Risk taking of executives under different incentive contracts: experimental evidence

Classic financial agency theory recommends compensation through stock options rather than shares to counteract excessive risk aversion in agents. In a setting where any kind of risk taking is suboptimal for shareholders, we show that excessive risk taking may occur for one of two reasons: risk preferences or incentives. Even when compensated through restricted company stock, experimental CEOs take large amounts of excessive risk. This contradicts classical financial theory, but can be explained through risk preferences that are not uniform over the probability and outcome spaces, and in particular, risk seeking for small probability gains and large probability losses. Compensation through options further increases risk taking as expected. We show that this effect is driven mainly by the personal asset position of the experimental CEO, thus having deleterious effects on company performance.

Constructing risk across timescales and trajectories: Gay men's stories of sexual encounters

This paper explores the way risk is constructed in the stories gay men tell of their sexual experiences. It focuses on how tellers use such stories to portray themselves both as rational actors and as legitimate members of their social groups by reconstructing the ‘orderliness’ of sexual encounters. An analysis of a corpus of stories derived from a diary study of gay male sexual behaviour in Hong Kong using current theories of discourse analysis reveals how narrators organize their experiences along two primary vectors of engagement: a sequential vector along which the trajectory of the sexual encounter is presented as a chain of occurrences, each occurrence contingent upon previous ones and warranting subsequent ones, and a hierarchical vector along which processes perceived on longer timescales are portrayed as exerting pressure on the ways processes on shorter timescales unfold. Examining how men portray these vectors in their accounts of risk behaviour can help us better understand both the situatedness of risk behaviour and the ways it is linked to larger social practices, identity projects and community histories

Jump and variance risk premia in the S&P 500

We analyze the risk premia embedded in the S&P 500 spot index and option markets. We use a long time-series of spot prices and a large panel of option prices to jointly estimate the diffusive stock risk premium, the price jump risk premium, the diffusive variance risk premium and the variance jump risk premium. The risk premia are statistically and economically significant and move over time. Investigating the economic drivers of the risk premia, we are able to explain up to 63 % of these variations.

Techno-economic Appraisal of Concentrating Solar Power Systems (CSP)

The diffusion of Concentrating Solar Power Systems (CSP) systems is currently taking place at a much slower pace than photovoltaic (PV) power systems. This is mainly because of the higher present cost of the solar thermal power plants, but also for the time that is needed in order to build them. Though economic attractiveness of different Concentrating technologies varies, still PV power dominates the market. The price of CSP is expected to drop significantly in the near future and wide spread installation of them will follow. The main aim of this project is the creation of different relevant case studies on solar thermal power generation and a comparison betwwen them. The purpose of this detailed comparison is the techno-economic appraisal of a number of CSP systems and the understanding of their behaviour under various boundary conditions. The CSP technologies which will be examined are the Parabolic Trough, the Molten Salt Power Tower, the Linear Fresnel Mirrors and the Dish Stirling. These systems will be appropriatly sized and simulated. All of the simulations aim in the optimization of the particular system. This includes two main issues. The first is the achievement of the lowest possible levelized cost of electricity and the second is the maximization of the annual energy output (kWh). The project also aims in the specification of these factors which affect more the results and more specifically, in what they contribute to the cost reduction or the power generation. Also, photovoltaic systems will be simulated under same boundary conditions to facolitate a comparison between the PV and the CSP systems. Last but not leats, there will be a determination of the system which performs better in each case study.

Photovoltaic System Design for a Contaminated Area in Falun – Comparison of South and East- West Layout

In this thesis the solar part of a large grid-connected photovoltaic system design has been done. The main purpose was to size and optimize the system and to present figures helping to evaluate the prospective project rationality, which can potentially be constructed on a contaminated area in Falun. The methodology consisted in PV market study and component selection, site analysis and defining suitable area for solar installation; and system configuration optimization based on PVsyst simulations and Levelized Cost of Energy calculations. The procedure was mainly divided on two parts, preliminary and detailed sizing. In the first part the objective was complex, which included the investigation of the most profitable component combination and system optimization due to tilt and row distance. It was done by simulating systems with different components and orientations, which were sized for the same 100kW inverter in order to make a fair comparison. For each simulated result a simplified LCOE calculation procedure was applied. The main results of this part show that with the price of 0.43 €/Wp thin-film modules were the most cost effective solution for the case with a great advantage over crystalline type in terms of financial attractiveness. From the results of the preliminary study it was possible to select the optimal system configuration, which was used in the detailed sizing as a starting point. In this part the PVsyst simulations were run, which included full scale system design considering near shadings created by factory buildings. Additionally, more complex procedure of LCOE calculation has been used here considered insurances, maintenance, time value of money and possible cost reduction due to the system size. Two system options were proposed in final results; both cover the same area of 66000 m2. The first one represents an ordinary South faced design with 1.1 MW nominal power, which was optimized for the highest performance. According to PVsyst simulations, this system should produce 1108 MWh/year with the initial investment of 835,000 € and 0.056 €/kWh LCOE. The second option has an alternative East-West orientation, which allows to cover 80% of occupied ground and consequently have 6.6 MW PV nominal power. The system produces 5388 MWh/year costs about 4500,000 € and delivers electricity with the same price of 0.056 €/kWh. Even though the EW solution has 20% lower specific energy production, it benefits mainly from lower relative costs for inverters, mounting and annual maintenance expenses. After analyzing the performance results, among the two alternatives none of the systems showed a clear superiority so there was no optimal system proposed. Both, South and East-West solutions have own advantages and disadvantages in terms of energy production profile, configuration, installation and maintenance. Furthermore, the uncertainty due to cost figures assumptions restricted the results veracity.

