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During recent years, financial economists have made a significant contribution to the rapid development of a vibrant and growing literature on organization structure and corporate governance. In reviewing the development of this literature, it becomes easy to see how the seminal contributions of Ronald Coase (awarded the Nobel Prize in Economics in 1991) have become the cornerstone of a new institutional economics. In particular, researchers following in Coase’s footsteps have clarified the conditions under which voluntary contracts between private agents can resolve a wide variety of so-called “agency problems.” More than just representing an important discovery of the significance of transaction costs and property rights for the institutional structure and functioning of the economy, Coase’s work has become an important foundation for the theory of contracts and for the whole field of “organization economics.”

The purpose of this study is to review the capital budgeting literature over the past decade.

Specifically, over the years 2004–2013, we review works appearing in the major academic journals in accounting, finance, and management. Further, we review the specialized academic journals in management accounting. We examine the frequency of articles by journal and year published, the type of research method applied, and the topic area studied. We then review the research findings by topic area.

We find 110 articles appearing in the selected journals. While the articles increase in frequency, the research methods applied are predominantly analytical and archival in nature with relatively few experiments, case studies, or surveys. Some progress is observed for capital budgeting techniques and new methods for structuring uncertainty. The studies find that the size of capital budgets is about right for companies with high financial reporting quality, for liquid companies, during periods of normal cash flow, when the budget is financed by equity, for companies when they first go public or first go private. Tax rates and financial reporting methods for depreciation and tax expenses distort capital budgets. Organization structure and performance measurement can distort capital budgeting. Individual differences, especially optimism and honesty, can influence capital budgeting decisions.

This review is limited to the major journals in accounting, finance, and management; and the specialized journals in management accounting. There is much research to be done on capital budgeting, especially case studies of actual practice and experiments related to individual and group decision processes.

We examine the influence of ownership structure on a blockholder’s power in a firm. We first describe the presence and ownership stakes of blockholders in a comprehensive sample of US firms. We develop a measure of the influence of the ownership structure on a blockholder’s power and show that an average blockholder loses 12% of her potential power due to the presence and size of the ownership stakes of other blockholders. Further, the influence of ownership structure varies systematically with a blockholder’s rank and identity, with the second and nonfamily manager blockholders experiencing the largest loss of power.

In this chapter we investigate whether the pricing of IPOs on Europe’s new stock market differs from that of IPOs on main market segments. We report a 22.3 percentage point difference in the average first-day return of new market IPOs (34.3%) and the average first-day return of main market IPOs (12%). We show that reduced incentives to control wealth losses and different firm and offer characteristics partially explain the higher average first-day return on new market segments. We also find that the bundling of IPO deals has been more important to control underpricing costs on new market than on main market segments.

Some commentators suggest that the Wall Street views family firms with scepticism. The appointment of independent directors to form a majority on a firm's board of directors should constitute a strong signal to the market of a family firm's willingness to be monitored objectively and thus should alleviate Wall Street's scepticism. This is likely to be more important for the newly public family firms than for mature family firms since outsider-domination on the board pre-dates the involvement of other outsiders, such as underwriters, financial analysts, or institutional investors. Whether the presence of an independent board alleviates the market's scepticism may be evident in the responses of various external monitoring entities to the newly public family and non-family firms. Using a hand-collected sample of newly public firms, we cast brand-new light on whether an independent board provides any advantage to the newly public family firms in underwriter reputation, analyst coverage, and investment by institutional investors over newly public non-family firms. We find that independence of board of directors is overall a positive signal and that while the independence of board is more important than the independence of management for underwriters and financial analysts, the reverse is the case for institutional investors.

This paper investigates the relationship between divestiture activity and subsequent acquisition deal-making. We argue that the divestiture activity of firms influences their acquisition behavior through corporate restructuring learning effects and enhanced strategic flexibility. These organizational spillovers affect not only the degree of risk acquirers are ready to take but also their ability to effectively negotiate with the target firm. We test the existence of organizational spillovers for an international sample of 4,795 acquirers for the period 1990–2008 and get support for our theoretical predictions.

