The impact of stock option incentives on investment and firm value

This paper analyzes the relations among firm-level stock option portfolio incentives, investment, and firm value based on a sample of Finnish firms during the time period 1987 – 2000. Utilizing exact and complete information regarding stock option portfolio characteristics, we find some evidence that firm investment is increasing in the incentives to increase stock price (delta) and risk (vega). Furthermore, we find strong evidence of a positive relation between both incentive effects and firm value (Tobin’s Q). In contrast, when we allow for stock option incentives, investment, and firm value to be simultaneously determined, we find no evidence that investment is increasing in incentives. However, even after controlling for endogeneity, we find that both incentive effects arising from stock option compensation display a positive and significant effect on firm value. Finally, in contradiction to earlier findings, we observe that neither Tobin’s Q nor investment drives incentives.

Memory-based reasoning approach for pattern recognition of binary images

Template matching is concerned with measuring the similarity between patterns of two objects. This paper proposes a memory-based reasoning approach for pattern recognition of binary images with a large template set. It seems that memory-based reasoning intrinsically requires a large database. Moreover, some binary image recognition problems inherently need large template sets, such as the recognition of Chinese characters which needs thousands of templates. The proposed algorithm is based on the Connection Machine, which is the most massively parallel machine to date, using a multiresolution method to search for the matching template. The approach uses the pyramid data structure for the multiresolution representation of templates and the input image pattern. For a given binary image it scans the template pyramid searching the match. A binary image of N × N pixels can be matched in O(log N) time complexity by our algorithm and is independent of the number of templates. Implementation of the proposed scheme is described in detail.

Phase diagram and dielectric studies of binary organic materials

The phase equilibrium studies of organic system, involving resorcinol (R) and p-dimethylaminobenzaldehyde (DMAB), reveal the formation of a 1:1 molecular complex with two eutectics. The heat of mixing, entropy of fusion, roughness parameter, interfacial energy, and the excess thermodynamic functions were calculated based on enthalpy of fusion data determined via differential scanning calorimetric (DSC) method. X-ray powder diffraction studies confirm that the eutectics are not simple mechanical mixture of the components under investigation. The spectroscopic investigations (IR and NMR) suggest the occurrence of hydrogen bonding between the components forming the molecular complex. The dielectric measurements, carried out on hot-pressed addition compound (molecular complex), show higher dielectric constant at 320 K than that of individual components. The microstructural investigations of eutectic and addition compound indicate dendritic and faceted morphological features. (C) 2000 Elsevier Science B.V. All rights reserved.

A molecular theory of collective orientational relaxation in pure and binary dipolar liquids

A molecular theory of collective orientational relaxation of dipolar molecules in a dense liquid is presented. Our work is based on a generalized, nonlinear, Smoluchowski equation (GSE) that includes the effects of intermolecular interactions through a mean‐field force term. The effects of translational motion of the liquid molecules on the orientational relaxation is also included self‐consistently in the GSE. Analytic expressions for the wave‐vector‐dependent orientational correlation functions are obtained for one component, pure liquid and also for binary mixtures. We find that for a dipolar liquid of spherical molecules, the correlation function ϕ(k,t) for l=1, where l is the rank of the spherical harmonics, is biexponential. At zero wave‐vector, one time constant becomes identical with the dielectric relaxation time of the polar liquid. The second time constant is the longitudinal relaxation time, but the contribution of this second component is small. We find that polar forces do not affect the higher order correlation functions (l>1) of spherical dipolar molecules in a linearized theory. The expression of ϕ(k,t) for a binary liquid is a sum of four exponential terms. We also find that the wave‐vector‐dependent relaxation times depend strongly on the microscopic structure of the dense liquid. At intermediate wave vectors, the translational diffusion greatly accelerates the rate of orientational relaxation. The present study indicates that one must pay proper attention to the microscopic structure of the liquid while treating the translational effects. An analysis of the nonlinear terms of the GSE is also presented. An interesting coupling between the number density fluctuation and the orientational fluctuation is uncovered.

Electrical and Dielectric Behaviour at the Critical Point of Binary Liquids: Acetonitrile + Cyclohexane

The electrical capacitance and resistance of the binary liquid mixture cyclohexane + acetonitrile are measured in the one phase and two phase regions at spot frequencies between 5 kHz and 100 kHz. This sample has a very low gravity affected (∼0.6 mK) region. In one phase region the capacitance data show a sharp, ∼0.7% increase above background within 0.5 degrees of Tc whereas the resistance has a smooth increase of ∼1.5% above background in a (T−Tc) range of 4 degrees. Two phase values of capacitance and resistance from the coexisting phases are used to determine the critical parameters Tc (critical temperature), Rc (resistance at Tc) and Cc (capacitance at Tc). A precise knowledge of these parameters reduces the uncertainty on the critical exponent 0 for C and R. The one phase capacitance data fit to an (1 - α) exponent in a limited temperature range of 0.2 degrees. Resistance data strongly support an (1 - α) exponent over the entire 5 degree range.

Performance evaluation of an integrated solar water heater as an option for building energy conservation

Since a majority of residential and industrial building hot water needs are around 50 degrees C, an integrated solar water heater could provide a bulk source that blends collection and storage into one unit. This paper describes the design, construction and performance test results of one such water-heating device. The test unit has an absorber area of 1.3 m(2) and can hold 1701 of water, of which extractable volume per day is 1001. Its performance was evaluated under various typical operating conditions. Every morning at about 7:00 a.m., 1001 of hot water were drawn from the sump and replaced with cold water from the mains. Although, during most of the days, the peak temperatures of water obtained are between 50 and 60 degrees C, the next morning temperatures were lower at 45-50 degrees C. Daytime collection efficiencies of about 60% and overall efficiencies of about 40% were obtained. Tests were conducted with and without stratification. Night radiation losses were reduced by use of a screen insulation.

