Joanna Tyrowicz

1

• Joanna Tyrowicz
• Transaction cost economics

Institutional Economics
2
But I thought you were going to talk about
econometrics?!

• TC empirics as opposed to AP empirics
• First generation of TC empirics
• Methods
• Limits
• Examples
• Second generation of TC empirics
• Methods
• Future outlooks
• Examples see the list
• AP empirics
• Methods
• Limitations
• Examples agency theory of dividend taxation
• Conclusions

3
Formal and informal agreements

• The concept of governance has exploded into
  fashion over the last three decades.
• Papers that mention it in the title or abstract
  (data from EconLit)
• 1970-79 3,
• 1980-89 112,
• 1990-99 3825,
• 2000-05 7948
• For example, if governance of arms length
  contracts is poor, that raises transaction costs
  of using the market and therefore favours
  integration - vertical for transactions in
  intermediate inputs, and horizontal, vertical, or
  conglomerate for internal financing.
• This can explain the large family-owned
  conglomerates in LDCs.

4
Formal and informal agreements

• Formal
• Constitution, legislation, policing, courts,
  regulatory agencies, ...
• Informal
• Social networks for search and information
• Norms of behavior, and sanctions for enforcement
  against violations of norms
• Private adjudication and enforcement (non-profit
  or for-profit)

5
Categories of situations needing governance

• Predation.
• One-sided, involuntary.
• Pertains mostly to property rights.
• Not just theft but other violations of property
  rights, especially intellectual property.
• Special problem government or its agents may
  themselves be the predators.
• Mutual insurance and gift-exchange.
• Transfer in one direction at one time, with
  non-specific obligation to reciprocate.
• Non-specificity makes these hard to govern need
  very close relation or a dominant party.
• Example Don Corleones gift to the undertaker

6
Categories of situations needing governance

• Borrowing and lending, selling for delayed
  payment, selling experience goods.
• Transfer occurs in one direction at one time,
  with specific obligation to reciprocate.
• This is the classic one-sided prisoners dilemma
  Hobbes, Williamson, Greif etc.
• Trade, exchange of goods or services for other
  goods or services or money.
• Transfer in both directions, so two-sided
  prisoners' dilemma, matched from population.
• Exists in all economic transactions except purely
  spot exchanges.
• Example Gambettas cattle rancher and butcher
• Contribution to provision of public goods, or
  preservation of common property resources.
• Multi-person prisoners dilemmas.
• Examples Elinor Ostroms case studies

7
TC empirics and AP empirics

• Basic TC empirics
• Contracting decision
• To contract or not to contract
• G GC if VCgtValternative
• Galternative otherwise
• VC f(X, eC), Valternativef(X, ealternative),
• X conditioning variables, ßX and aX
  conditioning sets
• Pr(G GC) Pr(VC gt Valternative)
  Pr(ealternative-eC lt (ß-a)X)
• Typically, a probit/logit approach, sometimes OLS
• How long should the contract last?
• max VC(t) Valternative(T-t)
• VC (t , X, e) ß0 ß1t ß2 X e
• Valternative (t , X, e) a0 a1t a2X e
• Predict optimal t (contract duration)
• Typically, left-censored, MLE, problem with
  unobserved heteroscedasticity

8
TC empirics and AP empirics

• Basic AP empirics
• Any transaction is a contract gt no sense to ask
  why they emerge ?
• Contracts are by assumption complete (every
  contingency, best outcome given the ex ante
  information, always enforceable)
• Receipt
• Optimise the behaviour of each party,
• play a game,
• choose PBNE or any other E,
• Optimality arises from risk sharing and alignment
  of incentives
• Test
• To get testable implications, introduce TC
• Typically, try to estimate the size of agency
  problem consequences gt any suitable econometric
  method

9
Traditional TC empirics

• Evaluate probability that G will will be be
  chosen chosen over over alternative alternative
  governance governance forms forms
• Investigate whether evidence is consistent with
  TCE predictions (G), i.e. whether the chosen GS
  is ALIGNED with the characteristics of the
  transaction(s).
• Indirect testing of the propositions!
• Many testable propositions
• Make-or-Buy issues, contractual choices duration
  price schemes etc
• More than 600 empirical studies of TCEs
  predictions

10
Traditional TC empirics

• Examples
• Allen and Lueck (1992) examined the use of
  written versus oral leases for farmland gt lands
  requiring investment had written contracts,
• Lyons (1994) for UK engineering subcontractors gt
  the more (customer) specific the production, the
  higher the prob. of formal contract
• Joskow (1987) for coal mines-electricity plants
  contracts gt duration of app. 11Y greater in
  Western states (coal heterogeneous, mines larger,
  distances greater, transportation alternatives
  fewer), than in the eastern U.S.(opposite), with
  Midwestern coal contracts intermediate by app.
  12 years contracts longer for coal supplied at
  mouth of mine contract duration increased by an
  additional 13 years for additional million tons
  of coal
• Bercovitz (1998) finds that the duration of
  franchise agreements are significantly longer the
  larger franchisee initial investments (specific
  investment, hold-up problem)

