Posts filed under 'Corporate Governance'
Events @CBS
| Peter Klein |
I’ve just arrived in Copenhagen, where I’m spending a month as a visiting professor at the SMG. Copenhagen Business School has become one of the most intellectually exciting places in Europe. This week alone the school is hosting the DRUID summer conference which features people like Anita McGahan, Sid Winter, Will Mitchell, Russ Coff, Mike Ryall, and many others, along with a workshop on corporate governance with keynotes by Mark Roe, Randall Morck, Annette Poulsen, and Florencio Lopez-de-Silanes Molina. Of course these are only appetizers for the next week’s main course, the PhD seminar on The Theory of the Firm and Its Applications in Management Research conducted by Professors F. and K. Truly an embarrassment of riches!
1 comment 17 June 2009
Peter L. Bernstein (1919-2009)
| Peter Klein |
I was saddened to learn (from Kenneth Anderson) that Peter L. Bernstein, author of Against the Gods: The Remarkable Story of Risk and other popular works, died June 5. Bernstein was a terrific writer and a clear and provocative thinker with a gift for making difficult concepts accessible. I was greatly influenced by an earlier book, Capital Ideas: The Improbable Origins of Modern Wall Street, which I came across in graduate school while searching for a dissertation topic. Bertstein’s characterization of the brokerage industry in the 1960s and early 1970s, before the deregulation of brokerage fees — an Old Boys Club, lacking competition and innovation — inspired me to examine the role of corporate internal capital markets in replicating the resource-allocation function normally performed by external capital markets, and how the growth and development of financial markets following liberalization contributed to the end of the conglomerate period.
Here are obituaries in the WSJ and NYT and here is Bernstein’s wiki.
1 comment 15 June 2009
The Ethics of Bankruptcy
| Peter Klein |
I like this 2003 HBR piece from Joe Bower and Stuart Gilson on bankruptcy. Substitute “Chrysler” and “foreign auto makers” for “WorldCom” and “competing telecom firms” and you’ll get the idea:
WorldCom’s bankruptcy, however, highlights an important, potentially very large social cost of the U.S. bankruptcy system. Competing telecom firms, which have played by the accounting rules and have used more prudent financing, now find themselves — once again — at a competitive disadvantage relative to the company. Unlike WorldCom, these firms had to stay current on their debt and service their lease obligations. They did not get to write down their assets and debt, nor have they been able to reduce taxes by claiming that their profits never existed.
Is this fair? Do the benefits of the system outweigh its costs? The system works well to protect assets and employees, to be sure. But are WorldCom’s assets and employees really the ones that should be protected? What about those of more efficient firms? In capital-intensive industries like petrochemicals, steel, telecoms, and airlines, doesn’t bankruptcy law make it harder for efficient companies to drive inefficient assets out of business? In the majority of bankruptcy cases in these industries, the top managers are gone, but old capacity returns to the market with an improved balance sheet. This can easily prolong a period of industrywide overcapacity as well as unfairly disadvantage competitors.
Their focus is bankruptcy resulting from corporate fraud, but the question applies equally well, in my view, to bankruptcy resulting from managerial incompetence.
BTW, for a primer on bankruptcy, Michelle White’s 1989 Journal of Economic Perspectives paper, “The Corporate Bankruptcy Decision,” is a good place to start.
Add comment 1 May 2009
Knights, Raiders, and Targets
| Peter Klein |
When doing my dissertation research long, long ago I was influenced by an edited volume called Knights, Raiders, and Targets: The Impact of the Hostile Takeover (Oxford University Press, 1988). It collected the proceedings of a 1985 Columbia Law School conference that must have been terrific. The authors include Robert Shiller, John Coffee, Mel Eisenberg, Oliver Williamson, David Ravenscraft and F. M. Scherer (previewing results of their important 1987 book), Richard Roll, Michael Bradley, and Gregg Jarrell, among others, with several contributions appearing in a comments-and-replies format. I just learned that one of the editors, Louis Lowenstein of Columbia Law, passed away this month. I’m not familiar with his best-known book, What’s Wrong With Wall Street: Short-Term Gain and the Individual Shareholder (1988). Apparently it proposes a tax on short-term trading profits to reward buy-and-hold investors, which doesn’t sound great to me.
