Q-theory of Investment and Earnings Retentions-Evidence from Scandinavia

In a frictionless milieu retentions should have no impact on investment behavior. However, empirical studies typically find that retentions are an important determinant of investment. Managerial discretion and financial constraints are two alternative explanations that have been suggested. This paper uses a panel of listed Scandinavian firms to examine the importance of retentions as a determinant of investment. Measures of Tobin’s Q, marginal q and sales accelerator are used to control for investment opportunities. Scandinavian firms are found to depend on retentions to a high degree, more so than in other developed economies. This high dependence on retentions suggests that the Scandinavian capital markets are suffering from allocational inefficiencies. Moreover, these market frictions appear too large to per se be caused by information asymmetries or managerial discretion phenomena. Possible institutional explanations are suggested.investment; liquidity; retained earnings; free cash flow; Tobin’s Q; marginal q;

Ownership, Economic Entrenchment and Allocation of Capital

In an efficient economy, capital should be quickly (re)allocated from declining firms and sectors to more profitable investment opportunities. This process is affected by the concentration of corporate control, which in turn is affected by market institutions. We employ a panel of 12,000 firms across 44 countries to estimate the functional efficiency of capital markets. We adapt a measure for the efficiency of capital allocation using the accelerator principle. Our empirical results show weak property rights and highly concentrated ownership reduce the functional efficiency of capital markets. Findings support the economic entrenchment hypothesis but not the legal origins hypothesis.Allocation of capital; accelerator principle; ownership; functional efficiency; economic entrenchment

A Methodological Note on Measuring the Functional Efficiency of Capital Markets

We apply the accelerator principle to measure the functional efficiency of capital markets. We estimate the elasticity of capital with respect to output using a panel of firms across 44 countries, and compare the results with existing approaches. Furthermore, we correlate our measure with corporate governance institutions.Allocation of capital; accelerator principle; functional efficiency:

On Switchover Performance in Multihomed SCTP

Abstract The emergence of real-time applications, like Voice over IP and video conferencing, in IP networks implies a challenge to the underlying infrastructure. Several real-time applications have requirements on timeliness as well as on reliability and are accompanied by signaling applications to set up, tear down and control the media sessions. Since neither of the traditional transport protocols responsible for end-to-end transfer of messages was found suitable for signaling traffic, the Stream Control Transmission Protocol (SCTP) was standardized. The focus for the protocol was initially on telephony signaling applications, but it was later widened to serve as a general purpose transport protocol. One major new feature to enhance robustness in SCTP is multihoming, which enables for more than one path within the same association. In this thesis we evaluate some of the mechanisms affecting transmission performance in case of a switchover between paths in a multihomed SCTP session. The major part of the evaluation concerns a failure situation, where the current path is broken. In case of failure, the endpoint does not get an explicit notification, but has to react upon missing acknowledgements. The challenge is to distinguish path failure from temporary congestion to decide when to switch to an alternate path. A too fast switchover may be spurious, which could reduce transmission performance, while a too late switchover also results in reduced transmission performance. This implies a tradeoff which involves several protocol as well as network parameters and we elaborate among these to give a coherent view of the parameters and their interaction. Further, we present a recommendation on how to tune the parameters to meet telephony signaling requirements, still without violating fairness to other traffic. We also consider another angle of switchover performance, the startup on the alternate path. Since the available capacity is usually unknown to the sender, the transmission on a new path is started at a low rate and then increased as acknowledgements of successful transmissions return. In case of switchover in the middle of a media session the startup phase after a switchover could cause problems to the application. In multihomed SCTP the availability of the alternate path makes it feasible for the end-host to estimate the available capacity on the alternate path prior to the switchover. Thus, it would be possible to implement a more efficient startup scheme. In this thesis we combine different switchover scenarios with relevant traffic. For these combinations, we analytically evaluate and quantify the potential performance gain from utilizing an ideal startup mechanism as compared to the traditional startup procedure

High Temperature Corrosion of FeCrAl Alloys in Biomass- and Waste-fired Boilers - The Influence of Alloying Elements in Prediction and Mitigation of Corrosion in Harsh Environments