Effects of capillary waves on the thickness of wetting layers

The free energy contribution of capillary waves is calculated to show its significant dependence on the thickness of the liquid layer, when the thickness is very small. It is shown that these oscillations can play an important role in determining the thermodynamic stability of a wetting layer, close to the critical point of a binary liquid mixture in the case of both short range and long range forces. In particular, the thickness of the wetting layer goes to zero as the temperature T approaches Tc.

What Determines Stock Option Contract Design?

This paper analyzes factors driving the design of stock option plans for Finnish firms. We examine determinants of the scope of plans, exercise price, target group, and dividend protection. The scope is found to be negatively related to Tobin’s Q and positively related to proxies for monitoring costs. The scope is also greater in broad-based plans, and in plans with dividend protection. Prior stock return is found to be negatively related to the size of the premium (out-of-the-moneyness), whereas dividend protection increases the premium. The results also suggest that investment intensity, cash flow, and monitoring costs are associated with the likelihood of granting premium (out-of-the-money) stock options. Furthermore, the likelihood of granting broad-based plans is increasing in institutional ownership and cash flow constraints, and decreasing in firm size. Broad-based plans are also more likely among firms in growth industries. We find support that the likelihood of dividend protection is decreasing in foreign ownership. In addition, firms paying zero-dividends are less likely to include dividend protection, whereas higher unsystematic risk is associated with a greater likelihood of including dividend protection.

Stock Option Compensation in Finland: An Analysis of Economic Determinants, Contracting Frequency, and Design

This paper addresses several questions in the compensation literature by examining stock option compensation practices of Finnish firms. First, the results indicate that principal-agent theory succeeds quite well in predicting the use of stock options. Proxies for monitoring costs, growth opportunities, ownership structure, and risk are found to determine the use of incentives consistent with theory. Furthermore, the paper examines whether determinants of stock options targeted to top management differ from determinants of broad-based stock option plans. Some evidence is found that factors driving these two types of incentives differ. Second, the results reveal that systematic risk significantly increases the likelihood that firms adopt stock option plans, whereas total firm risk and unsystematic risk do not seem to affect this decision. Third, the results show that growth opportunities are related to time-dimensional contracting frequency, consistent with the argument that incentive levels deviate more rapidly from optimum in firms with high growth opportunities. Finally, the results suggest that vesting schedules are decreasing in financial leverage, and that contract maturity is decreasing in firm focus. In addition, both vesting schedules and contract maturity tend to be longer in firms involving state ownership.

An algorithm to detect linearly separable clusters of binary patterns

The clusters of binary patterns can be considered as Boolean functions of the (binary) features. Such a relationship between the linearly separable (LS) Boolean functions and LS clusters of binary patterns is examined. An algorithm is presented to answer the questions of the type: “Is the cluster formed by the subsets of the (binary) data set having certain features AND/NOT having certain other features, LS from the remaining set?” The algorithm uses the sequences of Numbered Binary Form (NBF) notation and some elementary (NPN) transformations of the binary data.

An algorithm to detect linearly separable clusters of binary patterns

The clusters of binary patterns can be considered as Boolean functions of the (binary) features. Such a relationship between the linearly separable (LS) Boolean functions and LS clusters of binary patterns is examined. An algorithm is presented to answer the questions of the type: “Is the cluster formed by the subsets of the (binary) data set having certain features AND/NOT having certain other features, LS from the remaining set?” The algorithm uses the sequences of Numbered Binary Form (NBF) notation and some elementary (NPN) transformations of the binary data.

Critical behavior of electrical resistivity in polar + nonpolar binary liquid systems

The behavior of electrical resistivity in the critical region of three polar + nonpolar binary liquid systems CS2 +(CH3CO)2O, C6H12+(CH3CO)2O, and n‐C7H16+(CH3CO)2O is studied. For the mixtures with critical composition, the two phase region shows a conductivity behavior with σ1−σ2∼ (−ϵ)β with β?0.35. In the one phase region dR/dT has a singularity ϵ−b with b?0.35. A possible theory of the impurity conduction is given, which broadly explains these results. The possibility of dR/dT being positive or negative is also discussed.

Dispersion of resistivity anomalies in critical binary liquid systems

The critical resistivity in the binary liquid systems n-C7H16 + CH3OH and CS2 + CH3NO2 is measured from 10 Hz to 100 kHz. There is no noticeable effect of the frequency on the resistivity singularities. Thus any contribution from dielectric dispersion is not appreciable.

Enhanced Pair Hydrophobicity in the Water-Dimethylsulfoxide (DMSO) Binary Mixture at Low DMSO Concentrations

We observe a surprisingly sharp increase in the pair hydrophobicity in the water climethylsulfoxide (DMSO) binary mixture at small DMSO concentrations, with the mole fraction of DMSO (x(D)) in the range 0.12-0.16. The increase in pair hydrophobicity is measured by an increase in the depth of the first minimum in the potential of mean force (PMF) between two methane molecules. However, this enhanced hydrophobicity again weakens at higher DMSO concentrations. We find markedly unusual behavior of the pure binary mixture (in the same composition range) in the diffusion coefficient of DMSO and in the local composition fluctuation of water, We find that, in the said composition range, the average coordination number of the methyl groups (of distinct DMSO) varies between 2.4 and 2.6, indicating the onset of the formation of a chain-like extended connectivity in an otherwise stable tetrahedral network comprising of water and DMSO molecules. We propose that the enhanced pair hydrophobicity of the binary mixture at low DMSO concentrations is due to the participation of the two methane molecules in the local structural order and the emerging molecular associations in the water-DMSO mixture.