We study the relations between management contract terms and performance in private equity using new data for 837 funds from 1984–2010. We find no evidence that higher fees or lower managerial ownership are associated with lower net-of-fee performance. Nevertheless, compensation rises and shifts to performance-insensitive components during fundraising booms. Further, the behavior of distributions around contractual fee triggers is consistent with an underlying agency conflict between investors and fund managers. Our evidence suggests that managers with higher fees deliver higher gross performance, and highlights that agency costs are an inevitable consequence of the information frictions endemic to agency relationships.

[This paper challenges the widely accepted stylized fact that chief executive officers (CEOs) in the United States are paid significantly more than their foreign counterparts. Using CEO pay data across fourteen countries with mandated pay disclosures, we show that the U.S. pay premium is economically modest and primarily reflects the performance-based pay demanded by institutional shareholders and independent boards. Indeed, we find no significant difference in either level of CEO pay or the use of equity-based pay between U.S. and non-U.S. firms exposed to international and U.S. capital, product, and labor markets. We also show that U.S. and non-U.S. CEO pay has largely converged in the 2000s.]

This paper provides evidence of the impact of hedge accounting under International Financial Reporting Standards (IFRS) on corporate risk man-agement. Using a sample of large UK non-financial firms from 2003 to 2006, we show that the implementation of the new standards reduces the level of asymmetric information faced by derivative users. Specifically, for firms that hedge under IFRS we find that analysts ’ forecast error and dispersion are significantly lower. The paper contributes to prior research on the effects of hedge accounting and on the adoption of IFRS.

We consider the invertibility (injectivity) of a nonparametric nonseparable demand system. Invertibility of demand is important in several contexts, including identification of demand, estimation of demand, testing of revealed preference, and economic theory exploiting existence of an inverse demand function or (in an exchange economy) uniqueness of Walrasian equilibrium prices. We introduce the notion of “connected substitutes” and show that this structure is sufficient for invertibility. The connected substitutes conditions require weak substitution between all goods and sufficient strict substitution to necessitate treating them in a single demand system. The connected substitutes conditions have transparent economic interpretation, are easily checked, and are satisfied in many standard models. They need only hold under some transformation of demand and can accommodate many models in which goods are complements. They allow one to show invertibility without strict gross substitutes, functional form restrictions, smoothness assumptions, or strong domain restrictions. When the restriction to weak substitutes is maintained, our sufficient conditions are also “nearly necessary” for even local invertibility.

Using eight measures of liquidity, and addressing the potential endogeneity of initial returns, we find underpricing generally increases the secondary market liquidity of IPOs over the first year of trading, irrespective of the horizon over which liquidity is measured. For two model specifications over the eight measures, fifteen regressions display signs consistent with higher underpricing increasing liquidity and thirteen of these are statistically significant. We also find higher initial returns are significantly negatively correlated with the probability of informed trade. Furthermore, the liquidity effects of underpricing survive the lockup date, suggesting they are not quickly dissipated.

We study a recent recruitment drive for public sector positions in Mexico. Different salaries were announced randomly across recruitment sites, and job offers were subsequently randomized. Screening relied on exams designed to measure applicants’ intellectual ability, personality, and motivation. This allows the first experimental estimates of (1) the role of financial incentives in attracting a larger and more qualified pool of applicants, (2) the elasticity of the labor supply facing the employer, and (3) the role of job attributes (distance, attractiveness of the municipal environment) in helping fill vacancies, as well as the role of wages in helping fill positions in less attractive municipalities. A theoretical model of job applications and acceptance guides the empirical inquiry. We find that higher wages attract more able applicants as measured by their IQ, personality, and proclivity toward public sector work—that is, we find no evidence of adverse selection effects on motivation; higher wage offers also increased acceptance rates, implying a labor supply elasticity of around 2 and some degree of monopsony power. Distance and worse municipal characteristics strongly decrease acceptance rates, but higher wages help bridge the recruitment gap in worse municipalities.

This paper investigates mega hedge fund management companies that collectively manage over 50% of the industry's assets, incorporating previously unavailable data from those that do not report to commercial databases. We find similarities among mega firms that report performance to commercial databases compared with those that do not. We show that the largest divergences between the performance of reporting and nonreporting mega firms can be traced to differential exposure to credit markets. Thus, the performance of hard-to-observe mega firms can be inferred from observable data. This conclusion is robust to delisting bias and the presence of serially correlated returns.

There exists large and persistent variation in not only how, but when employees are paid, a fact unexplained by existing theory. This paper develops a simple model of optimal pay timing for firms. When workers have self-control problems, they under-save and experience volatile consumption between paychecks. Thus, pay whose delivery matches the timing of workers' consumption needs will reduce wage costs. The model also explains why pay timing should be regulated (as it is in practice): although the worker benefits from a timing profile that smoothes her consumption, her lack of self-control induces her to attempt to undo the arrangement, either by renegotiating with her employer or by taking out payday loans. Regulation of pay timing and consumer borrowing is required to counter these efforts, helping the worker help herself.

This paper describes estimation methods, based on the generalized method of moments (GMM), applicable in settings where time series have different starting or ending dates. We introduce two estimators that are more efficient asymptotically than standard GMM. We apply these to estimating predictive regressions in international data and show that the use of the full sample affects inference for assets with data available over the full period as well as for assets with data available for a subset of the period. Monte Carlo experiments demonstrate that reductions hold for small-sample standard errors as well as asymptotic ones.

Over-the-counter (OTC) stocks are far less liquid, disclose less information, and exhibit lower institutional holdings than do listed stocks. We exploit these different market conditions to test theories of cross-sectional return premiums. Compared with premiums in listed markets, the OTC illiquidity premium is several times higher, the size, value, and volatility premiums are similar, and the momentum premium is three times lower. The OTC illiquidity, size, value, and volatility premiums are largest among stocks held predominantly by retail investors and those not disclosing financial information. Theories of differences in investors' opinions and limits on short sales help explain these return premiums.