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We study the events that motivate CEOs to underinvest in R&D long-term projects (CEO myopia). Based on the existing literature in earnings management and agency theory, myopia is likely to become more problematic under five circumstances: when the CEO nears retirement (the CEO horizon problem), R&D projects have very long time horizons (the project horizon problem), the firm’s financial health is deteriorating (the cover-up problem), ownership structure is heavily weighted toward insider owners (minority owner oppression problem), and when the threat of hostile takeover increases (the entrenchment problem). We setup a dynamic simulation model in which rational CEOs maximize the total value of their bonus compensation over their tenure. Our findings related to the five circumstances are consistent with the extant literature. However, we found an unexpected stable, nonlinear (inverted U-shaped) relationship between CEO tenure and R&D investment. We discuss the theoretical implications of our model and offer suggestions for future research.

I survey applications of Markov switching models to the asset pricing and portfolio choice literatures. In particular, I discuss the potential that Markov switching models have to fit financial time series and at the same time provide powerful tools to test hypotheses formulated in the light of financial theories, and to generate positive economic value, as measured by risk-adjusted performances, in dynamic asset allocation applications. The chapter also reviews the role of Markov switching dynamics in modern asset pricing models in which the no-arbitrage principle is used to characterize the properties of the fundamental pricing measure in the presence of regimes.

Bond investing requires decision-making on multiple levels. Some criteria are qualitative, some are quantitative, and there may be conflicting objectives such as avoidance of credit risk versus need for income. Since managers of endowment funds must allocate their assets based on numerous dimensions, a multi-criteria decision model can help to evaluate competing criteria. We describe the Analytical Hierarchy Process (AHP), which allows investors to integrate multiple decision criteria, and apply the model to the sector allocation problem faced by managers of endowment portfolios. The AHP gives rise to a flexible model for bond investors for a range of economic scenarios, risk profiles, and time horizons.

This study empirically examines the relationship between institutional ownership and innovation activity in the unique setting of the clinical trials for US biopharmaceutical companies. We used multiple statistical techniques in the period from 1990 through 2006 for firms in the biopharmaceutical industry to examine this relationship. Contrary to the widely believed relationship discussed in the literature, our findings suggest that institutional investors vary in their reactions to innovative progress. Specifically, we find that institutional investors with a long-term investment horizon (i.e., dedicated owners) increase their holdings of a firm’s equity as the number of the firm’s products increases in phases I and II of FDA clinical trials. These findings are robust for heteroskedasticity and autocorrelation as well as for different operationalizations of the change of institutional ownership.

We examine the effect of firm ownership status on three environmentally relevant variables: energy efficiency, toxic emissions, and spending on pollution abatement. Prior research has demonstrated that public firms invest less than private firms and suggests this difference is due pressure from investors to strongly favor short over long-term earnings. We extend this logic to other firm behavior, examining whether publicly owned facilities invest in energy efficiency and pollution reduction differently than privately owned facilities. Using data from the US Census of Manufactures from 1980 to 2009, information on pollution from the Environmental Protection Agency Toxic Release Inventory (TRI) and pollution abatement spending from the Pollution Abatement Costs and Expenditures survey, we find that facilities switching to public ownership are less energy efficient and spend less on pollution abatement than their privately owned counterparts. However, we also find that facilities switching to public ownership have lower toxic emissions than other facilities. We also examine how different sources of external pressures alter these results and find that increased regulatory scrutiny is correlated with increased energy efficiency, toxic emissions, and abatement spending. More concentrated institutional ownership in public firms is associated with lower energy efficiency as is a greater brand focus. These latter results are broadly consistent with the idea that publicly owned firms respond to pressures from investors with a reduced focus on environmentally relevant variables. However, since facilities switching to public ownership have lower toxic emissions, this suggests that there are two competing pressures in publicly owned facilities: cost pressures, consistent with lowered energy efficiency, and public perceptions, consistent with lower toxic emissions, particularly since TRI data became available. In this sense, the combination of ownership and transparency of information appears to influence how firms prioritize different stakeholders.

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.

The aim of this chapter is to propose a critical analysis of socially responsible investing (SRI) through debate and reconstruction. Our goal is therefore to try to understand how the definition of ethics in finance has steered SRI towards a financial approach where ethics is guided by finance.

This chapter proposes a two-point approach consisting of a meta-debate and development perspectives. Each approach is divided into three debates (ideological and philosophical, scientific and practical), which are interconnected.

The chapter concludes that the debate on mainstream SRI is necessary but should be re-discussed, as it is preventing in its current form the concept from developing and being grounded in real ethical values, sacrificing the individual ethics that should be driving investing decisions.

The chapter proposes to rethink the paradigm around SRI through a conceptual framework that re-inserts finance within ethics, where non-financial performance and impact investment should be at the centre of the scientific debates, leading to an SRI based on exclusion, the consideration of controversies and social impact measurement.

Family controlled businesses (FCBs) have been found to out-survive and out-earn non-FCBs, and their market valuations reflect that. This edge may be attributed in part to the agency- and stewardship-related consequences of ownership – consequences that via organization governance and design allow many family businesses not only to reap advantages of continuity and focus (“exploitation”), but also to reorient themselves when needed (“exploration”). These capacities rest on qualities such as owners’ discretion, knowledge and incentives, and their stewardship over the mission, core capabilities, people, and external relationships of the firm. We suggest a research agenda to investigate these issues.