Insider trading, costly monitoring, and managerial incentives

In this paper we show, in an incomplete contracts framework that combines asymmetric information and moral hazard, that by permitting insiders to trade on personal account the equilibrium level of output can be increased and shareholder welfare can be improved. There are two reasons for this. First, insider trading impounds information regarding the costs and benefits of effort and perk consumption into asset prices, which allows shareholders to choose more efficient portfolio allocations. Second, allowing insider trading can induce managers to increase their stake in the firm beyond that obtained through bargaining with shareholders. This effect leads to a reduction in managerial perk consumption and/or increased managerial effort. Insider trading can also be costly for shareholders' intermediate range of monitoring costs and project difficulty because, in such cases, the efforts of managers are quite sensitive to the exact level of fractional shareownership, which managers can endogenously change if they are able to trade on personal account. Interestingly, when monitoring and effort costs are low, managers may prefer restrictions on their ability to trade as such restrictions will force shareholders to offer them a larger fraction of output.Financial markets ; Stock market

If at first you don't succeed: an experimental investigation of the impact of repetition options on corporate takeovers

This paper models, and experimentally simulates, the free-rider problem in a takeover when the raider has the option to “resolicit,” that is, to make a new offer after an offer has been rejected. In theory, the option to resolicit, by lowering offer credibility, increases the dissipative losses associated with free riding. In practice, the outcomes of our experiment, while quite closely tracking theory in the effective absence of an option to resolicit, differed dramatically from theory when a significant probability of resolicitation was introduced: The option to resolicit reduced the costs of free riding fairly substantially. Both the raider offers and the shareholder tendering responses generally exceeded equilibrium predictions.Corporations - Finance ; Game theory

Board structures around the world: An experimental investigation

We model and experimentally examine the board structure-performance relationship. We examine single-tiered boards, two-tiered boards, insider-controlled boards, and outsider-controlled boards. We find that even insider-controlled boards frequently adopt institutionally preferred rather than self-interested policies. Two-tiered boards adopt institutionally preferred policies more frequently, but tend to destroy value by being too conservative, frequently rejecting good projects. Outsidercontrolled single-tiered boards, both when they have multiple insiders and only a single insider, adopt institutionally preferred policies most frequently. In those board designs where the efficient Nash equilibrium produces strictly higher payoffs to all agents than the coalition-proof equilibria, agents tend to select the efficient Nash equilibria.

Corporate board composition, protocols, and voting behavior: experimental evidence

We model experimentally the governance of an institution. The optimal management of this institution depends on the information possessed by insiders. However, insiders, whose interests are not aligned with the interests of the institution, may choose to use their information to further personal rather than institutional ends. Researchers (e.g., Palfrey 1990) and the business press have both argued that multiagent mechanisms, which inject trustworthy but uninformed “watchdog” agents into the governance process and impose penalties for conflicting recommendations, can implement institutionally preferred outcomes. Our laboratory experiments strongly support this conclusion. In the experimental treatments in which watchdog agents were included, the intuitionally preferred allocation was implemented in the vast majority of cases. Surprisingly, implementation occurred even in the absence of penalties for conflicting recommendations.Corporations - Finance ; Game theory

Contractual opportunism, limited liability, and the role of financial coalitions

Financial markets

Information quality, performance measurement, and security demand in rational expectations economies

The relationship between asset demand and information quality in rational expectations economies is analyzed. First we derive a number of new summary descriptive statistics that measure four basic characteristics of investment style: asset selection, market timing, aggressiveness, and specialization. Then we relate these statistics to the divergence between a given investor's information structure and the market average information structure. Finally, we demonstrate that informational differentials can be identified, and consistently estimated, using OLS from the time series of observed asset demand.Rational expectations (Economic theory) ; Information theory

(B)ordering South of Lebanon: Hizbullah’s identity building strategy

International audienceThis paper examines the importance of the Lebanese southern borderland area in the political strategy of Hizbullah's identity building. It highlights how Hizbullah succeeded in its quest to become a major political player in Lebanon by using South Lebanon. The main hypothesis is that this borderland area has been ordered and bordered by Hizbullah to create a common identity among the Lebanese Shi'i population based on a Shi'i religious involvement and the " duty " of armed resistance against Israel. To support this idea, I will rely on a theoretical framework articulating space and identity building and will refer to concepts provided by Middle Eastern studies. In the first part of the paper, I will discuss the conditions of the emergence of the group of solidarity and how it articulates to the religious Shi'i ideology. Then, I will highlight the " lebanonization " process Hizbullah undertaken at the end of the civil war and how during the 1990s it transformed the South into a sanctuary. Finally, I will show how Hizbullah enforced the national legitimacy of its social, political and military actions before targeting the state apparatus

The PHENIX Experiment at RHIC

The physics emphases of the PHENIX collaboration and the design and current status of the PHENIX detector are discussed. The plan of the collaboration for making the most effective use of the available luminosity in the first years of RHIC operation is also presented.Comment: 5 pages, 1 figure. Further details of the PHENIX physics program available at http://www.rhic.bnl.gov/phenix