1 comment 28 April 2009
SecondMarket
| Peter Klein |
Props to Molly Burress for pointing me to this article in today’s NYT on SecondMarket, a website that acts as a market-maker for illiquid assets. According to the Times SecondMarket is developing secondary markets for restricted public equities, bankruptcy claims, mortgage-backed securities, collateralized debt obligations, and other non-marketed financial claims. As the Times points out, the weak IPO market of the last few years has made VCs reluctant to invest in early-stage ventures; by giving VCs an additional exit option, SecondMarket may increase the flow of venture funding.
Not addressed in the article: If SecondMarket succeeds, and grows, and begins to impose disclosure requirements on the companies whose (now-liquid) assets are traded, will private equity lose its purported advantrages over public equity, in the Jensen (1989) sense?
Add comment 23 April 2009
GM vs. TCE: Another “Block Upon Block”?
| Mike Sykuta |
Ronald Coase has spent the past two decades or more lamenting the lack of progress in economic theory. He bemoans the fact that economics, unlike its physical-science counterparts, fails to dispose of (or pursue new versions of) theories when facts show that prevailing theories are inaccurate or incomplete.
Among his many arguments, Coase has pointed to Williamson’s Transaction Cost Economics (TCE) as one that seems impervious to the facts. Part of Coase’s discontent with the TCE story rests on his observation that many firms sustain relationships characterized by high degrees of asset specificity using contractual means. While Ben Klein and others pointed to General Motors-Fisher Body as evidence to support the TCE story, Coase pointed to relations with auto frame manufacturer A.O. Smith at the same time that were not subsumed by vertical integration. This eventually led to the infamous GM-Fisher Body debate that seems for want of a real conclusion (see some of Peter’s previous comments on this here, here and here).
Well once again, General Motors seemingly plays the foil against TCE. Several weeks ago, GM announced plans to purchase Delphi Group’s global steering manufacturing operations. Delphi operated the steering unit solely for GM’s use. Delphi, in bankruptcy since October 2005, has been able to use GM’s dependence on Delphi’s operations to secure roughly $450 million in liquidity capital from GM to maintain its operations. Sounds like the classic hold-up problem, doesn’t it? But wait! (more…)
12 comments 17 April 2009
Value Creation in Middle-Market Buyouts
| Peter Klein |
Here’s a paper by John Chapman and me, “Value Creation in Middle-Market Buyouts: A Transaction-Level Analysis,” forthcoming in Douglas J. Cumming, ed., Companion to Private Equity (New York: Wiley, 2009). Get your copy today, while they’re hot. Abstract:
Is private equity an effective governance structure, or simply a means of transferring wealth from “Main Street” to “Wall Street”? How do buyouts affect target-company organization and strategy? How do deal characteristics such as size, industry, transaction complexity, buyer characteristics, holding period, and the like affect the performance of private-equity transactions? Are revenue improvements driven primarily by changes in employment and capital expenditures, or by changes in organization and strategy? Despite a healthy literature on buyouts, little is known about the details of private equity transactions, as most studies rely on publicly available data or confidential data from a single buyout firm. This paper uses a unique sample of 288 exited transactions over a 20-year period across 19 industries from 13 buyout firm firms, based on confidential data from detailed interviews with the general partners of several leading private-equity partnerships. While prior studies have focused on whole-company, going-private buyouts, our sample includes transactions with minority stakes, syndicate deals, and consolidating roll-up or add-on strategies, and we have detailed information on internal rates of return, leverage, equity stakes, and other deal characteristics. We find that the pursuit of ancillary consolidating acquisitions is the biggest driver of post-buyout revenue and profit growth, that solo deals and deals with controlling stakes outperform syndicated or “club” deals, that rates of return have declined over time as buyout markets have become more competitive, that mitigation of agency costs is critical for deal success, and more generally, that private equity can improve the performance even of sound businesses by providing access to resources, industry-specific expertise, capital for recombining assets (most often, consolidation in a fragmented industry), or recapitalization and ownership transition. Finally, our findings suggest the potential for further research of private equity at the transaction level.
