FCC Auction 904 (“RDOF Phase I”), a reverse-subsidy auction for broadband ISPs, determined its re... more FCC Auction 904 (“RDOF Phase I”), a reverse-subsidy auction for broadband ISPs, determined its reserve subsidy amounts using the Connect America Cost Model (CAM). The CAM estimates the incremental cost needed to provision broadband service at a location, based in part on fixed-line infrastructure models such as fibre-optic or cable networks. The auction rules also included clear preferences for higher quality services, but incorporated other aspects of technology neutrality. In the end, three of the top four winning bidders, who collectively received over one-third of awarded subsidies, were not fixed-wireline incumbent ISPs. One of these bidders, SpaceX, committed to provide broadband internet service using a constellation of low-earth-orbit (LEO) satellites, and was awarded about 10% of total subsidies in the auction. Since the cost structure of deploying broadband using LEO satellite constellations likely differs greatly from the cost structure underlying the CAM model (and therefore RDOF Phase I’s reserve subsidies), we use the RDOF Phase I results to address a series of questions. First, did LEO satellite ISP participation in RDOF Phase I affect awarded subsidy amounts in areas where their cost structure was advantaged relative to the CAM model? Second, did LEO ISPs win by out-bidding lower-quality competitors (reflecting a local demand-side advantage) or by out-bidding high-cost incumbents (representing a supply-side advantage)? We conclude with a discussion of the implications of the auction’s structure for promoting cost-reducing innovations in broadband provision technology.
is report was prepared pursuant to a contract between the California Energy Commission (CEC) and... more is report was prepared pursuant to a contract between the California Energy Commission (CEC) and the California Council on Science and Technology (CCST). It does not represent the views of the CEC, its employees, or the state of California. e CEC, the state of ...
This paper investigates whether aligning manager and owner incentives can improve the innovation ... more This paper investigates whether aligning manager and owner incentives can improve the innovation performance of firms. We find that as managerial wealth becomes more sensitive to the firm’s stock price (increasing pay-performance sensitivity); the innovation performance of a firm improves. Specifically, we find that the magnitude and quality of innovation, R&D expenditure and technology concentration all have a non-monotonic relationship with pay-performance sensitivity. Each of these metrics of innovation first increase with pay-performance sensitivity, and then decrease at very high levels of pay-performance sensitivity. However, the quadratic term is economically insignificant in all cases and the overall impact is a positive relationship between performance pay and innovation. We also find that as managers get more invested in the firm they may be unwilling to take greater risk that may jeopardize their wealth, as shown by a negative effect of increased managerial stock holdings...
This paper investigates the relationship between firm productivity and CEO performance incentives... more This paper investigates the relationship between firm productivity and CEO performance incentives in a sample of 917 U.S. manufacturing firms during the period 1992-2003. We first find that CEO equity ownership enhances firm productivity and that firm productivity enhances corporate financial performance. We then find that the relationship between CEO performance incentives and productivity is quite complex. There is an inverse U-shaped relationship between productivity and the sensitivity of CEO wealth to share value (delta), which suggests that the high CEO portfolio risk associated with high delta discourages CEOs from undertaking risky positive-NPV, productivity-enhancing projects. We also find that greater sensitivity of CEO option wealth to stock return volatility (vega) generally increases firm productivity, consistent with stock option grants making CEOs less concerned with risk due to the down-side protection it offers. However, for a range of delta values, higher vega may ...
We investigate the relationship between CEO performance pay incentives and firm productivity. In ... more We investigate the relationship between CEO performance pay incentives and firm productivity. In general, we find an inverse U-shaped relationship between productivity and the sensitivity of CEO wealth to share value (delta) and a positive relationship between productivity and the sensitivity of CEO option wealth to stock return volatility (vega). Thus, a high delta associated with CEO risk-aversion lowers productivity, but a high vega from stock options offsets this effect. In looking at delta and vega jointly, we also find that options do not always achieve their intended purpose. These results are stronger among firms that are weakly governed or when high transaction costs prevent the writing of an optimal compensation contract.
titled “Is there room for growth? Debt, growth opportunities and the deregulation of U.S. electri... more titled “Is there room for growth? Debt, growth opportunities and the deregulation of U.S. electric utilities”. 1
This paper investigates the impact of regulatory and market risk on capital structure decisions o... more This paper investigates the impact of regulatory and market risk on capital structure decisions of rate-regulated electric utilities in the US before and after restructuring. We find that the heightened uncertainty created by the deregulation process and the associated increase in both regulatory and market risks have resulted in firms reducing their leverage ratios. Specifically, we find that the important factors that impact capital structure are: 1) the passage of the restructuring legislation itself, 2) the potential loss of market share due competition and divestiture and 3) future earnings stability. Firm size, profitability, tangible assets, growth opportunities, holding company structure and customer and generation characteristics matter as well. Last, the effect of some firm characteristics is different in the pre and post-restructuring period. Identifying the importance of these variables for a firm’s financing decisions not only furthers our understanding of capital struc...
