Real economy effects of short-term equity ownership

Investor time horizon varies by company, industry and economic system. In this paper we explore the importance of this variation by studying the impact of shareholder time horizon on the investment decisions of the rms they own, and externalities on the wider market. We demonstrate theoretically that short-term shareholders cause Boards to care about the path of the stock price, rationalising rms' pursuit of investments for signalling reasons at the expense of long-term value. We demonstrate that short-termism has spillover effects, leading to higher costs of equity capital; bubbles in the price of input assets; and predictable excess returns. We build testable cross-country hypotheses and evaluate these using existing evidence coupled with a new dataset on owner duration of U.S. and Germanic rms

Optimal pay regulation for too-big-to-fail banks

This paper considers optimal executive pay regulations for banks that are too big-to-fail. Theoretically, we map the consequences of a series of commonly-used pay schemes, describing their relative optimality and ultimate societal consequences. We argue that in a world of too-big-to-fail policy, simple equity-linked remuneration schemes maximise shareholder value by incentivising executives to choose excessively risky projects at the expense of the taxpayer. We find that paying the executive partly in debt fails to mitigate the project choice distortion when debt markets are informed. By contrast, both clawback rules and linking pay to interest rates can incentivise the executive to make socially optimal risk choices, but only if they are accompanied by appropriate restrictions on the curvature of pay with respect to the bank's market value. Pay curvature can be generated by tools such as equity options and promotion policy. The policy implication is that unless regulators can enforce restrictions on pay curvature, bank shareholders can undermine the effectiveness of these pay regulations

Ethical Standards and Cultural Assimilation in Financial Services

We introduce ethical agents into an analysis of decision making in a profiit-maximising firm. Agents can adopt a profitable new practice that may harm customers. Their decision reflects moral considerations, organisational culture, and compensation contracts. We analyse both utilitarian and deontological (duty-based) philosophical traditions. Cultural assimilation emerges as an equilibrium phenomenon. With sophisticated customers, the principal enables a culture that achieves the highest possible aggregate surplus and, under deontological ethics, both the principal and the customers would prefer to deal with less ethically committed agents. In contrast, the principal designs compensation to enable cultures that exploit naive customers

Intertemporal price discrimination with two products

We study the two‐product monopoly profit maximization problem for a seller who can commit to a dynamic pricing strategy. We show that if consumers' valuations are not strongly ordered, then optimality for the seller can require intertemporal price discrimination: the seller offers a choice between supplying a complete bundle now, or delaying the supply of a component of that bundle until a later date. For general valuations, we establish a sufficient condition for such dynamic pricing to be more profitable than mixed bundling. So we show that the established no‐discrimination‐across‐time result does not extend to two‐product sellers under standard taste distributions

Stock selling during takeovers

Stock sales during takeover negotiations weaken the target board's ability to recommend against the takeover, i.e., to resist. Sophisticated shareholders therefore face a coordination problem when deciding whether to sell-out early; and their actions generate a feedback loop between trading volumes and takeover outcomes. Bidding rms, anticipating the pressurising e ect of future share sales on the target board, may reduce their bids. We study these tensions theoretically. We nd that increasing the in uence of shareholders during the bidding process lowers equilibrium bids; elongates the bidding process; but raises the overall probability of bid acceptance; and raises expected premia for unsophisticated shareholders

A Mendelian randomization study of the effect of type-2 diabetes on coronary heart disease

In observational studies, type-2 diabetes (T2D) is associated with an increased risk of coronary heart disease (CHD), yet interventional trials have shown no clear effect of glucose-lowering on CHD. Confounding may have therefore influenced these observational estimates. Here we use Mendelian randomization to obtain unconfounded estimates of the influence of T2D and fasting glucose (FG) on CHD risk. Using multiple genetic variants associated with T2D and FG, we find that risk of T2D increases CHD risk (odds ratio (OR)=1.11 (1.05–1.17), per unit increase in odds of T2D, P=8.8 × 10−5; using data from 34,840/114,981 T2D cases/controls and 63,746/130,681 CHD cases/controls). FG in non-diabetic individuals tends to increase CHD risk (OR=1.15 (1.00–1.32), per mmol·per l, P=0.05; 133,010 non-diabetic individuals and 63,746/130,681 CHD cases/controls). These findings provide evidence supporting a causal relationship between T2D and CHD and suggest that long-term trials may be required to discern the effects of T2D therapies on CHD risk