Add comment 3 April 2009
Literature Review Bleg
| Dick Langlois |
One of my graduate students has been working on an idea to formalize Henry Hansmann’s approach to the ownership of enterprise. Hansmann thinks about the ownership margin — which set of “patrons” in the nexus of contracts should own the residual rights of control and of income? The idea of this work would be to think simultaneously about the Coasean margin, the boundaries of the firm, which should be determined endogenously along with ownership. That means that firms would have different levels of vertical integration depending on which patrons own them. One interesting question: what happens to the level of vertical integration of banks if the government comes to own them?
We need to locate this idea in the literature and to find out if anyone else has done anything along these lines. So, if you know of anything remotely related, please send it along.
Add comment 26 March 2009
Thoughts on AIG
| Peter Klein |
Nothing has annoyed me more in the last 24 hours than the constant parade of angry, self-righteous, and ill-informed denunciations of AIG coming from Capitol Hill and the mainstream media. No one, of course, likes the thought of a failing, taxpayer-supported firm paying large bonuses to executives. But let’s talk some common sense here.
- The main lesson is that AIG should never, ever have been bailed out with taxpayer dollars. I said that at the beginning, and I stand by it even more today. AIG should have declared bankruptcy. Under bankruptcy there are well-established, orderly procedures for winding down a firm, distributing the remaining assets among the various legal claimants, and so on. Injecting taxpayer money without any serious thought about the implications of government subsidy and/or ownership for management and governance is just plain dumb. Naturally, that’s what Congress and the last President — people who know exactly zilch about what companies do and how they are run — did.
- Performance-based pay is a complicated subject. There are dozens, if not hundreds, of theoretical and empirical studies on the effects of performance-based pay on company performance, the benefits and costs of various compensation formulas, and the like. As Jensen and Murphy wrote back in 1990, “It’s Not How Much You Pay, But How.” Of course, the people screaming the loudest right now haven’t a clue about any of this. (more…)
10 comments 19 March 2009
Accounting Rules and Spontaneous Order
| Peter Klein |
David Albrecht thinks the US should not replace its accounting rules (GAAP) with the new, international standard (IFRS).
A language evolves to fit its culture. Language is not static. Moreover, there is no one best way for a language to be. . . .
If Americans wish to speak to a person from Peking, they can get their communication translated. The translation comes at a cost. The benefit from avoiding this cost by switching [to Chinese] would be much less than the huge opportunity costs of educating everyone in the U.S. to speak another language. If we continued using English, the translation to Chinese would (and is) a trivial expense, and a minor inconvenience.
Similarly, there is no good reason for anyone to have the U.S. discontinue using its accounting language (GAAP) and switch over to IFRS. Having multiple accounting languages in the world is a minor inconvenience and translation expenses are, in the grand scheme of things, trivial. Moreover, GAAP seems to fit our culture, economy and system of financial markets. . . .
Who would benefit if the U.S. switched to IFRS? Certainly not investors, for the same reason that they would not benefit if the country moved immediately to Chinese. The beneficiaries would be the accounting firms that would teach us the new IFRS, and company executives. (more…)
4 comments 15 February 2009
Speaking of Executive Compensation. . . .
| Peter Klein |
Chris Manion has a dream:
Obama Cuts Salaries for Presidents of Universities that Receive Federal Money
$100,000 annual cap enrages literati, “Violates academic freedom,” one president declares, from his limousine’s satellite phone.
Obama Limits Baseball Salaries to $100,000 per Player per Year
Administration points to baseball’s antitrust exemption as authority; “This could force our players to gamble on the side and maybe throw the world series even” says players union president.
Obama Limits Salaries of Former Government Employees
$100,000 a year ceiling enrages lobbyists, retired generals, and Trent Lott.