The rate of patenting in the U.S. has exploded in the last half of the 1990s. It is widely believ... more The rate of patenting in the U.S. has exploded in the last half of the 1990s. It is widely believed that the increase in patent grants is at least partly a result of the apparent decline in examination standards. There has been little exploration, however, of the theoretical prediction that a decline in examination standards would itself induce an increase in dubious applications. We estimate a simultaneous equation model, in which the number applications depend on the perceived rigor of the examination process, amongst other things and patent grants depend on the number and quality of applications. We have a multi-dimensional panel, with data on the application and grant rates for each year, countries of origin, and jurisdiction of examination. We find that a ‘loosening ’ of the grants standards by one percent increases applications by 8 percent in the full sample and by 3 percent in the Non-US sample. This result points to the importance of accounting for the endogenous applicatio...
Using the Kauffman Firm Survey of new businesses, we investigate the relationship between the ini... more Using the Kauffman Firm Survey of new businesses, we investigate the relationship between the initial financial structure of startups, and two key characteristics--specific assets and asymmetric information--controlling for entrepreneur attributes, and firm, sector, and location characteristics. We find that start-ups with high asset specificity as captured by entrepreneurial human capital of the founder are more likely to finance their operations through internal sources, specifically internal equity (from the owners, family, and friends). Those with high intangibles such as trademarks have a higher probability of funding through external equity from angel and venture capital. Start-ups with low asset specificity, such as those with a large tangible asset base, are more likely to be financed through external bank and credit card debt. Startups characterized by high information asymmetry are more likely to be financed by family and friends, and less likely to be financed by external...
Certain regulations in developing countries have often been cited as impediments to progress. Thi... more Certain regulations in developing countries have often been cited as impediments to progress. This paper considers one facet of these regulations labor laws and investigates whether these have detrimental effects on firm location and investment decisions. ...
FCC Auction 904 (“RDOF Phase I”), a reverse-subsidy auction for broadband ISPs, determined its re... more FCC Auction 904 (“RDOF Phase I”), a reverse-subsidy auction for broadband ISPs, determined its reserve subsidy amounts using the Connect America Cost Model (CAM). The CAM estimates the incremental cost needed to provision broadband service at a location, based in part on fixed-line infrastructure models such as fibre-optic or cable networks. The auction rules also included clear preferences for higher quality services, but incorporated other aspects of technology neutrality. In the end, three of the top four winning bidders, who collectively received over one-third of awarded subsidies, were not fixed-wireline incumbent ISPs. One of these bidders, SpaceX, committed to provide broadband internet service using a constellation of low-earth-orbit (LEO) satellites, and was awarded about 10% of total subsidies in the auction. Since the cost structure of deploying broadband using LEO satellite constellations likely differs greatly from the cost structure underlying the CAM model (and therefore RDOF Phase I’s reserve subsidies), we use the RDOF Phase I results to address a series of questions. First, did LEO satellite ISP participation in RDOF Phase I affect awarded subsidy amounts in areas where their cost structure was advantaged relative to the CAM model? Second, did LEO ISPs win by out-bidding lower-quality competitors (reflecting a local demand-side advantage) or by out-bidding high-cost incumbents (representing a supply-side advantage)? We conclude with a discussion of the implications of the auction’s structure for promoting cost-reducing innovations in broadband provision technology.
is report was prepared pursuant to a contract between the California Energy Commission (CEC) and... more is report was prepared pursuant to a contract between the California Energy Commission (CEC) and the California Council on Science and Technology (CCST). It does not represent the views of the CEC, its employees, or the state of California. e CEC, the state of ...
This paper investigates whether aligning manager and owner incentives can improve the innovation ... more This paper investigates whether aligning manager and owner incentives can improve the innovation performance of firms. We find that as managerial wealth becomes more sensitive to the firm’s stock price (increasing pay-performance sensitivity); the innovation performance of a firm improves. Specifically, we find that the magnitude and quality of innovation, R&D expenditure and technology concentration all have a non-monotonic relationship with pay-performance sensitivity. Each of these metrics of innovation first increase with pay-performance sensitivity, and then decrease at very high levels of pay-performance sensitivity. However, the quadratic term is economically insignificant in all cases and the overall impact is a positive relationship between performance pay and innovation. We also find that as managers get more invested in the firm they may be unwilling to take greater risk that may jeopardize their wealth, as shown by a negative effect of increased managerial stock holdings...
