences within a framework in which that of many other market structure variables is also studied. Evidence is shown that price-cost margins are influenced by large firm dominance, growth in small business presence, capital intensity, business cycle, international trade, and buyer concentration

Bottleneck co-ownership as a regulatory alternative

This paper proposes a regulatory mechanism for vertically related industries in which the upstream “bottleneck” segment faces significant returns to scale while other (downstream) segments may be more competitive. In the proposed mechanism, the ownership of the upstream firm is allocated to downstream firms in proportion to their shares of input purchases. This mechanism, while preserving downstream competition, partially internalizes the benefits of exploiting economies of scale resulting from an increase in downstream output. We show that this mechanism is more efficient than a disintegrated market structure in which the upstream natural monopoly bottleneck sets a price equal to average cost

Who Commits to the Rule of Law? Constrained Government and Foreign Direct Investment in Postcommunist States

Research linking credible commitments to the rule of law in terms of property rights and contract enforcement is a hallmark of recent efforts to explain economic growth and development. However, many postcommunist states have had difficulty making such commitments and spurring growth. Many argue political polarization prevents states from reforming laws and protecting property rights in some countries whereas single-party governance renders state promises incredible in others. I analyze pooled cross-sectional time-series data for twenty-four postcommunist countries and provide evidence effective constraints among elected officials act as democratic commitment mechanisms rendering government policies credible

From Producer Innovation to User and Open Collaborative Innovation

In this paper we assess the economic viability of innovation by producers relative to two increasingly important alternative models: innovations by single user individuals or firms, and open collaborative innovation. We analyze the design costs and architectures and communication costs associated with each model. We conclude that both innovation by individual users and open collaborative innovation increasingly compete with and may displace producer innovation in many parts of the economy. We explain why this represents a paradigm shift with respect to innovation research, policymaking, and practice. We discuss important implications and offer suggestions for further research

Estimating the Cost of Executive Stock Options: Evidence from Switzerland

It is often argued that Black-Scholes (1973) values overstate the subjective NEWLINE value of stock options granted to risk-averse and under-diversified executives. NEWLINE We construct a “representative” Swiss executive and extend the certainty- NEWLINE equivalence approach presented by Hall and Murphy (2002) to assess NEWLINE the value-cost wedge of executive stock options. Even with low coefficients NEWLINE of relative risk aversion, the discount can be above 50% compared to the NEWLINE Black-Scholes values. Regression analysis reveals that the equilibrium level NEWLINE of executive compensation is explained by economic determinant variables NEWLINE such as firm size and growth opportunities, whereas the managers’ pay-forperformance NEWLINE sensitivity remains largely unexplained. Firms with larger NEWLINE boards of directors pay higher wages, indicating potentially unresolved NEWLINE agency conflicts. We reject the hypothesis that cross-sectional differences in NEWLINE the amount of executive pay vanish when risk-adjusted values are used as NEWLINE the dependent variable

We All Know How, Don’t We? On the Role of Scrum in IT-Offshoring

Part 2: Creating Value through Software DevelopmentInternational audienceOffshoring in the IT-industry involves dual interactions between a mother company and an external supplier, often viewed with an implicit perspective from the mother company. This article review general off shoring and IT offshoring literature, focusing on the proliferation of a globally available set of routines; Scrum and Agile. Two cases are studied; a small company and short process and a large mother company with a long process. The interactions of the set ups shows that global concepts like Scrum and Agile are far from a common platform. The “well known” concepts are locally shaped and the enterprises have mixed experiences