Lumumba: Race and Revolution :: essays papers

Lumumba: Race and Revolution In the French film entitled Lumumba, director Raoul Peck recreates the revolutionary struggle of Patrice Lumumba, the newly elected Prime Minister of The Congolese Republic. In the movie, we do not see much of the independence struggle against the Belgian government, but we begin to see the reconstruction of the African state in African hands. While no one ever claimed that decolonization was easy, maybe this particular example can best be explained by Fanon’s simplified little quip â€Å"decolonization is always a violent phenomenon. † In this paper, I will seek to locate where this post-colonial violence is located in discourses regarding race, class and gender. Particularly, I will look at the representations of race and class, and the lack of the representation of gender, in order to draw conclusions about the nature of representation and the effects this has on anti-colonial film. Locating the violence within the anti-colonial struggle may be harder than it seems. One can easily note the physical and sexual violence brought upon the people (black and white) of Congo after independence, but we must locate the other forms of violence in order to bring the entire story of Patrice Lumumba to light. The director’s attempt at bringing the story of Patrice Lumumba to the â€Å"silver screen† had political intentions. It had intentions of breaking post-colonial hegemonic forces that portrayed Lumumba as a nationalist dictator. In regards to race and class in Congo, I will refer to the work of Franz Fanon, in particular his book entitled The Wretched of the Earth. In this book Fanon develops a theory of â€Å"dual citizenship† required by the colonizers in order to validate the colonization process. We have to view the movie Lumumba as being part of the anti-colonial discourse in the history of the Congo but also as a historical fiction produced in 21st century France. In viewing this movie, we must locate race and class and the intersection between the two, as this is constantly the case in post-colonial states. We must also understand the exclusion of gender from revolutionary discourses as being part of patriarchy that is not challenged in certain revolutions. The exclusion of gender equality from what Lumumba struggled for is where there is a certain patriarchy, and this kind of patriarchy is evident in almost all revolutionary anti-colonial writing.

Game theory Essay

Game theory is a broad field of study that involves examining ways in which strategic decisions are derived. The study is applied in areas where strategic interactions among rational players produce outcomes with respect to the preferences of those players (Fudenberg & Tirole 1991). Game theory is a branch of applied mathematics that is mostly used in the social sciences situations like, economics, psychology, political science, and philosophy. The theory is also used in other fields like, biology, engineering, political science, international relations and computer science. Game theory can be classified as; non-cooperative (or strategic) games and co-operative (or coalitional) games (Fernandez & Bierman 1998). Non-cooperative games are involved with how intelligent individuals interact with one another in an effort to achieve their own goals. Co-operative games are where players co-operate in their moves (strategies) to achieve the desired common goals. ‘Strategic-form’ or ‘normal form’ games and ‘extensive form’ games. ‘Strategic form’ games are games where actions by players are taken simultaneously and order of the play is irrelevant to the game’s outcome. ‘Extensive form’ games are games where actions are taken by the players in a sequence and order of play is relevant to a game’s outcome. They are usually presented in a tree diagram. Symmetric and Asymmetric games; Asymmetric games are where the payoffs for playing a particular move depend only on the other player’s strategies. Symmetric game is where identities of the players can be changed without changing the payoff to the strategies. Zero-sum games and non-zero sum games; Zero-sum games are where the total benefits to all players add up to zero (Camerer 2003). In non-zero sum games, the total benefits do not necessarily adds up to zero. Discrete and continuous games; discrete games have finite number of players, moves, events and outcomes. Continuous games have infinite numbers. The basic elements of game theory are; an agent (an entity with preferences/options), game (All situations in which at least one agent can only act to maximize his utility through anticipating responses to his actions by one or more other agents), utility (amount of benefits/welfare an agent derives from occurrence of an event), payoff (an ordinal utility number assigned to a player at event of a certain outcome), outcome (an assignment of a set of payoffs, one to each player in the game), strategy (player’s plan on which action to take to achieved his/her desired payoff) and trees and matrices (ways of representing games that is based on order of play) (Fernandez & Bierman 1998). Game theory is based on the following assumptions: Players in a game are able to make their own preferences i. e. they are free agents. Players are economically rational and they can, assess outcomes, calculate paths to outcomes and choose actions that they think will yield their preferred outcomes. Agents’ purpose is to maximize their utility. Game outcome depends on the actions taken by the players (Camerer 2003). Game theory has been used to explain in different fields to explain varied phenomena. In economics, game theory has been employed to explain business behaviors and economic conditions. Economic theories have embraced game theory in explaining and exhibiting certain economic behaviors. Economists have used other related theories in trying to understand rational interaction of strategic economic decisions that are made by people. These theories are closely linked to game theory and they include, decision theory, general equilibrium theory and mechanism design theory. Decision theory is a game theory of a single player against nature that focuses on preferences and the formation of beliefs (Fernandez & Bierman 1998). The theory is used to demonstrate how best to acquire information before making a decision. Equilibrium theory is a branch of game theory that deals with trade and production and mostly with where there are relatively large number of individual consumers and producers (Fudenberg & Tirole 1991). It is widely used in the macroeconomic analysis of broad based economic policies like monetary and fiscal policies, stock markets analysis, interest and exchange rates studies. Mechanism design theory is built on game theory but have special focus on the consequences of different types of rules (strategies). Example of a game theory is price game used by companies in a duopolistic market to increase their market share. In a duopoly market, two firms control the market and they use factors like prices, quality products and services, promotions, branding and promotion to compete over the market share (Samuelson 2008). When market share of one company increases, the other company’s share decreases. Firms in sectors that sells homogeneous products (e. g. energy sector), uses pricing strategy to win increase their market share. Taking example of two oil companies in a duopolistic market in current oil price surge, the companies are faced with problem of adjusting their prices upwards since this will adversely affect the demand of their oil products and thus reduce their revenues. Increase in crude oil prices has been experienced in the world, and oil and petroleum companies have to increase their retail prices upwards to realize earnings from their venture. Companies also have objective of increasing the volume of their sales, by increasing the market share of their products. Since petroleum companies trades homogeneous products, the main marketing tool to increase their market share is price. For two companies in a duopoly market, if one company increases its prices, and other maintains or even reduces, the former loses market share to the latter. Both companies face the following possibilities from their moves; reduction of market share of their products and hence their future revenues and profit or reduction in their profit margin or loss and hence shrink of their financial performance and growth in the future. Therefore each of the firms is faced with dilemma of which move to take in this situation of sharp increase in their raw materials. The two firms have the following strategic problem; to ensure profitability of their companies amid high cost of their sales, and pressure to maintain their prices at competitive price over their rivals in order to increase demand of their products. These are conflicting goals that management of each company must resolve by making strategic price decisions. Pricing strategies for the two firms are either to increase the price that would results to increase in revenue and retain its market share, reduce price which results to increase in market share of its products or maintain the price (Ibid 2008). Each company want to maximize its utility in the pricing moves i. e. to select a move that will see its market share maintained or increased and also ensure profitability of the company. Each strategy that the companies may take have implications on the other i. e. move by one firm affects the other firm. Example, in case of one firm decreasing its prices, this will affects negatively market share of the other as the demand of the former company’s product increases. Therefore, each company is expected to take choice that will result to its favor. Since the two firms are competing for success in their business, there is no cooperation expected while making this very important pricing choice. However, both firm being the only supplier in the market, they can cooperate and set their price mutually in a way that will ensure that no company will lose out to the other. Such arrangements are common in oligopolistic markets, where producers when faced by price pressure mutually agree to set their prices at the same level that will maintain the market share levels. In this game, each player (company) prefers to increase its market share over the other over maintaining the current market share. Therefore, they are taking conflicting moves to win over the other. The information about the available strategic choices is available to both