Relations between lipoprotein(a) concentrations, LPA genetic variants, and the risk of mortality in patients with established coronary heart disease: a molecular and genetic association study

Background: Lipoprotein(a) concentrations in plasma are associated with cardiovascular risk in the general population. Whether lipoprotein(a) concentrations or LPA genetic variants predict long-term mortality in patients with established coronary heart disease remains less clear. Methods: We obtained data from 3313 patients with established coronary heart disease in the Ludwigshafen Risk and Cardiovascular Health (LURIC) study. We tested associations of tertiles of lipoprotein(a) concentration in plasma and two LPA single-nucleotide polymorphisms ([SNPs] rs10455872 and rs3798220) with all-cause mortality and cardiovascular mortality by Cox regression analysis and with severity of disease by generalised linear modelling, with and without adjustment for age, sex, diabetes diagnosis, systolic blood pressure, BMI, smoking status, estimated glomerular filtration rate, LDL-cholesterol concentration, and use of lipid-lowering therapy. Results for plasma lipoprotein(a) concentrations were validated in five independent studies involving 10 195 patients with established coronary heart disease. Results for genetic associations were replicated through large-scale collaborative analysis in the GENIUS-CHD consortium, comprising 106 353 patients with established coronary heart disease and 19 332 deaths in 22 studies or cohorts. Findings: The median follow-up was 9·9 years. Increased severity of coronary heart disease was associated with lipoprotein(a) concentrations in plasma in the highest tertile (adjusted hazard radio [HR] 1·44, 95% CI 1·14–1·83) and the presence of either LPA SNP (1·88, 1·40–2·53). No associations were found in LURIC with all-cause mortality (highest tertile of lipoprotein(a) concentration in plasma 0·95, 0·81–1·11 and either LPA SNP 1·10, 0·92–1·31) or cardiovascular mortality (0·99, 0·81–1·2 and 1·13, 0·90–1·40, respectively) or in the validation studies. Interpretation: In patients with prevalent coronary heart disease, lipoprotein(a) concentrations and genetic variants showed no associations with mortality. We conclude that these variables are not useful risk factors to measure to predict progression to death after coronary heart disease is established. Funding: Seventh Framework Programme for Research and Technical Development (AtheroRemo and RiskyCAD), INTERREG IV Oberrhein Programme, Deutsche Nierenstiftung, Else-Kroener Fresenius Foundation, Deutsche Stiftung für Herzforschung, Deutsche Forschungsgemeinschaft, Saarland University, German Federal Ministry of Education and Research, Willy Robert Pitzer Foundation, and Waldburg-Zeil Clinics Isny

Subsequent Event Risk in Individuals with Established Coronary Heart Disease:Design and Rationale of the GENIUS-CHD Consortium

BACKGROUND: The "GENetIcs of sUbSequent Coronary Heart Disease" (GENIUS-CHD) consortium was established to facilitate discovery and validation of genetic variants and biomarkers for risk of subsequent CHD events, in individuals with established CHD. METHODS: The consortium currently includes 57 studies from 18 countries, recruiting 185,614 participants with either acute coronary syndrome, stable CHD or a mixture of both at baseline. All studies collected biological samples and followed-up study participants prospectively for subsequent events. RESULTS: Enrollment into the individual studies took place between 1985 to present day with duration of follow up ranging from 9 months to 15 years. Within each study, participants with CHD are predominantly of self-reported European descent (38%-100%), mostly male (44%-91%) with mean ages at recruitment ranging from 40 to 75 years. Initial feasibility analyses, using a federated analysis approach, yielded expected associations between age (HR 1.15 95% CI 1.14-1.16) per 5-year increase, male sex (HR 1.17, 95% CI 1.13-1.21) and smoking (HR 1.43, 95% CI 1.35-1.51) with risk of subsequent CHD death or myocardial infarction, and differing associations with other individual and composite cardiovascular endpoints. CONCLUSIONS: GENIUS-CHD is a global collaboration seeking to elucidate genetic and non-genetic determinants of subsequent event risk in individuals with established CHD, in order to improve residual risk prediction and identify novel drug targets for secondary prevention. Initial analyses demonstrate the feasibility and reliability of a federated analysis approach. The consortium now plans to initiate and test novel hypotheses as well as supporting replication and validation analyses for other investigators