Growth vs. margins: destabilizing consequences of giving the stock market what it wants

We develop a multi-tasking model in which a firm can devote its efforts either to increasing sales growth, or to improving per-unit profit margins by, e.g., cutting costs. If the firm's manager is concerned with the current stock price, she will tend to favor the growth strategy at those times when the stock market is paying more attention to performance on the growth dimension. Conversely, it can be rational for the stock market to weight observed growth measures more heavily when it is known that the firm is following a growth strategy. This two-way feedback between firms' business strategies and the market's pricing rule can lead to purely intrinsic fluctuations in sales and output, creating excess volatility in these real variables even in the absence of any external source of shocks

CEO turnover in a competitive assignment framework

There is considerable and widespread concern about whether CEOs are appropriately punished for poor performance. The empirical literature on CEO turnover documents that CEOs are indeed more likely to be forced out if their performance is poor relative to the industry average. However, CEOs are also more likely to be replaced if the industry is doing badly. We show that these empirical patterns are natural and efficient outcomes of a competitive assignment model in which CEOs and firms form matches based on multiple characteristics, and where industry conditions affect the outside options of both managers and firms. Our model also has several new predictions about the type of replacement manager, and their pay and performance. We construct a dataset which describes all turnover events during the period 1992-2006 and show that these predictions are also born out empirically.Executive Turnover; Matching Models; Competitive Assignment; CEO Labor Market

Growth vs. Margins: Destabilizing Consequences of Giving the Stock Market What it Wants

We develop a multi-tasking model in which a firm can devote its efforts either to increasing sales growth, or to improving per-unit profit margins by, e.g., cutting costs. If the firm's manager is concerned with the current stock price, she will tend to favor the growth strategy at those times when the stock market is paying more attention to performance on the growth dimension. Conversely, it can be rational for the stock market to weight observed growth measures more heavily when it is known that the firm is following a growth strategy. This two-way feedback between firms' business strategies and the market's pricing rule can lead to purely intrinsic fluctuations in sales and output, creating excess volatility in these real variables even in the absence of any external source of shocks.

Engineering a venture capital market: lessons from the American experience

The venture capital market and firms whose creation and early stages were financed by venture capital are among the crown jewels of the American economy. Beyond representing an important engine of macroeconomic growth and job creation, these firms have been a major force in commercializing cutting edge science, whether through their impact on existing industries as with the radical changes in pharmaceuticals catalyzed by venture-backed firms commercialization of biotechnology, or by the their role in developing entirely new industries as with the emergence of the internet and world wide web. The venture capital market thus provides a unique link between finance and innovation, providing start-up and early stage firms - organizational forms particularly well suited to innovation - with capital market access that is tailored to the special task of financing these high risk, high return activities

“Corporate restructuring issues under the holding company structure – The NTT Case in Japan”

ABSTRACT This research paper focused on the corporate restructuring of Nippon Telegraph Telecommunication (NTT Group) under the pure holding company structure in 1999 and its implications. In order to understand the holding company structure, we introduced the concept of "internal capital markets" and explained its application within the framework of NTT Group. Next, we gave an account of the background events leading to NTT Group's corporate restructuring in order to understand the reason for choosing and keeping the holding company structure. Our research methodologies include interviews with NTT Group's management and data from public sources. Finally, to analyze the effect of the holding company structure to NTT Group, we conducted a hypothetical valuation analysis using the free cash flow model. Comparing the market value of NTT Group with our valuation results, it appeared that the market has undervalued NTT Group. We concluded our report with some suggestions on how NTT Group might be able to increase their market value.HOLDING COMPANY STRUCTURE, RESTRUCTURING, INTERNAL CAPITAL MARKET, VALUATION

Political Economy of Infrastructure Investment Allocation: Evidence from a Panel of Large German Cities

This paper proposes a simultaneous-equation approach to the estimation of the contribution of infrastructure accumulation to private production. A political-economy model for the allocation of public infrastructure investment grants is formulated. Our empirical findings, using a panel of large German cities for the years 1980, 1986, and 1988, suggest that cities ruled by a council sharing the State (‘Bundesland’) government's current political affiliation were particularly successful in attracting infrastructure investment grants. With regard to the contribution of infrastructure accumulation to growth, we find that public capital is a significant factor for private production. Moreover, at least for the sample studied, we find that simultaneity between output and public capital is weak; thus, feedback effects from output to infrastructure are negligible. ZUSAMMENFASSUNG - (Politische Ökonomie der Allokation von Infrastrukturinvestitionen: Empirische Evidenz von einem Paneldatensatz großer deutscher Städte) Dieses Papier verwendet ein simultanes Gleichungssystem zur Schätzung des Beitrags von Infrastrukturinvestitionen zu regionalem Wachstum. Ein polit-ökonomisches Modell der Allokation von Finanzzuweisungen für öffentliche Investitionen in Infrastruktur wird formuliert. Unsere empirischen Ergebnisse basierend auf einem Paneldatensatz für große deutsche Städte in den Jahren 1980, 1986 und 1988 deuten darauf hin, dass Städte, deren Mehrheit im Stadtrat die selbe politische "Couleur" wie die Landesregierung hatte, erfolgreicher bei der Zuteilung von Finanzzuweisungen waren. Im Hinblick auf den Beitrag der Infrastrukturakkumulation auf das Wachstum finden wir, dass öffentliches Kapital ein wichtiger Faktor für die private Produktion ist. Weiterhin, zumindest für den untersuchten Zeitraum, finden wir, dass die Simultanität zwischen Output und öffentlichem Kapital gering ist; daher sind Feedback-Effekte von Output zur Infrastruktur vernachlässigbar.