firms. Both firms also know the current market share of their products and prices of the rival group. Each company has information about the strengths of the other company and knows how much they can support low prices in the price wars. They also know that the cost of crude oil has increased in the world market and that price was the tool to increase their revenues and growth. The only information both companies do not have is which choice their rival make and when. Companies will not make price changes at the same time; therefore the company that will make price changes after the other will have advantage over the other as it has prior information that is very important in making the pricing decisions. This game is an extensive game and the moves are in a sequence order. Therefore, timing of their moves is very important as it will give the second company advantage to make a well informed move. Using a hypothetical case, we take example of one company making first move and then the other follows. Using the game tool we can get the possible outcomes and solutions in an economic situation like ours. The payoffs assigned to each possible result indicate situations where a company can benefit (high payoffs) or lose out to the other competing company (low payoffs). Using a hypothetical example of oil companies BP Inc and Shell Plc as companies that operates in a monopolistic market, we can examine outcomes of pricing moves made by the two companies. The game can be used to give solutions to the price problem in a tight monopolisic market. The pricing game is based on the following assumptions: both BP Inc and Shell Plc are rational entities and in their moves their objectives are to increase their market share. Both firms make a sequential move on pricing that take extensive form (Fudenberg & Tirole 1991). Shell Plc makes their decision after the BP Inc makes their pricing move. There is perfect market information symmetry (all company has all market information). Other factors that affect influence market share of the companies are constant. Strategies employed are price increment, price reduction or maintaining the price level. Payoffs (utility functions) for the moves are assigned as: Company that increases its market share over the other gets 5, company that losses its market share to the other gets -5. The payoffs represent the companies gain or loss in market share. The range for payoff is from -5 to 5, with both the lowest and the highest value representing the highest gain and the highest loss. The medium values represent an outcome of moderate change in the market share of the companies. The game can be represented in a tree diagram as follows: BP Inc P^ Pv PÂ ¦ Shell P^ Pv PÂ ¦ P^ Pv PÂ ¦ P^ Pv PÂ ¦ (0, 0) (-5, 5) (-2, 4) (5, -5) (3, 3) (4, 2) (4, 0) (2, 4) (2, 2) If BP Inc increases its prices ( P^) due to increased world crude oil prices, and shell Plc increases (P^) too the outcome will be (0, 0) i. e. their market share would not change but their sales may reduce due to decreased demand. If Shell Plc reduces (Pv) the prices after BP Inc has increased its prices, the pay offs are (-5, 5) i. e. BP Inc will loss its market share at a rate that is same as one Shell Plc will increase its market share. In the scenario that BP Inc will raise its prices and Shell maintains its prices (PÂ ¦), the payoffs are (-2, 4) i. e. market share for BP will reduce (Pv) but at low rate compared to Shell increment rate will be. On the other hand, if BP Inc reduces its prices first and then Shell raises its prices, the outcome will be (5, -5) i. e. market share for BP will increase at a rate that’s same as the one Shell Plc will lose its share. If both firms reduces their prices, the payoff is going to be (3, 3) i. e. their market share will not change but their sales will be better (higher revenue than if prices are higher). However, if BP reduces its prices but Shell maintains its price, the pay off will be (4, 2) i. e. BP’s market share will increase comparatively higher than Shell’s. In the last scenario, in case BP maintains its price level but Shell Plc increases its price the outcome payoff will be (4, 0) i. e. BP’s share will increase over Shell’s at relatively higher rate. But if BP maintains its prices and Shell reduces its prices, the pay off will be (2, 4) i. e. Shell Plc will increase its market share at a higher rate than BP Inc. In the last possible scenario, if both BP and Shell maintains their prices, the payoff will be (2, 2) i. e. there is not going to be changes in the market share, though both firms will have higher sales than if they raise their prices. The game theory provides the solution that the second (shell) should take a move to reduce its price, if BP increases as it will greatly increase its market share. Also it can get increased market share and profit if it maintains its prices, after BP increases its prices. To the company that makes the first move, the best solution is to maintain the price level as it will have higher payoffs without risking the move by the Shell. These options are the only one that will increase their market share and profitable growth. The price game theory can be used to understand economic changes in duopolistic markets. The game can be used in making strategic pricing and marketing decisions. The approach is important to economic theorists in describing the economic rationale that relates to commodity prices, demand and supply dynamics (Guala 2005). Despite the usefulness of game theory, there are some challenges to this theory. The assumptions on which the theory is based sometimes do not hold (Fernandez & Bierman 1998). Game theorist assumption that players always act in a way to directly maximize their utility sometimes is violated by human behaviors i. e. in practice, human behavior often deviates from this model. This is because of the following factors that need to be considered; irrationality, new models of deliberation, and different motives (). In real life some people tend to respond irrationally in a situation where they are ideally expected to respond rationally. Also different people are motivated by different things and thus tend to respond differently in the same situation. To this end some theorists take game theory as tool for suggesting how people should respond but not as a tool to predict human behaviors and that game theory is used to explain strategic reasoning rather than strategic behaviors. Other limitations of the theory are based on the assumptions that prices changes are the only factors that will affect the demand of the oil products and consequently the market share. In real life there are rational factors that affect the market share of a product or a company. Quality of products and services, brand strength, promotions and other marketing strategies influences the demand of a product and its market share. Companies may also be motivated by other factors other than increasing market share when making pricing decisions. The theory also does not assign specific values to specify to what percentage a company gain or lose the market share. Since it’s an economic analysis it should give outcomes that can be easily understood and that make economic sense. However, the theory is very important in giving the general description of how individuals are expected to respond given a certain economic conditions. In the economic field the theory has been instrumental in explaining behaviors of firms and individuals’ producers and consumers. The theory is also very important in understanding how strategic decisions relate. Reference: Camerer, C. (2003). Behavioral Game Theory: Experiments in Strategic Interaction. Princeton: Princeton University Press Fernandez, L F. ; Bierman, H S. (1998), Game Theory with Economic Applications, Addison-Wesley Fudenberg, D. , and Tirole, J. (1991). Game Theory. Cambridge, MA: MIT Press Guala, F. (2005). The Methodology of Experimental Economics. Cambridge: Cambridge University Press Samuelson, L. (2005). Economic Theory and Experimental Economics. Journal of Economic Literature 43:65-107.

Life Imprisonment - 1378 Words

| LIFE IMPRISONMENT IS A GOOD ALTERNATIVE TO CAPITAL PUNISHMENT | Can life imprisonment be a good alternative to death penalty? The issue remains unresolved. Even the US Supreme Court that had abolished ‘Death Penalty’ reversed its decision when new and less cruel methods of execution were introduced. Why does a society punish its members for certain acts that are offensive and unacceptable to its laws and codes? This can be a starting point of exploring our dilemma about death penalty vs. life imprisonment. It is argued that fear of death deters people from committing crimes, and the penalty of death exerts a positive moral influence. The American death penalty laws have invited ire and ridicule of human rights activists everywhere,†¦show more content†¦A person who gets caught for killing another individual is usually someone who did not plan to murder in the first place. These individuals fall into the â€Å"crimes of passion† category. Crimes of pass ion are defined as unlawful acts of an individual which are unplanned and erupt as a result of a fit or rage or anger. These illegal actions usually stem from drunkenness or a short term loss of logical thinking, which can be attributed to anger. The death penalty would logically deter crime, but the problem is that most murderers are unplanned and are not a result of logic. During the 1930s the federal government, under the direction of Jack Gibbs, investigated the effectiveness of the death penalty in deterring serious crime. The results of Gibbs investigation is that capital punishment did not deter. However, during the 1970s, Prof. Isaac Ehrlich found out through his research that capital punishment did deter but no one else besides Ehrlich has come up with the same results. The conclusion that researches have drawn up during the past decade is that the death penalty does not significantly have an effect on serious crime, one way or the other. Another reason that many people are against death penalty is that they feel that many a times innocent people are wrongfully executed, all in the name of justice, even though there are many safeguards guaranteeing protection of the rights of those facing death penalty.Show MoreRelatedThe Merits and Pitfalls of Capital Punishment Today1482 Words   |  6 Pagespunishment, but in our legal system’s ability to carry out in its convictions. Thus, many of the families of the victims of such heinous crimes as murders and rapes fail to find closure and are not adequately ‘compensated.’ While in its current state life imprisonment without possibility of parole is quicker and more streamlined and provides much quicker closure, it is in no way equivalent to the loss that the families of victims have to sustain. If capital punishment were incorporated more frequently intoRead MoreMiller vs Alabama1270 Words   |  6 Pagesconstitutionality of mandatory life sentences without parole enforced upon persons a ged fourteen and younger found guilty of homicide. The court declared unconstitutional a compulsory sentence of life without parole for children. The states have been barred from routinely imposing sentences based on the crime committed. There is a requirement for individual consideration of the child life circumstance or the defendant status as a child. The court rejected the definite ban on life sentences without paroleRead MoreOpponent Of The Death Penalty991 Words   |  4 Pagessome thoughts, life imprisonment without parole has had a bigger effect on inmates simply because they suffer from the feeling of guilt. The US benefits because the cost of the death penalty cost three times more than the cost expense of prison. One central thing about life imprisonment without parole is that they are in prison for the rest of their lives. According to Citizens United for Alternatives to the Death Penalty, it said, â€Å"In certain cases, imprisonment should be for life, with no possibilityRead MoreJuvenile Crime : The Criminal Justice System1031 Words   |  5 Pagestobacco products, they cannot sign legal documents, they cannot be out after a certain hour, they are deemed too immature to handle their own lives. Juveniles, however can be waived to adult court where they could face sanctions as harsh as life imprisonment. In July 2003, 16 year old Terrance Jamar Graham and three other juveniles attempted to rob a restaurant in Jacksonville, Florida. Graham was arrested and charged with armed burglary with assault and or battery and attempted armed robbery. UnderRead MoreThe Death Penalty Is Justified1491 Words   |  6 Pageshave risen in many forms. People tend to commit crimes even though the government clearly states the consequences for such actions taking place. One prime example is murder. Though people commit murder and acknowledge that the penalty for such act is life in prison, which still doesn’t deter humans from undertaking the act. Death penalty could be a solution to stop humans from committing such gruesome acts. Therefore I strongly believe that the death penalty is acceptable in several cases. ThurgoodRead MoreCapital Punishment Essay694 Words   |  3 Pageslegal discussions over history has been the death penalty (capital punishment). There is many people who are against this but there are others who are for. As well there are also many countries that have abolished death penalty and murderers thus get life sentences for their crimes while in other countries like China and many USA states are still cruelly punishing a lot of people in this way. Even though the death penalty has been a controversial subject, it is not acceptable by no means in this eraRead MoreIs the Death Penalty an Effective Deterrent?1677 Words   |  7 PagesDeterrent? Annotated Bibliography PS 223 Forensic Psychology I Research Question: Is the Death Penalty an Effective Deterrent? Honeyman, J. C., Ogloff, J. P. (1996). Capital punishment: Arguments for life and death. Canadian Journal Of Behavioural Science/Revue Canadienne Des Sciences Du Comportement, 28(1), 27-35. The main purpose of this article was to investigate the effects of the death penalty and the justification for the punishment. ARead MoreMinors and the Death Penalty1049 Words   |  5 Pagesthe family of the juvenile in question. D. Capital punishment is more expensive than a life imprisonment sentence without the opportunity of parole. Florida spent an estimated $57 million on the death penalty from 1973 to 1988 to achieve eighteen executions, that is an average of $3.2 million per execution. It costs six times more to execute a person in Florida than to incarcerate a prisoner for life with no parole. The average cost of a capital trial in Florida is $3.2 million. A study foundRead MoreThe Bet By Anton Chekhov1599 Words   |  7 Pagesâ€Å"The Bet† by Anton Chekhov is a short story that focuses on the value of human life with the character’s different viewpoints on the death penalty and imprisonment for life. The author uses elements of literature to show that the definition of prison society accepted may be wrong. The first element of literature the author uses is characterization. In the story, there are two main characters: the banker and the lawyer. The story begins showing how wealth y the banker is, as shown by the way he threwRead MoreReasons For The Death Penalty Essay1458 Words   |  6 PagesThere is nothing humane about killing a human being. The act of committing murder is offensive and cruel (Mappes, DeGrazia Zembaty, 2012). Justice can be served in various ways and will be as effective as the death penalty. Life imprisonment without parole is one such way of dealing with persons convicted of committing a murder (Mappes, DeGrazia Zembaty, 2012). While abolitionists and retentionists continue to discuss their viewpoints on the death penalty, it does appear that the retentionists

The Risk Management Assignment Of The Macville Pty Ltd

Reflection statement The risk management assignment of the Macville Pty Ltd involves different types of the elements that helps them to facilitate an efficient and effective operation. Elements of Macville risk management generally include different policies and procedures, business planning and budgeting, review regarding the risk management, different monthly report and external audits so they can understand the current position of the organisation and enable the quick response so they can avoid risks regarding the strategic as well as commercial risk. Different policies regarding the human resources, corporate governance and finance helped them to understand different types of problems they are currently facing so they can develop†¦show more content†¦There are multitudes of internal and external risks associated with running the new venture with PNG villagers. The Operations Manager, the PNG Fairtrade Consultant and myself will be critical in assessing those risks, implementing controls and treatments and reporting on any incidents that may occur. High expectations are associated with this new venture, such as not having any effect on domestic production, jobs, advancement etc†¦ These high expectations create risks of failure to meet those expectations. The Operations Manager and myself will need to clearly assess the risks and communicate them skillfully to the stakeholders and the public. RISK REGISTER- MACVILLE RISK RISK Consequence RISK Likelihood RISK Level Controls Hierarchy control Risks related to finance Loss of revenue High High Hire more employees with commerce background Engineering controls Risks related to written policy Non-compliance with regulatory standards Low High Implement effective policies Elimination Risks related to handle business with more professionalism Reputation damage Medium Medium Hire a professional for the implementation of an effective strategy to maintain professionalism Substitution Risks related to reputation damage as a result of the PNG new venture Reputation

Criminal Justice vs. Community Justice Essay - 1403 Words

Criminal Justice vs. Community Justice Crime is defined as an act or omission that the law makes punishable. There are different ways in dealing with crime. One, our current system, is the criminal justice approach. Also known as retributive justice, this system is more offender directed than anything else. The other system, which many people think is better, is the community justice, or restorative approach. The restorative approach is much more victim oriented. There is a debate over which system should be used to deal with crime. The two differ in many ways. One of the areas in which the two differ is the question of whom is the crime a violation of? The criminal justice system believes that crimes are a violation against†¦show more content†¦This â€Å"coming together† may be one single event or may occur through a series of meetings, depending on the case. The mediator is trained with skills to prepare people for the process, and is there to ensure it progresses in a safe and civilized manner. The goals of the meetings are ensuring the satisfaction and well-being of the victim, with attention to his/her emotional needs, resolution of any lingering conflict between the victim and offender, and giving the offender a chance to absolve their feelings of guilt through apology and reparation. Looking toward the future, other steps taken at the proceeding are taking on offenders reasons for the crime, making a rehab plan, and the families agreement on a system of support to ensure the offender will adhere to the plan. Under the retributive justice system, justice is achieved by finding out which law was broken, who broke it, and punishing the offender. The offender is then sentenced to repay the state for his/her crime against it by serving a sentence of some sort, usually in the form of jail or prison time. In the restorative system, justice is achieved by figuring the harm done, the repair s needed for the harm, and who should repair it. The offender is then accountable to the victim and the community. The state then has the responsibility to ensure that the offender is held accountable to the victim. The offense is defined differently in the two systems. The criminalShow MoreRelatedDisparity and Discrimination Essay790 Words   |  4 PagesMany different situations occur within the criminal justice system. The situations that will be discussed in this essay are Pseudospeciation, bigotry vs. racism, hegemony, social construction, and disparity vs. discrimination. There will be definition on these terms. After defining the all terms, I will apply these terms to the criminal justice system using examples to illustrate the understanding of the definitions. Pseudospeciation Pseudospeciation begins with the fact that cultural differencesRead MoreQualitative vs. Quantitative Research742 Words   |  3 Pagesï » ¿ Quantitative vs. Qualitative Introduction Qualitative research is designed in general to try and understand and interpret social interactions, according to Xavier University. Quantitative research, on the other hand, is used to test