The use of staff policy recommendations in central banks

The focus of this paper is on the use of staff policy recommendations in central banks. Based on the responses to a recent survey conducted by the Bank of International Settlements, the paper tries to answer two questions. (1) How (to what extent) do central bank decision-makers make use of staff views regarding the appropriate policy? (2) What institutional features determine the extent to which staff policy views are utilised by decision-makers? The ‘weight’ with which staff policy views are taken into account is proxied by how explicitly they are presented to the policy board. Based on the survey responses about how staff policy views are presented, a Staff Recommendation Explicitness Index (SREI) is constructed for each central bank surveyed. SREI is then regressed on a number of candidate explanatory variables. The results suggest that the use of staff policy views, proxied by SREI, is negatively related to the size of the policy committee. Furthermore, the use of staff policy views seems more pronounced if the committee is consensus-seeker and if the monetary regime is inflation targeting. Tentative explanations are offered for each of these findings.monetary policy, central bank staff, committee, decision-making

Why Catastrophic Organizational Failures Happen

Excerpt from the introduction: The purpose of this chapter is to examine the major streams of research about catastrophic failures, describing what we have learned about why these failures occur as well as how they can be prevented. The chapter begins by describing the most prominent sociological school of thought with regard to catastrophic failures, namely normal accident theory. That body of thought examines the structure of organizational systems that are most susceptible to catastrophic failures. Then, we turn to several behavioral perspectives on catastrophic failures, assessing a stream of research that has attempted to understand the cognitive, group and organizational processes that develop and unfold over time, leading ultimately to a catastrophic failure. For an understanding of how to prevent such failures, we then assess the literature on high reliability organizations (HRO). These scholars have examined why some complex organizations operating in extremely hazardous conditions manage to remain nearly error free. The chapter closes by assessing how scholars are trying to extend the HRO literature to develop more extensive prescriptions for managers trying to avoid catastrophic failures

Approaches to decision making

This book is designed as a brief introduction to the understanding of decision making in work settings. It is designed for use in graduate courses and should be supported by a wide range of additional reading materials and practical exercises. The approach is multi-disciplinary and pluralistic: there are many perspectives from which decision making may be viewed. Similarly, there are many differences in decision making between individuals and between contexts. The book is intended to contribute to a raised awareness of the many issues and high complexity attaching to important decisions. It may or may not help the reader to become a better decision maker. That outcome depends on personal desire and availability of resources, including time and pressure, as much as anything else. However it is hoped that those readers who are accustomed to the traditional focus on \u27rational\u27 decision making will quickly learn that decision making is a complex and many faceted activity. The text is divided into six modules or parts, each looking at a specific aspect of decision making in organisations. Module 1 looks at some important philosophical issues, and introduces the \u27convential\u27 theories based in economics and sociology. Theoretical and empirical explanations of the decision process are examined in Module 2. Module 3 explores some of the aids to decision making. The individual as decision maker is the subject of Module 4, and Module 5 examines group decision making behaviours. Module 6 is a review, and suggests some of the implications and consequences of a course of study into decision making..

JAD Can Get Better

Interviewing and other conventional approaches failed to produce the user-developer understanding required to establish high-quality systems requirements for software development. .Joint Application Development (JAD) was introduced in the late 1970s, and has been widely used to alleviate this problem. But JAD s success has been critically dependent on the excellence of facilitation to deflect many of the relational problems that are typically experienced with the freely interacting group structure used to conduct JAD sessions. While the use of JAD is pervasive, excellent facilitators are scarce, which hampers or even precludes some JAD efforts. In this article we recommend a solution to this problem—using the nominal group technique (NGT) in JAD sessions to reduce the impact of negative group dynamics on JAD results. We provide some indications of the potential effectiveness of this proposal

