Essays on corporate governance, stakeholders, and restructuring

This dissertation consists of an introductory section and three theoretical essays analyzing the interaction of corporate governance and restructuring. The essays adopt an incomplete contracts approach and analyze the role of different institutional designs to facilitate the alignment of the objectives of shareholders and management (or employees) over the magnitude of corporate restructuring. The first essay analyzes how a firm's choice of production technology affects the employees' human capital investment. In the essay, the owners of the firm can choose between a specific and a general technology that both require a costly human capital investment by the employees. The specific technology is initially superior in using the human capital of employees but, in contrast to the general technology, it is not compatible with future innovations. As a result, anticipated changes in the specific technology diminish the ex ante incentives of the employees to invest in human capital unless the shareholders grant the employees specific governance mechanisms (a right of veto, severance pay) so as to protect their investments. The results of the first essay indicate that the level of protection that the shareholders are willing to offer falls short of the socially desirable one. Furthermore, when restructuring opportunities become more abundant, it becomes more attractive both socially and from the viewpoint of the shareholders to initially adopt the general technology. The second essay analyzes how the allocation of authority within the firm interacts with the owners' choice of business strategy when the ability of the owners to monitor the project proposals of the management is biased in favor of the status quo strategy. The essay shows that a bias in the monitoring ability will affect not only the allocation of authority within the firm but also the choice of business strategy. Especially, when delegation has positive managerial incentive effects, delegation turns out to be more attractive under the new business strategy because the improved managerial incentives are a way for the owners to compensate their own reduced information gathering ability. This effect, however, simultaneously makes the owners hesitant to switch the strategy since it would involve a more frequent loss of control over the project choice. Consequently, the owners' lack of knowledge of the new business strategy may lead to a suboptimal choice of strategy. The third essay analyzes the implications of CEO succession process for the ideal board structure. In this essay, the presence of the departing CEO on the board facilitates the ability of the board to find a matching successor and to counsel him. However, the ex-CEO's presence may simultaneously also weaken the ability of the board to restructure since the predecessor may use the opportunity to distort the successor's project choice. The results of the essay suggest that the extent of restructuring gains, the firm's ability to hire good outside directors and the importance of board's advisory role affect at which point and for how long the shareholders may want to nominate the predecessor to the board.

Kin selection, social polymorphism, and reproductive allocation in ants

Social groups are common across animal species. The reasons for grouping are straightforward when all individuals gain directly from cooperating. However, the situation becomes more complex when helping entails costs to the personal reproduction of individuals. Kin selection theory has offered a fruitful framework to explain such cooperation by stating that individuals may spread their genes not only through their own reproduction, but also by helping related individuals reproduce. However, kin selection theory also implicitly predicts conflicts when groups consist of non-clonal individuals, i.e. relatedness is less than one. Then, individual interests are not perfectly aligned, and each individual is predicted to favour the propagation of their own genome over others. Social insects provide a solid study system to study the interplay between cooperation and conflict. Breeding systems in social insects range from solitary breeding to eusocial colonies displaying complete division of reproduction between the fertile queen and the sterile worker caste. Within colonies, additional variation is provided by the presence of several reproductive individuals. In many species, the queen mates multiply, which causes the colony to consist of half-sib instead of full-sib offspring. Furthermore, in many species colonies contain multiple breeding queens, which further dilutes relatedness between colony members. Evolutionary biology is thus faced with the challenge to answer why such variation in social structure exists, and what the consequences are on the individual and population level. The main part of this thesis takes on this challenge by investing the dynamics of socially polymorphic ant colonies. The first four chapters investigate the causes and consequences of different social structures, using a combination of field studies, genetic analyses and laboratory experiments. The thesis ends with a theoretical chapter focusing on different social interactions (altruism and spite), and the evolution of harming traits. The main results of the thesis show that social polymorphism has the potential to affect the behaviour and traits of both individuals and colonies. For example, we found that genetic polymorphism may increase the phenotypic variation between individuals in colonies, and that socially polymorphic colonies may show different life history patterns. We also show that colony cohesion may be enhanced even in multiple-queen colonies through patterns of unequal reproduction between queens. However, the thesis also demonstrates that spatial and temporal variation between both populations and environments may affect individual and colony traits, to the degree that results obtained in one place or at one time may not be applicable in other situations. This opens up potential further areas of research to explain these differences.