hypothesis, to examine cause and effect, and to make predictions (Xavier). Qualitative research is used to identify patters, themes and certain features while quantitative research tends towards identifying statistical relationships (Xavier). As to the role ofRead MoreThe Barriers Of Indigenous Australian Women Face Within The Criminal Justice System970 Words   |  4 PagesIndigenous population still experience inequality through the education and criminal justice system, specifically Indigenous women. This is highlighted throughout the report through various statistical data including tables and graphs. Further discussion on the link between these statistics to current unit concepts will be addressed in this report to expose the barriers that Indigenous Australian women face within the crimin al justice system. The statistical overview on the education system will focus onRead MoreThe Alabama Joint Prison Reform Task Force Essay1562 Words   |  7 Pages 1. What have you done to reduce racial discrimination in the criminal justice systems? Governor Bentley is committed to removing racist language that addresses the separation of black and white children in the education system in Alabama’s 1901 Constitution. Bentley believes it would improve the general impression of Alabama as a whole (Reutter). In the article, â€Å"Governor s Office of Minority Affairs Announcement,† Governor Bentley has recently signed an Executive Order to create the Governor’sRead MoreWomen And The Criminal Justice System976 Words   |  4 PagesWomen and Men in the Criminal Justice System Throughout history, the criminal justice system has mainly focused on men entering the criminal justice system rather than women. This is not portrayed largely by the media and society because it is not truly considered a highlight topic. Men and women face incarceration on a daily basis, causing them both to have different experiences based on their gender. The crimes and punishment faced by each gender is different and can affect the way society viewsRead MoreCrime System And Criminal Justice System Essay1399 Words   |  6 PagesIntroduction: The criminal justice system has evolved on the decades. From initially being constituted by the victim to eventually becoming constituted by written laws. 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Ownership Structure, Managerial Behavior and Corporate Value Free Essays

Journal of Corporate Finance 11 (2005) 645 – 660 www. elsevier. com/locate/econbase Ownership structure, managerial behavior and corporate value J. We will write a custom essay sample on Ownership Structure, Managerial Behavior and Corporate Value or any similar topic only for you Order Now R. Daviesa, David Hillierb,T, Patrick McColganc a University of Strathclyde, UK b University of Leeds, UK c University of Aberdeen, UK Received 21 November 2002; accepted 6 July 2004 Available online 20 April 2005 Abstract The nonlinear relationship between corporate value and managerial ownership is well documented. This has been attributed to the onset of managerial entrenchment, which results in a decrease of corporate value for increasing levels of managerial holdings. We propose a new structure for this relationship that accounts for the effect of conflicting managerial incentives, and external and internal disciplinary monitoring mechanisms. Using this specification as the basis for our analysis, we provide evidence that the managerial ownership–corporate value relationship is co-deterministic. This finding is at odds with recent work which reports that corporate value determines managerial ownership but not vice-versa. D 2005 Elsevier B. V. All rights reserved. JEL classification: G32 Keywords: Ownership structure; Capital expenditure; Corporate value; Tobin’s Q 1. Introduction In a market without agency problems, corporate managers will choose investments that maximise the wealth of shareholders. In practice, competing objectives which are incompatible with the shareholder wealth-maximising paradigm may also be pursued. T Corresponding author. Leeds University Business School, University of Leeds, Maurice Keyworth Building Leeds, LS2 9JT, UK. Tel. : +44 113 3434359; fax: +44 113 3434459. E-mail address: d. j. hillier@Leeds. c. uk (D. Hillier). 0929-1199/$ – see front matter D 2005 Elsevier B. V. All rights reserved. doi:10. 1016/j. jcorpfin. 2004. 07. 001 646 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 Following Jensen and Meckling (1976), a large literature has developed that examines how managerial behavior impacts upon firm performance. A vibrant strand of this literature concerns the relati onship between managerial ownership levels, the direct investment decisions made by management and the inherent value of the firm, as proxied by Tobin’s Q ratio. Morck et al. 1988), McConnell and Servaes (1990), and Hermalin and Weisbach (1991) provide evidence of a significant nonlinear relationship between corporate value and managerial ownership. Specifically, value increases with managerial holdings for low levels of ownership. At some level, managers become entrenched within the firm resulting in a decrease in firm value. However, whereas Morck et al. (1988) and Hermalin and Weisbach (1991) document further changes in the corporate value–managerial holdings relationship at high levels of equity ownership, McConnell and Servaes (1990) report no such change. Recent work has built upon the findings of Demsetz and Lehn (1985) who argue that levels of managerial ownership will be determined endogenously in equilibrium. Moreover, Cho (1998) and Himmelberg et al. (1999) have shed doubt upon the earlier findings of Morck et al. (1988) and McConnell and Servaes (1990) by controlling for the effects of endogeneity and unobservable (to the econometrician) firm characteristics in their analysis. After controlling for the effects of endogeneity in the corporate value– managerial holdings relationship, they showed that managerial ownership had little or no effect on corporate value and investment. Short and Keasey (1999) and Faccio and Lasfer (1999) utilize a cubic specification to model the corporate value–managerial holdings relationship and both report a significant nonlinear functional form, similar to Morck et al. (1988), for British companies. However, neither study fully examines the misspecifying impact of endogeneity on their results. In this paper, we propose a new structure to the managerial ownership–corporate value relationship which captures a more complex characterisation of the evolving behavior of managers. We argue that at high levels of managerial ownership when external market discipline becomes neffective, there will be a resurgence of entrenchment behavior. With equity holdings around 50%, managers will have implicit control of their company, but still do not have objectives completely aligned to external shareholders. Only at very high levels of managerial holdings are incentives akin to other shareholders. When this model is applied to a l arge sample of firms incorporated in the UK, managerial ownership is seen to have a significant impact on corporate value. This relationship is endogenous, and consistent with Cho (1998) and Himmelberg et al. (1999), corporate value has a corresponding effect on managerial holdings. We also find that although ownership levels are affected by firm level investment, there is no evidence of the reverse occurring. In the next section we outline our model of the managerial ownership–corporate value relationship. We present empirical results in Section 3 and conclude in Section 4. 2. The model In this section, we propose an alternative structure to the managerial holdings–corporate value relationship and argue that the cubic, or simpler representations, used in earlier J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 647 studies1 are unnecessarily restrictive and misspecified. The model that is presented here captures further nonlinearities in this relationship at high levels of managerial holdings and has a quintic specification. Management is faced with both negative and positive incentives to ensure that they follow objectives which maximise shareholder wealth. The effectiveness of these incentives is potentially a function of the level of managerial ownership in the firm. We view the propensity of management to maximise shareholder wealth to be a function of three unobserved factors: external market discipline, even if it is weak, internal controls and convergence of interests. Moreover, the strength of each factor can be viewed as a function of the level of managerial ownership in the firm. 2 2. 1. Low levels of managerial ownership For low levels of managerial ownership, external discipline and internal controls or incentives will dominate behavior (see Fama, 1980; Hart, 1983; Jensen and Ruback, 1983). Empirically, Morck et al. (1988), McConnell and Servaes (1990) and Hermalin and Weisbach (1991) report results consistent with this behavior for the relationship between managerial holdings and corporate value. However, there is also the possibility that lower levels of ownership within this range have endogenously arisen from performance related compensation packages, such as stock options and stock grants rather than increased ownership in itself leading to higher Q ratios. 2. 2. Intermediate levels of managerial ownership At intermediate levels of managerial ownership, management interests begin to converge with those of shareholders. However, with greater ownership comes greater power in the form of voting rights. Managers may, at this level of holdings, maximise their personal wealth through increasing perquisites and guaranteeing their employment at the expense of corporate value. In addition, while low managerial ownership levels may have arisen through the vesting of compensation plans, it is unlikely that such plans will provide management with a moderate ownership stake in the firm. Moreover, even though external market controls are still in place, these and the effect of convergence of interests are not strong enough to align the behavior of management to shareholders. Managerial labour markets operate on the principal that poorly performing 1 See Morck et al. (1988), McConnell and Servaes (1990), Hermalin and Weisbach (1991), Cho (1998) and Himmelberg et al. (1999) for US companies and Short and Keasey (1999) and Faccio and Lasfer (1999) for UK companies. 