Are courts effective monitors of corporate decisions? In a controversial landmark case, the Delaware Supreme Court held directors personally liable for breaching their fiduciary duties, signaling a sharp increase in Delaware’s scrutiny over corporate decisions. In our event study, low-growth Delaware firms outperformed matched non-Delaware firms by 1% in the three day event window. In contrast, high-growth Delaware firms under-performed by 1%. Contrary to previous literature, we conclude that court decisions can have large, significant and heterogeneous effects on firm value, and that rules insulating directors from court scrutiny benefit the fastest growing sectors of the economy.
{"title":"Good Monitoring, Bad Monitoring","authors":"Yaniv Grinstein, Stefano Rossi","doi":"10.2139/ssrn.1906326","DOIUrl":"https://doi.org/10.2139/ssrn.1906326","url":null,"abstract":"Are courts effective monitors of corporate decisions? In a controversial landmark case, the Delaware Supreme Court held directors personally liable for breaching their fiduciary duties, signaling a sharp increase in Delaware’s scrutiny over corporate decisions. In our event study, low-growth Delaware firms outperformed matched non-Delaware firms by 1% in the three day event window. In contrast, high-growth Delaware firms under-performed by 1%. Contrary to previous literature, we conclude that court decisions can have large, significant and heterogeneous effects on firm value, and that rules insulating directors from court scrutiny benefit the fastest growing sectors of the economy.","PeriodicalId":126614,"journal":{"name":"LSN: Experimental Studies (Topic)","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130097686","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper develops a simple two-country stock–flow-consistent model based on that of Godley and Lavoie. In order to motivate the use of stabilisation policies, persistent inflationary pressure and endogenous economic cycles are introduced into the model. Three scenarios are then simulated: a step decrease in real exports from country B, increased wage pressure in country B and an income tax cut in country A. In all cases, monetary and fiscal policies in isolation enjoy little success, but a combined monetary and fiscal approach to stabilisation proves highly effective. Moreover, the model suggests that the pursuit of autonomous inflation targeting in each country introduces excessive exchange rate volatility relative to an alternative rule in which one central bank takes a leading role in interest rate setting.
{"title":"Inflation Targeting Monetary and Fiscal Policies in a Two-Country Stock-Flow Consistent Model","authors":"Matthew Greenwood‐Nimmo","doi":"10.2139/ssrn.2104255","DOIUrl":"https://doi.org/10.2139/ssrn.2104255","url":null,"abstract":"This paper develops a simple two-country stock–flow-consistent model based on that of Godley and Lavoie. In order to motivate the use of stabilisation policies, persistent inflationary pressure and endogenous economic cycles are introduced into the model. Three scenarios are then simulated: a step decrease in real exports from country B, increased wage pressure in country B and an income tax cut in country A. In all cases, monetary and fiscal policies in isolation enjoy little success, but a combined monetary and fiscal approach to stabilisation proves highly effective. Moreover, the model suggests that the pursuit of autonomous inflation targeting in each country introduces excessive exchange rate volatility relative to an alternative rule in which one central bank takes a leading role in interest rate setting.","PeriodicalId":126614,"journal":{"name":"LSN: Experimental Studies (Topic)","volume":"6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114719381","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We consider a voluntary contributions game, in which players may punish others after contributions are made and observed. The productivity of contributions, as captured in the marginal-per-capita return, differs among individuals, so that there are two types: high and low productivity. Every two or eight periods, depending on the treatment, individuals vote on a punishment regime, in which certain individuals are permitted, but not required, to have punishment directed toward them. The punishment system can condition on type and contribution history. The results indicate that the most effective regime, in terms of contributions and earnings, is one that allows punishment of low contributors only, regardless of productivity. Nevertheless, only a minority of sessions converge to this system, indicating a tendency for the voting process to lead to suboptimal institutional choice.
{"title":"Voting on Punishment Systems within a Heterogeneous Group","authors":"C. Noussair, Fangfang Tan","doi":"10.2139/ssrn.1368662","DOIUrl":"https://doi.org/10.2139/ssrn.1368662","url":null,"abstract":"We consider a voluntary contributions game, in which players may punish others after contributions are made and observed. The productivity of contributions, as captured in the marginal-per-capita return, differs among individuals, so that there are two types: high and low productivity. Every two or eight periods, depending on the treatment, individuals vote on a punishment regime, in which certain individuals are permitted, but not required, to have punishment directed toward them. The punishment system can condition on type and contribution history. The results indicate that the most effective regime, in terms of contributions and earnings, is one that allows punishment of low contributors only, regardless of productivity. Nevertheless, only a minority of sessions converge to this system, indicating a tendency for the voting process to lead to suboptimal institutional choice.","PeriodicalId":126614,"journal":{"name":"LSN: Experimental Studies (Topic)","volume":"39 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131503220","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In a series of experimental studies, we asked people to assign appropriate civil and/or criminal liability to individuals who cause harm with various states of mind and kinds of knowledge. The studies are principally aimed at two puzzles: First, do people actually separate the various states of mind conceptually? How much knowledge, and what kind of knowledge, regarding something may go wrong (understanding risk) is sufficient to count as knowing that something will go wrong (having knowledge)? Second, to the extent that people distinguish among the states of mind that help to define normative behavior, how much do those distinctions contribute to people’s judgments of liability, both criminal and civil? Our studies show that people are able to make explicit distinctions about the states of mind of others that more or less correspond to legally-relevant categories. Yet, when asked to assign consequences, their moral judgments play a larger role than do their cognitive categorizations.
