Elizabeth S. Cooperman

The relative efficiency of stock versus mutual S&Ls: A stochastic cost frontier approach

From an agency theory perspective, recent conversion activity of savings and loan associations (S&Ls) from mutual to stock organizations should improve the overall performance of the thrift industry. We employ a two-step approach to examine this issue using a sample of 559 S&Ls in the Atlanta Federal Home Loan Bank District in 1988. In the first step, we estimate inefficiency scores for individual S&Ls using a stochastic cost frontier methodology. In a second step Tobit model we use these inefficiency scores to examine the relationship between firm inefficiency and organizational form. We find three important results: (1) that the mutual and stock S&Ls in our sample have similar cost structures, allowing the pooling of S&L data; (2) that S&Ls have a wide range of inefficiency scores, with a mean score of 16 percent indicating that the average S&L could produce its output with only 84 percent of the inputs actually used; and (3) that operating inefficiency was not significantly related to form of ownership.

Ownership Structure, Charter Value, and Risk-Taking Behavior for Thrifts

This paper investigates the relationships among manager ownership, charter value, and thrift risk-taking for 1986 to 1995, a decade of significant regulatory change. We hypothesize that during periods of regulatory laxity and low charter values, manager-owned thrifts are likely to engage in unprofitable risk-taking. However, for periods of regulatory efficacy and high charter values, manager-owners are likely to engage in profitable risk-taking. In support of these premises, we find that manager-owned thrifts exhibit unprofitable risk-taking in the mid-1980s, years of regulatory laxity and low charter values, but demonstrate profitable risk-taking in the mid-1990s, a period of more stringent regulations and high charter values.

Firm efficiency and the regulatory closure of S&Ls: An empirical investigation

This paper uses a two-step methodology to examine the relationship between firm inefficiency and the regulatory closure of savings and loans (S&Ls). In the first step, using multiproduct, translog stochastic cost frontiers, the authors estimate inefficiency scores separately for mutual and stock S&Ls operating in the Southwest in 1988. They use the inefficiency scores in second step logit models to identify determinants of regulatory closure. For both mutual and stock S&Ls, the authors find a significant positive relationship between firm inefficiency and regulatory closure. They also find a greater probability of closure for S&Ls in economically depressed states. Copyright 1993 by MIT Press.

Director tenure and the compensation of bank CEOs

Purpose - The purpose of this paper is to examine how board tenure affects the compensation of CEOs using a sample of 93 publicly traded US banks. Design/methodology/approach - The paper proposes a CEO allegiance hypothesis whereby long-term relationships with executives and other directors will shift allegiance from shareholders to executives vs a more traditional expertise hypothesis that predicts superior monitoring of executives by directors with longer tenure. A generalized least squares regression methodology is used to examine the relationship between CEO compensation and outside director tenure. Findings - For the full sample, board tenure variables were found to be insignificant. However, when examining a subsample of firms with CEO tenure of greater than six years or more, the relationship between CEO pay and the median tenure of outside directors becomes positive, supporting a CEO allegiance hypothesis. Research limitations/implications - On a caveat, since this study relies on data for large bank holding companies over a short period of time, further research is needed to determine if the results carry over to a broader sample of firms and across time. Practical implications - The results suggest that the independence of outside directors may be compromised when they serve for longer tenure periods together with the same CEO; an important consideration for better corporate governance. Originality/value - The study provides a unique examination of outside director independence from the perspective of board tenure and the long-term relationships with executives and other directors that may result in allegiance shifts away from shareholders and towards managers.

Geographical Integration and the Retail CD-Pricing Decisions of Large Depository Institutions

This paper focuses on the six-month retail certificate of deposit (CD) rates of large depository institutions in six major cities during 1983-1988 to test the integration of their retail CD markets. Using Grangers (1986) concept of co-integration, we find a long-run equilibrium relationship between the city CD-rate offers and the six-month Treasury bill rate. After filtering out this relationship, a vector autoregressive model is employed with Granger (1969) causality tests to determine the significance of intercity rate dependencies. Our results indicate an increasing number of intercity relations over time, consistent with an emerging integrated market. Since our sample represents a subset of bank CDs for the largest firms operating in six of the nations largest cities, the results should not be generalized to other smaller bank markets, CD maturities, or bank products. The periods examined are also close together in time, which could affect the robustness of the results.

Let's talk: an analysis of the “vote vs. negotiated withdrawal” decision for social activist environmental health shareholder resolutions

Social and environmental shareholder activists engage in a form of corporate social governance by submitting proxy resolutions for a specific change in corporate behavior deemed to be harmful to society. Using a unique data-set for environmental health shareholder resolutions filed by shareholder activists at 70 different companies during 2006–2011, we examine the success rate of resolutions and characteristics affecting the “vote vs. negotiated withdrawal” decision. Supporting a self-interest hypothesis, resolutions targeting specific consumer/retail companies, with regard to chemicals in products or product safety issues, are more likely to be negotiated and withdrawn, while firms with entrenchment-related governance characteristics are more likely to be voted on. Examining wealth effects, consumer/retail companies with a resolution vote experience a −0.38% stock price reaction surrounding the annual meeting date, resulting in a significant economic average loss of −

S&L Performance Persistence, Moral Hazard and Market Discipline

453.5 million.

Commercial bank and thrift interdependence and local market competition for retail certificates of deposit

While prior research finds evidence of significant performance persistence in banking, the issue of the determinants of such persistence has rarely been examined. In light of a liberalized thrift takeover market, this study tests for persistence and then attempts to identify its determinants for U.S. thrifts operating during 1989 to 1994. A moral hazard hypothesis for losing persistence is examined, as well as the effectiveness of the takeover market in disciplining persistent losers. Results indicate significant performance persistence, with firms in the sample 16 times more likely to remain in an initial position as a winner, or loser, than to switch. Consistent with moral hazard, persistent losers exhibit low charter values and greater risk‐taking behavior, with the opposite relations for persistent winners. Finally, and perhaps most importantly, persistent losers generally had a significantly higher probability of subsequent takeover, indicating the effectiveness of the takeover market in disciplining poor performers.

Surplus Deferred Pension Compensation for Long-Term K-12 Employees: An Empirical Analysis for the Denver Public School Retirement System and Four State Plans

Because of prior data limitations, the interdependence between banks and thrifts in their rate-setting activities have never been empirically examined. These relationships are important in order to understand the structure of deposit markets and to evaluate the competitive effects of deregulation. This study applies vector autoregressive modeling techniques to analyze six-month retail CD rate data for large banks and thrifts in six major cities during 1983 through 1985. A structure of rate-setting behavior is observed that is consistent with oligopolistic markets where banks, as stronger institutions, dominate the price-setting decisions of thrifts.

Deferred compensation for career employees in public defined benefit pension plans: evidence from Colorado PERA

This study uses a unique data set of retiree characteristics and salary histories for administrators, teachers, and non-professional employees of the Denver Public School Retirement System (DPSRS) to analyze surplus deferred compensation for DPSRS and four state K-12 defined benefit pension plans. We find sizable levels of surplus deferred compensation for each plan, with significant differences across plans, job classes, and age groups. Across plans, differences in cost of living allowances impact the expected present value of retirement benefits more than benefit table differences when controlling for each respective factor. Somewhat surprisingly, the plans in our study with the largest present value of future benefits had lower employee contribution rates. Pension wealth for reduced benefits showed larger wealth accrual at younger ages than full, unreduced benefits, and younger cohorts starting work at an earlier age received significantly higher surplus deferred compensation.