2 For example, since compensation packages such as stock options are a transfer of wealth from shareholders to management, their value will lessen as managerial ownership increases. External market discipline is also a function of managerial ownership. Large shareholdings by top management act as a deterrent for takeovers because of the greater ability to oppose a hostile bid or drive up premiums to the point where bidders no longer view the target company as a positive net present value investment Stulz (1988). Finally, internal controls in the form of monitoring from large shareholders and corporate boards should reduce the scope for managers to diverge greatly from the interests of shareholders. Again, however, such discipline is likely to be inversely related to managerial control Denis et al. (1997). 648 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 anagers can be removed and appropriately disciplined. Studies by Denis et al. (1997) in the US and Dahya et al. (2002) in the UK both find an inverse relation between topmanagement turnover and managerial ownership. This lack of discipline provides evidence of a deficiency in incentives for managers to maximise shareholder value at this level of owners hip. Franks and Mayer (1996) also report that hostile takeover targets in the UK are not poorly performing firms, which is in contrast to the findings of a disciplinary role for corporate takeovers in the US by Martin and McConnell (1991). In this context, Franks and Mayer (1996) provide significant evidence that takeovers in the UK may not act to remove a self-serving board even when they are performing poorly. This lack of disciplinary control over poorly performing management may strengthen management’s ability to pursue sub-optimal corporate policies at intermediate ownership levels. 2. 3. High levels of managerial ownership (less than 50%) As levels of managerial equity ownership grow, objectives converge further to those of shareholders. At ownership levels, below 50% management do not have total control of the firm and external discipline still exists. While perhaps no longer being subject to any major discipline from external takeover markets, it is likely that even at these levels of ownership, managers are still subject to discipline from external block shareholders. This is particularly true in the UK, where because of strong informal ties between institutions (Short and Keasey, 1999), a lax regulatory environment concerning the ownership of listed companies (Roe, 1990) and low monitoring costs (Faccio and Lasfer, 1999), institutional activism is stronger than in the US. This view is also consistent with Franks et al. (2001) contention of strong minority protection laws in the UK, whereby large shareholders cannot transact with related companies without the consent of the firm’s minority shareholders. The UK regulatory framework stands in contrast to US corporate law which limits minorities to seeking redress after the related party transaction has taken place. Combined with monitoring from UK institutions, this may allo w external shareholders to impose some form of control on management even at elatively large levels of managerial ownership. 2. 4. High levels of managerial ownership (greater than 50%) At levels above 50% ownership, management has complete control of the company. Although atomistic shareholders are unlikely to have been able to in influence managers at far lower levels of ownership than this, there is always a possibility that a cartel of blockholders, allied with minority shareholder’s rights under UK company law, may be able to mount a challenge to management if they fail to make decisions in shareholders’ best interests. For a more in-depth discussion of the institutional differences and similarities between the United Kingdom and United States, see Short and Keasey (1999) and Faccio and Lasfer (1999). 3 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 649 At greater than 50% managerial ownership, this is no longer likely to be a serious issue to management. Furthermore, with majority ownership, the probability of a hostile takeover effectively becomes zero. The failure of external discipline combined with a lack of blockholder incentives above 50% may result in a decrease in corporate value for a small window of managerial holdings above this level. This fall in corporate value is consistent with the theoretical predictions of Stulz (1988). 2. 5. Very high levels of managerial ownership Finally, as managerial shareholdings rise to very high levels, management effectively become sole owners of the company. This would lead to value-maximising behavior as predicted by Jensen and Meckling (1976). Consistent with Morck et al. 1988), Short and Keasey (1999) and Faccio and Lasfer (1999) at above a certain level of ownership, corporate managers are faced with such severe financial penalties for failing to maximise the value of their companies that they are forced to make decisions which will maximise firm value, regardless of how this affects their private benefits of control. 2. 6. Summary Our characterisation of a highly nonlinear relationshi p between managerial equity holdings and corporate value is in contrast to earlier studies (Morck et al. , 1988; McConnell and Servaes, 1990; Hermalin and Weisbach, 1991; Cho, 1998; Himmelberg et al. 1999)4, which posit fewer turning points in their analysis. There is little theoretical basis on which the individual turning points can be determined, and the findings of Kole (1995) suggest that these will be in influenced by the size of the firms in the sample. However, it is expected that the second local maximum will be in the region of 50% managerial ownership reflecting the stage at which management gain total control of the company. In the next section, the main tests of our hypotheses will be carried out. 3. Empirical results 3. 1. Description of the data We use data on managerial and external block ownership for 1995 from the MacMillan London Stock Exchange Yearbook for 1996 and 1997. The Yearbook provides summary accounting data including a consolidated balance sheet, information on company directors, legal information on the company’s lawyers, auditors and stockbrokers, principle activities, company history, capital and dividend payments, and industrial sector for the McConnell and Servaes (1990) modelled the corporate value–managerial ownership relationship as a quadratic function, which by construction has only one turning point. 650 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 vast majority of all quoted companies and securities. 5 We restrict our attention to nonfinancial companies only and require that each firm has complete managerial and external ownership data for 1995, which leaves 802 industrial companies in our sample. 6 Data on capital expenditures, to tal assets employed, after tax profits, depreciation, leverage, equity market values, and research and development costs are collected from Datastream. We estimate Tobin’s Q ratio (our proxy for corporate value) using the formula below: Q? MVEQ ? PREF ? DEBT BV ASSETS ? 1? where: MVEQ=the year-end market value of the firm’s common stock; PREF=the yearend book value of the firmTs preference shares (preferred stock); DEBT=the year-end book value of the firmTs total debt; and BV ASSETS=the total assets employed by the firm, which is measured as total assets minus current liabilities. Our measure is consistent with the modified version of the formula as used by Chung and Pruitt (1994) who find that 96. 6% of the variability in the popular Lindenberg and Ross (1981) algorithm of Tobin’s Q is explained by their approximation. Our method also avoids the data availability problems which arise from using the more rigorous algorithms proposed by Lindenberg and Ross (1981) and Lewellen and Badrinath (1997) in order to estimate the replacement cost of assets. We use book values of preferred stock and long-term debt, rather than the market values proposed by Lindenberg and Ross (1981) and Lewellen and Badrinath (1997). In the UK, there is a far less active market for the trading of corporate debt than that which exists in the US, forcing us to rely on book values for these variables. In a final stratification of our sample, we mitigate the problem of potential outliers and trim 25 firms with the largest and smallest Tobin’s Q measure, leaving a final sample of 752 firms. 7 Table 1 presents descriptive statistics for our sample data. The mean managerial ownership stake of all board members is 13. 02%, which is similar to comparable US studies, but slightly lower than Faccio and Lasfer (1999) who report mean ownership of 16. 7%. Tobin’s Q is slightly higher than that reported for related US work with a mean value of 1. 96. The standard deviation of Tobin’s Q is 1. 21, which is also greater than other studies. However, it is substantially less than the mean of 2. 47 reported by Doukas et al. (2002) and is relatively similar to the mean value of 1. 86 that Short and Keasey (1999) report for their market valuation ratio. 8 The mean blockholder ownership is 37. 34% and is on a par with that reported for US firms by McConnell and Servaes (1990) (32. 4%) and 34. 57% reported by Faccio and Lasfer (1999) for UK firms. The full range of firm sizes is included in the sample with the 5 To establish the reliability of the summary ownership data, we carried out a correlation analysis of a subsample of 422 firms from he original data set of 802 companies (52. 62%) for which we were able to obtain company annual reports. The yearbook data and company accounts data exhibited a correlation of 0. 90, with a pvalue of 0. 00. We also establish the robustness of our data by re-estimating the model using data for 1997. This result is discussed later in this section. 6 Recently listed, merged or acquired firms are not included. 7 This is a larger sample than that used by Morck et al. (1988)—371 firms, Cho (1998)—326 firms and Himmelberg et al. (1999)—maximum 427 firms in any 1 year. Measured as the market value of equity divided by the book value of equity, minus any intangibles. J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 Table 1 Descriptive statistics Variable Management ownership Blockholder ownership Largest stakeholder Capital expenditures Total assets employed After tax profits less depreciation/assets employed Debt/assets employed Market value of equity Research and development Tobin’s Q Mean 13. 02% 37. 34% 18. 82% 21,221 255,642 0. 1425 0. 1411 335 2918 1. 9647 S. D. 18. 06% 23. 57% 21. 64% 75,317 1,583,274 0. 4763 0. 252 1399 44,108 1. 2092 Minimum 0. 00% 0. 00% 0. 00% 7 268 A10. 977 0. 0000 0. 68 0 0. 4502 651 Maximum 79. 