{"title":"When Does Knowledge Become Intent?: Perceiving the Minds of Wrongdoers","authors":"Pam Mueller, L. Solan, J. Darley","doi":"10.2139/ssrn.1884518","DOIUrl":"https://doi.org/10.2139/ssrn.1884518","url":null,"abstract":"In a series of experimental studies, we asked people to assign appropriate civil and/or criminal liability to individuals who cause harm with various states of mind and kinds of knowledge. The studies are principally aimed at two puzzles: First, do people actually separate the various states of mind conceptually? How much knowledge, and what kind of knowledge, regarding something may go wrong (understanding risk) is sufficient to count as knowing that something will go wrong (having knowledge)? Second, to the extent that people distinguish among the states of mind that help to define normative behavior, how much do those distinctions contribute to people’s judgments of liability, both criminal and civil? Our studies show that people are able to make explicit distinctions about the states of mind of others that more or less correspond to legally-relevant categories. Yet, when asked to assign consequences, their moral judgments play a larger role than do their cognitive categorizations.","PeriodicalId":126614,"journal":{"name":"LSN: Experimental Studies (Topic)","volume":"204 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126035196","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Prior studies have generally agreed that bond prices reflect both the event risk faced by the holders of a particular issuer’s debt securities and the degree of protection from event risk contained within the terms of the bond. Therefore, it has been found that bonds without event risk protection command a premium over comparable bonds with “change in control puts” or similar protective covenants. Although prior studies have reached this common conclusion, each has struggled with a common problem. The decision to include protective covenants is endogenous. Bonds facing the highest event risk are likely to be those for which event risk protection is most highly valued. Therefore a determination of the pricing effect of event risk protection must somehow control for the differing degree of event risk faced by the different bonds included in any given study’s sample. While various proxies for the likelihood of an event, a leveraged buyout or recapitalization, have been developed, they are by their nature imprecise. A recent event, a series of court decisions regarding the proposed leveraged buyout of Bell Canada, the largest LBO transaction announced in history, provides a natural experiment for evaluating the pricing effect of event risk protection in corporate bonds that avoids the endogeniety problem. We report the results of that experiment in this paper.
{"title":"The Price Effects of Event Risk Protection: The Results from a Natural Experiment","authors":"Karl S. Okamoto, David J. Pedersen, N. Pedersen","doi":"10.2139/ssrn.1641304","DOIUrl":"https://doi.org/10.2139/ssrn.1641304","url":null,"abstract":"Prior studies have generally agreed that bond prices reflect both the event risk faced by the holders of a particular issuer’s debt securities and the degree of protection from event risk contained within the terms of the bond. Therefore, it has been found that bonds without event risk protection command a premium over comparable bonds with “change in control puts” or similar protective covenants. Although prior studies have reached this common conclusion, each has struggled with a common problem. The decision to include protective covenants is endogenous. Bonds facing the highest event risk are likely to be those for which event risk protection is most highly valued. Therefore a determination of the pricing effect of event risk protection must somehow control for the differing degree of event risk faced by the different bonds included in any given study’s sample. While various proxies for the likelihood of an event, a leveraged buyout or recapitalization, have been developed, they are by their nature imprecise. A recent event, a series of court decisions regarding the proposed leveraged buyout of Bell Canada, the largest LBO transaction announced in history, provides a natural experiment for evaluating the pricing effect of event risk protection in corporate bonds that avoids the endogeniety problem. We report the results of that experiment in this paper.","PeriodicalId":126614,"journal":{"name":"LSN: Experimental Studies (Topic)","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-07-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121626632","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Trust is a concept that has attracted - significant attention in economic theory and research within the last two decades: it has been applied in a number of contexts and has been investigated both as an explanatory and as a dependent variable. In this paper, we explore the questions of what exactly is measured by the diverse survey-derived scales and experiments claiming to measure trust, and how these different measures are related. Using nationally representative data, we test a commonly used experimental measure of trust for robustness to a number of interferences, finding it to be mostly unsusceptible to stake size, the extent of strategy space, the use of the strategy method, and the characteristics of the experimenters. Inspired by criticism of the widespread trust question used in many surveys, we created a new, improved survey trust scale consisting of three short statements. We show that the dimension of this scale is distinct from trust in institutions and trust in known others. Our new scale is a valid and reliable measure of trust in strangers. The scale is valid in the sense that it correlates with trusting behaviour in the experiment. Furthermore, we demonstrate that the test-retest reliability of six weeks is high. The experimental measure of trust is, on the other hand, not significantly correlated with trust in institutions nor with trust in known others. We therefore conclude that the experimental measure of trust refers not to trust in a general sense, but specifically to trust in strangers.
