Research
| • | Motivating Entrepreneurial Activity in a Firm |
| Antonio E. Bernardo (UCLA), Hongbin Cai (Peking University) and Jiang Luo (Nanyang Technological University) | |
| Review of Financial Studies, 2007 | |
Abstract We examine the problem of motivating privately informed managers to engage in entrepreneurial activity to improve the quality of the firm's investment opportunities. The firm's investment and compensation policy must balance the manager's incentives to provide entrepreneurial effort and to report her private information truthfully. The optimal policy is to underinvest (compared to first-best) and provide weak incentive pay in low-quality projects and overinvest (compared to first-best) and provide strong incentive pay in high-quality projects. |
|
| Back to Top... | |
| • | Long-Term Return Reversals: Overreaction or Taxes? |
| Thomas J. George (University of Houston) and Chuan-Yang Hwang (Nanyang Technological University) | |
| Journal of Finance, 2007 | |
Abstract Long-term reversals in U.S. stock returns are better explained as the rational reactions of investors to locked-in capital gains than an irrational overreaction to news. Predictors of returns based on the overreaction hypothesis have no power, while those that measure locked-in capital gains do, completely subsuming past returns measures that are traditionally used to predict long-term returns. In data from Hong Kong, where investment income is not taxed, reversals are nonexistent, and returns are not forecastable either by traditional measures or by measures based on the capital gains lock-in hypothesis that successfully predict U.S. returns. |
|
| Back to Top... | |