90% 100. 00% 100. 00% 1,024,200 37,774,000 3. 4207 4. 8358 26,224 1,198,988 7. 0997 Managerial own ership data measures the total level of holdings held by company management that are greater than 0. 5% of a company’s equity. Blockholder data measures the total level of holdings by outside blockholders that are greater than 3% of a company’s equity. Largest stakeholder is the largest single outside blockholder that holds at least 3% of company’s outstanding equity. Capital expenditures (thousands), total assets employed (thousands), after tax profits, depreciation, leverage, equity market values (millions) and research and development costs (thousands) are collected from Datastream. Tobin’s Q is measured as the ratio of the market value of equity and book values of debt and preferred equity to the book value of assets in the firm minus current liabilities. Shareholdings data is taken from the London Stock Exchange Yearbook for 1996 and 1997. All data are for industrial companies quoted on the London Stock Exchange in 1995. mallest company having an equity market capitalization of o680,000 and the largest company’s equity valued at approximately o26 billion. The mean market capitalization of firms in the sample is o335 million. Table 2 provides the distribution of sample statistics grouped by managerial ownership. A very large proportion of the sample (62%) have managerial ownership levels less than or equal to 10%. However, a larg e fraction of companies (11%) also in the sample had boards Table 2 Breakdown of sample by managerial ownership Manager level Ownership Number of firms 464 87 75 41 34 26 21 4 Blockholder ownership, % 43. 34. 5 34. 4 24. 0 22. 7 13. 0 12. 7 5. 8 Tobin’s Q 1. 952 2. 033 1. 736 2. 109 2. 113 2. 257 1. 933 1. 808 Total assets employed 393,861 44,093 26,186 34,322 35,864 28,190 14,234 10,127 Capital expenditures/ assets employed 0. 106 0. 161 0. 124 0. 117 0. 114 0. 100 0. 099 0. 114 Liquidity 0. 130 0. 129 0. 157 0. 194 0. 194 0. 177 0. 169 0. 239 0VMOb10% 10VMOb20% 20VMOb30% 30VMOb40% 40VMOb50% 50VMOb60% 60VMOb70% 70VMOb100% Managerial ownership (MO) data measures the total level of holdings held by company management that are greater than 0. 5% of a company’s equity. Blockholder ownership measures the total level of holdings by outside blockholders that are greater than 3% of a company’s equity. Capital expenditure (thousands), total assets employed (thousands), after tax profits and equity market values (millions) are collected from Datastream. Liquidity is measured as cashflow divided by total assets employed. Tobin’s Q is measured as the ratio of the market value of equity and book values of debt and preferred equity to the book value of assets in the firm minus current liabilities. Shareholdings data is taken from the London Stock Exchange Yearbook for 1996 and 1997. All data are for industrial companies quoted on the London Stock Exchange in 1995. 652 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 Table 3 Regression results for Tobin’s Q on managerial ownership Variable Coefficient t-Statistic Adj. R 2 Intercept 1. 85 28. 14 0. 017 MO 0. 12 3. 23 MO2 A0. 013 A3. 08 F MO3 4. 63A10 2. 82 2. 651 A4 MO4 A6. 73A10 A2. 53 A6 MO5 3. 36A10A8 2. 24 The following equation was estimated using data for 752 firms listed on the London Stock Exchange during 1995. Q ? a0 ? a1 MO ? a2 MO2 ? a3 MO3 ? a4 MO4 ? a5 MO5 ? e where Q is Tobin’s Q and MO is managerial ownership. Ownership data is taken from the London Stock Exchange Yearbook and Tobin’s Q is calculated from Datastream. which owned at least 40% of all outstanding equity. As would be expected, outside blockholder ownership decreases with managerial ownership. At managerial ownership levels of 30%, blockholder ownership is slightly less at 24%. It is probable that external discipline, as provided by blockholders, would still be strong at these levels of managerial holdings, particularly where informal coalitions among blockholders are more prominent (Short and Keasey, 1999). At higher levels of managerial holdings, blockholder ownership decreases sharply leading to a collapse in the power of blockholders. Managerial ownership is a decreasing function of company size, which is consistent with Demsetz and Lehn (1985). Although firm sizes in the UK are considerably smaller than US firms, the ratios in Table 2 are similar to summary statistics provided in Morck et al. (1988), McConnell and Servaes (1990), Cho (1998) and Himmelberg et al. (1999). Table 2 also illustrates the nonlinear relationship between Tobin’s Q and managerial holdings. Visual inspection indicates two maximum points in the region of 10% to 20% and 50% to 60%, respectively. The convergence of managerial interests to those of shareholders at very high levels of ownership is not apparent at this stage because of the small number of companies with managerial holdings above 70%. However, the statistics for all other groupings are consistent with our theoretical motivation. 3. 2. Estimation of ownership breakpoints In order to model the Tobin’s Q–managerial ownership (MO) function as having two maximum and two minimum turning points, we specify a quintic function, as follows: Q ? 0 ? a1 MO ? a2 MO2 ? a3 MO3 ? a4 MO4 ? a5 MO5 ? e ? 2? For the nonlinear relationship discussed in Section 2 to be valid, the coefficients in Eq. (2) must have the following signs: a 0N0; a 1N0; a 2b0; a 3N0; a 4b0; a 5N0. The estimated values of the coefficients in Eq. (2) are given in Table 3. 9 The intercept coefficient, which is an estimate of Tobin’s Q i n firms with no managerial holdings, is 1. 85. Each slope coefficient is of the correct sign and statistically significant at the 5% level. Although the It is clear that Tobin’s Q will be in influenced by more than just managerial ownership. However, the objective of this paper is to investigate whether the standard quadratic and cubic specifications used in previous studies are too simplistic. To maintain parsimony, we therefore omit other factors from this specific model. Other relevant factors are incorporated into the analysis in a later table. 9 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 653 Estimated Relationship between Tobin’s Q and Managerial Ownership 2. 40 2. 20 2. 00 1. 80 1. 60 1. 40 1. 20 0 0. 1 0. 2 0. 3 0. 4 0. 5 0. 6 0. 7 0. 8 0. 9 Tobin’s Q Insider Ownership Fig. 1. Estimated relationship between Tobin’s Q and Managerial Ownership. Tobin’s Q was modelled as a quintic function of insider ownership using ordinary least squares regression. The estimated regression line is: Q=1. 85+0. 12IOA0. 013OI2+4. 63A10A4IO3A6. 73A10A6IO4+3. 36A10A8IO5. adjusted R 2 is low, it is similar to that found in comparable US studies. The use of this model as a basis to estimate managerial ownership turning points leads to four critical values: 7. 01%, 26. 0%, 51. 4%, 75. 7% and is illustrated in Fig. 1. To establish the robustness of our regression model, the spline approach as applied by Morck et al. (1988), Cho (1998) and Himmelberg et al. (1999) to estimate breakpoints was carried out using our generated turning points. Table 4 presents the coefficients resulting from the piecewise linear regression. Similar to Table 3, each coefficient has the expected sign and all but one variable is statistically significant at the 5% level. The only variable that is not significant, MOover 76% , has the correct sign. The probable cause for the lack of significance is the small number of firms in this managerial ownership grouping. An examination of these results suggests that Tobin’s Q increases in firms for managerial ownership levels up to 7% and then declines to ownership levels of 26%. This is almost identical to the turning points in Morck et al. (1988) and Himmelberg et al. (1999) (5% and 25%, respectively) and is comparable to Cho (1998), who uses breakpoints of 7% and 38%. However, it differs from the UK studies of Short and Keasey (1999) and Faccio and Lasfer (1999) who each reports two turning points of 12. 99% and 41. 99%, and 19. 68% and 54. 12%, respectively. Earlier studies limited the turning points to two but in our extension, it is clear that there are another two turning points at much higher levels of managerial ownership. It also appears that market discipline has an influence on managerial objectives up to the point where the board takes complete control (51%). Tobin’s Q then decreases until ownership levels reach 76%, after which Q increases. Denis and Sarin (1999) argue that cross-sectional studies may be subject to bias, whereby they fail to account for events with potentially large valuation consequences. 10 10 Examples of such events may include receiving a takeover bid, top management turnover, etc. 654 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 Table 4 Spline regression results for Tobin’s Q on managerial ownership Variable Coefficient t-Statistic Adj. R 2 Intercept 1. 854 28. 38 0. 012 MOup 0. 056 2. 93 to 7% MO7% to 26% MO26% 0. 0187 2. 57 2. 769 to 51% MO51% A0. 053 A1. 99 to 76% MOover 0. 624 1. 12 76% A0. 020 A2. 62 F The following equation was estimated using data for 752 firms listed on the London Stock Exchange during 1995. Q ? a0 ? a1 MOup to 7% ? a2 MO7% to 26% a3 MO26% to 51% ? a4 MO51%to 76% ? a5 MOover 76% ?e where Q is Tobin’s Q and MOup to 7%=managerial ownership if managerial ownership b7%, =7% if managerial ownershipN7%. MO7% to 26%=0 if managerial ownership b7%, =managerial ownership minus 7% if 7%bmanagerial ownershipb26%, =26% if managerial ownershipN26%. MO26% to 51%=0 if managerial ownershipb26%, =managerial ownership m inus 26% if 26%bmanagerial ownershipb51%, =51% if managerial ownershipN51%. MO51% to 76%=0 if managerial ownership b51%, =managerial ownership minus 51% if 51%bmanagerial ownershipb76%, =76% if managerial ownership N26%. MOover 76%=0 if managerial ownershipb76%, =managerial ownership minus 76% if managerial ownershipN76%. Ownership data is taken from the London Stock Exchange Yearbook and Tobin’s Q is calculated from Datastream. As a further test of robustness, we carried out the quintic analysis for managerial ownership and Tobin’s Q for the same sample of available firms in 1997. 11 Again, each coefficient was significant with the correct signs and the turning points from the estimated model were relatively stable at 7. 9%, 26. 5%, 55. 2% and 86. 2%. . 