Essays on Earnings Management (summary section only)

There is much literature developing theories when and where earnings management occurs. Among the several possible motives driving earnings management behaviour in firms, this thesis focuses on motives that aim to influence the valuation of the firm. Earnings management that makes the firm look better than it really is may result in disappointment for the single investor and potentially leads to a welfare loss in society when the resource allocation is distorted. A more specific knowledge of the occurrence of earnings management supposedly increases the awareness of the investor and thus leads to better investments and increased welfare. This thesis contributes to the literature by increasing the knowledge as to where and when earnings management is likely to occur. More specifically, essay 1 adds to existing research connecting earnings management to IPOs and increases the knowledge in arguing that the tendency to manage earnings differs between the IPOs. Evidence is found that entrepreneur owned IPOs are more likely to be earnings managers than the institutionally owned ones. Essay 2 considers the reliability of quarterly earnings reports that precedes insider selling binges. The essay contributes by suggesting that earnings management is likely to occur before high insider selling. Essay 3 examines the widely studied phenomenon of income smoothing and investigates if income smoothing can be explained with proxies for information asymmetry. The essay argues that smoothing is more pervasive in private and smaller firms.

Maximum Loss Calculation using Scenario Analysis, Heavy Tails and Implied Volatility Patterns

The objective of this paper is to improve option risk monitoring by examining the information content of implied volatility and by introducing the calculation of a single-sum expected risk exposure similar to the Value-at-Risk. The figure is calculated in two steps. First, there is a need to estimate the value of a portfolio of options for a number of different market scenarios, while the second step is to summarize the information content of the estimated scenarios into a single-sum risk measure. This involves the use of probability theory and return distributions, which confronts the user with the problems of non-normality in the return distribution of the underlying asset. Here the hyperbolic distribution is used to describe one alternative for dealing with heavy tails. Results indicate that the information content of implied volatility is useful when predicting future large returns in the underlying asset. Further, the hyperbolic distribution provides a good fit to historical returns enabling a more accurate definition of statistical intervals and extreme events.

Urban ecosystem services at the plant-soil interface

Continuing urbanization is a crucial driver of land transformation, having widespread impacts on virtually all ecosystems. Terrestrial ecosystems, including disturbed ones, are dependent on soils, which provide a multitude of ecosystem services. As soils are always directly and/or indirectly impacted through land transformation, land cover change causes soil change. Knowledge of ecosystem properties and functions in soils is increasing in importance as humans continue to concentrate into already densely-populated areas. Urban soils often have hampered functioning due to various disturbances resulting from human activity. Innovative solutions are needed to bring the lacking ecosystem services and quality of life to these urban environments. For instance, the ecosystem services of the urban green infrastructure may be substantially improved through knowledge of their functional properties. In the research forming this thesis, the impacts of four plant species (Picea abies, Calluna vulgaris, Lotus corniculatus and Holcus lanatus) on belowground biota and regulatory ecosystem services were investigated in two different urban soil types. The retention of inorganic nitrogen and phosphorus in the plant-soil system, decomposition of plant litter, primary production, and the degradation of polycyclic aromatic hydrocarbons (PAHs) were examined in the field and under laboratory conditions. The main objective of the research was to determine whether the different plant species (representing traits with varying litter decomposability) will give rise to dissimilar urban belowground communities with differing ecological functions. Microbial activity as well as the abundance of nematodes and enchytraeid worm biomass was highest below the legume L. corniculatus. L. corniculatus and the grass H. lanatus, producing labile or intermediate quality litter, enhanced the proportion of bacteria in the soil rhizosphere, while the recalcitrant litter-producing shrub C. vulgaris and the conifer P. abies stimulated the growth of fungi. The loss of nitrogen from the plant-soil system was small for H. lanatus and the combination of C. vulgaris + P. abies, irrespective of their energy channel composition. These presumably nitrogen-conservative plant species effectively diminished the leaching losses from the plant-soil systems with all the plant traits present. The laboratory experiment revealed a difference in N allocation between the plant traits: C. vulgaris and P. abies sequestered significantly more N in aboveground shoots in comparison to L. corniculatus and H. Lanatus. Plant rhizosphere effects were less clear for phosphorus retention, litter decomposition and the degradation of PAH compounds. This may be due to the relatively short experimental durations, as the maturation of the plant-soil system is likely to take a considerably longer time. The empirical studies of this thesis demonstrated that the soil communities rapidly reflect changes in plant coverage, and this has consequences for the functionality of soils. The energy channel composition of soils can be manipulated through plants, which was also supported by the results of the separate meta-analysis conducted in this thesis. However, further research is needed to understand the linkages between the biological community properties and ecosystem services in strongly human-modified systems.

Production process of Scots pine.