Pricing and competition in the Swedish retail market for electricity

Sweden, together with Norway, Finland and Denmark, have created a multi-national electricity market called NordPool. In this market, producers and retailers of electricity can buy and sell electricity, and the retailers then offers this electricity to end consumers such as households and industries. Previous studies have shown that pricing at the NordPool market is functioning quite well, but no other study has to my knowledge studied if pricing in the retail market to consumers in Sweden is well functioning. If the market is well functioning, with competition and low transaction costs when changing electricity retailer, we would expect that a homogeneous good such as electricity would be sold at the approximately same price, and that price changes would be highly correlated, in this market. Thus, the aim of this study is to test whether the price of Vattenfall, the largest energy firm in the Swedish market, is highly correlated to the price of other firms in the Swedish retail market for electricity. Descriptive statistics indicate that the price offered by Vattenfall is quite similar to the price of other firms in the market. In addition, regression analysis show that the correlation between the price of Vattenfall and other firms is as high as 0.98.

The tax treatment of employee stock options : generous to a fault

In the 2000 budgets, both the federal and Ontario governments introduced changes to the tax treatment of employee stock options for the explicit purpose of making their tax treatment in Canada similar to or more favourable than that in the United States. The federal budget added a deferral, similar to that currently applicable to options granted by Canadian-controlled private corporations, for up to $100,000 per year of public company stock options. The Ontario budget introduced an exemption from tax for employees involved in research and development on the first $100,000 per year of employee benefits arising on the exercise of qualified stock options or on eligible capital gains arising from the sale of shares acquired by the exercise of eligible stock options. These proposals reflect the apparent acceptance by the two governments that there is a “brain drain” from Canada to the United States of knowledge workers in the “new” economy and that reductions in Canadian taxes should stem this drain. In the author’s view, the tax treatment of employee stock options, even without these changes, is overly generous. Both the federal and provincial proposals ignore the fact that most employee stock options are taxed more favourably in Canada than in the United States in any event. In particular, most employee stock option benefits in Canada are taxed at capital gains tax rates, whereas in the United States most are taxed at full rates. While the US Internal Revenue Code does provide capital gains tax treatment for certain employee stock option benefits, a number of preconditions must be met. Most important, the shares acquired pursuant to the options must be held for a minimum of one year after the option is exercised. In addition, there are monetary limits on the amount of options that qualify for capital gains treatment. In Canada, there are generally no holding period requirements or monetary limits that apply in order for the option holder to benefit from capital gains tax rates. Empirical evidence indicates that the vast majority of employees in the United States exercise their options and immediately sell the shares acquired. These “cashless exercises” do not benefit from capital gains treatment in the United States, whereas similar cashless exercises in Canada generally do. This empirical evidence suggests not only that the 2000 budget proposals are unwarranted, but also that the existing treatment of employee stock options in Canada is already more generous than that in the United States. This article begins with a theoretical “benchmark” for the taxation of employee stock options. The author suggests that employee stock options should be treated in the same manner as other income from employment. In theory, the value of the benefit should be included in income when the option is granted or vests. However, owing to the practical difficulty of valuing employee stock options, the theoretical benchmark proposed is that the value of the benefit (the difference between the fair market value of the shares acquired and the strike price under the option) be taxed when the shares are acquired, and the employer be entitled to a corresponding deduction. The employee stock option rules in Canada and the United States are then compared and contrasted with each other and the benchmark treatment. The article then examines the arguments that have been made for favourable treatment of employee stock options. Included in this critique is a review of the recent empirical work on the Canadian brain drain. Empirical studies suggest that the brain drain—if it exists at all—is small and that, despite what many newspapers and right-wing think-tanks would have us believe, lower taxes in the United States are not the cause. One study, concluding that taxes do have an effect on migration, suggests that even if Canada adopted a tax system identical to that in the United States, the brain drain would be reduced by a mere 10 percent. Indeed, even if Canada eliminated income tax altogether, it would not stop the brain drain. If governments here want to spend money in order to stem the brain drain, they should focus on other areas. For example, Canada produces fewer university graduates in the fields of mathematics, sciences, and engineering than any other G7 country except Italy. The short supply of university graduates in these fields, the apparent loss of top-calibre academics to US
universities, and the consequent lower levels of university research in these areas (an important spawning ground for new ideas in the “new” knowledge-based economy) suggest that Canada may be better served by devoting more resources to its university institutions, particularly in post-graduate programs, rather than continuing the current trend of budget cuts that universities have endured and may further endure if taxes are reduced.
As far as employee stock options are concerned, if Canada does want to look to the United States for guidance on tax reform (which it seems to do with increasing frequency of late), it should adopt the US rules applicable to nonstatutory options, which are close to the proposed benchmark treatment. In the absence of preferential tax treatment, employee stock options would still be included in compensation packages provided that there were sound business reasons for their use. No persuasive evidence has been put forward that the use of stock options, in the absence of tax incentives, is suboptimal. Indeed, the US experience suggests quite the opposite.