3. Endogeneity of managerial equity ownership, investment and corporate value To analyse the effects of endogeneity in the managerial ownership, investment and corporate value relationship, we follow Cho (1998) and carry out a simultaneous equations analysis using two-stage least squares. Cho (1998) and Himmelberg et al. (1999) showed that once endogeneity was controlled, the perceived impact of managerial ownership on corporate value d isappeared. Moreover, corporate value was found to positively affect levels of managerial ownership. It is possible that if the model specification employed by these studies is wrong, what appears to be a lack of statistical significance in the endogenous variables in the simultaneous equations analysis may actually be due to errors in variables arising from the intermediate regressions. We re-run the two-stage least squares analysis of Cho (1998) using our more complex specification. 12 The control variables in our regression are the same as in Cho (1998). Namely, managerial ownership, investment and corporate value are Some firms fell out of the sample because of mergers, delisting, and being taken over. Cho (1998) also attempts to control for specification error by re-estimating his simultaneous regression analysis using managerial ownership as a linear variable and again finds no relationship between managerial ownership and corporate value. However, if indeed there is a nonlinear relationship between ownership and corporate value, such an approach would fail to capture this. 12 11 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 655 defined to be endogenously determined by each other as well as some additional relevant exogenous variables. That is: Managerial Ownership ? ? market value of firm0s common equity; corporate value; investment; volatility of earnings; liquidity; industry? Corporate Value ? g? managerial ownership; investment; leverage; asset size; industry; block ownership; largest stakeholder? Investment ? h? managerial ownership; corporate value; volatility of earnings; liquidity; industry? For comparability, we define each of the above vari ables as in Cho (1998). For each company, industry dummy variables are set equal to one for each Financial Times Industry Classification (FTIC) grouping that sample firms lie within, and zero otherwise. In addition to the variables used by Cho (1998), we include blockholder ownership and largest stakeholder in the corporate value regressions to reflect the potential impact of blockholder discipline in the UK and the role of a founding or dominant individual on corporate value. All accounting and market variables are taken at the financial year-end from Datastream. In Table 5, we report results from the simultaneous equations analysis. Taking the managerial ownership regression first, all variables with the exception of investment have coefficients with the expected sign. Managerial ownership is negatively related to the market value of equity, which reflects the fact that wealth constraints and risk-aversion will prevent managers from holding substantial stakes in large firms. Firm level liquidity is shown to be positively related to managerial ownership, which is a stronger result than Cho (1998) who reported no significance for this variable. Importantly, Tobin’s Q is found to be significant and positively related to the level of managerial ownership. This is consistent with Cho (1998) but is opposed to Demsetz and Villalonga (2001), who find the opposite effect. This result suggests that managers tend to hold larger stakes in firms that are successful or have higher corporate value. This may also be indicative of successful managers benefiting from equity-related compensation policies. The investment variable, which has a negative impact on managerial ownership is surprising as theory predicts that firm level investment will be positively related to managerial ownership. Himmelberg et al. (1999) contend that firms with high investment spending will have high managerial ownership to alleviate the monitoring problem caused by discretionary managerial spending. However, Jensen (1986) argued that firms may overinvest as a result of an earnings retention conflict, rather than underinvest as Jensen and Meckling’s (1976) moral hazard theory would predict. When a firm is in this situation, managers may be able to maximise their size-related compensation by overinvesting, but are aware that this may ultimately reduce the value of their shareholdings. Although tentative, this could in part explain the negative relation between investment and ownership. Cho (1998) also finds a negative (but insignificant) coefficient on the investment variable using both capital and research and development expenditures. 56 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 Table 5 Simultaneous equations analysis of managerial ownership, corporate value and investment Variable MVEQ Tobin’s Q Volatility Liquidity Investment Leverage Asset size Largest stakeholder Blockholder ownership MO MO2 MO3 MO4 MO5 Industry dummies Adj. R 2 F Managerial ownership A1. 8A10 (A3. 74) 0. 127 (4. 63) A1. 0A10A6 (A0. 74) 0. 035 (2. 24) A1. 314 (A2. 67) A5 Corporate value Investment 0. 073 (2. 35) 3. 89A10A6 (A2. 86) 0. 013 (1. 01) Yes 0. 045 8. 014 5. 136 (2. 23) 1. 088 (4. 36) 3. 33A10A8 (1. 17) A0. 20 (A0. 06) A0. 837 (A2. 60) 1. 588 (3. 07) A0. 395 (A2. 22) 0. 037 (1. 64) A0. 001 (A1. 14) 1. 9A10A5 (0. 76) Yes 0. 033 3. 497 A0. 035 (A0. 46) 0. 018 (0. 72) A0. 003 (A0. 92) 1. 72A10A4 (1. 03) A3. 12A10A7 (A1. 07) Yes 0. 009 2. 497 Results from a simultaneous equations analysis of managerial ownership, corporate value and investment for 752 firms, using the two-stage least squares method to estimate the following equations: Managerial Ownership ? f ? market value of firm0s common equity; corporate value; investment; volatility of earnings; liquidity; industry? CorporateValue ? g? anagerial ownership; investment; financial leverage; asset size; industry; block ownership; largest stakeholder? Investment ? h? managerial owner ship; corporate value; volatility of earnings; liquidity; industry? In the above equations, managerial ownership measures the total level of holdings held by company management that are greater than 0. 5% of a company’s equity. Blockholder data measures the total level of holdings by outside blockholders that are greater than 3% of a company’s equity. Largest stakeholder is the largest single outside blockholder that holds at least 3% of company’s outstanding equity. Investment is defined as capital expenditure divided by total assets employed, leverage is the ratio of total debt to total assets employed and liquidity is measured as cashflow divided by total assets employed. Capital expenditure, total assets employed, after tax profits, depreciation, leverage, equity market values and profit volatilities are collected from Datastream. Tobin’s Q is measured as the ratio of the market value of equity and book values of debt and preferred equity to the book value of assets in the firm minus current liabilities. Shareholdings data is taken from the London Stock Exchange Yearbook for 1996 and 1997. All data are for industrial companies quoted on the London Stock Exchange in 1995. t-Statistics are in parenthesis. The estimated coefficients from the corporate value regression are given in the second column of Table 5. Corporate value is shown to be positively related to investment and leverage. While the investment coefficient is as expected, the sign of the leverage variable requires more discussion. Morck et al. 1988) find that leverage has a negative but insignificant impact on corporate value and attribute this to the possibility of managers in highly levered firms holding a higher than average level of ownership. However consistent with our results, McConnell and Servaes (1990) report a positive significant coefficient for leverage. Leverage can have various effects on firm value. The notion that high debt levels lead to greater corporate value has been argued by Modigliani and Miller (196 3) with respect J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 57 to valuable tax shields, Ross (1977) and Myers (1977) with respect to a signalling hypothesis and Jensen’s (1986) free cashflow hypothesis. Ultimately, leverage is one way of imposing external discipline on management and if it is effective, will lead to increased corporate value. Alternatively, Demsetz and Villalonga (2001) interpret a negative association between leverage and firm value as being due to relative inflation between the current time period and the earlier time period where companies had issued much of their debt. We view the most important result from the corporate value regression as being the significance of the managerial ownership variables. Our results indicate that although managerial ownership levels are determined by corporate value, corporate value itself is determined in part by managerial ownership. This finding is at odds with Cho (1998) and Himmelberg et al. (1999) but consistent with the classical view of Jensen and Meckling (1976) and empirical work by Morck et al. (1988) and McConnell and Servaes (1990). An interesting result is that blockholder ownership is shown to negatively impact Tobin’s Q. This result is consistent with Faccio and Lasfer (1999, 2000). McConnell and Servaes (1990) suggest that this could be due to a conflict of interests, which results from blockholders being forced into aligning themselves with managers so as not to jeopardize their other dealings with the firm. Alternatively, the negative coefficient may be explained by the strategic alignment hypothesis, which argues that blockholders and managers find it mutually beneficial to cooperate with each other. Finally, such findings may be consistent with the arguments of Burkart et al. 1997) in that too much block ownership will overly constrain management and reduce their ability to take value-maximising investment decisions. The investment regression coefficients presented in column three of Table 5 show a significant positive effect of corporate value on investment and a negative effect of profit volatility on investment. The finding that corporate value has a positive effect on investment is consisten t with the arguments of Cho (1998) that highly valued firms will have large investment opportunities. Also, firms with variable earnings will be reluctant to invest if future income is uncertain. Managerial ownership is found to have no impact on firm level investment. However, this may reflect optimality in that investment policy may be one way in which managers affect value, but not the only means. Ultimately we view our findings of a causal relation between ownership and firm value as being of greater significance than the lack of a relation between ownership and investment. These results are consistent with Cho (1998) but slightly stronger, in that volatility of earnings is significant in our regressions but insignificant in Cho (1998). . Conclusions Debate as to the relationship between corporate value and managerial ownership in the US is still unresolved. Studies such as Morck et al. (1988), McConnell and Servaes (1990), and Hermalin and Weisbach (1991) document a nonlinear relation between these two variables. More recent work by Cho (1998), Himmelberg et al. (1999), and Demsetz and Villalonga (2001) shows that when controlling for endogeneity, managerial ownership is determined by corporate value but not vice-versa. 