Claudio Loderer

Executive compensation and executive incentive problems: an empirical analysis

Abstract The question of whether the design of the corporate executive pay package reflects an attempt to reduce agency costs between shareholders and managers is addressed. The components of senior executive pay are found to vary systematically across firms in a manner that cannot easily be explained by tax effects, and which would indicate that individual elements of pay are aimed at controlling for limited horizon and risk exposure problems. Managerial decisions and the structure of managerial pay therefore appear to be interrelated.

Merger decisions and executive stock ownership in acquiring firms

Abstract This study supports the proposition that managerial welfare affects merger decisions. The abnormal stock returns experienced by bidder firms, from the time of the announcement of a merger bid through the stockholder approval date, are positively related to the percentage of own-company stock held by the senior management of the bidder. The results suggest that substantial amounts of own-company share ownership help align the interests of stockholders and management.

The pricing of equity offerings

Examination of 1,600 seasoned equity offerings reveals little evidence that underwriters systematically set offer prices below the market price on the major exchanges, though they may do so for NASDAQ issues. Quick round-trip transactions in seasoned offerings are not profitable, but subscribing to an offering and holding the stock for 30 days seems to be very profitable, especially in the NASDAQ market. In addition to seasoned offerings, we analyze 250 issues of new classes of preferred stock. These issues are not underpriced.

Firm Age and Performance

As firms grow older, their profitability seems to decline. We first document this phenomenon and show that it is very robust. Then we offer two non-exclusive explanations of why firms may age. First, corporate aging could reflect a cementation of organizational rigidities over time. Consistent with that, costs rise, growth slows, assets become obsolete, and investment and R&D activities decline. Second, older age could advance the diffusion of rent-seeking behavior inside the firm. This hypothesis is supported by the poorer governance, larger boards, and higher CEO pay we observe in older firms. Overall, firms seem to face a real senescence problem.

Stock offerings in a different institutional setting: the Swiss case, 1973-1983

This paper analyzes the stock price effect of equity issues in Switzerland. There, insiders are not legally prevented from using their information for personal trades, and security offerings are with almost no exception rights issues. Unlike what we find for a comprehensive sample of U.S. rights issues and a sample of U.S. general cash offerings, a significant majority of firms experiences a positive monthly announcement effect. The average abnormal return itself, however, is not significant. Also, we find evidence inconsistent with infinitely price-elastic demand functions for common stock, as well as some evidence that offer prices convey new information.

Firms, Do You Know Your Currency Risk Exposure? Survey Results

An antilock brake control device of this invention includes a electronic control device 30 to operate antilock brake control and the hydraulic unit 20 which operates by a control signal from the electronic control device 30, wherein the maximum target amount of slip is preset, the rate of pressure reduction is determined so as to vary the amount of slip along a quadratic curve which regards the predetermined maximum target amount of slip as a extreme value, and the fluid pressure of the wheel cylinder is reduced at the rate of pressure reduction.

Mergers, Executive Risk Reduction, and Stockholder Wealth

Among the possible consequences of agency problems between corporate owners and managers is a tendency by managers to make investment decisions for their firms that are deliberately aimed at reducing firm risk, as a means to control managers’ personal wealth risk. The literature has suggested that such behavior may occur to the detriment of shareholder wealth, and that mergers may be a particular class of investment decisions for which the behavior would be observable. We test these hypotheses empirically, but find no evidence from our merger sample that risk reduction for the acquiring firm is the typical outcome nor that, when it occurs, it is differentially costly for shareholders.

The Nestlé crash

On November 17, 1988, the board of directors of Nestle AG decided to allow foreign investors to hold Nestle registered stock, reversing a longstanding practice. This decision had a tremendous impact on the prices of the firms three classes of common stock, as well as on the prices of several other corporations traded on the Zurich stock exchange. These price changes can be explained by the hypothesis that demand curves slope down.

Firm Rigidities and the Decline in Growth Opportunities

As public firms exploit their growth opportunities following their initial public offering, their assets in place increase, and they organize themselves optimally to operate these assets efficiently, which requires a more formal and less flexible organization than to generate new growth opportunities. Our theory predicts that, as a result of these inflexibilities, firms fail to fully replace their growth opportunities, so that their Tobin’s q falls with age and they invest less as they grow older. With our theory, competition in the market for corporate control and capital markets monitoring increase the rate of decrease in Tobin’s q, while product and labor market competition slow it down. We find empirical support for these predictions. We also find evidence that the decline in q is related to firm rigidities. The Internet appendix is available at http://dx.doi.org/10.1287/mnsc.2016.2478. This paper was accepted by Gustavo Manso, finance.

Luck and Entrepreneurial Success

How much of entrepreneurial performance is sheer luck compared to talent, experience, education, and hard work? We define luck as unexpected performance and look for an answer in a large survey of entrepreneurs. Accordingly, luck ranks last in importance among various success factors and accounts for less than one third of performance variation. This ranking is unaffected by past performance and many personality traits, including self-attribution and illusion of control. Luck matters, however, in activities such as finding the appropriate business idea or choosing the right moment to enter a market. More important, luck perceptions shape decisions. For example, individuals who believe luck is important are reluctant to become entrepreneurs. Consistent with the definition, what entrepreneurs believe is luck correlates with the unexplained variation in a standard econometric model of performance. Estimates of that model also show that hard work does affect performance. So do talent, education, and, especially, experience.