Combustion of biomass and waste for heat and power production is an alternative to fossil fuels and can be an important step towards a more sustainable future. The electrical efficiency of the fuel-to-energy conversion process is largely dependent on the steam parameters (temperature and pressure) of the combined heat and power (CHP) plants. Meanwhile, the boiler environment when utilizing these fuels is complex and can be characterized by high levels of corrosive species, such as water vapor and alkali chlorides. These species contribute to highly corrosive conditions that results in rapid material degradation of boiler components and limits the operating temperature.Stainless steels are commonly used to reduce material degradation in these types of corrosive environments because of their high temperature corrosion resistance. This is attributed to their ability to form a protective chromium-rich oxide scale. However, in the highly corrosive environment of biomass- and waste-fired boilers these scales have been found to rapidly break down and result in the formation of less protective iron-rich oxide scales. The present thesis elucidates the potential of improving the corrosion resistance by introducing alumina-forming alloys (FeCrAl alloys) and/or improving the properties of the fast-growing oxide scales formed after breakaway oxidation.The results show that the oxidation process can be divided into a primary and a secondary corrosion regime, i.e. the corrosion behavior before and after breakaway oxidation. This concept was utilized when investigating the influence of alloying elements on the corrosion resistance of FeCr(Al) model and coatings in a broad range of corrosive environments. Cr, Al and Si was found to significantly influence the corrosion behavior of FeCr(Al) alloys in both the primary and secondary corrosion regime. However, the criteria for a high corrosion resistance differed for the two corrosion regimes. HVAF-sprayed and overlay-welded coatings demonstrated the potential of providing high corrosion resistance within the primary and secondary corrosion regime, respectively. The applicability of the findings was shown to extend from simplified laboratory environments to the complex conditions of a waste-fired boiler.The novel insights, presented in this work, contribute to new perspectives on high temperature corrosion resistance, which are valuable in material development and corrosion prediction in harsh environments

Ownership Structure, Board Composition and Investment Performance

In this paper the relation between ownership structure, board composition and firm performance is explored. A panel of Swedish listed firms is used to investigate how board composition affects firm performance. Board heterogeneity is measured as board size, age and gender diversity. The results show that Swedish board of directors have become more diversified in terms of gender. Also, fewer firms have the CEO on the board which can be interpreted as a sign of increased independency. The regression analysis shows that gender diversity has a small but negative effect on investment performance, and the same holds for CEO being on the board. The analysis also show that board size has a significant negative effect on investment performance. When incorporating all the explanatory variables into one equation however, the negative effect of larger boards dilutes the effect of gender diversity and having the CEO on the board.Corporate governance; board composition; investments performance; marginal q

The Cost of Insecure Property Rights: R2 Revisited

In the conventional CAPM model only a single risk factor is considered. However, using a world market portfolio to estimate systematic risk in national portfolios little of the required rate of return is explained in developing as compared to developed countries. Adding a factor representing institutional risk the predictive power increases substantially. By stressing importance of property and investor rights in this fashion, we add to the research on international differences in R2 initiated by Morck et al. (2000). Our findings are consistent with the hypothesis that stock price synchronicy depends on the institutional quality.Asset pricing; International financial markets; Property rights; Financial economics

Family Ownership and Returns on Investment – Founders, Heirs, and External Managers

This paper investigates how family ownership, control, and management affect firms’ investment performance. We use the identity of Chief Executive Officer (CEO) and Chairman of the Board (COB) to establish under what management the firm is: founder, descendant, or external management. The results show that founder management has no effect on investment performance in family firms, whereas descendant management has a negative impact on returns on investment. Having an externally hired manager significantly improves investment performance. The results also indicate that the separation of voting right from cash flow right has a negative impact on investment performance in both family and non-family firms, but the negative effect is larger in family firms.Ownership; Control; Management; Family Firms; Returns on Investments

Institutional Ownership and the Returns on Investment

By examining a large number of Swedish listed firms, we analyse how institutional and foreign owners affect investment performance. To measure investment performance Mueller and Reardon’s (1993) marginal q is used, although derived directly from Tobin’s average q. Marginal q measures the ratio of the return on investment to the cost of capital. Our findings show that both domestic and foreign institutional owners positively influence firm performance. Furthermore a non-linear relation between institutional ownership concentration and performance is found. This is consistent with positive incentive effects and negative entrenchment effects. During the last decades the ownership structure of Swedish firms has undergone dramatic changes: institutional and foreign investors have been increasing their stakes, whereas Swedish households have decreased in importance. Controlling owners, often founding families, remain in control by resorting to an extensive use of dual-class shares. The practice of dual-class shares which separates cash-flow rights and control rights is also found to be an important determinant of firm performance that eradicates the positive influence of institutional ownership.Corporate governance; institutions; ownership; performance; Tobin’s q; marginal q;

Ownership Structure, Control and Firm Performance: The Effects of Vote Differentiated Shares

This paper contributes to the literature on ownership, control and performance by exploring these relationships for Swedish listed companies (1997-2002). We find that firms, on average, are making inferior investment decisions and that the use of dual-class shares have a negative effect on performance. According to our results concentration of ownership has a negative impact on investment performance and firm value when control instruments that separate votes from capital share are used. Marginal q is used as a measure of economic performance. It was presented in an article by Mueller and Reardon in 1993 and has recently been used in empirical studies of ownership and performance by among others Gugler and Yurtoglu (2003). Frequently Tobin’s q is used in studies of this type, but Tobin’s q has a number of disadvantages which can be circumvented by employing a marginal q. This study adds to earlier studies by investigating how the separation of vote and capital shares’ creates a wedge between the incentives and the ability to pursue value maximization. The relationships between the performance measure and different ownership characteristics like ownership concentration and foreign ownership are also investigated.marginal q; ownership structure; firm performance; investments; dual-class shares