{"title":"Measuring Trust: Experiments and Surveys in Contrast and Combination","authors":"Michael Naef, J. Schupp","doi":"10.2139/ssrn.1367375","DOIUrl":"https://doi.org/10.2139/ssrn.1367375","url":null,"abstract":"Trust is a concept that has attracted - significant attention in economic theory and research within the last two decades: it has been applied in a number of contexts and has been investigated both as an explanatory and as a dependent variable. In this paper, we explore the questions of what exactly is measured by the diverse survey-derived scales and experiments claiming to measure trust, and how these different measures are related. Using nationally representative data, we test a commonly used experimental measure of trust for robustness to a number of interferences, finding it to be mostly unsusceptible to stake size, the extent of strategy space, the use of the strategy method, and the characteristics of the experimenters. Inspired by criticism of the widespread trust question used in many surveys, we created a new, improved survey trust scale consisting of three short statements. We show that the dimension of this scale is distinct from trust in institutions and trust in known others. Our new scale is a valid and reliable measure of trust in strangers. The scale is valid in the sense that it correlates with trusting behaviour in the experiment. Furthermore, we demonstrate that the test-retest reliability of six weeks is high. The experimental measure of trust is, on the other hand, not significantly correlated with trust in institutions nor with trust in known others. We therefore conclude that the experimental measure of trust refers not to trust in a general sense, but specifically to trust in strangers.","PeriodicalId":126614,"journal":{"name":"LSN: Experimental Studies (Topic)","volume":"45 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134195546","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
For decades, personal bankruptcies increased in the U.S., either reflecting growing economic distress of families or a declining stigma associated with filing for bankruptcy. In a nod to the latter argument, the U.S. Congress passed the Bankruptcy Abuse Prevention and Consumer Prevention Act of 2005 (BAPCPA), after bankruptcies had grown to record high rates. The assumption was that with the new law many if not most bankruptcies would eventually disappear since they supposedly were the result of a “bankruptcy of convenience”. The U.S. bankruptcy rate fell indeed sharply after the law went into effect, but increased quickly again afterwards. By the end of 2007, the U.S. bankruptcy rate exceeded all levels recorded during the 1980s, and approached the levels prevalent during the early 1990s. But it remains unclear how much of these changes resulted from BAPCPA and what was attributable to other factors. In this Working Paper, the authors establish a benchmark level of the U.S. bankruptcy rates after 2005 that likely would have been observed if the law had not changed. They then compare the actual U.S. bankruptcy rate to the benchmark for 2007 to provide a sense of the effectiveness of BAPCPA.
{"title":"Desperate Vs. Deadbeat: Can We Quantify the Effect of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005?","authors":"C. Weller, B. Morzuch, Amanda M. Logan","doi":"10.2139/ssrn.1298632","DOIUrl":"https://doi.org/10.2139/ssrn.1298632","url":null,"abstract":"For decades, personal bankruptcies increased in the U.S., either reflecting growing economic distress of families or a declining stigma associated with filing for bankruptcy. In a nod to the latter argument, the U.S. Congress passed the Bankruptcy Abuse Prevention and Consumer Prevention Act of 2005 (BAPCPA), after bankruptcies had grown to record high rates. The assumption was that with the new law many if not most bankruptcies would eventually disappear since they supposedly were the result of a “bankruptcy of convenience”. The U.S. bankruptcy rate fell indeed sharply after the law went into effect, but increased quickly again afterwards. By the end of 2007, the U.S. bankruptcy rate exceeded all levels recorded during the 1980s, and approached the levels prevalent during the early 1990s. But it remains unclear how much of these changes resulted from BAPCPA and what was attributable to other factors. In this Working Paper, the authors establish a benchmark level of the U.S. bankruptcy rates after 2005 that likely would have been observed if the law had not changed. They then compare the actual U.S. bankruptcy rate to the benchmark for 2007 to provide a sense of the effectiveness of BAPCPA.","PeriodicalId":126614,"journal":{"name":"LSN: Experimental Studies (Topic)","volume":"205 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-10-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123260627","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Nabanita Datta Gupta, Anders U. Poulsen, M. Villeval
Male and female choices differ in many economic situations, e.g., on the labor market. This paper considers whether such differences are driven by different attitudes towards competition. In our experiment subjects choose between a tournament and a piece-rate pay scheme before performing a real task. Men choose the tournament significantly more often than women. Women are mainly influenced by their degree of risk aversion, but men are not. Men compete more against men than against women, but compete against women who are thought to compete. The behavior of men seems primarily to be influenced by social norms whose nature and origin we discuss.
