Heterogeneous Beliefs and the Demand for D&O Insurance by Listed Companies

This paper introduces a new rationale for the existence of “Directors’ and Officers’” (D&O) insurance. We use a model with volatile stock markets where shareholders design compensation schemes that incentivize managers to stimulate short-term increases in stock prices that do not maximize long run stock market value. We show that D&O insurance provides a convenient instrument for the initial shareholders of a company to take advantage of differences in beliefs between insiders and outsiders in capital markets. The empirical results support the idea that both the insurance coverage and the premium are higher in the presence of new shareholders and volatile markets. The results prove robust in various empirical model specifications.

Range of motion after computed tomography-based simulation of intertrochanteric corrective osteotomy in cases of slipped capital femoral epiphysis: comparison of uniplanar flexion osteotomy and multiplanar flexion, valgisation, and rotational osteotomies

BACKGROUND: Various osteotomy techniques have been developed to correct the deformity caused by slipped capital femoral epiphysis (SCFE) and compared by their clinical outcomes. The aim of the presented study was to compare an intertrochanteric uniplanar flexion osteotomy with a multiplanar osteotomy by their ability to improve postoperative range of motion as measured by simulation of computed tomographic data in patients with SCFE. METHODS: We examined 19 patients with moderate or severe SCFE as classified based on slippage angle. A computer program for the simulation of movement and osteotomy developed in our laboratory was used for study execution. According to a 3-dimensional reconstruction of the computed tomographic data, the physiological range was determined by flexion, abduction, and internal rotation. The multiplanar osteotomy was compared with the uniplanar flexion osteotomy. Both intertrochanteric osteotomy techniques were simulated, and the improvements of the movement range were assessed and compared. RESULTS: The mean slipping and thus correction angles measured were 25 degrees (range, 8-46 degrees) inferior and 54 degrees (range, 32-78 degrees) posterior. After the simulation of multiplanar osteotomy, the virtually measured ranges of motion as determined by bone-to-bone contact were 61 degrees for flexion, 57 degrees for abduction, and 66 degrees for internal rotation. The simulation of the uniplanar flexion osteotomy achieved a flexion of 63 degrees, an abduction of 36 degrees, and an internal rotation of 54 degrees. CONCLUSIONS: Apart from abduction, the improvement in the range of motion by a uniplanar flexion osteotomy is comparable with that of the multiplanar osteotomy. However, the improvement in flexion for the simulation of both techniques is not satisfactory with regard to the requirements of normal everyday life, in contrast to abduction and internal rotation. LEVEL OF EVIDENCE: Level III, Retrospective comparative study.

Corporate aging and investment decisions

Paper I: Corporate aging and internal resource allocation Abstract Various observers argue that established firms are at a disadvantage in pursuing new growth opportunities. In this paper, we provide systematic evidence that established firms allocate fewer resources to high-growth lines of business. However, we find no evidence of inefficient resource allocation in established firms. Redirecting resources from high-growth to low-growth lines of business does not result in lower profitability. Also, resource allocation towards new growth opportunities does not increase when managers of established firms are exposed to takeover and product market threats. Rather, it seems that conservative resource allocation strategies are driven by pressures to meet investors’ expectations. Our empirical evidence, thus, favors the hypothesis that established firms wisely choose to allocate fewer resources to new growth opportunities as external pressures force them to focus on efficiency rather than novelty (Holmström 1989). Paper II: Corporate aging and asset sales Abstract This paper asks whether divestitures are motivated by strategic considerations about the scope of the firm’s activities. Limited managerial capacity implies that exploiting core competences becomes comparatively more attractive than exploring new growth opportunities as firms mature. Divestitures help stablished firms free management time and increase the focus on core competences. The testable implication of this attention hypothesis is that established firms are the main sellers of assets, that their divestiture activity increases when managerial capacity is scarcer, that they sell non-core activities, and that they return the divestiture proceeds to the providers of capital instead of reinvesting them in the firm. We find strong empirical support for these predictions. Paper III: Corporate aging and lobbying expenditures Abstract Creative destruction forces constantly challenge established firms, especially in competitive markets. This paper asks whether corporate lobbying is a competitive weapon of established firms to counteract the decline in rents over time. We find a statistically and economically significant positive relation between firm age and lobbying expenditures. Moreover, the documented age-effect is weaker when firms have unique products or operate in concentrated product markets. To address endogeneity, we use industry distress as an exogenous nonlegislative shock to future rents and show that established firms are relatively more likely to lobby when in distress. Finally, we provide empirical evidence that corporate lobbying efforts by established firms forestall the creative destruction process. In sum, our findings suggest that corporate lobbying is a competitive weapon of established firms to retain profitability in competitive environments.