The accompanying collective research report is the result of the research project in 1986­90 between The Finnish Academy and the former Soviet Academy of Sciences. The project was organized around common field work in Finland and in the former Soviet Union and theoretical analyses of tree growth determining processes. Based on theoretical analyses, dynamic stand growth models were made and their parameters were determined utilizing the field results. Annual cycle affects the tree growth. Our theoretical approach was based on adaptation to local climate conditions from Lapland to South Russia. The initiation of growth was described as a simple low and high temperature accumulation driven model. Linking the theoretical model with long term temperature data allowed us to analyze what type of temperature response produced favorable outcome in different climates. Initiation of growth consumes the carbohydrate reserves in plants. We measured the dynamics of insoluble and soluble sugars in the very northern and Karelian conditions. Clear cyclical pattern was observed but the differences between locations were surprisingly small. Analysis of field measurements of CO2 exchange showed that irradiance is the dominating factor causing variation in photosynthetic rate in natural conditions during summer. The effect of other factors is so small that they can be omitted without any considerable loss of accuracy. A special experiment carried out in Hyytiälä showed that the needle living space, defined as the ratio between the shoot cylindric volume and needle surface area, correlates with the shoot photosynthesis. The penetration of irradiance into Scots pine canopy is a complicated phenomenon because of the movement of the sun on the sky and the complicated structure of branches and needles. A moderately simple but balanced forest radiation regime submodel was constructed. It consists of the tree crown and forest structure, the gap probability calculation and the consideration of spatial and temporal variation of radiation inside the forest. The common field excursions in different geographical regions resulted in a lot of experimental data of regularities of woody structures. The water transport seems to be a good common factor to analyse these properties of tree structure. There are evident regressions between cross-sectional areas measured at different locations along the water pathway from fine roots to needles. The observed regressions have clear geographical trends. For example, the same cross-sectional area can support three times higher needle mass in South Russia than in Lapland. Geographical trends can also be seen in shoot and needle structure. Analysis of data published by several Russian authors show, that one ton of needles transpire 42 ton of water a year. This annual amount of transpiration seems to be independent of geographical location, year and site conditions. The produced theoretical and experimental material is utilised in the development of stand growth model that describes the growth and development of Scots pine stands in Finland and the former Soviet Union. The core of the model is carbon and nutrient balances. This means that carbon obtained in photosynthesis is consumed for growth and maintenance and nutrients are taken according to the metabolic needs. The annual photosynthetic production by trees in the stand is determined as a function of irradiance and shading during the active period. The utilisation of the annual photosynthetic production to the growth of different components of trees is based on structural regularities. Since the fundamental metabolic processes are the same in all locations the same growth model structure can be applied in the large range of Scots pine. The annual photosynthetic production and structural regularities determining the allocation of resources have geographical features. The common field measurements enable the application of the model to the analysis of growth and development of stands growing on the five locations of experiments. The model enables the analysis of geographical differences in the growth of Scots pine. For example, the annual photosynthetic production of a 100-year-old stand at Voronez is 3.5 times higher than in Lapland. The share consumed to needle growth (30 %) and to growth of branches (5 %) seems to be the same in all locations. In contrast, the share of fine roots is decreasing when moving from north to south. It is 20 % in Lapland, 15 % in Hyytiälä Central Finland and Kentjärvi Karelia and 15 % in Voronez South Russia. The stem masses (115­113 ton/ha) are rather similar in Hyytiälä, Kentjärvi and Voronez, but rather low (50 ton/ha) in Lapland. In Voronez the height of the trees reach 29 m being in Hyytiälä and Kentjärvi 22 m and in Lapland only 14 m. The present approach enables utilization of structural and functional knowledge, gained in places of intensive research, in the analysis of growth and development of any stand. This opens new possibilities for growth research and also for applications in forestry practice.