{"title":"Male and Female Competitive Behavior: Experimental Evidence","authors":"Nabanita Datta Gupta, Anders U. Poulsen, M. Villeval","doi":"10.2139/ssrn.851227","DOIUrl":"https://doi.org/10.2139/ssrn.851227","url":null,"abstract":"Male and female choices differ in many economic situations, e.g., on the labor market. This paper considers whether such differences are driven by different attitudes towards competition. In our experiment subjects choose between a tournament and a piece-rate pay scheme before performing a real task. Men choose the tournament significantly more often than women. Women are mainly influenced by their degree of risk aversion, but men are not. Men compete more against men than against women, but compete against women who are thought to compete. The behavior of men seems primarily to be influenced by social norms whose nature and origin we discuss.","PeriodicalId":126614,"journal":{"name":"LSN: Experimental Studies (Topic)","volume":"33 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131618276","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
New York’s School Tax Relief Program, STAR, provides state-funded property tax relief for homeowners. Like a matching grant, STAR changes the price of public services, thereby altering the incentives of voters and school officials and leading to unintended consequences. Using data for New York State school districts before and after STAR was implemented, we find that STAR resulted in small increases in student performance along with significant decreases in the efficiency with which this performance is delivered and significant increases in school spending and property tax rates. These tax-rate increases magnify existing inequities in New York State’s education finance system.
{"title":"Unintended Consequences of Property Tax Relief: New York’s STAR Program","authors":"T. Eom, W. Duncombe, John M. Yinger","doi":"10.2139/ssrn.1814022","DOIUrl":"https://doi.org/10.2139/ssrn.1814022","url":null,"abstract":"New York’s School Tax Relief Program, STAR, provides state-funded property tax relief for homeowners. Like a matching grant, STAR changes the price of public services, thereby altering the incentives of voters and school officials and leading to unintended consequences. Using data for New York State school districts before and after STAR was implemented, we find that STAR resulted in small increases in student performance along with significant decreases in the efficiency with which this performance is delivered and significant increases in school spending and property tax rates. These tax-rate increases magnify existing inequities in New York State’s education finance system.","PeriodicalId":126614,"journal":{"name":"LSN: Experimental Studies (Topic)","volume":"45 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121498052","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Several analytical models explain post-earnings-announcement drift, momentum and mean-reversion by making assumptions about investor behavior. They posit that investors react more strongly as a series of similar earnings surprises continues. Related literature suggests that behavior should vary systematically with investor sophistication. This paper tests these claims by analyzing whether traders on the NYSE exhibit increasing reactions to a series of similar earnings surprises, and whether their behavior varies with trade size, a proxy for sophistication. Results show that smaller traders exhibit an increasing reaction, with significant increases between the first, second, and third surprise. The pattern is weaker for larger trade-size groups, disappearing for the largest. Controls for prior returns show that small traders generally act as contrarians and large traders as momentum traders, strengthening the results. Future drift is weaker for each subsequent surprise in a series, suggesting that increasing reactions are not attempts to capitalize on increasing returns.
{"title":"Small Trader Reactions to Consecutive Earnings Surprises: A Market Test of Behavioral Theory*","authors":"Devin M. Shanthikumar","doi":"10.2139/ssrn.449882","DOIUrl":"https://doi.org/10.2139/ssrn.449882","url":null,"abstract":"Several analytical models explain post-earnings-announcement drift, momentum and mean-reversion by making assumptions about investor behavior. They posit that investors react more strongly as a series of similar earnings surprises continues. Related literature suggests that behavior should vary systematically with investor sophistication. This paper tests these claims by analyzing whether traders on the NYSE exhibit increasing reactions to a series of similar earnings surprises, and whether their behavior varies with trade size, a proxy for sophistication. Results show that smaller traders exhibit an increasing reaction, with significant increases between the first, second, and third surprise. The pattern is weaker for larger trade-size groups, disappearing for the largest. Controls for prior returns show that small traders generally act as contrarians and large traders as momentum traders, strengthening the results. Future drift is weaker for each subsequent surprise in a series, suggesting that increasing reactions are not attempts to capitalize on increasing returns.","PeriodicalId":126614,"journal":{"name":"LSN: Experimental Studies (Topic)","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-01-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125593934","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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