Obama Caps Federal Retirement Pensions
“These benefits should be no higher than those of the private sector taxpayers who pay the taxes to support them,” President says. Government Employee Union president threatens a general strike, scratches his head for a moment, and then retracts statement “pending further discussions.”
And then I woke up.
In my dream the President announces a cap on compensation for TV and movie stars, recording artists, writers, Hollywood directors and producers, celebrity speakers, and investors. “In this time of economic hardship, for Tom Cruise to earn millions for Valkyrie, even though Lions for Lambs was a total flop, for President Clinton to pick up $500,000 for recycling the same boring speech, and for George Soros to rack up interest and dividends even though he completely missed calling the financial crisis, is the height of irresponsibility. It is shameful. And I will not tolerate it as President.”
Add comment 6 February 2009
Business 101
| Peter Klein |
In announcing his caps on executive compensation this morning the President noted his outrage that Wall Street executives have “paid themselves customary lavish bonuses.” Apparently he is unaware that executive pay in large companies is set by a compensation committee, and typically by a formula determined well before performance results are realized. I guess he thinks executives just decide how much to pay themselves, based on whatever they feel like. He’s also upset about “executives being rewarded for failure,” suggesting he doesn’t know the difference between absolute and relative performance evaluation. Don’t they teach Business Organizations at Harvard Law?
13 comments 4 February 2009
The Recipe for Recovery Is Revealed
| Mike Sykuta |
The Obama administration has apparently revealed its recipe for economic recovery. Based on the rhetoric and policy proposals fronted thus far, the recipe appears as follows:
- Do everything possible to discourage potential high-value executives from working in troubled industries by capping executive pay in struggling industries.
- Eliminate high-powered market-based incentives for mid-level employees to perform their jobs well.
- Encourage distressed companies to renege on long-term contracts that populist politicians find offensive (or consider easy to target so as to appear they are being responsible with taxpayers’ money).
- Dole out a trillion dollars of taxpayer funds to pet projects and interest groups in the name of “economic stimulus” (enabled by the perception of “responsibility” created by their railing against the targets of #1-3).
- Ignore the economic consequences of the incentives created (or destroyed) in #1-3 as well as the fact that someone at some point will have to pay that trillion dollar bill.
- Half-bake under the heat of political pressure and serve to the masses who are starved for quick-fix solutions that only impose costs on “that other guy” or “the rich fat-cats of corporate America.”
I don’t know about you, but I think it will be interesting to see how quickly the soufflé crashes . . . though I’m not looking forward to it being force-fed.
20 comments 4 February 2009
Attacking Incentive Pay is the “Height of Irresponsibility”
| Peter Klein |
Imagine you’re a salesperson at a company. In order to create an incentive for you to bust your tail, the company negotiates with you a leveraged compensation plan under which you receive a relatively small base salary plus fairly generous commissions on the sales you close. Suppose you do a bang up job one year, but the company as a whole suffers a loss because of some poor decisions beyond your control (or because of developments in the macroeconomy, such as the bursting of an asset bubble facilitated by government-sponsored entities). Now imagine that the government perceives your company to be strategically important and therefore decides to subsidize it by, say, buying its preferred stock or extending it a loan. Would it be “the height of irresponsibility” for your employer to honor your legitimate compensation expectations and pay you the wages that you effectively earned under your implicit deal with the firm? And what would happen if your employer didn’t pay you what you legitimately expected? Wouldn’t you and the other successful salespeople at your company immediately bolt, leaving the company with a much less effective sales force?
I have little to add to Thom’s excellent post on Obama’s populist attack on bonuses except to note that the compensation system is just one element of a firm’s organizational architecture (along with the allocation of decision rights, systems of performance evaluation, and so on). The firm, as Holmström and Milgrom put it, is an incentive system, and the elements of this system interact in complex and nuanced ways. The idea that regulators can simply march in and dictate changes to one element or another, based on popular prejudice, without affecting the performance of the system, is typical of the hubris of the intellectual.
