Essays in banking and corporate finance

Abstract This paper presents a model of executive compensation in which the executive is risk-averse and has specific knowledge -knowledge about the optimal actions to take that is costly to transfer to the principal. The model generates predictions that are consistent with the available evidence and provides a rationale for a number of unresolved puzzles in executive compensation. Notably, we find that relative performance evaluation is optimal only if the quality of specific knowledge is low. We also show (1) why some common risk components are not filtered out of executives' pay, (2) why performance is more likely to be evaluated relative to aggregate market movements than relative to industry movements, and (3) why executives with higher perceived abilities are given stronger incentives. Finally, we demonstrate that the relation between risk and incentives may be positive or negative, depending on the quality of the executive's specific knowledge.

A mixed approach for proving non-inferiority in clinical trials with binary endpoints

When a new treatment is compared to an established one in a randomized clinical trial, it is standard practice to statistically test for non-inferiority rather than for superiority. When the endpoint is binary, one usually compares two treatments using either an odds-ratio or a difference of proportions. In this paper, we propose a mixed approach which uses both concepts. One first defines the non-inferiority margin using an odds-ratio and one ultimately proves non-inferiority statistically using a difference of proportions. The mixed approach is shown to be more powerful than the conventional odds-ratio approach when the efficacy of the established treatment is known (with good precision) and high (e.g. with more than 56% of success). The gain of power achieved may lead in turn to a substantial reduction in the sample size needed to prove non-inferiority. The mixed approach can be generalized to ordinal endpoints.

Use of non-invasive ambulatory blood pressure monitoring to screen for high-risk hypertensive patients.

Blood pressures measured casually by a doctor often differ considerably from those recorded during everyday activities away from the medical environment. In the present study, we compared office and ambulatory recorded pressures in 475 consecutive untreated patients diagnosed hypertensive by physicians. Blood pressure monitored non-invasively during the day was, on average 15/7 mmHg lower than the corresponding office pressures. The difference between office and ambulatory recorded pressure tended to be greatest in those patients with the highest office blood pressure levels, although the relationship between the two types of measurement was too weak (r = 0.50 and 0.38 for systolic and diastolic pressure, respectively) to have any predictive value in the individual patient. Office blood pressures were at least 10 mmHg higher than ambulatory pressures in 62% of patients for systolic and 42% for diastolic pressure. Blood pressure levels recorded during ambulatory monitoring were higher than in the doctor's office for 18% of patients for systolic and 22% for diastolic pressure. Among patients with systolic pressures of between 161 and 180 mmHg or diastolic pressures between 96 and 105 mmHg when facing a doctor, 27 and 37% respectively, showed markedly lower systolic (less than 140 mmHg) or diastolic (less than 90 mmHg) ambulatory recorded pressures. These data therefore indicate that ambulatory blood pressure monitoring may help to identify those truly hypertensive patients who are most likely to benefit from antihypertensive therapy.