This article presents a laboratory experiment about capital structure irrelevance. The equity and debt issued by a firm are traded in two double-auction markets. In the Public treatment a signal carrying information about the firm’s value is known to all traders, while in the Private treatment, it is only disclosed to some randomly chosen participants. In treatment Public the conditions for capital structure irrelevance hold. The experimental results support the irrelevance of the capital structure but reject the rational expectations (risk-neutral) valuation. Treatment effects are significant and information is more efficiently embedded in prices in the Public treatment. The results from treatment Private on prices support the prior information over the rational expectations equilibrium. The analysis of the final portfolios of informed and uninformed participants suggests incomplete adjustment towards the prior information equilibrium predicted holdings.

We study the resilience of banks to macroeconomic slowdowns in a context of lax microprudential regulations: Colombia during the Latin American debt crisis of the 1980s. We find that numerous banks underperformed during the crisis, as their shareholders and board members tunnelled resources through related lending, loan concentration and accounting fraud. These practices were enabled by power concentration within banks, lax regulation and the expectation of bailouts. We provide evidence for this tunnelling mechanism by comparing the local banks and business groups that failed during the crisis, the local banks and business groups that survived the crisis and the former foreign banks – all of which survived the crisis. The regulatory changes enacted during the crisis also lend support to our proposed mechanism.

A growing number of Chinese firms motivate their employees through employee stock ownership plans (ESOPs). Using a sample of listed firms in China, this paper examines the impact of ESOPs on firms’ total factor productivity (TFP), as well as the mechanisms of ESOPs. The empirical results show that ESOPs have a positive impact on firm TFP. The mechanism tests convey that ESOPs increase firm TFP by promoting research and development (R&D) investment and mitigating agency costs. These results are robust after accounting for endogeneity and using alternative metrics of TFP. In addition, we find that the positive effect of ESOPs on firm TFP is more pronounced in non-state-owned firms and firms with a less severe free-riding problem. Furthermore, the effect on firm TFP is positively associated with the subscription proportion of non-executive employees in ESOPs. Overall, the results of this study underscore the important role of employee ownership in firms’ productivity improvement.

The process of financialisation has been cast as a major contributor to increasing inequality of wealth and income in a number of advanced industrialised economies, but the nature of the link requires precise clarification. In this article, we argue that financialisation in Australia has advanced inequality, but in a particular way. Charting several features of ‘financialisation of the macroeconomy’, we accept that this process has contributed to increased inequality in the sense that the wealthy have increased their wealth faster than households and individuals at the lower end of the wealth distribution. However, there is limited Australian evidence to suggest that income redistribution has occurred as a result of the ‘financialisation of the firm’. At the level of the firm, increased inequality of wealth can be attributed directly to financialisation if firm practices are oriented to increasing shareholder value at the expense of returns to other stakeholders such as workers or suppliers, and increased income inequality can be linked specifically to financialisation through increases in earnings to financial agents. We suggest several reasons for the relative absence of a firm-level dimension of financialisation but caution that such a trend remains possible, particularly if regulation of the labour market is weakened.

About USD7 trillion of quantitative easing funds has flooded emerging markets since 2008. These funds, created to stimulate a recovery in the Organisation for Economic Cooperation and Development and to stabilise financial markets, ended up mostly as emerging markets’ corporate bonds and loans (often after being leveraged into many multiples of their original value). Not for the first time, emerging markets became the financial markets of last resort. These funds were then either mainly invested (Asia) or used (as in Latin America and South Africa) for almost anything except for creating additional productive capacities. Enquiries into these issues, especially how corporations financed their investment, were subjects that fascinated economist Ajit Singh. He was the first to find out that corporations in emerging markets relied much more on external finance than those in the Organisation for Economic Cooperation and Development (where retained profits played a major role). The implication was that they were likely to be more susceptible to the vicissitudes of financial markets, and these have become even more weird since quantitative easing, as Northern ‘investors’, in search for elusive yields, have been happy to take on ever higher risks, leverage and illiquidity in the South. This is a key difference between current global financial fragilities and those at the onset of the current global financial crisis in 2007. The stakes for emerging economies and international financial markets could scarcely be higher, but unfortunately these huge new challenges occur at the worst possible time, as our social imagination has seldom been so barren.

United States (US) sugar policy buffers domestic sugar producers against subsidized and dumped world market sugar resulting in generally higher US sugar prices compared to world prices. A fixed-effects panel regression is used to estimate factors associated with US sugar-containing-product (SCP) retail prices. SCPs are defined by sucrose being a primary ingredient. Explanatory variables in the regression were US sugar prices, SCP characteristics, firm size, firm past financial performance, and macroeconomic variables. Macroeconomic variables, firm past financial performance, and SCP weight were statistically significant in explaining SCP prices. Increases in US sugar prices were not associated with higher SCP prices.

