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Value Maximization (value + maximization)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	88%

Selected Abstracts

The Relation between Stakeholder Management, Firm Value, and CEO Compensation: A Test of Enlightened Value Maximization

FINANCIAL MANAGEMENT, Issue 3 2010
Bradley W. Benson
Whether firms pursue shareholder value maximization or the maximization of stakeholder welfare is a controversial issue whose outcomes seem irreconcilable. We propose that firms are likely to compensate their executives for pursuing the firm's goal be it shareholder value maximization or the maximization of stakeholder welfare. In this paper, we examine the correlation between firm value, stakeholder management, and compensation. We find that stakeholder management is positively related to firm value. However, firms do not compensate managers for having good relationships with its stakeholders. These results do not support stakeholder theory. We also find an endogenous association between compensation and firm value. Our results are consistent with Jensen's (2001) enlightened value maximization theory. Managers are compensated for achieving the firm's ultimate goal, value maximization. However, managers optimize interaction with stakeholders to accomplish this objective. [source]

Implications of Executive Hedge Markets for Firm Value Maximization

JOURNAL OF ECONOMICS & MANAGEMENT STRATEGY, Issue 2 2007
açhan Çelen
This paper analyzes the incentive implications of executive hedge markets. The manager can promise the return from his shares to third parties in exchange for a fixed payment,swap contracts,and/or he can trade a customized security correlated with his firm-specific risk. The customized security improves incentives by diversifying the manager's firm-specific risk. However, unless they are exclusive, swap contracts lead to a complete unraveling of incentives. When security customization is sufficiently high, the manager only trades the customized security,but not any nonexclusive swap contracts, and incentives improve. Access to highly customized hedge securities and/or exclusive swap contracts increases the manager's pay-performance sensitivity. [source]

The Relation between Stakeholder Management, Firm Value, and CEO Compensation: A Test of Enlightened Value Maximization

Chinese Choices: A Poliheuristic Analysis of Foreign Policy Crises, 1950,1996

FOREIGN POLICY ANALYSIS, Issue 1 2005
Patrick James
This paper uses the Poliheuristic Theory (PH), developed by Mintz, which incorporates both psychological and rational choice components in a synthesis of these previously isolated approaches, to explain decision making in Chinese foreign policy crises. China is an interesting initial case for this project for two reasons. One is its importance as a permanent member of the UN Security Council and rising superpower. The other is China's reputation as a nearly unique "black box",an especially challenging case,with regard to decision making in foreign policy crises. Taken from the authoritative compilation of the International Crisis Behavior (ICB) Project, the nine cases (with available data) in which China is a crisis actor span the period from 1950 to 1996. A comparative analysis of Chinese decision making in times of crisis is used to test hypotheses derived from the PH. The hypotheses focus on how decisions are anticipated to occur over two stages. Principal expectations are that the non compensatory rule, which places priority on political considerations, will determine viable alternatives at the first stage, while choices more in line with expected value maximization or lexicographic ordering will characterize the second stage. [source]

Identifying and Attracting the "right" Investors: Evidence on the Behavior of Institutional Investors

JOURNAL OF APPLIED CORPORATE FINANCE, Issue 4 2004
Brian Bushee
This article summarizes the findings of research the author has conducted over the past seven years that aims to answer a number of questions about institutional investors: Are there significant differences among institutional investors in time horizon and other trading practices that would enable such investors to be classified into types on the basis of their observable behavior? Assuming the answer to the first is yes, do corporate managers respond differently to the pressures created by different types of investors, and, by implication, are certain kinds of investors more desirable from corporate management's point of view? What kinds of companies tend to attract each type of investor, and how does a company's disclosure policy affect that process? The author's approach identifies three categories of institutional investors: (1) "transient" institutions, which exhibit high portfolio turnover and own small stakes in portfolio companies; (2) "dedicated" holders, which provide stable ownership and take large positions in individual firms; and (3) "quasi-indexers," which also trade infrequently but own small stakes (similar to an index strategy). As might be expected, the disproportionate presence of transient institutions in a company's investor base appears to intensify pressure for short-term performance while also resulting in excess volatility in the stock price. Also not surprising, transient investors are attracted to companies with investor relations activities geared toward forward-looking information and "news events," like management earnings forecasts, that constitute trading opportunities for such investors. By contrast, quasi-indexers and dedicated institutions are largely insensitive to shortterm performance and their presence is associated with lower stock price volatility. The research also suggests that companies that focus their disclosure activities on historical information as opposed to earnings forecasts tend to attract quasi-indexers instead of transient investors. In sum, the author's research suggests that changes in disclosure practices have the potential to shift the composition of a firm's investor base away from transient investors and toward more patient capital. By removing some of the external pressures for short-term performance, such a shift could encourage managers to establish a culture based on long-run value maximization. [source]

Bank Relationship and Firm Performance: Evidence From Thailand Before the Asian Financial Crisis

JOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 9-10 2004
Piman Limpaphayom
Abstract: This study examines the relation between bank relations and market performance in Thailand, an economy in which commercial banks play a crucial role through lending relationship and, for a number of companies, equity ownership. Overall, bank relationships, both equity-based and debt-based, positively affect capital investment. However, there is a negative relation between lending relationships, both short-term and long-term, and market performance indicating that bank lending may not always be consistent with value maximization. There is also evidence of a positive marginal effect of bank monitoring through equity ownership on market performance. Further, the relation between bank equity ownership and market performance appears to be non-linear with a concave function. Ownership by corporate insiders is also negatively related to bank equity ownership. Overall, the findings highlight the detrimental effects of excessive short-term debt usage, one of the factors believed to contribute to the financial crisis in Thailand, and the marginal benefit of the equity-based relationship on firm value. [source]

Do Investors Really Value Corporate Governance?

JOURNAL OF INTERNATIONAL FINANCIAL MANAGEMENT & ACCOUNTING, Issue 2 2007
Evidence from the Hong Kong Market
To examine the relation between corporate governance and firm value, we develop an instrument to assess the corporate governance practices of listed companies in Hong Kong. Based on the Revised OECD Principles of Corporate Governance (OECD) and the Code of Best Practices (HKEx), we construct a corporate governance index (CGI) for Hong Kong listed companies. Unlike measures used in other studies, the CGI score reflects the presence of good corporate governance practices as well as variation in the quality of corporate governance practices. Empirical evidence shows that a company's market valuation is positively related to its overall CGI score, a composite measure of a firm's corporate governance practices. We also find that the transparency component of the CGI score drives the relation with market valuation. In summary, this study provides supporting evidence for the notion that, in Hong Kong, good corporate governance practices are consistent with value maximization. [source]

Managerial expertise, learning potential and dynamic incentives: get more for less?

MANAGERIAL AND DECISION ECONOMICS, Issue 3 2007
Christian LukasArticle first published online: 16 APR 200
In this paper the impact of ability and learning potential on incentive contracts is analyzed. A central feature of the model is that the true ability will not be revealed. The learning potential of an agent is modeled as the magnitude of impact on the agent's expected ability that learning-by-doing has in a given task. Absent a managerial labor market, depending on an agent's learning potential, a monotone or non-monotone pay structure may be optimal. The second important result is that using agents' ability distributions as inputs to information systems, higher learning potentials lead to less costly information systems, i.e. actions can be implemented at lower costs. Additionally, it is proven that the criteria cost minimization and value maximization are equivalent in the model's context. Copyright © 2007 John Wiley & Sons, Ltd. [source]