Grassroots energy: a case study of active citizenship and public communication in risk society

In 2001, the Victorian state government approved the construction of a 500-megawatt power station at Stonehaven by US multinational corporation, AES Power One. In 2002 plans had stalled and the company had withdrawn from the process. By March, 2002 the state government flagged that the power station was no longer required to meet power supply demands. This paper applies Beck’s theories of risk society and reflexive modernisation to a case study. It asks to what extent is Australia a risk society? Is the Stonehaven case part of a larger-scale cultural and political movement and if so what are the consequences for corporate and civil citizenship and public communication in Australia?

An examination of the joint venture market entry option in China : a case study of an Australian company's international marketing experience in China

There is a widely held view in the literature that foreign companies looking to invest in the China market should opt for joint ventures rather than wholly foreign-owned enterprises for many reasons, ranging from a smaller capital commitment to utilising the market knowledge of local Chinese partners. This paper examines this issue in the light of the experience of the Foster's Brewing Group which established three joint ventures in China only to reject this form of market entry option within a few years. The paper looks at some of the reasons behind Foster's rejection of the joint venture option and proposes some key guidelines that foreign companies should follow if they are to successfully establish joint ventures in China.

Information signalling of common stock repurchase announcements: Australian evidence

Stock repurchases (or share buy-backs) have become increasingly popular among Australian companies. One of the main aims of announcing a stock repurchase by a listed company is signalling the market that its shares are currently underpriced. When market reacts to the signal, price of the shares is expected to increase immediately after the announcement. While there are several ways of repurchasing shares, 'on-market buy-backs' is the most popular method of stock repurchases in Australia. Australian listed companies have announced more than two hundred on-market share buy-backs over the past three years. The aim of this paper is to examine the information signalling effects of these on-market buy-back announcements. If the signal is considered positively (negatively) by the market, the price of the repurchasing company's shares should increase (decrease) immediately after the announcement. If there is no information content in the announcement, the price will remain the same. In this study, signalling effect of share buy-back announcements was examined using most recent Australian data. The total population of on-market buy-back announcements during the period from January 1, 2000 to March 10, 2003 was included. The abnormal market return over the short-run (announcement day and 9 trading days centred on the announcement date) was computed using the All Ordinaries Accumulation Index as the reference portfolio. The daily Abnormal Returns (AR) and Cumulative Abnormal Returns (CAR) during the event period were computed. The results strongly support the information-signalling hypothesis of share buy..backs. Australian market generally considers announcement of on~market share repurchases as signalling of insider information that shares are currently underpriced.

Intra-organisational marketing culture and market orientation: a case study of the implementation of the marketing concept in a public library

The measurement of both marketing culture and behaviour provides the opportunity to gain more insight into the overall market focus of organisations. This article seeks to determine the market orientation and marketing culture of all staff within organisations, to ascertain to what extent other members of an organisation support or create barriers to the successful implementation of the marketing concept. This paper will provide a brief overview of the existing literature in the field of market orientation and marketing culture. After detailing the research design and methodology, a summary developed from 11 focus group sessions - consisting of all staff in one public library service in Victoria, Australia - is presented. The findings indicate that while all areas within this organisation are committed to marketing, there are various interpretations of marketing and how it should be implemented. In addition, the research finds a number of factors that could be instrumental in the successful implementation of the marketing concept in public libraries.