12 comments 2 February 2009
Spulber’s Separation Theory of the Firm
| Peter Klein |
Dan Spulber’s new paper, “Discovering the Role of the Firm: The Separation Criterion and Corporate Law,” defines the firm “as a transaction institution [in which] the consumption objectives of the institution’s owners can be separated from the objectives of the institution itself.”
The separation criterion provides a bright line distinction between firms and other types of transaction institutions. Firms under this criterion include profit-maximizing sole proprietorships, corporations, and limited-liability partnerships. Institutions that are not classified as firms include contracts, clubs, workers’ cooperatives, buyers’ cooperatives, merchants associations, basic partnerships, government enterprises, and government sponsored enterprises. The separation theory of the firm yields insights into corporate law that extend and complement the standard contractarian approach. The separation theory of the firm places emphasis on shareholder property rights and corporate governance.
The separation approach, Spulber argues, suggests that the corporate governance literature may pay too much attention to agency costs while downplaying the benefits of delegation. The paper builds on Spulber’s earlier work on intermediation and develops themes in his forthcoming book on the firm. Worth a look.
Add comment 16 December 2008
Government and the Corporation
| Peter Klein |
What is the net effect of government intervention on firm size, scope, complexity, and ownership? Roderick Long thinks government intervention makes firms larger and more hierarchical than they would otherwise be, and that a pure market economy would be dominated by small firms like worker-owned cooperatives. I think the net effect of government intervention on firm characteristics is ambiguous, because there are so many interventions affecting different types of firms. Here’s some back-and-forth between Roderick and me: his original essay on Cato Unbound, my comment on Mises.org, his reply, and my rejoinder.
Update: See also Caplan.
1 comment 1 December 2008
Pay For Performance, Robert Rubin Edition
| Peter Klein |
Remember, it’s not how much you pay, but how. Today’s WSJ profile of Robert Rubin provides some interesting numbers. Citigroup losses over the last year: $20 billion. US government bailout money going to Citigroup in the last month: $45 billion. Rubin’s compensation since becoming senior counselor and a director at Citigroup in 1999: $115 million. Naturally, Rubin says Citi’s near bankruptcy has nothing to do with his leadership. Critics say he encouraged the firm to increase its risk taking in 2004 and 2005. Ah well, another former Golden Boy brought down to earth. Thank goodness something positive is coming out of this mess.
Consider this today’s friendly reminder that corporate welfare is a bipartisan scam.
Update: See also Larry Ribstein.
3 comments 29 November 2008
What Do Boards Do and How Do They Do It?
| Peter Klein |
A new survey paper on Boards of Directors by Ben Hermalin and Mike Weisbach, updating their 2003 paper.
This paper is a survey of the literature on boards of directors, with an emphasis on research done subsequent to the Hermalin and Weisbach (2003) survey. The two questions most asked about boards are what determines their makeup and what determines their actions? These questions are fundamentally intertwined, which complicates the study of boards due to the joint endogeneity of makeup and actions. A focus of this survey is on how the literature, theoretical as well as empirically, deals – or on occasions fails to deal – with this complication. We suggest that many studies of boards can best be interpreted as joint statements about both the director-selection process and the effect of board composition on board actions and firm performance.
Don’t let James Walsh see this!
Add comment 24 November 2008
Utrecht Conference on Firm Governance
| Peter Klein |
Utrecht University is sponsoring a conference on “The Governance of the Modern Firm,” 11-13 December 2008, featuring contributions from Paul Davies, Roberta Romano, Bill Lazonick, and many others. (Via Geoff Hodgson.)
2 comments 18 November 2008
Creative Capitalism
| Peter Klein |
The book is coming out in a few weeks, and the blog is back in business. I didn’t follow all the previous discussion but what I read was of high quality and reflected diverse, and interesting, perspectives.
1 comment 16 November 2008
Interviews with Alchian, Coase, Kirzner, Manne
| Peter Klein |
The Liberty Fund has put online several interviews from its Intellectual Portrait Series. Of particular interest to O&M readers:
- Armen Alchian, interviewed by Dan Benjamin
- Ronald Coase, interviewed by Richard Epstein
- Israel Kirzner, interviewed by Tibor Machan
- Henry Manne, interviewed by Fred McChesney
Update (Nov. 2): Manne link fixed.
