Executive Stock Ownership and Performance: Tracking Faint Traces

We examine the relation between managers' financial interests and firm performance. Since the relation could go in either direction, we cast the analysis in a simultaneous equations framework. For firms involved in acquisitions, we find that acquisition performance and Tobin's Q ratios affect the size of managers' stockholdings. We find no evidence, however, that larger stockholdings lead to better performance. Perhaps management is effectively disciplined by competition in product and labor markets. Alternatively, it may not be necessary for top executives to own stock to the residual claimants. And finally, higher ownership might multiply the opportunities to appropriate corporate wealth.

Field performance of two rapid screening tests in active surveillance of transmissible spongiform encephalopathies in small ruminants

Recently, screening tests for monitoring the prevalence of transmissible spongiform encephalopathies specifically in sheep and goats became available. Although most countries require comprehensive test validation prior to approval, little is known about their performance under normal operating conditions. Switzerland was one of the first countries to implement 2 of these tests, an enzyme-linked immunosorbent assay (ELISA) and a Western blot, in a 1-year active surveillance program. Slaughtered animals (n = 32,777) were analyzed in either of the 2 tests with immunohistochemistry for confirmation of initial reactive results, and fallen stock samples (n = 3,193) were subjected to both screening tests and immunohistochemistry in parallel. Initial reactive and false-positive rates were recorded over time. Both tests revealed an excellent diagnostic specificity (>99.5%). However, initial reactive rates were elevated at the beginning of the program but dropped to levels below 1% with routine and enhanced staff training. Only those in the ELISA increased again in the second half of the program and correlated with the degree of tissue autolysis in the fallen stock samples. It is noteworthy that the Western blot missed 1 of the 3 atypical scrapie cases in the fallen stock, indicating potential differences in the diagnostic sensitivities between the 2 screening tests. However, an estimation of the diagnostic sensitivity for both tests on field samples remained difficult due to the low disease prevalence. Taken together, these results highlight the importance of staff training, sample quality, and interlaboratory comparison trials when such screening tests are implemented in the field.

Postacquisition performance of acquiring firms

We investigate whether negative postacquisition stock-price performance of acquiring firms is a genuine phenomenon or a statistical artifact. Using a comprehensive sample of domestic acquisitions in the 1966-1986 period, we show that acquiring firms underperform a control portfolio only during the three years but not five years following the acquisition. There is evidence of negative performance in the second and third postacquisition years, but that performance occurs mainly in the 1960s and 1970s, and disappears in the 1980s. Thus, especially in the later years, the postacquisition years do not provide convincing evidence of wasteful corporate acquisitions, or strong evidence that contradicts market efficiency.

Executive compensation and the performance of the firm

A sample of large industrial corporations is examined to determine whether there is a relationship between the levels of compensation received by the senior executives of those firms and the firms' economic performances. We find consistent evidence of such a relationship, with differences across firms in the total compensation of their three highest-paid officers being positively related to differences in both the common stock returns and operating profitability of the firms. The implication is that compensation packages are designed to reduce agency costs.