Short-sales constraints and the diversification puzzle

Disagreement about stock valuation, combined with short-sales constraints, can increase asset prices. We build a model showing that, so long as investor beliefs are not perfectly correlated, investors will disagree less about the value of a conglomerate than about each of its individual divisions. This generates a conglomerate discount, with disagreement and short-sales constraints being complementary in explaining its cross-sectional variation. We test these predictions empirically and find substantial support: conglomerates have lower differences of opinion and lower short-sales constraints than pure-play firms. Furthermore, greater differences of opinion and tighter short-sales constraints are significant predictors of valuation differences between conglomerates and pure plays.Cambridge Endowment for Research in Finance (CERF

Pay (Be)for(e) Performance: The Signing Bonus as an Incentive Device

This paper investigates the use of a signing bonus as a tool for firms to signal their quality to prospective employees. It is the first to provide a theoretical basis for the signing bonus, one of the most common elements of compensation packages for white collar employees. It also shows that low performance incentives can serve a complementary purpose, implying that within a job/industry pair we should expect higher quality firms to employ higher signing bonuses and lower performance pay. This runs contrary to previous literature relating firm quality to incentive intensity and calls into question the use by empiricists of low performance pay as an indicator of poor corporate governance. The paper makes a number of empirically testable predictions and provides precise guidance on how modelling techniques will affect parameter estimates. In particular, the inclusion of job/industry fixed effects in regressions of signing bonus size or incentive intensity on relevant exogenous variables will reverse the signs of parameter estimates

The timing of pay

There exists large and persistent variation in not only how, but when employees are paid, a fact unexplained by existing theory. This paper develops a simple model of optimal pay timing for firms. When workers have self-control problems, they under-save and experience volatile consumption between paychecks. Thus, pay whose delivery matches the timing of workers' consumption needs will reduce wage costs. The model also explains why pay timing should be regulated (as it is in practice): although the worker benefits from a timing profile that smoothes her consumption, her lack of self-control induces her to attempt to undo the arrangement, either by renegotiating with her employer or taking out payday loans. Regulation of pay timing and consumer borrowing is required to counter these e¤orts, helping the worker help herself

Many worlds and the emergence of probability in quantum mechanics

The interpretation of the squared norm as probability and the apparent stochastic nature of observation in quantum mechanics are derived from the strong law of large numbers and the algebraic properties of infinite sequences of simultaneous quantum observables. It is argued that this result validates the many-worlds view of quantum reality.Comment: 23 page

Hidden variables in quantum mechanics: Generic models, set-theoretic forcing, and the emergence of probability

The hidden-variables premise is shown to be equivalent to the existence of generic filters for algebras of commuting propositions and for certain more general propositional systems. The significance of this equivalence is interpreted in light of the theory of generic filters and boolean-valued models in set theory (the method of forcing). The apparent stochastic nature of quantum observation is derived for these hidden-variables models.Comment: 67 pages. Corrected formulas for conditional and joint probabilities per comment of J. Malle

Executive Compensation, Corporate Governance and Corporate Performance: A Simultaneous Equation Approach

This paper investigates the association between executive compensation and performance. It uniquely utilises a comprehensive set of corporate governance mechanisms within a three-stage least squares (3SLS) simultaneous equation framework. Results based on estimating a conventional single equation model indicate that the executive pay and performance sensitivity is relatively weak, whereas those based on estimating a 3SLS model generally suggest improved executive pay and performance sensitivity. Our findings highlight the need for future research to control for possible simultaneous interdependencies when estimating the executive pay and performance link. The findings are generally robust across a raft of econometric models that control for different types of endogeneities, executive pay and performance proxies.<br/

Derivations of the Born Rule

The Born rule, a cornerstone of quantum theory usually taken as a postulate, continues to attract numerous attempts for its derivation. A critical review of these derivations, from early attempts to very recent results, is presented. It is argued that the Born rule cannot be derived from the other postulates of quantum theory without some additional assumptions