We examine the importance of agency considerations for the mix of salary and performance-based compensation in member-owned medical practices. Performance-based pay increases with the informativeness of clinical productivity measures, and declines with greater reimbursement from capitation contracts. Inexperienced physicians receive more compensation from salary, but compensation mix does not change as physicians near retirement. Larger practices and practices using outside management companies place more weight on performance-based compensation. However, when more physicians in the group practice the same specialty, less emphasis is placed on performance-based compensation. Finally, the presence of an executive partner has no influence on compensation mix.

This study examines firm performance surrounding insiders' prepaid variable forward (PVF) transactions to infer insiders' information when they enter these off‐market contracts. PVFs allow insiders to hedge downside risk, share performance gains, and obtain immediate large‐sum cash payments for investment or consumption. On average, PVF transactions cover 30% of a sample insider's firm‐specific wealth ($22 million), which is substantially larger than a typical open‐market sale. PVFs systematically follow strong firm performance and precede degraded stock and earnings performance. PVFs also precede periods of negative abnormal returns relative to potential alternative investments. The documented association between PVFs and performance declines does not appear to result from the market's response to transaction disclosure, participant self‐selection, or general price reversals. Thus, evidence suggests that insiders use PVFs to diversify firm‐specific holdings in anticipation of performance declines.

This paper exploits a new source of variation in Head Start funding to identify the program's effects on health and schooling. In 1965 the Office of Economic Opportunity (OEO) provided technical assistance to the 300 poorest counties to develop Head Start proposals. The result was a large and lasting discontinuity in Head Start funding rates at the OEO cutoff for grant-writing assistance. We find evidence of a large drop at the OEO cutoff in mortality rates for children from causes that could be affected by Head Start, as well as suggestive evidence for a positive effect on educational attainment.

This article uses a unique option data set to provide detailed descriptive statistics on the purchased and written open interest and open buy and sell volume of several classes of investors. We also show that volatility trading through straddles and strangles accounts for a small fraction of option trading volume and presents evidence that a large percentage of call writing is part of covered call positions. Finally, we find that during the stock market bubble of the late 1990s and early 2000 the least sophisticated investors in the data set substantially increased their purchases of calls on growth but not value stocks.

The acquisition of a partial stake in a target firm has been positively linked to the likelihood that the target will be involved in a follow on full acquisition involving either the original bidder or a third party bidder. Existing studies provide only suggestive evidence of this linkage by comparing the abnormal returns to partial targets that are ultimately acquired to those that are not. Using a sample of partial acquisitions, we identify characteristics that impact the probability of a full acquisition and provide a tangible link between partial target gains and the ex ante probability of acquisition. Partial targets experience positive announcement effects, and the gains are greater for subsequently acquired targets. Partial bids initiated by corporate bidders are more likely to result in a full acquisition, and the size of the acquired stake and the level of institutional ownership are positively linked to the probability of acquisition. Further, the partial target gains are positively linked to the ex ante probability of acquisition even after controlling for any increased monitoring and discipline that the partial bidder is expected to impose. The findings are robust across various time horizons and model specifications.

This paper analyzes the relationship between the diffusion of new technologies and the decentralization of firms. Centralized control relies on the information of the principal, which we equate with publicly available information. Decentralized control, on the other hand, delegates authority to a manager with superior information. However, the manager can use his informational advantage to make choices that are not in the best interest of the principal. As the available public information about the specific technology increases, the tradeoff shifts in favor of centralization. We show that firms closer to the technological frontier, firms in more heterogeneous environments, and younger firms are more likely to choose decentralization. Using three data sets on French and British firms in the 1990s, we report robust correlations consistent with these predictions.

In recent years, many companies have emphasized adjusted-GAAP earnings numbers in their quarterly press releases. While managers use different names to describe these nonstandard earnings metrics, the financial press frequently refers to them as “pro forma” earnings. Managers and other advocates of pro forma reporting argue that these disclosures provide a clearer picture of companies' core earnings. On the other hand, regulators, policymakers, and the financial press often allege that managers' pro forma earnings disclosures are opportunistic attempts to mislead investors. Recent evidence suggests that while many pro forma earnings disclosures are altruistically motivated, some may represent managers' attempts to portray overly optimistic financial performance. If this is the case, then less wealthy, less sophisticated, individual investors are arguably the most at risk of being misled. Consequently, this study investigates who trades on pro forma earnings information. Our intraday investigation of transactions around earnings announcements containing pro forma earnings information reveals that less sophisticated investors' announcement-period abnormal trading is significantly positively associated with the magnitude and direction of the earnings surprise based on pro forma earnings. In contrast, we find no association between sophisticated investors' trading and manager-reported pro forma information. Overall, our analyses and numerous robustness tests suggest that the segment of the market that relies on pro forma earnings information is populated predominantly by less sophisticated individual investors. This evidence is particularly relevant to standard-setters and regulators given that Section 401(b) of the Sarbanes-Oxley Act of 2002 and subsequent SEC regulations are specifically designed to protect ordinary investors from misleading pro forma information.