This paper investigates the internal managerial control mechanisms at the disposal of a corporation's compensation-setting board or committee. The hypotheses tested are that both compensation changes and management changes are methods used to control top management, and that the use of these control methods is motivated by changes in the firm's stock price performance. Public data from the period 1977–1980 support our hypotheses. We conclude that the firm's board creates managerial incentives consistent with those of the firm's owners, both by setting compensation and following management change policies which benefit shareholders.

An unsettled issue in the literature relating to the relative wage effect of unions is the appropriate treatment of union status in a wage determination model. In the context of a three-equation model determining union membership and union- and nonunion-sector wage rates, this paper presents an instrumental variables (IV) procedure for estimating the parameters of the wage equations and a test of the exogeneity of union status using the Hausman specification test. An advantage of our IV procedure in comparison to the widely used inverse Mill's ratio procedure is that our procedure is a distribution-free estimator, whereas the inverse Mill's ratio estimator hinges in the assumption that the error term of the choice equation is normally distributed. Using data for a sample of middle-aged white workers, we estimate the parameters of the union and nonunion wage equations with both procedures. On the key question of the endogeneity of union status, the Hausman test decisively rejects the null hypothesis of exogeneity. The inverse Mill's ratio procedure, in contrast, provides coefficient estimates on the selectivity terms that fail to indicate evidence of sample selectivity in either sector.

Studies examining managerial accounting decisions postulate that executives rewarded by earnings-based bonuses select accounting procedures that increase their compensation. The empirical results of these studies are conflicting. This paper analyzes the format of typical bonus contracts, providing a more complete characterization of their accounting incentive effects than earlier studies. The test results suggest that (1) accrual policies of managers are related to income-reporting incentives of their bonus contracts, and (2) changes in accounting procedures by managers are associated with adoption or modification of their bonus plan.

A frequent practice in empirical work is to "preanalyze" the data via various sample inclusion rules. Truncation of "outliers" is common. These procedures are a form of sample censoring imposed by the investigator. Such censoring produces effects familiar from the sample selection literature. This paper investigates the question why an investigator might want to censor a sample and what the costs are. In an empirical example, using a variance components model of a wage equation, potential inconsistency problems are highlighted. The results indicate that while the slope coefficients, <tex-math>\hatβ</tex-math>, may typically be less sensitive to censoring than the variance components, some common forms of censoring also markedly affect <tex-math>\hatβ</tex-math>. Finally, a Bayesian estimator that incorporates prior information in a flexible way was developed. The usual Bayesian procedure was reversed, by using the Bayesian estimator to recover the prior beliefs that an investigator imposes by any proposed truncation of outliers. Especially in large samples, extremely dogmatic prior beliefs may be imposed when outliers are eliminated. Prior distributions of the type developed in the paper may be used by the investigator to clarify the nature of his prior beliefs revealed by a willingness to truncate data points and to assess whether or not any proposed truncation accurately reflects thoes beliefs.

Economists have often found it useful to look at the average length of an unemployment spell in evaluating labor market conditions and in considering the labor market experience of the unemployed. Usually this statistic has to be estimated from grouped observations on interrupted (incomplete) unemployment spells. This paper is a comparative study of some nonparametric and parametric methods of estimating this quantity using Australian Department of Social Security data on unemployment benefit recipients.

The pattern of diversification within U.S. manufacturing between 1963 and 1977 are examined. Firms didn't diversify at random; they were more likely to enter rapidly growing industries, and industries that were related to their primary activities through supply relationships or marketing similarities. Research and development (R & D) expenditures also influence the observed patterns. R & D intensive industries generate outbound diversification and attract inbound diversification. However, the strongest influence is directional; R & D intensive firms channel their diversification toward R & D intensive industries. Much diversification reflects the transfer of sharable organization capital among related activities.

This paper analyzes the impact of business cycle fluctuations on a labor market segmented into a unionized primary sector and a “competitive” secondary sector. Either permanent or temporary changes in real aggregate demand are shown to widen the intersectoral wage differential in recession and, under reasonable specifications of key parameters, to cause greater fluctuations of primary-sector employment than secondary-sector employment. This pattern agrees with the stylized facts of the U. S. economy.