11
Shortcomings of traditional TC empirics

• Shows conformity with predictions, but not, that
  it matters (performance)
• What is lost due to second-best?
• If performance evaluated on contractual
  agreements, Heckman selection bias
• Two-stage procedure requires variables linked to
  contractual choice, but not to performance (any
  ideas?)
• Any solutions?
• Try to estimate MISALIGNMENT (Gobserved-Gpredicted
  ), see if it matters in the performance equation
  (still selection bias, but ...)
• Use of natural experiments (like deregulation)

12
Modern TC empirics

• Static prediction the more misaligned you are,
  the poorer the performance
• All the statistical problems require specific
  data (if available, possible)
• Generally empirics in line with predictions see
  the list
• Dynamic prediction the more misaligned you are,
  the more likely your GS to change
• Since dynamic, use diff-in-diff estimator (no
  endogeneity problems)
• Either firm survival... see the list
• ... or modification of structure... see the
  list
• ... or modification of contractual agreement see
  the list
• Structural prediction the type of misalignment
  matters more than misalignment itself
• Positive (contracts too long, too much inhouse)
• Negative (contracts too short, too little
  inhouse)
• Explore contermporaneous differentiation and
  varied impact measures (innovation or head count
  instead of profit, etc.) see the list

13
AP empirics

• An agency theory of dividend taxation, Chetty,
  Saez (2007)
• Managers and shareholders have conflicting
  interests
• Efficiency cost of divident taxation
• If the contract is efficient (second best),
  distortion small
• If the contract inefficient (second best),
  distortion large efficiency cost
• Contracts likely to be inefficient with dispersed
  shareholders (small bargaining power, large free
  riding incentives)
• Calibrate to changes in US legal framework in
  2003 and find that efficiency cost was comparable
  in size to taxes raised (strong redistribution!!!)

14
Cash-flow investment sensitivity
MILLER-MODIGLIANI, AND SIGNIFICANT CORRELATION?
INFORMATION ASYMMETRY (Greenwald,
Stiglitz, Weiss 1984)
MANAGERIAL DISCRETION (Jensen 1986 Vogt 1994)
15
What is GOOD investment?

• Value to the shareholders!
• Q theory of investment
• Tobins q discounted marginal returns
• Q marginal versus average (MVA/BVA)
• So we get a testable specification
• I/BVA a ßControlVariables ?CashFlow µ
• But what about AI vs. MD?
• Vogt (1994)
• FHP contra KZ a hot debate...

16
GPW versus RoW

• Age impossible
• Size makes little sense
• Industry too
• The role of the banks...
• Foreign ownership?
• SO?
• Standard AI vs. MD
• Some other measures of corporate governance?
• Changes within companies
• REAL QUESTION What about state ownership?

17
Data

• Source WSE
• Data
• Market capitalisation
• Book value of assets
• Sales
• Cash flows (not directly!)
• State ownership
• CEO
• Polish?
• New?

Q
18
Methodology

• In 2004
• Maximum 7 years of data (1994 opening of WSE)
• Maximum of 158 companies
• Many missing and inconsistent
• What if systematic???
• Panel data, but which way?
• Year as a grouping variable
• Company as a grouping variable

19
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
20
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
21
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
22
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
23
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
24
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
25
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
26
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
27
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
28
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
29
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
30
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
31
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
32
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
-0.77
33
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
34
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
35
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
36
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
37
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
38
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
39
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
40
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
41
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
42
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
43
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
44
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
45
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
46
Results
INVESTMENT STRAIGHT STRAIGHT STANDARDISED STANDARDISED
INVESTMENT COMPANY YEAR COMPANY YEAR
Q 0.18 0.11 0.50 0.29
Sales 0.006 0.07 0.14 0.15
CashFlows 0.45 0.54 0.14 0.15
CashFlows Q - 0.87 - 0.89 - 0.77 - 0.42
State 0.21 0.13 0.76 0.39
State Q - 0.10 - 0.11 - 0.07 - 0.13
NewCEO - 0.03 - 0.03 - 0.12 - 0.03
ForeignCEO - 0.007 - 0.12 - 0.02 - 0.21
No. of observations 510 (158 g) 510 (6 g) 510 (158 g) 510 (6 g)
R2 0.39 0.21 0.40 0.20
47
Overinvestment?

• The role of financial institutions (inter alia)
• Optimal (gt only one!) level of investment
• Optimal (gt the right one!) investors
• What this model shows
• Overinvestment
• Wrong investors
• gt Institutional failure