scholarly journals Long-Term Bias, Incentives, and Agency Costs

2021 ◽  
Vol 2020 (3) ◽  
Author(s):  
Kobi Kastiel
Keyword(s):  
Behavioral Finance ◽  
Agency Costs ◽  
Strong Support ◽  
Free Cash Flow ◽  
Disciplinary Power ◽  
Converse Problem ◽  
Corporate Leaders ◽  
Important Exception ◽  
Dual Class

The problem of managerial short-termism has long preoccupied policymakers, researchers, and practitioners. These groups have given much less attention, however, to the converse problem of managerial long-termism. Michal Barzuza and Eric Talley fill this gap in their pioneering article, Long-Term Bias. Relying on the behavioral finance and psychology literatures, the authors provide a novel and thought-provoking analysis of managerial long-term bias, which may be just as detrimental as the more widely condemned short-term bias. This invited Comment to Barzuza and Talley’s article advances three claims. First, it argues that proper incentives— created by executive compensation, heightened risk of early termination, market responses and shareholder pressures— are likely to turn most managers more realistic and thus to mitigate their long-term biases. Second, it explains how, in reality, it could be almost impossible to distinguish between long-term bias and traditional agency theories of empire building and pet projects. Ultimately, both long-termist and self-interested managers systematically harm shareholders; both choose to ignore shareholder interests and waste free cash flow on inferior business investments. This also explains why the cure to both long-term bias and agency costs is similar: reducing the relative insulation of the board from shareholders’ disciplinary power. Finally, this Comment expresses strong support for most of Barzuza and Talley’s normative conclusions, with one important exception: their acceptance of the use of dual-class stock. With a perpetual lock on control and a limited equity stake, corporate leaders will be immune to any “institutional brake” on all forms of long-termist overinvestment. If anything, the analysis of Barzuza and Talley provides an additional strong justification to oppose the use of perpetual dual-class stock.

Founders without Limits

2021 ◽  
Author(s):  
Bobby V. Reddy
Keyword(s):  
Stock Exchange ◽  
High Growth ◽  
Global History ◽  
Public Markets ◽  
The Us ◽  
History Of ◽  
The Uk ◽  
Dual Class ◽  
Blue Chip

Big Tech has flourished on the US public markets in recent years with numerous blue-chip IPOs, from Google and Facebook, to new kids on the block such as Snap, Zoom, and Airbnb. A key trend is the burgeoning use of dual-class stock. Dual-class stock enables founders to divest of equity and generate finance for growth through an IPO, without losing the control they desire to pursue their long-term, market-disrupting visions. Bobby Reddy scrutinises the global history of dual-class stock, evaluates the conceptual and empirical evidence on dual-class stock, and assesses the approach of the London Stock Exchange and ongoing UK regulatory reforms to dual-class stock. A policy roadmap is presented that optimally supports the adoption of dual-class stock while still protecting against its potential abuses, which will more effectively attract high-growth, innovative companies to the UK equity markets, boost the economy, and unleash the true potential of 'founders without limits'.

scholarly journals Astrometric and Photometric Variability in Quasars

2009 ◽  
Vol 5 (S267) ◽  
pp. 103-103
Author(s):  
A. H. Andrei ◽  
S. Bouquillon ◽  
J. L. Penna ◽  
F. Taris ◽  
S. Anton ◽  
...  
Keyword(s):  
Strong Support ◽  
Optical Emission ◽  
Optical Observations ◽  
Massive Black Hole ◽  
Full Account ◽  
Photometric Variability ◽  
Central Engine ◽  
Relationship Of ◽  
The Relationship

Quasars are the choicest objects to define a quasi-inertial reference frame. At the same time, they are active galactic nuclei powered by a massive black hole. As the astrometric precision of ground-based optical observations approaches the limit set by the forthcoming GAIA mission, astrometric stability can be investigated. Though the optical emission from the core region usually exceeds the other components by a factor of a hundred, the variability of those components must surely imply some measure of variability of the astrometric baricenter. Whether this is confirmed or not, it puts important constraints on the relationship of the quasar's central engine to the surrounding distribution of matter. To investigate the correlation between long-term optical variability and what is dubbed as the “random walk” of the astrometric center, a program is being pursued at the WFI/ESO 2.2m. The sample was selected from quasars known to undergo large-amplitude and long-term optical variations (Smith et al. 1993; Teerikorpi 2000). The observations are typically made every two months. The treatment is differential, comparing the quasar position and brightness against a sample of selected stars for which the average relative distances and magnitudes remain constant. The provisional results for four objects bring strong support to the hypothesis of a relationship between astrometric and photometric variability. A full account is provided by Andrei et al. (2009).