Essays in Corporate Finance

This dissertation consists of three chapters in corporate finance and private equity. Chapter 1, “Incentives of Private Equity General Partners from Future Fundraising”, co-authored with Ji-Woong Chung, Berk Sensoy and Michael Weisbach, studies the incentives of private equity general partners (GPs). Lifetime incomes of GPs are affected by their current funds’ performance not only directly, through carried interest profit-sharing provisions, but also indirectly by the effect of the current fund’s performance on GP’s abilities to raise capital for future funds. In the context of a rational learning model, which we show better matches the empirical relations between future fundraising and current performance than behavioral alternatives, we estimate that indirect pay for performance from future fundraising is of the same order of magnitude as direct pay for performance from carried interest. Consistent with the learning framework, indirect pay for performance is stronger when managerial abilities are more scalable and weaker when current performance is less informative about ability. Specifically, it is stronger for buyout funds than for venture capital funds, and declines in the sequence of a partnership’s funds. Total pay for performance in private equity is both considerably larger and much more heterogeneous than implied by the carried interest alone. Our framework can be adapted to estimate indirect pay for performance in other asset management settings. Uncertainty is ubiquitous in financial markets, and market participants form expectations and learn about parameters, which may be the ability of general partners or the quality of a firm’s governance structure. Assessing the quality of a firm\u27s governance is valuable, which might explain the recent growth of the governance industry. Yet, governance indices have been criticized by researchers and practitioners alike, mainly on the grounds of overlooking firms\u27 heterogeneity and their specific governance needs. Chapter 2, “D&O Insurance and IPO Performance: what can we learn from insurers?”, co-authored with Martin Boyer, provides new insights into the ability of directors’ and officers’ (D&O) insurers to price risk, and in particular risk related to governance characteristics. Therefore, learning by investors about governance quality could be facilitated by providing investors with a market-based assessment of governance as reflected in the D&O insurance premium. We investigate whether a firm’s D&O liability insurance contract at the time of the IPO is related to insured firms’ first year post-IPO performance. We find that insurers charge a higher premium per dollar of coverage to protect the directors and officers of firms that will subsequently have poor first year post-IPO stock performance. A higher price of coverage is also associated with a higher post-IPO volatility and lower Sharpe ratio. Our results are robust to various econometric specifications and suggest that even when the high level of information asymmetry inherent to the IPO context prevails, insurers have information about the firms’ prospects that should be valuable to outside investors. In Chapter 3, “A Learning-Based Approach to Evaluating Boards of Directors”, I develop a general framework based on a theoretical model of learning to assess how investors react to the appointment of new directors. Using predictions from a learning model, this chapter exploits the cross-sectional variation in the learning-induced decline in stock return volatility over director tenure to infer the marginal value of different kinds of directors. This new framework confirms prior empirical findings and documents new results. For example, directors joining better compensated boards have higher marginal value while the marginal value of a director joining an entrenched board is muted. Furthermore, the estimates imply that governance related uncertainty associated with the arrival of a new director accounts for 7% of return volatility, shedding light on the extent to which governance matters

Development and Measurement Validity of a Social Media Activity Instrument

The rise in social media and the number of applications and platforms that one can use to engage with others online about social issues such as political discourse, social segregation, and academics has raised valid concerns among researchers. Researchers would benefit from a valid instrument to measure individuals’ social media activity in order to thoroughly investigate these profound issues. Accordingly, we design, deploy, and validate a new survey instrument focused on social media activity. We test the model’s validity from various perspectives (internal, construct, convergent, etc.) to create a reliable instrument for researchers. The instrument distinctively draws from the theory of planned behavior and social identity theory and, thereby, provides a strong theoretical underpinning to social media activity’s dimensions. Our results demonstrate our instrument to have reliability and discriminant validity

Dynamics of control in construction project teams

Control is pervasive in construction project environments. The management of projects through various planning and control tools has therefore been described essentially as rebureaucratization which increases control over individuals, teams and organizations through ideologies of efficiency and performativity. Yet certain characteristics of the project setting make it an ideal climate for the empowerment of individuals and teams. The manifestations of control in five construction project management teams involved in two ongoing construction projects in Hong Kong are examined. The interpretive and exploratory focus of the study favoured the use of a qualitative research design and the case study approach in particular. Control is viewed as all devices and systems employed to ensure that acts, behaviours, outcomes and decisions of individuals, teams and organizations are consistent with meeting organizational or project goals, objectives and strategies. The findings indicate that a portfolio of control modes is implemented in project teams comprising both formal (i.e. behaviour- and outcome-based) and informal (i.e. clan- and self-based) control mechanisms which are not necessarily incompatible. While formal control remains the primary control mode, a portfolio of control appears necessary to augment the inadequacies of formal control due to the evolving nature of the project environment

Inside the Corporate Veil: The Character and Consequences of Executives’ Duties

This paper is based on a keynote address to the 2006 annual workshop of the Australian Corporate Law Teachers\u27 Association on The Pathology of Corporate Law. The paper\u27s thesis is that fuller understanding of many corporate malfunctions requires examination of organizational structures and patterns of interaction below the level of the board within a corporation\u27s hierarchy. The paper argues that there is merit to mandating duties of skill and care at the executive level, drawing on examples of executive conduct in recent corporate fiascos. The paper also explores the application of the business judgment rule to officers. As conventionally formulated, the rule\u27s prototypical subject appears to be a board of directors that, exercising original and undelegated power, makes discrete decisions about particular transactions or other matters. The paper questions the rule\u27s applicability to the work done by officers, many of whom may be appointed on the basis of a reasonable belief that they will diligently bring relevant skills to bear in an ordinarily careful manner

Do Directors Have a Use-By Date? Examining the Impact of Board Tenure on Firm Performance

Corporate boards serve the dual important functions of monitoring and advising management. We examine whether corporate boards consisting of longer-serving independent directors are better able to fulfill these functions due to firm-specific knowledge accumulation, or whether director performance suffers due to declining effectiveness in monitoring managers and/or overall staleness of board capital (board value to shareholders). Using a broad sample of up to 3,800 firms over a 20-year period, our evidence suggests that board tenure is positively related to forward-looking measures of market value and stock returns, with the relationship reversing after about nine years on average. The detrimental effect of longer average board tenure on market value (after an initial period of positive effects) is stronger for high growth firms, which is consistent with the deterioration of the board members’ ability to perform their advisory function