Critical leg ischaemia with tissue loss : a challenge for the vascular surgeon

There is a widespread reporting habit of combining the outcomes for patients with rest pain (Fontaine III) and tissue loss (Fontaine IV) under the single category of critical leg ischaemia (CLI). This study focused on patients with ischaemic tissue loss treated with infrainguinal bypass surgery (IBS). All patients included in the study were treated at Helsinki University Central Hospital in 2000-2007. First, ulcer healing time after IBS and factors influencing healing time were prospectively assessed in 2 studies including 148 and 110 patients, respectively. Second,the results of redo IBS were retrospectively evaluated in 593 patients undergoing primary IBS for CLI with tissue loss . Third,long-term outcome were retrospectively analysed in 636 patients who underwent IBS for CLI with tissue loss . Fourth, the outcome of IBS was retrospectively compared with endovascular treatment (PTA) of the infrapopliteal arteries in 1023 CLI patients. Fifth, the influence multidrug resistant Pseudomans aeruginosa (MDR Pa) bacteria contamination in CLI patients treated with IBS was retropectively assessed. Sixty-four patients with positive MDR Pa -culture were matched with 64 MDR Pa - negative controls. Complete ulcer healing rate, including the ischemic ulcers and incisional wounds, was 40% at 6 months after IBS and 75% at one year. Diabetes was a risk factor for prolonged complete ulcer healing time. Ischaemic tissue lesions located in mid-and hindfoot healed poorly. At one year after IBS 50% of the patients were alive with salvaged leg and completely healed ulcers. The absence of gap between tertiary graft patency and leg salvage rates indicates the importance of a patent infrainguinal graft to save a leg with ischaemic tissue loss. Long-term survival for patients with ischaemic tissue loss was poor, 38% at 5 years. Only 30% of the patients were alive without amputation at 5 years. Several of the patient comorbidities increased independently the mortality risk; coronary artery disease, renal insufficiency, chronic obstructive lung disease and high age. When both PTA and bypass is feasible, infrapopliteal PTA as a first-line strategy is expected to achieve similar long-term results to bypass surgery in CLI when redo surgery is actively utilized. MDR Pa in a patient with CLI should be considered as a serious event with increased risk of early major amputation or death. Conclusion: Despite a successful infrainguinal bypass healing of the ischaemic ulcers and incisional wounds ulcer healing is a slow process especially in diabetics. Bypass surgery and PTA improve the outcome of the ischaemic leg but the mortality rate of the patients is high due to their severe comorbidities.

High-risk patients and high-risk grafts in infrainguinal bypass for critical limb ischaemia

The main purpose of revascularization procedures for critical limb ischaemia (CLI) is to preserve the leg and sustain the patient s ambulatory status. Other goals are ischaemic pain relief and healing of ischaemic ulcers. Patients with CLI are usually old and have several comorbidities affecting the outcome. Revascularization for CLI is meaningless unless both life and limb are preserved. Therefore, the knowledge of both patient- and bypass-related risk factors is of paramount importance in clinical decision-making, patient selection and resource allocation. The aim of this study was to identify patient- and graft-related predictors of impaired outcome after infrainguinal bypass for CLI. The purpose was to assess the outcome of high-risk patients undergoing infrainguinal bypass and to evaluate the usefulness of specific risk scoring methods. The results of bypasses in the absence of optimal vein graft material were also evaluated, and the feasibility of the new method of scaffolding suboptimal vein grafts was assessed. The results of this study showed that renal insufficiency - not only renal failure but also moderate impairment in renal function - seems to be a significant risk factor for both limb loss and death after infrainguinal bypass in patients with CLI. Low estimated GFR (PIENEMPI KUIN 30 ml/min/1.73 m2) is a strong independent marker of poor prognosis. Furthermore, estimated GFR is a more accurate predictor of survival and leg salvage after infrainguinal bypass in CLI patients than serum creatinine level alone. We also found out that the life expectancy of octogenarians with CLI is short. In this patient group endovascular revascularization is associated with a better outcome than bypass in terms of survival, leg salvage and amputation-free survival especially in presence of coronary artery disease. This study was the first one to demonstrate that Finnvasc and modified Prevent III risk scoring methods both predict the long-term outcome of patients undergoing both surgical and endovascular infrainguinal revascularization for CLI. Both risk scoring methods are easy to use and might be helpful in clinical practice as an aid in preoperative patient selection and decision-making. Similarly than in previous studies, we found out that a single-segment great saphenous vein graft is superior to any other autologous vein graft in terms of mid-term patency and leg salvage. However, if optimal vein graft is lacking, arm vein conduits are superior to prosthetic grafts especially in infrapopliteal bypasses for CLI. We studied also the new method of scaffolding suboptimal quality vein grafts and found out that this method may enable the use of vein grafts of compromised quality otherwise unsuitable for bypass grafting. The remarkable finding was that patients with the combination of high operative risk due to severe comorbidities and risk graft have extremely poor survival, suggesting that only relatively fit patients should undergo complex bypasses with risk grafts. The results of this study can be used in clinical practice as an aid in preoperative patient selection and decision-making. In the future, the need of vascular surgery will increase significantly as the elderly and diabetic population increases, which emphasises the importance of focusing on those patients that will gain benefit from infrainguinal bypass. Therefore, the individual risk of the patient, ambulatory status, outcome expectations, the risk of bypass procedure as well as technical factors such as the suitability of outflow anatomy and the available vein material should all be assessed and taken into consideration when deciding on the best revascularization strategy.