Darren Duxbury

Capital Structure, Management Ownership and Large External Shareholders: A UK Analysis

This paper examines empirically the effects of management ownership and ownership by large external shareholders on the capital structure of the firm from an agency theory perspective. The paper extends the US literature on the topic by examining the effect of interactions between management ownership and ownership by large external shareholders on the capital structure of UK firms. For a sample of UK firms, the paper provides empirical evidence that suggests the debt ratio is positively related to management ownership and negatively related to ownership by large external shareholders. Furthermore, the presence of a large external shareholder acts to negate the positive relationship between debt ratios and management ownership; in the presence of a large external shareholder, no significant relationship between debt ratios and management ownership exists. These findings are consistent with the hypothesis that the presence of large external shareholders affects the agency costs of debt and equity.

Behavioral finance: insights from experiments II: biases, moods and emotions

Purpose - – The purpose of this second of two companion papers is to further review the insights provided by experimental studies examining financial decisions and market behavior. Design/methodology/approach - – Focus is directed on those studies examining explicitly, or with direct implications for, the most robustly identified phenomena or stylized facts observed in behavioral finance. The themes for this second paper are biases, moods and emotions. Findings - – Experiments complement the findings from empirical studies in behavioral finance by avoiding some of the limitations or assumptions implicit in such studies. Originality/value - – The author synthesizes the valuable contribution made by experimental studies in extending the knowledge of how biases, moods and emotions influence the financial behavior of individuals, highlighting the role of experimental studies in policy design and intervention.

Behavioral finance: insights from experiments I: theory and financial markets

Purpose - – The purpose of this paper, and a companion paper (Duxbury, 2015), is to review the insights provided by experimental studies examining financial decisions and market behavior. Design/methodology/approach - – Focus is directed on those studies examining explicitly, or with direct implications for, the most robustly identified phenomena or stylized facts observed in behavioral finance. The themes for this first paper are theory and financial markets. Findings - – Experiments complement the findings from empirical studies in behavioral finance by avoiding some of the limitations or assumptions implicit in such studies. Originality/value - – The authors synthesize the valuable contribution made by experimental studies in extending the knowledge of the functioning of financial markets and the financial behavior of individuals.

Consumer debt in the UK: Attitudes and implications

Some sections of society have expressed concerns that consumer debt has risen to a dangerous level. However, there is little evidence regarding how consumers themselves feel about debt. This paper reports up‐to‐date findings from the International Institute of Banking and Financial Services’ Financial Well‐being Survey about consumers’ attitudes towards debt in general and their current levels of borrowing. The implications for the financial services industry and its regulation are discussed.

Performance measurement and the use of league tables: some experimental evidence of dysfunctional consequences

Abstract The practice of organisations adopting performance measurement systems that utilise a range of key performance indicators linked to various aspects of corporate strategy has become widespread. At the same time, however, many organisations are developing reporting frameworks that summarise these indicators in the form of a league table, ranking sub-units according to their achievements. The use of such league tables has the capacity to create a form of dysfunctional behaviour as managers focus primarily on their league table positions—the notion of measure fixation. This paper describes a new experiment that seeks to explore this possibility. The results suggest that information concerning the change in league table position leads to an increase in risk-seeking behaviour, particularly where a project proposal creates an opportunity for the managers sub-unit to move to the top of the league table. This is an unintended dysfunctional consequence of using league tables within performance measurement system design.

Informed choice: consumer preferences for information on pensions

The lack of understanding of pensions amongst a large proportion of the UK adult population, combined with low levels of financial literacy generally, have been identified as significant barriers to saving for retirement. This article draws on the findings of the International Institute of Banking and Financial Services Financial Well-being Survey (IIBFS FWS) to examine consumer understanding of pensions and to identify the sources from which they would like to receive more information on pensions. The programme of initiatives being delivered under the auspices of the Governments Informed Choice strategy are considered in the context of consumer preferences for sources of pension information. The results from the IIBFS FWS support the view that there is a lack of understanding of pensions, particularly amongst women. They also show that initiatives for Government to provide more information and to encourage courses in schools and colleges about saving for retirement would be welcomed. However, people show less support for receiving information about saving for retirement from their employer, perhaps because of growing job insecurity and recent problems with company pension schemes.

On Perceptions of Financial Volatility in Price Sequences

ABSTRACT Stock prices in financial markets rise and fall, sometimes dramatically, thus asset returns exhibit volatility. In finance theory, volatility is synonymous with risk and as such represents the dispersion of asset returns about their central tendency (i.e. mean), measured by the standard deviation of returns. When individuals make investment decisions, influenced by perceptions of risk and volatility, they commonly do so by examining graphs of historic price sequences rather than returns. It is unclear, therefore, whether standard deviation of return is foremost in their mind when making such decisions. We conduct two experiments to examine the factors that may influence perceptions of financial volatility, including standard deviation along with a number of price-based factors. Also of interest is the influence of price sequence regularity on perceived volatility. While standard deviation may have a role to play in perception of volatility, we find evidence that other price-based factors play a far greater role. Furthermore, we report evidence to support the view that the extent to which prices appear irregular is a separate aspect of volatility, distinct from the extent to which prices deviate from central tendency. Also, while partially correlated, individuals do not perceive risk and volatility as synonymous, though they are more closely related in the presence of price sequence irregularity.

A Pilot Exploration of Random Period Duration in Experimental Financial Markets: A Treatment Variable?

This exploratory paper reports a pilot study of the impact of random period duration on the trading behaviour observed in experimental financial markets. Results reported in earlier experimental studies, many of which report a flurry of trade just prior to the end of a trading period, may have been influenced by knowledge of trading period duration. These exploratory findings suggest that the introduction of random period duration results in an increased volume of trade early in a period, which may then impinge upon the informational efficiency of the asset markets. These findings necessitate that future refinements to theoretical models of bid, ask and transaction price behaviour in double auctions explicitly address the influence of known period duration. However, no significant difference between the two markets is found with respect to allocational efficiency.

The Effect of Trading Period Duration on Market Performance in Experimental Financial Markets

The experimental asset market literature provides strong evidence concerning the robust convergence of transaction prices to the competitive equilibrium price and the high percentage of gains from trade exhausted in double auction (DA) markets. However, the designs of previous experimental asset market studies have incorporated trading period durations that are constant and known to the trading participants. Friedman (1984, p. 71) suggests that the predetermined, known time at which trade will cease is one of a number of institutional features of experimental DA markets that enhance the informational and competitive efficiency of observed outcomes. The intention here is to extend previous work (Duxbury, 1997) by conducting a series of experiments designed to determine the importance of trading period duration on observed market performance. To this end, markets are conducted with either constant and known (CK), variable and known (VK) or variable and unknown (VU) trading period durations. The VK treatment represents a novel feature of the experimental design, allowing the analysis to differentiate between the effects of variable trading period duration and uncertain trading period duration. The few theoretical models of bid, ask and transaction price behavior in experimental DA markets developed to date rely on assumptions concerning the time remaining until the end of trade (see for example Friedman, 1991).