CEO Pay and Firm Performance: Dynamics, Asymmetries, and Alternative Performance Measures

This study explores the dynamic structure of the pay-for- performance relationship in CEO compensation and quantifies the effect of introducing a more complex model of firm financial performance on the estimated performance sensitivity of executive pay. The results suggest that current compensation responds to past performance outcomes, but that the effect decays considerably within two years. This contrasts sharply with models of infinitely persistent performance effects implicitly assumed in much of the empirical compensation literature. We find that both accounting and market performance measures influence compensation and that the salary and bonus component of pay as well as total compensation have become more sensitive to firm financial performance over the past two decades. There is no evidence that boards fail to penalize CEOs for poor financial performance or reward them disproportionately well for good performance. Finally, the data suggest that boards may discount extreme performance outcomes -both high and low - relative to performance that lies within some `normal' band in setting compensation.

Competition and Price Dispersion in the U.S. Airline Industry

This papers analyzes dispersion in the prices that an airline charges to different customers on the same route. Such variation in airlines fares is substantial: the expected absolute difference in fares between two of an airline's passengers on a route averages thirty-six percent of the airline's average ticket price on the route. The pattern of price dispersion that we find does not seem to be explained solely by cost differences. Dispersion is higher on more competitive routes, possibly reflecting a pattern of discrimination against customers who are less willing to switch to alternative flights or airlines. We argue that the data support an explanation based on theories of price discrimination in monopolistically competitive industries.

Do Airline Bankruptcies Reduce Air Service?

The airline industry's current financial crisis has raised concerns over the ramifications of airline bankruptcies for air service and the economy. Such bankruptcies, however, nearly always occur when demand is weak, and, thus, when even healthy airlines are inclined to reduce flights. Moreover, from a consumer and policy perspective, the real concern is total air service offered, not the number of flights offered by a particular airline. We study all major U.S. airline bankruptcies since 1984 in order to estimate the effect of bankruptcy on air service, controlling for demand fluctuations and recognizing that competing airlines may increase service in response to a reduction in flights by a bankrupt airline. We do not find substantial effects of bankruptcy on flights offered or destinations served at large and small airports, but do find an impact at medium sized airports. We estimate, however, that service changes due to bankruptcy are not large in comparison to typical quarter-to-quarter fluctuations in service that occur at airports in the absence of carrier bankruptcies.

The Diffusion of New Technologies: Evidence From the Electric Utility Industry

This paper investigates the effect of firm size and ownership structure on technology adoption decisions, using data on the electric utility industry. We argue that traditional models of technology diffusion are subject to sample selectivity biases that may overstate the effect of firm size on adoption probabilities. By extending conventional hazard rate models to use information on both adoption and non-adoption decisions, we differentiate between firms' opportunities for adoption and their underlying adoption propensities. The results suggest that large firms and investor-owned electric utilities are likely to adopt new technologies earlier than their smaller and publicly-owned counterparts. Moreover, the selection biases from conventional statistical models can lead one to overstate size effects by a factor of two and to understate ownership structure and factor cost effects by two to four times.

Firm Diversification and CEO Compensation: Managerial Ability or Executive Entrenchment?

Data for a sample of 558 CEOs over 1985-1990 suggest substantial compensation premia for managers of diversified firms. The CEO of a firm with two distinct lines of business averages 10 to 12 percent more in salary and bonus and 13 to 17 percent more in total compensation than the CEO of a similar-sized but undiversified firm, all else equal. This corresponds to average 1990 salary gains of $115,000 to$145,000 per year for our sample. Diversification may raise pay because the CEO's job requires higher ability or because it is associated with CEO entrenchment. If ability explains the correlation, we would expect the diversification premium to be invariant to tenure. Entrenchment models suggest higher premia for more experienced (more entrenched) CEOs, and an increase in compensation when the CEO diversifies the firm. The data support an ability model over an entrenchment explanation. The diversification premium is unaffected by tenure, and increasing diversification reduces compensation for incumbent CEOs, all else equal.

Does Competition Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency

This paper explores the empirical effects of competition on technical efficiency in the context of electricity industry restructuring. Restructuring programs adopted by many U.S. states made utilities residual claimants to cost savings and increased their exposure to competitive markets. We estimate the impact of these changes on annual generating plant-level input demand for non-fuel operating expenses, the number of employees and fuel use. We find that municipally-owned plants, whose owners were for the most part unaffected by restructuring, experienced the smallest efficiency gains over the past decade. Investor-owned utility plants in states that restructured their wholesale electricity markets had the largest reductions in nonfuel operating expenses and employment, while investor-owned plants in nonrestructuring states fell between these extremes. The analysis also highlights the substantive importance of treating the simultaneity of input and output decisions, which we do through an instrumental variables approach

An evaluation of self-administering arithmetic enrichment activities for grades 4, 5, and 6

Thesis (Ed.M.)--Boston Universit