Executive stock options (ESOs) are widely used to reward employees and represent major items of corporate liability. The International Accounting Standards Board IFRS9 financial reporting standard which came into full effect on 1-Jan 2018, along with its Australian implementation AASB9, requires public corporations to report their fair-value cost in financial statements. Reset ESOs are typically issued to re-incentivise employees by allowing the option to be cancelled and re-issued with a lower exercise price or later maturity. We produce a novel analytical Reset ESO valuation consistent with the IFRS9 financial reporting standard incorporating the simultaneous resetting of vesting period, exercise window, reset level and maturity. We allow for voluntary and involuntary exercise. Our analytical result is expressed solely in terms of standardised European binary power option instruments. Using the multi-state mortality model of Hariyanto (2014, Mortality and disability modelling with an application to pricing a reverse mortgage contract, PhD thesis, University of Melbourne), we estimate longitudinal disability and death transition probabilities from cross-sectional data. We determine survival functions for pre-vesting forfeiture or post-vesting involuntary exercise for use with weighted portfolios of our formulae to illustrate the effect of survival on the fair value. We examine the IFRS9 method of valuation using expected time to option exercise and demonstrate a consistent overestimation of fair value of up to 27% for senior executives.

The decade of the 1880s was a turbulent period for the French Third Republic. Corruption scandals that discredited republican parties and a lacklustre economic performance after the Paris Bourse crash of 1882 gave rise to widespread public disenchantment with the republican political elites. The rise of the Boulangist movement was the most representative example of this disillusionment. In 1887, Georges Boulanger, an army general and former minister of war, began orchestrating a populist mass campaign against the ruling republicans and the parliamentary regime. His political agitation, supported by a heterogeneous coalition of socialists, radicals and royalists, reached a climax in January 1889, when, after winning a Paris by-election, he had an opportunity to stage a coup d’état, which did not materialise. To understand whether French investors perceived the Boulangist campaign as a real threat to their interests, I use an original dataset of daily stock prices to analyse the effect of the January 1889 by-election on the value of politically connected firms listed on the Paris Bourse. The results show that firms with links to the republican parties experienced positive cumulative abnormal returns after Boulanger's refusal to stage the coup, while there was no effect on firms connected to the royalist parties or with no political ties. These findings suggest that French investors reacted positively to the prospective subsiding of the Boulangist movement.

Few studies to date have addressed the relationship between the food industry's environmental and financial performances although the industry is one of the biggest contributors of greenhouse gas emissions. We analyze the impact of environmental news about selected food companies on their stock prices. Results show that positive (negative) events that are the result of direct internal company actions lead to higher (lower) predicted returns, whereas events related to third-party opinions lead to smaller changes in predicted returns in short event windows. This study highlights the importance of conducting the analysis on a disaggregated basis by incorporating firm-level variables.

The reform of corporate governance is again on the agenda in the wake of Enron and excessive risk-taking by financial institutions. However, the search for new and better forms of governance often seems to lack guiding principles. A theory of corporate governance ought to emerge from a theory of the firm. Yet, the literature shows how this project is both difficult and far from complete. In this paper we review how existing theory provides a variety of arguments favouring either a shareholder or a stakeholder orientation. These arguments may depend on whether the prime objective for governance is improved current performance or a more long-term focus for firms. A brief review of recent US governance reforms is given as a backdrop to discussing more far-reaching proposals that have emerged in the recent literature; a greater role for institutional investors on the one hand or a return to managerial capitalism on the other.

This paper intends to relate more closely corporate governance, industry dynamics and firms performance. In this perspective, it focuses on the impact of applying the normative, best practice, shareholder value model of corporate governance on industry dynamics and related performance measured by economic as well as financial indicators. At a theoretical level, the paper presents an integrated framework based on the connection between firms governance and industry dynamics issues. But the core of the paper is to advance that the combination of corporate governance and industry dynamics also requires important investigations into empirical aspects. At a case study level, our major finding is that the adoption of the best practice model of corporate governance in the telecoms equipment supplier industry contributed to create large ups and downs in the industry dynamics affecting both economic and financial performances. At a more general level, combining two different datasets Corporate governance Quotient (CGQ) and DATASTREAM, we show the variegated impact of the normative model on industry dynamics and confirm the observed phenomenon of ups and downs amplifications formerly emphasized, at least at the level of stock market performance.

We study the relation of financial contracting and the pace of technologicaladvance in a dynamic agency theoretic model. A firm which is financed byoutside shareholders but run by managers has the prospect of a processinnovation which arrives stochastically. Adopting the innovation requiresfiring old management and hiring new with skills appropriate for the newtechnique. We show that subgame perfect equilibria in this game can be oftwo types. In “entrenchment” equilibrium once the new technique has beenannounced old style management raises their dividend payout sufficiently topreempt the innovation. In “maximum rent extraction” equilibrium’ managersare unable or unwilling to match the impending productivity improvement andinstead respond by increasing their perquisites for the remaining time oftheir tenure. We show that both equilibria involve several types ofinefficiencies and can result in underinvestment in positive NPV projects.We discuss the role of financial innovation in reducing the inefficienciesidentified.

Nous mettons en évidence une incitation des entreprises à financer leurclient plutôt qu’acquérir un actif certain. À l’équilibre, l’entreprisebénéficie d’un rendement supérieur via un accroissement de la corrélationdes risques de faillite avec son client. Dans un second temps, nouscomparons les risques de défaillance de l’entreprise créancière selon letype de financement choisi: créance-client ou actif sans risque. Nousmontrons que la présence de crédit interentreprises aggrave le risque defaillite du prêteur quand les risques d’exploitation du fournisseur et duclient sont indépendants mais le laisse inchangé quand les risques deproduction sont parfaitement córreles.