Add comment 1 November 2008
New NBER Working Papers
| Peter Klein |
Three new NBER papers likely to interest the O&M crowd. (Aggressive Googlers can probably find ungated versions.)
Railroads and the Rise of the Factory: Evidence for the United States, 1850-70 by Jeremy Atack, Michael R. Haines, and Robert A. Margo
Over the course of the nineteenth century manufacturing in the United States shifted from artisan shop to factory production. At the same time United States experienced a transportation revolution, a key component of which was the building of extensive railroad network. Using a newly created data set of manufacturing establishments linked to county level data on rail access from 1850-70, we ask whether the coming of the railroad increased establishment size in manufacturing. Difference-in-difference and instrument variable estimates suggest that the railroad had a positive effect on factory status. In other words, Adam Smith was right – the division of labor in nineteenth century American manufacturing was limited by the extent of the market.
The Limited Partnership in New York, 1822-1853: Partnerships Without Kinship by Eric Hilt and Katharine O’Banion
In 1822, New York became the first common-law state to authorize the formation of limited partnerships, and over the ensuing decades, many other states followed. Most prior research has suggested that these statutes were utilized only rarely, but little is known about their effects. Using newly collected data, this paper analyzes the use of the limited partnership in nineteenth-century New York City. We find that the limited partnership form was adopted by a surprising number of firms, and that limited partnerships had more capital, failed at lower rates, and were less likely to be formed on the basis of kinship ties, compared to ordinary partnerships. The latter differences were not simply due to selection: even though the merchants who invested in limited partnerships were a wealthy and successful elite, their own ordinary partnerships were quite different from their limited partnerships. The results suggest that the limited partnership facilitated investments outside kinship networks, and into the hands of talented young merchants.
Inside the Black of Box of Ability Peer Effects: Evidence from Variation in Low Achievers in the Classroom by Victor Lavy, Daniele Paserman, and Analia Schlosser
In this paper, we estimate the extent of ability peer effects in the classroom and explore the underlying mechanisms through which these peer effects operate. We identify as low ability students those who are enrolled at least one year behind their birth cohort (repeaters). We show that there are marked differences between the academic performance and behavior of repeaters and regular students. The status of repeaters is mostly determined by first grade; therefore, it is unlikely to have been affected by their classroom peers, and our estimates will not suffer from the reflection problem. Using within school variation in the proportion of these low ability students across cohorts of middle and high school students in Israel, we find that the proportion of low achieving peers has a negative effect on the performance of regular students, especially those located at the lower end of the ability distribution. An exploration of the underlying mechanisms of these peer effects shows that, relative to regular students, repeaters report that teachers are better in the individual treatment of students and in the instilment of capacity for individual study. However, a higher proportion of these low achieving students results in a deterioration of teachers’ pedagogical practices, has detrimental effects on the quality of inter-student relationships and the relationships between teachers and students, and increases the level of violence and classroom disruptions.
Add comment 27 October 2008
The Case Against Corporate Social Responsibility
| Dick Langlois |
Another sign of the Apocalypse: Robert Reich channels Milton Friedman.
9 comments 21 October 2008
The Financial Crisis
| Peter Klein |
A regular reader asks why we haven’t written much on the US financial crisis. What, he asks, do organizational economics, strategic management, Austrian economics, entrepreneurship theory, and the new institutional economics say about the events of recent weeks?
I can’t speak for Nicolai, Dick, and Lasse, but I personally have avoided talking about it because, well, I’m too depressed — not so much about the crisis itself, which I view as a necessary corrective to two decades of potentially ruinous malinvestment, but about the political reaction to it. I agree with Larry White that the general level of discourse not just among laypeople but also among the political and financial elites, top journalists, and academics, has been shockingly vapid and vacuous, even by the usual standards. Listening to government officials, pundits, and analysts analyzing the crisis is like listening to my son’s first-grade class discussing the finer points of postmodern French literature. It was too much deregulation! (Huh?) The free market broke down yet again, just like in the 1930s! Market failure! Thank goodness the government is “stepping in”! Excuse me while I blow my groceries.
