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 Risk Modeling. Applications to Portfolio and Risk Management (summary section only)

In this thesis we deal with the concept of risk. The objective is to bring together and conclude on some normative information regarding quantitative portfolio management and risk assessment. The first essay concentrates on return dependency. We propose an algorithm for classifying markets into rising and falling. Given the algorithm, we derive a statistic: the Trend Switch Probability, for detection of long-term return dependency in the first moment. The empirical results suggest that the Trend Switch Probability is robust over various volatility specifications. The serial dependency in bear and bull markets behaves however differently. It is strongly positive in rising market whereas in bear markets it is closer to a random walk. Realized volatility, a technique for estimating volatility from high frequency data, is investigated in essays two and three. In the second essay we find, when measuring realized variance on a set of German stocks, that the second moment dependency structure is highly unstable and changes randomly. Results also suggest that volatility is non-stationary from time to time. In the third essay we examine the impact from market microstructure on the error between estimated realized volatility and the volatility of the underlying process. With simulation-based techniques we show that autocorrelation in returns leads to biased variance estimates and that lower sampling frequency and non-constant volatility increases the error variation between the estimated variance and the variance of the underlying process. From these essays we can conclude that volatility is not easily estimated, even from high frequency data. It is neither very well behaved in terms of stability nor dependency over time. Based on these observations, we would recommend the use of simple, transparent methods that are likely to be more robust over differing volatility regimes than models with a complex parameter universe. In analyzing long-term return dependency in the first moment we find that the Trend Switch Probability is a robust estimator. This is an interesting area for further research, with important implications for active asset allocation.

Investigating online reading with eye tracking and EEG : The influence of text format, reading task and parafoveal stimuli on reading processes

Research on reading has been successful in revealing how attention guides eye movements when people read single sentences or text paragraphs in simplified and strictly controlled experimental conditions. However, less is known about reading processes in more naturalistic and applied settings, such as reading Web pages. This thesis investigates online reading processes by recording participants eye movements. The thesis consists of four experimental studies that examine how location of stimuli presented outside the currently fixated region (Study I and III), text format (Study II), animation and abrupt onset of online advertisements (Study III), and phase of an online information search task (Study IV) affect written language processing. Furthermore, the studies investigate how the goal of the reading task affects attention allocation during reading by comparing reading for comprehension with free browsing, and by varying the difficulty of an information search task. The results show that text format affects the reading process, that is, vertical text (word/line) is read at a slower rate than a standard horizontal text, and the mean fixation durations are longer for vertical text than for horizontal text. Furthermore, animated online ads and abrupt ad onsets capture online readers attention and direct their gaze toward the ads, and distract the reading process. Compared to a reading-for-comprehension task, online ads are attended to more in a free browsing task. Moreover, in both tasks abrupt ad onsets result in rather immediate fixations toward the ads. This effect is enhanced when the ad is presented in the proximity of the text being read. In addition, the reading processes vary when Web users proceed in online information search tasks, for example when they are searching for a specific keyword, looking for an answer to a question, or trying to find a subjectively most interesting topic. A scanning type of behavior is typical at the beginning of the tasks, after which participants tend to switch to a more careful reading state before finishing the tasks in the states referred to as decision states. Furthermore, the results also provided evidence that left-to-right readers extract more parafoveal information to the right of the fixated word than to the left, suggesting that learning biases attentional orienting towards the reading direction.