scholarly journals Legal Deterrent Strategy Against Illegal Management Actions

2018 ◽  
Vol 5 (4) ◽  
pp. 98-104
Author(s):  
S I Lutsenko
Keyword(s):  
Agency Costs ◽  
Agency Problem ◽  
Main Principle ◽  
Fiduciary Duties ◽  
Flexible System ◽  
Agency Conflict ◽  
Management Actions ◽  
Legal Strategy ◽  
Corporate Legislation

The author considers legal strategy of restriction from illegal actions of the management, allowing to protect interests of shareholders. The author analyzes the agency problem between shareholders and management in the corporate legislation through a prism of legal strategy. The shareholder of the company possesses powers which allow it with a view of efficiency achievement as independently, and under the responsibility to appoint to (choose) the management. The management is allocated with large powers. Legal strategy of restraint assumes co-ordination of actions of management and the shareholder, allowing to lower the agency costs connected with wrongful acts (infringements of the fiduciary duties) from management. In the corporate legislation main principle is the priority of interests of the company in whole (the corporate blessing) over interests of other participants of corporate relations. The key role is played by the control of the shareholder of actions of management within the limits of legal strategy of restraint. The effective and flexible system of compensation allows to lower level of the agency conflict between management and the shareholder of the company. The motivation program should be focused on important long-term objectives of the company. Compensation directly is connected with results of activity of the company and professionalism of its management. A part of legal strategy of restraint is use of fiduciary rates which protect interests of the shareholder as a class. The legislation demands, that the management acted in good fair and reasonably in interests of the company. The author focuses the companies on provision of independence as a part of controls for the purpose of decrease in the agency conflict between management and participants of the company. The legal strategy of restraint offered by the author, allows to soften the agency conflict between interests of a management and interests of participants of the company.

Carcinoid of the Extra-Hepatic Bile Duct: A Case Report with Long-Term Follow-up and Review of Literature

2008 ◽  
Vol 74 (1) ◽  
pp. 87-90 ◽  
Author(s):  
Niraj J. Gusani ◽  
J. Wallis Marsh ◽  
Michael A. Nalesnik ◽  
Mitchell E. Tublin ◽  
T. Clark Gamblin
Keyword(s):  
Bile Duct ◽  
Carcinoid Tumor ◽  
Extrahepatic Bile Duct ◽  
Strong Support ◽  
Complete Excision ◽  
Term Survival ◽  
Long Term Survival ◽  
Long Term Follow Up

Extrahepatic bile duct tumors, 80 per cent of which are adenocarcinomas, are rare neoplasms accounting for less than two per cent of all cancers. Carcinoid tumor of the extrahepatic bile ducts is a reportable lesion, with only approximately 50 cases described in the literature since 1959. We present a case of a primary extrahepatic bile duct carcinoid tumor resected for cure with the longest reported follow-up time (11 years) after surgery. We also summarize the existing literature with regard to this rare tumor. Our case lends strong support to the notion that extrahepatic biliary carcinoids are generally indolent lesions that, if aggressively resected, can result in excellent long-term survival. Complete excision with clear margins seems to provide the best chance of obtaining long-term survival and cure.

Dual-Class Firms and Innovation after NAFTA

2020 ◽  
Vol 23 (01) ◽  
pp. 2050007
Author(s):  
Lei Gao ◽  
Andrey Zagorchev
Keyword(s):  
Trade Agreement ◽  
Operating Efficiency ◽  
Firm Innovation ◽  
Exogenous Shock ◽  
Managerial Entrenchment ◽  
Innovation Activities ◽  
Dual Class Shares ◽  
Dual Class ◽  
Improve Operating

We examine the effect of dual-class shares on U.S. firm innovation after the exogenous shock of the 1994 North American Free Trade Agreement (NAFTA), which intensified international competition. Using difference-in-differences models, we find that dual-class structure firms become less innovative but improve operating efficiency following NAFTA. We show that dual-class firms in many manufacturing industries reduce innovation, but marginally increase capital expenditures after the agreement, and thus substitute risky innovation with safer, long-term investments. The findings indicate that firms with dual-class structures facing lower competition decrease their stock market related innovation activities. We find that dual-class firms with entrenched managers decrease innovation and improve operating efficiency following NAFTA. Based on the robust results, agency costs and managerial entrenchment could explain these changes in innovations, efficiency, and investments.

