From Cronies to Professionals: The Evolution of Family Firms

We develop a dynamic model where each generation in a family firm can continue operating its inherited production technology or it could hire a professional to do the same. Though the professional is more qualified, his interests are not aligned with the interests of the family. In the context of an overlapping generations framework, we analyze how this tradeoff affects the evolution of the family firm. We find that family firms initially grow in size by accumulating capital and later professionalize their management after reaching a critical size.Family firms; Cronies; Moral Hazard;

When No Law is Better than a Good Law

This paper argues, both theoretically and empirically, that sometimes no securities law may be better than a good securities law that is not enforced. The first part of the paper formalizes the sufficient conditions under which this happens for any law. The second part of the paper shows that a specific securities law - the law prohibiting insider trading - may satisfy these conditions. The third part of the paper takes this prediction to the data. We find that the cost of equity actually rises when some countries enact an insider trading law, but do not enforce it.insider trading, cost of capital, emerging markets, securities law, enforcement, International Development, G15, G18, K22, K42,

When No Law is Better than a Good Law

This paper argues, both theoretically and empirically, that sometimes no security law may be better than a good security law that is not enforced. The first part of the paper formalizes the sufficient conditions under which this happens for any law. The second part of the paper shows that a specific security law - the law prohibiting insider trading - may satisfy these conditions, which implies that our theory predicts that it is sometimes better not to have an insider trading law than to have an insider trading law but not enforce it. The third part of the paper takes this prediction to the data. We revisit the panel data set assembled by Bhattacharya and Daouk (2002), who showed that enforcement, not the mere existence, of insider trading laws reduced the cost of equity in a country. We find that the cost of equity actually rises when a country introduces an insider trading law, but does not enforce it.

Do Japanese CEOs Matter?

In a country where individualism is not valued, we ask whether the CEO (shacho) of a Japanese corporation affects corporate behavior. To answer this question, we construct a shacho-firm matched panel data set in the period 1990 through 2002 of all listed 1,419 Japanese manufacturing firms and their 3,520 shachos. We utilize three distinct empirical methodologies to detect a shacho effect. First, we attempt to separate a firm-fixed effect from a shacho-fixed effect. We are unable to disentangle a shacho-fixed effect. Second, we examine whether the year of or the year after a shacho change was a turning point in the firm's 1990 to 2002 history of performance and policies. Our answer is generally no, even when the shacho change is non-routine. Third, we employ a classic event study to check whether the market thinks a shacho change is value-relevant. We do find a significant positive price response on the day a shacho change is announced, especially when the shacho change is non-routine. We are thus left to conclude that shachos do not matter in the Japanese corporation in this decade of a stagnant economy, though the market remains optimistic.

When an event is not an event : the curious case of an emerging market

Shares trading in the Bolsa mexicana de Valores do not seem to react to company news. Using a sample of Mexican corporate news announcements from the period July 1994 through June 1996, this paper finds that there is nothing unusual about returns, volatility of returns, volume of trade or bid-ask spreads in the event window. This suggests one of five possibilities: our sample size is small; or markets are inefficient; or markets are efficient but the corporate news announcements are not value-relevant; or markets are efficient and corporate news announcements are value-relevant, but they have been fully anticipated; or markets are efficient and corporate news announcements are value-relevant, but unrestricted insider trading has caused prices to fully incorporate the information. The evidence supports the last hypothesis. The paper thus points towards a methodology for ranking emerging stock markets in terms of their market integrity, an approach that can be used with the limited data available in such markets

Nonlinear effects in coplanar GaAs/InGaAs strained‐layer superlattice directional couplers

We report on the performance characteristics of InGaAs/GaAs strained‐layer superlattice coplanar ridge‐type directional couplers realized by molecular beam epitaxy. The measured power transfer characteristics with 1.15 μm incident photoexcitation demonstrate nonlinear coupling due to absorption associated with the tails of the excitonic resonances in the quantum wells. From a theoretical fit of the measured data, the nonlinear refractive index coefficient, n2, of the multiquantum well is found to be 2.25×10−7 cm2/W. This agrees very well with a value of n2=1.9×10−7 cm2/W obtained independently on the same material from interferometric measurements.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/70723/2/APPLAB-51-21-1679-1.pd

Low‐loss optical waveguides made with molecular beam epitaxial In0.012Ga0.988As and In0.2Ga0.8As‐GaAs superlattices

We demonstrate for the first time low‐loss optical guiding in In‐doped GaAs. Ridge waveguides are made with single In0.012Ga0.988As ternary layers and In0.2Ga0.8As‐GaAs superlattices. Attenuation constants of ∼1.3 dB/cm are measured and the principal loss mechanism is identified to be scattering at the ridge walls. It is expected that improved fabrication techniques will lead to guides with attenuation ≤0.5 dB/cm.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/70130/2/APPLAB-48-22-1507-1.pd

From Cronies to Professionals: The Evolution of Family Firms

We develop a dynamic model where each generation in a family firm can continue operating its inherited production technology or it could hire a professional to do the same. Though the professional is more qualified, his interests are not aligned with the interests of the family. In the context of an overlapping generations framework, we analyze how this tradeoff affects the evolution of the family firm. We find that family firms initially grow in size by accumulating capital and later professionalize their management after reaching a critical size