My view, in brief, is that the current crisis is the predictable result of a massive credit bubble that began under Greenspan in the 1990s and spilled over into the housing market, following the general outlines of the boom-bust cycle described by the Austrians, along with moral hazard encouraged by the financial “safety net” and the implicit (and, increasingly explicit) guarantees of the “too-big-to-fail” mentality. Of course, the US government’s reaction — spending taxpayer money like candy to bail out favored groups and institutions — can only exacerbate the problem. You can do your own Googling like this or this to find informed commentary. I have little to add but will highlight a few favorite comments: (more…)
5 comments 17 September 2008
Call for Papers: International Entrepreneurship
| Peter Klein |
The new Strategic Entrepreneurship Journal is rapidly becoming one of my favorite reads. (And not just because I’m the SEJ’s #1 author — it’s true, when my colleagues and I submitted this paper, we were assigned manuscript number SEJ-0001.) Here’s a call for papers for a special issue on international entrepreneurship edited by Douglas Cumming, Don Siegel, and Mike Wright. The call lists several potential research questions::
- How do government policies impact incentives to form strategic alliances among entrepreneurial firms in domestic versus foreign settings?
- What is the role of laws and public policy in stimulating transnational and returning entrepreneurs?
- What is the role of social networks in international entrepreneurship?
- What factors lead to the success of immigrant entrepreneurs in different countries?
- What is the interaction between public policy and foreign investment in entrepreneurial ventures?
- What explains international differences in governmental policies regarding intellectual property, entrepreneurship, and entrepreneurial finance?
- How does international entrepreneurship affect firm performance?
- How important is product and geographic focus for entrepreneurial success within different public policy settings?
- What are the implications of corporate entrepreneurship for multinational companies?
- How do corporate governance regulations impact international entrepreneurship?
- How do venture capitalists and private equity firms make decisions in an international context, including the decision to make cross-border investments and how to enter international markets?
- What is the role of academic entrepreneurship in various nations? Is their convergence or divergence in policies to stimulate academic entrepreneurship?
- How do universities stimulate international technology transfer and commercialization?
- What is the relative importance of patenting, licensing, and property-based institutions, such as science parks and incubators in stimulating entrepreneurship in various nations?
Submissions are due 31 December. Accepted papers will be presented at a conference at York University in April.
1 comment 9 September 2008
Tullock on the Corporation
| Peter Klein |
Gordon Tullock is retiring this year from George Mason Law School. In the coming weeks you’ll probably be reading a lot of Tullock tributes and Tullock anecdotes (for example, about his famous put-downs). I don’t have much to add on the personal side, but I thought I’d share a remark or two about one of my favorite, and little-known, Tullock articles, “The New Theory of Corporations,” in Erich Streissler, ed., Roads to Freedom: Essays in Honor of Friedrich A. von Hayek (Routledge and Kegan Paul, 1969).
Tullock offers a number of insights into the corporate form and, in particular, the Berle-Means problem, that are well ahead of their time. As Tullock notes in the essay, he draws heavily here on Henry Manne’s work (and, he tells us, many conversations with Manne about these issues). In 1969 the consensus view was that corporations were almost exclusively controlled by salaried managers, running firms in their own interests and largely ignoring the wishes of shareholders. However, Tullock notes:
The theory of management control of corporations, of course, is subject to one very obvious difficulty. It offers no explanation of how managements are changed, and changes of management are an everyday occurrence as any reader of the Wall Street Journal can appreciate. It is true that presidents of large corporations frequently stay in office rather longer than the president of the United States, but they don’t stay in office as long as congressmen and senators, and we would hardly argue that the long tenure of congressmen and senators indicates that we do not have democracy in the United States. Thus, the current orthodoxy that the management actually runs the corporation cannot explain how the management got there or how the everyday occurrence of a change in management occurs. For some reason, this does not seem to disturb the partisans of the . . . Berle and Means theory. (more…)
4 comments 27 August 2008
São Paulo Workshop on Institutions and Organizations
| Peter Klein |
See below for information on the Third Research Workshop on Institutions and Organizations, 13-14 October 2008 at Fundação Getúlio Vargas in Brazil. Session topics include “Organizations, law and corruption,” “Institutions and development,” “Institutions and environment,” “Psychological issues and organization strategies,” and “Industrial and competition policy.”
