Wilbur G. Lewellen, Management and Ownership in the Large Firm, The Journal of Finance, Vol. 24, No. 2, Papers and Proceedings of the Twenty-Seventh Annual Meeting of the American Finance Association Chicago, Illinois December 28-30, 1968 (May, 1969), pp. 299-322

The question of whether the design of the corporate executive pay package reflects an attempt to reduce agency costs between shareholders and managers is addressed. The components of senior executive pay are found to vary systematically across firms in a manner that cannot easily be explained by tax effects, and which would indicate that individual elements of pay are aimed at controlling for limited horizon and risk exposure problems. Managerial decisions and the structure of managerial pay therefore appear to be interrelated.

The literature suggests two competing explanations for reincorporations: efforts at managerial entrenchment and attempts to improve contractual efficiency. The empirical evidence to date is inconclusive. To seek further evidence, we examine a large sample of firms that changed their state of incorporation over the period 1980–1992. We find that shareholder wealth is decreased by reincorporations that erect takeover defenses, but is increased by reincorporations that establish limits on director liability. Firms that claim they reincorporate to limit the personal liability of their board members and thereby attract better qualified outside directors do, in fact, expand the outside representation on their boards, whereas firms citing other motives do not.

The advent of negotiated brokerage commissions on May 1, 1975, (Mayday) made it possible in principle for small investors as well as large institutions to bargain over the charges they are assessed for executing common stock trades. While the popular business press has speculated both that the actual incidence of negotiation by individuals is infrequent and that the net impact of the new regime has been to raise individuals' trading costs, empirical evidence has been sparse. The purpose of the paper is to examine these hypotheses, using a data base consisting of the actual common stock transactions records of a sample of some 8,000 accounts of a large retail brokerage firm, covering the years 1970 through 1979. The frequency and magnitude of commission-rate discounts from the posted post-Mayday schedules will be identified, the net impact on trading costs assessed, and the factors that appear to "explain" who gets a discount analyzed. Prior to Mayday, the only segment of transactions costs requiring investigation was the dealer mark-up or spread since, with the knowledge of price and volume, agency commissions were invariant. Studies on the spread were accomplished by Demsetz, Tinic, and Tinic and West to name but a few. It was only necessary to simulate transactions as an individuals' attributes had no effect on commissions. This however, is no longer the case. With the possibility of discounts from stated commissions, the data must include the pattern and frequency of transacting by individuals, the exchange or market on which the transaction occurred, and various other investor specific attributes. Thus, actual transactions across markets and over time are required. This is the first study to meet these criteria.

The evolution of corporate capital structure theory in the literature of finance has been marked by the development of an increasingly imaginative rendition of market processes under conditions of uncertainty. Trade-offs between debt and equity sources of financing, and their consequent impact on shareholder wealth, have been the major concern. While the evolution is by no means complete, the notion of an efficient capital market in which investor decisions are focused on security portfolio building activities has provided significant insights into the range of opportunities open to corporate management to enhance share valuation through enlightened financing decisions. One measure of the gap between theory and application, however, can be found in the topics which thus far have not been effectively comprehended in the literature, even though the analytical technology is clearly available. Among those topics is the question of convertible debt financing as a capital structure component. The treatment of such a funds source remains essentially in the realm of folklore, the typical story being that convertibles contain the “best elements” of both equity and straight debt or that they provide a vehicle for issuing equity at a “bonus” price higher than the current price. Closer examination reveals that either view is arrant nonsense, and it is to a demonstration of this point that the present paper is addressed.

The problem of monitoring the ongoing receivables collection experience of an enterprise which sells on credit is, in essence, the problem of identification. The concern is an accurate appraisal of customer account payment patterns — in particular, a determination of whether and to what extent those patterns vary over time. Successful execution by the credit manager of his responsibilities for policy formulation, collection enforcement, and forecasting necessarily depends heavily on the availability to him of a reliable reporting mechanism.