Agency Problems and Stock Repurchases: Evidence from Japan

2013 ◽  
Vol 16 (03) ◽  
pp. 1350016 ◽  
Author(s):  
Min Teng ◽  
Toyohiko Hachiya
Keyword(s):  
Information Asymmetry ◽  
Agency Costs ◽  
Free Cash Flow ◽  
Managerial Discretion ◽  
Three Dimensions ◽  
Stock Repurchases ◽  
Agency Conflicts ◽  
Cash Balance ◽  
High Level ◽  
Interest Conflicts

This paper examines stock repurchases from an agency perspective by identifying agency costs across three dimensions — interest conflicts and information asymmetry, managerial discretion, and the use of alternative mechanisms to mitigate agency conflicts. We use ownership structure as a proxy for interest conflicts and information asymmetry, employ cash balance and free cash flow as two measures of managerial discretion, and consider cash dividends and interest-bearing liabilities as alternative vehicles for distributing cash. We find that a monitoring structure motivates managers to mitigate agency costs through stock repurchases. Particularly, monitored firms with higher levels of cash balance prefer cash dividends to stock repurchases, whereas monitored firms with more cash dividends repurchase more shares because of their stronger incentive to mitigate agency costs. However, when firms have a very high level of dividends, they substitute stock repurchases for dividends to avoid a dividend cut in the future.

What values more? Agency costs or accrual quality

2017 ◽  
Vol 15 (1) ◽  
pp. 22-38 ◽  
Author(s):  
Jagjit S. Saini ◽  
Onur Arugaslan ◽  
James DeMello
Keyword(s):  
Ownership Structure ◽  
Agency Costs ◽  
Single Class ◽  
Accrual Quality ◽  
Content Type ◽  
Earnings Response Coefficients ◽  
Earnings Informativeness ◽  
Earnings Response ◽  
Dual Class

Purpose The purpose of this paper is to examine what is weighted more by the investors when valuing a dual-class firm’s stock – greater agency costs or better accrual quality of the dual-class firm in contrast to the single-class firm. Design/methodology/approach Using the financial data of firms issuing multiple classes of stock (hereafter dual-class firms) and firms issuing single class of stock (hereafter single-class firms), the authors measure the effect of firm’s ownership structure (dual class versus single class) on the earnings response coefficients (ERCs) of prior, current and future period earnings. Findings The authors find that investors care more about agency costs than the quality of accruals in evaluating the earnings of dual-class firms. Specifically, the authors find that current annual returns of the firm are negatively associated with dual-class ownership structure and that earnings informativeness and predictability are decreasing in dual-class ownership of the firm as reflected in decreasing ERCs. Originality/value This study adds to prior literature on dual-class ownership which reports greater agency costs and better accrual quality at dual-class firms in contrast to single-class firms. This study contributes to the literature on earnings informativeness and predictability by evaluating the effect of ownership structure on the ERCs of the firm. Investors should be careful when valuing a dual-class firm and should consider agency costs in addition to accrual quality of reported earnings at such firms.

scholarly journals THE ROLE OF EARNINGS PERSISTENCE IN VALUATION ACCURACY AND THE TIME HORIZON

2016 ◽  
Vol 56 (1) ◽  
pp. 71-86 ◽  
Author(s):  
RENÊ COPPE PIMENTEL ◽  
ANDSON BRAGA DE AGUIAR
Keyword(s):  
Financial Analysis ◽  
Strong Support ◽  
Earnings Persistence ◽  
Total Risk ◽  
Compensation Contracts ◽  
Listed Firms ◽  
Accounting Numbers ◽  
Short Termism

ABSTRACT Based on the assumption that earnings persistence has implications for both financial analysis and compensation contracts, the aim of this paper is to investigate the role of earnings persistence assuming that (i) more persistent earnings are likely to be a better input to valuation models and (ii) more persistent earnings are likely to serve as a proxy for long-term market and managerial orientation. The analysis is based on Brazilian listed firms from 1995 to 2013, and while we document strong support for the relevance of earnings persistence in financial analysis and valuation, we fail to document a significant relationship between earnings persistence and long-term value orientation. These results are sensitive to different specifications, and additional results suggest that firms' idiosyncratic risk (total risk) is relevant to explain the focus on short-term outcomes (short-termism) across firms. The main contribution of this paper is to offer empirical evidence for the relevance of accounting numbers in both valuation and contractual theories in an emergent market.

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