Community organisations and the dance of good and bad risk

This paper is concerned with an element of contemporary society that forms. the backdrop for some of the contradictory expectations and practices that currently bedevil community organisations in Australia. This element is the idea of risk, or more pertinently, the construction of the idea of risk society. The argument presented is that there are two different interpretations of risk, risk as threat and risk as opportunity. Each interpretation is examined to reveal the ways in which it affects community organisations in Australia. The paper concludes with the view that both ways in which risk is constructed are being used as part of the rationale for new forms of control.

Effect of orlistat on cardiovascular disease risk in obese adults

Aim: The aim of this study is to compare the effect of orlistat vs. placebo on the predicted 10-year cardiovascular disease (CVD) risk in obese people with one or more cardiovascular risk factors treated for 12 months, in conjunction with a fat-reduced, but otherwise ad libitum, diet.

Methods: A double-blind, randomized, placebo-controlled, parallel study was performed in conjunction with a fat-reduced diet and physical activity advice for 1 year. Participants (n = 339) from eight centres in Australia and New Zealand were randomized to either orlistat (120 mg) three times daily (n = 104 women, 66 men; mean ± s.d. age = 52.0 ± 7.5 years, body mass index (BMI) = 37.6 ± 5.1 kg/m2) or placebo three times daily (n = 89 women, 80 men; age = 52.5 ± 7.4 years, BMI = 38.0 ± 4.9 kg/m2). The primary efficacy criterion was the 10-year risk of developing CVD calculated from the Framingham equation. Secondary efficacy criteria were body weight, waist circumference, blood pressure and serum concentrations of triglycerides, cholesterol (total, LDL and HDL), glucose, insulin and glycated haemoglobin and quality of life.

Results: There was no difference in the change in 10-year CVD risk between orlistat and placebo groups over 1 year. The orlistat group, however, had significant favourable changes in many of the individual CVD risk factors (total cholesterol, LDL-cholesterol, glucose, glycated haemoglobin, insulin, body weight and waist circumference) and one of the domains of quality of life measured by means of the SF-36 questionnaire (vitality), compared to the placebo group. Significant reductions in medication use for hypertension and diabetes were observed in the orlistat group, compared to those in placebo, but there were no significant differences in medication use for blood lipids.

Conclusions: Orlistat may have reduced CVD risk, as judged by the favourable changes in individual risk factors and reductions in medication use, but the method used in order to measure absolute CVD risk in this study (Framingham CVD equation) was not sensitive enough to detect the changes in this relatively low-risk group (approximately 10% of risk of a CVD event over 10 years).

Is the risk of illness through consuming vegetables irrigated with reclaimed wastewater different for different population groups?

The use of reclaimed wastewater for irrigation of horticultural crops is commonplace in many parts of the world and is likely to increase. Concerns about risks to human health arising from such practice, especially with respect to infection with microbial pathogens, are common. Several factors need to be considered when attempting to quantify the risk posed to a population, such as the concentration of pathogens in the source water, water treatment efficiency, the volume of water coming into contact with the crop, and the die-off rate of pathogens in the environment. Another factor, which has received relatively less attention, is the amount of food consumed. Plainly, higher consumption rates place one at greater risk of becoming infected. The amount of vegetables consumed is known to vary among ethic groups. We use Quantitative Microbial Risk Assessment Modelling (QMRA) to see if certain ethnic groups are exposed to higher risks by virtue of their consumption behaviour. The results suggest that despite the disparities in consumption rates by different ethnic groups they generally all faced comparable levels of risks. We conclude by suggesting that QMRA should be used to assess the relative levels of risk faced by groups based on divisions other than ethnicity, such as those with compromised immune systems.

Finding a 'safe' place on the risk continuum: a case study of pregnancy and birthing in Lao PDR (Lao People's Democratic Republic)

This paper addresses two questions. Firstly: are the risk regimes faced, and perceived, by pregnant women in rural Lao PDR substantially different from those experienced by pregnant women in western societies? Secondly, if the Lao experiences and perceptions are different, can improvements in maternal health in Lao PDR be achieved without Laotians inheriting the risk regimes of late modernity experienced by many women in western societies? Secondary analysis is undertaken of data collected in 2005 for the evaluation of a pilot maternity waiting home in Bolikhan, Lao PDR. The results suggest significantly different risk perceptions and experiences between Lao and western communities, based on contrasting views of embodiment, identity construction and cosmologies. In the Lao rural communities studied, there is little evidence yet of 'risk society' despite the introduction of western technologies and practices to improve maternal mortality and morbidity. It is argued that 'risk society' can be avoided.