This paper investigates the relationship between firm productivity and CEO performance incentives... more This paper investigates the relationship between firm productivity and CEO performance incentives in a sample of 917 U.S. manufacturing firms during the period 1992-2003. We first find that CEO equity ownership enhances firm productivity and that firm productivity enhances corporate financial performance. We then find that the relationship between CEO performance incentives and productivity is quite complex. There is an inverse U-shaped relationship between productivity and the sensitivity of CEO wealth to share value (delta), which suggests that the high CEO portfolio risk associated with high delta discourages CEOs from undertaking risky positive-NPV, productivity-enhancing projects. We also find that greater sensitivity of CEO option wealth to stock return volatility (vega) generally increases firm productivity, consistent with stock option grants making CEOs less concerned with risk due to the down-side protection it offers. However, for a range of delta values, higher vega may ...
We investigate the relationship between CEO performance pay incentives and firm productivity. In ... more We investigate the relationship between CEO performance pay incentives and firm productivity. In general, we find an inverse U-shaped relationship between productivity and the sensitivity of CEO wealth to share value (delta) and a positive relationship between productivity and the sensitivity of CEO option wealth to stock return volatility (vega). Thus, a high delta associated with CEO risk-aversion lowers productivity, but a high vega from stock options offsets this effect. In looking at delta and vega jointly, we also find that options do not always achieve their intended purpose. These results are stronger among firms that are weakly governed or when high transaction costs prevent the writing of an optimal compensation contract.
titled “Is there room for growth? Debt, growth opportunities and the deregulation of U.S. electri... more titled “Is there room for growth? Debt, growth opportunities and the deregulation of U.S. electric utilities”. 1
This paper investigates the impact of regulatory and market risk on capital structure decisions o... more This paper investigates the impact of regulatory and market risk on capital structure decisions of rate-regulated electric utilities in the US before and after restructuring. We find that the heightened uncertainty created by the deregulation process and the associated increase in both regulatory and market risks have resulted in firms reducing their leverage ratios. Specifically, we find that the important factors that impact capital structure are: 1) the passage of the restructuring legislation itself, 2) the potential loss of market share due competition and divestiture and 3) future earnings stability. Firm size, profitability, tangible assets, growth opportunities, holding company structure and customer and generation characteristics matter as well. Last, the effect of some firm characteristics is different in the pre and post-restructuring period. Identifying the importance of these variables for a firm’s financing decisions not only furthers our understanding of capital struc...
The rate of patenting in the U.S. has exploded in the last half of the 1990s. It is widely believ... more The rate of patenting in the U.S. has exploded in the last half of the 1990s. It is widely believed that the increase in patent grants is at least partly a result of the apparent decline in examination standards. There has been little exploration, however, of the theoretical prediction that a decline in examination standards would itself induce an increase in dubious applications. We estimate a simultaneous equation model, in which the number applications depend on the perceived rigor of the examination process, amongst other things and patent grants depend on the number and quality of applications. We have a multi-dimensional panel, with data on the application and grant rates for each year, countries of origin, and jurisdiction of examination. We find that a ‘loosening ’ of the grants standards by one percent increases applications by 8 percent in the full sample and by 3 percent in the Non-US sample. This result points to the importance of accounting for the endogenous applicatio...
Using the Kauffman Firm Survey of new businesses, we investigate the relationship between the ini... more Using the Kauffman Firm Survey of new businesses, we investigate the relationship between the initial financial structure of startups, and two key characteristics--specific assets and asymmetric information--controlling for entrepreneur attributes, and firm, sector, and location characteristics. We find that start-ups with high asset specificity as captured by entrepreneurial human capital of the founder are more likely to finance their operations through internal sources, specifically internal equity (from the owners, family, and friends). Those with high intangibles such as trademarks have a higher probability of funding through external equity from angel and venture capital. Start-ups with low asset specificity, such as those with a large tangible asset base, are more likely to be financed through external bank and credit card debt. Startups characterized by high information asymmetry are more likely to be financed by family and friends, and less likely to be financed by external...
Certain regulations in developing countries have often been cited as impediments to progress. Thi... more Certain regulations in developing countries have often been cited as impediments to progress. This paper considers one facet of these regulations labor laws and investigates whether these have detrimental effects on firm location and investment decisions. ...
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