“Valleys” make for interesting analogies. They are geological depressions that can reflect the struggles and lows sometimes experienced with equity and diversity work. Carved out by ancient glaciers, valleys lend themselves to critical comparisons to the glacial pace that frequently characterizes the change in higher education. But when tagged with the noun “hope,” glaciers represent the work of carving out new forms, shapes, avenues, and their amazing transformative power to change landscapes. The aspiration and desire for change, the wish for something better, and acting intelligently and intentionally on ambitious equity and diversity goals make “Valleys of Hope” an apt analogy of the higher education landscape that describes the University of Minnesota’s equity and diversity journey and successes. Carpe Diem, a Latin phrase frequently translated to mean “seize the day,” is in our chapter title because we felt it appropriately conveyed how two consecutive equity and diversity leaders harnessed the zeitgeist of campus strategic initiatives to rally their campus communities around equity and diversity imperatives. Carpe Diem sometimes connotes a focus on the present versus the future. Yet, in our view visions and initiatives anchored in core values have in fact a surprising omnipresence and permanence over time. We share two leadership “acts” with readers in this chapter.

The premise of this discussion is that private equity players intend to create real options that maximize the value derived from potential movement in the worth of the underlying business platform. This intended maximization occurs when the current value of the exercise instrument equals the current value of the underlying asset (so the option is at the money). It is also clear that when the time horizons of different arrangements tend to be consistent (as tends to happen in private equity arrangements) the attraction will be for higher volatility. The actions often criticized in the media are readily understandable in this context. For example, private equity partnerships are criticized for “borrowing heavily to buy companies, breaking them up, and selling off the pieces at huge profits.” Even before exiting, the private equity players separate the acquisitions into business units and asset pools. This changes an option on a portfolio into a portfolio of options, and we know from option pricing theory that the resulting position is worth more than the starting point.

Private equity partnerships also have been criticized for putting acquisitions into debt to receive dividends. Upon acquisition of a new business platform (perhaps composed of multiple business units) the private equity firm has paid a substantial premium for an option on a portfolio. After separating it into multiple options on different business units, the private equity firm might understandably want to sell assets that do not need to be owned (but could be leased instead), thereby reducing their equity investment and bringing the options closer to the money. Then additional borrowing (and withdrawal of dividends) again brings the options closer to the money.

In order to illustrate the nuances of private equity as real options, we include discussion of three recent cases, each illustrating one of the common paths followed in private equity.

This study investigates, both theoretically and empirically, the effects of joint ventures on traffic. Although alliances are a pre-condition for joint ventures, both cooperation agreements are different in their nature. The reason is that alliances are revenue-sharing agreements, whereas joint ventures also involve a cost-sharing commitment. Our empirical analysis focuses on the transatlantic market, including non-stop routings (interhub markets) and one-stopover routings (interline markets). Our theoretical and empirical findings emphasize the relevance of economies of traffic density and reveal a positive effect of joint ventures on traffic, both in interhub and interline markets.

In the mid-1970s, China's economy had only two forms of public ownership: state ownership and collective ownership. In the agricultural sector, virtually all production was organized into collectively owned Production Brigades (villages) and People's Communes (townships or groups). In industry, SOEs accounted for 80% of total industrial output, with the remaining 20% shared by urban and rural collectives. By the late 1990s, SOEs and collectives accounted for less than 50% of GDP (International Finance Corporation, 2000; p. 18). Transformation of the ownership of production has undoubtedly been one of the key components of China's successful reform program. This has been achieved through combined efforts: privatization of agricultural production on collectively owned land; new entry of collectively owned industrial enterprises, especially township and village enterprises (TVEs), and their subsequent privatization; new entry of foreign-invested and domestic private enterprises; and ownership transformation of existing SOEs (Mako & Zhang, 2003).