I participated in last year’s conference and enjoyed it tremendously. There is a growing network of Brazilian researchers working on various topics in the New Institutional Economics. It is a good group to be involved with. (more…)
1 comment 28 July 2008
Technology and Firm Size and Organization (Redux)
| Dick Langlois |
Peter blogged a while ago about an article by Giovanni Dosi, Alfonso Gambardella, Marco Grazzi, and Luigi Orsenigo in the bepress online journal Capitalism and Society. Both this article and the accompanying discussion by Bill Lazonick take aim at my 2003 article “The Vanishing Hand.” I have now crafted a response, which I propose to submit to the journal as a letter. But readers of O&M can read it right away here.
I should also mention that the same issue of Capitalism and Society has an interesting article on the family firm by Princeton historian Harold James, with a wonderful comment by Randall Morck. I met Morck this past November at a conference in Kyoto, and was extremely impressed.
1 comment 19 July 2008
The Puzzle of the Publicly Held Private-Equity Firm
| Peter Klein |
Like many observers, I was puzzled by last year’s IPO of the Blackstone Group, one of the nation’s largest private-equity firms. After all, the ability of PE firms to restructure and improve poorly performing companies owes a lot to their isolation from the day-to-day pressures of satisfying public investors. PE firms already face potential agency conflicts between their general partners and the managers of their portfolio companies, and between their general and limited partners; why add agency problems between the partners and public shareholders? Has the credit squeeze raised the cost of debt finance that much?
Today’s WSJ reports that KKR, which considered going public last year but pulled out, is again pondering an IPO:
The storied corporate-buyout firm has quietly and aggressively hired a battery of executives in recent months, creating an organization chart that looks remarkably similar to that of a public company. It has brought on a general counsel, a public-affairs chief, a chief compliance officer, a chief technology officer, a chief talent officer and a chief human-resources officer. . . .
[P]eople close to KKR acknowledge that it is still keen on becoming a public company and a raft of recent shifts, including the hiring spree, speak to a broader change at the firm and how it views its business.
Perhaps the publicly held PE firm is best described as a new hybrid form, an organization that combines the governance advantages of private equity with the lower capital costs of the publicly traded corporation. Or does it combine the worst features of both?
Add comment 3 July 2008
Award-Winning CEOs
| Peter Klein |
They make more money, sit on more boards, write more books, and have lower golf handicaps than CEOs of similarly performing firms who haven’t won awards (e.g. from Business Week). However, according to a new paper by Ulrike Malmendier Geoffrey Tate, their firms perform poorly after they win awards, compared to a matched set of firms headed by rank-and-file CEOs.
Compensation, status, and press coverage of managers in the U.S. follow a highly skewed distribution: a small number of “superstars” enjoy the bulk of the rewards. We evaluate the impact of CEOs achieving superstar status on the performance of their firms, using prestigious business awards to measure shocks to CEO status. We find that award-winning CEOs subsequently underperform, both relative to their prior performance and relative to a matched sample of non-winning CEOs. At the same time, they extract more compensation following the award, both in absolute amounts and relative to other top executives in their firms. They also spend more time on public and private activities outside their companies, such as assuming board seats or writing books. The incidence of earnings management increases after winning awards. The effects are strongest in firms with weak governance, even though the frequency of obtaining superstar status is independent of corporate governance. Our results suggest that the ex-post consequences of media-induced superstar status for shareholders are negative.
The pointer is from Justin Lahart, who blogs for the WSJ.
1 comment 3 July 2008