658 J. R. Davies et al. Journal of Corporate Finance 11 (2005) 645–660 We argue that even accepting that corporate value and managerial ownership are endogenously related to each other, misspecification of the managerial holding–corporate value relationship may lead to spurious conclusions concerning the direction of causality. Applying a quintic structure, we present results which suggest that the correct form of this relationship is a double humped curve. This is in contrast to other studies that have assumed a cubic or quadratic specification and by construction only one hump. The second hump or local maximum is attributed to a collapse in external market discipline at or around the point where managers take overall control of their firm. At this point, which is around 50% ownership, the management is not sufficiently akin to owners but have sufficient power to disregard any form of external monitoring or discipline. This has a detrimental affect on corporate value for a short window of managerial holdings. At high levels of managerial ownership, managers are effectively majority owners of their firm leading to a convergence of interests with other outside shareholders. Utilizing the quintic specification for managerial ownership, we show that even when controlling for endogeneity, not only is corporate value a determinant of managerial ownership but managerial ownership is also a determinant of corporate value. This finding is consistent with the classical work of Jensen and Meckling (1976), as well as the early empirical work of Morck et al. (1988) and McConnell and Servaes (1990) who do not control for endogeneity in their analysis of corporate value and managerial ownership. We believe our analysis to have several important contributions to the literature on the relationship between managerial ownership and corporate value. First, our quintic specification extends previous work in this area and successfully captures the complex nonlinear relationship between corporate value and managerial ownership. Second, by analysing a completely different market which is similar in structure to the United States, we strengthen the power and insights gained from earlier comparable US studies. Third, we provide evidence that corporate value, firm level investment and managerial holdings are interdependent with each other. This has implications for the debate on the effectiveness of compensation policies involving stock options for top managers. Moreover, our findings suggest that some levels of managerial ownership may not be beneficial to outside shareholders even when these levels are high. At the very least, this paper has served to add to the debate concerning the importance of managerial ownership on corporate value by providing evidence that even controlling for endogenous effects, managerial ownership and stock compensation schemes do have a significant influence on corporate value. Our research has provided an initial step towards a more accurate characterisation of the corporate value–managerial ownership relationship. While we do not posit that our specification can be applied to every given data set, we argue that previous research may be misspecified where it has failed to fully explore alternative specifications of the managerial ownership–corporate value relationship. Future work in this area may focus on other structural forms, which more effectively reflect the interdependence of managerial ownership and corporate prospects. The nonlinear endogenous impact of blockholders on corporate value and managerial ownership would also provide interesting insights on the external discipline that is faced by firm managers and the impact this has on corporate value. J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 659 Acknowledgements The authors would like to thank John Capstaff, Scott Linn, Andrew Marshall, James Wansley and seminar participants at the Financial Management Association International (2001), European Financial Management Association (2002), Dublin Economics Workshop, the University of Strathclyde and an anonymous referee for their valuable comments on earlier versions of the paper. The normal caveat applies. References Burkart, M. , Gromb, D. , Panunzi, F. , 1997. Large shareholders, monitoring, and the value of the firm. Quarterly Journal of Economics 112, 693 – 728. Cho, M. H. , 1998. Ownership structure, investment, and the corporate value: an empirical analysis. Journal of Financial Economics 47, 103 – 121. Chung, K. H. , Pruitt, S. W. , 1994. A simple approximation of Tobin’s Q. Financial Management 23, 70 – 74. Dahya, J. , McConnell, J. J. , Travlos, N. G. , 2002. The Cadbury committee, corporate performance and top management turnover. Journal of Finance 57, 461 – 483. Demsetz, H. , Lehn, K. , 1985. The structure of corporate ownership: causes and consequences. Journal of Political Economy 93, 1155 – 1177. Demsetz, H. , Villalonga, B. , 2001. Ownership structure and corporate performance. Journal of Corporate Finance 7, 209 – 233. Denis, D. J. , Sarin, A. , 1999. Ownership and board structures in publicly traded corporations. Journal of Financial Economics 52, 187 – 223. Denis, D. J. , Denis, D. K. , Sarin, A. , 1997. Ownership structure and top executive turnover. Journal of Financial Economics 45, 193 – 221. Doukas, J. A. , McKnight, P. J. , Pantzalis, C. , 2002. Security analysis, agency costs and UK firm characteristics. Working Paper. Faccio, M. , Lasfer, M. A. , 1999. Managerial ownership, board structure and firm value: the UK evidence. Working Paper. Faccio, M. , Lasfer, M. A. , 2000. Do occupational pension funds monitor firms in which they hold large stakes? Journal of Corporate Finance 6, 71 – 110. Fama, E. F. , 1980. Agency problems and the theory of the firm. Journal of Political Economy 88, 288 – 307. Franks, J. , Mayer, C. , 1996. Hostile takeovers and the correction of management failure. Journal of Financial Economics 40, 163 – 181. Franks, J. , Mayer, C. , Renneboog, L. , 2001. Who disciplines management in poorly performing companies? Journal of Financial Intermediation 10, 209 – 248. Hart, O. D. , 1983. The market mechanism as an incentive scheme. Bell Journal of Economics 14, 366 – 382. Hermalin, B. Weisbach, M. , 1991. The effects of board composition and direct incentives on firm performance. Financial Management 20, 101 – 112. Himmelberg, C. P. , Hubbard, R. G. , Palia, D. , 1999. 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Role of Supervision and Leadership

Question: Discuss about theRole of Supervision and Leadership. Answer: Introduction: Intent of the Journal Article This article focuses on the relationship between employee and their managers in an organizational leadership and the way emotions associated with them affects their job satisfaction and overall mental health in a typical work environment (Mark and Smith, 2012). At first, it examines the direct effects of the managers and supervisors and their leadership behaviours which affect the expressed emotions, experienced emotions and the emotional control the employee's experience (Weiss and Cropanzo, 1996). Then it explains that the leadership behaviours of managers can lessen the impact of employee's emotional regulation in a positive way. For research, experience sampling methodology and within-person method is done to focus leadership behaviours and within-persons co-variations (Schaubroeck and Jones, 2000). Research Methods Used by the Authors According to Bono et al. (2007), participants were selected from a wide variety of professions ranging from the case manager, lab technician, nurse, human resource among many. A total of 57 employees were selected from a health organization with an average of 41 years old and mixed races including Caucasian, Asian and African-American. Three types of research were carried out: experience sampling data, survey data, and a leadership behaviour survey. The first one was made by handing a handheld computer to the participants to record their job satisfaction, momentarily stress, and experiences over the course of two weeks. The second one was a paper survey which was general in nature, where they provided stress and job satisfaction data. The third one, leadership behaviour supervisors survey was done from an organization. For leadership behaviors of supervisors', measurement was done using 20-factor MLQ or Multifactor Leadership Questionnaire as it is a commonly used measure for measuring transformational leadership validity and reliability. Responses were recorded on a scale of 5. Job satisfaction was measured using the same 5 point scale and using Brayfield-Rothe items. They were questioned next on their interaction with peers if they were at work after the signaling off the PDA. Experiences were recorded next by selecting three negative and three positive emotions. Positive ones include enthusiasm, happiness and optimism and negatives ones included irritation, anger, and anxiety. Stress was measured next by asking the participants that they were feeling stress and again noted on a scale of 5. The examiners addressed the hypotheses 1 and two by analyzing supervisor's role in experiences of an employee to find the between interaction partner and affected experiences of the employees. The next examina tion undertaken was to test the theory of transformation leadership behaviors of supervisors in relation with employee relations across interactions between co-workers and customers. Besides the given method, the examiners also hypothesized a moderating effect for same the leadership. Identify Arguments of the Article The study has been divided into different parts, and hypotheses are given for every situation. As stated by Nixon, Brukà ¢Ã¢â€š ¬Ã‚ Lee and Spector (2016), the first hypothesis tells that employees experience more positive emotions when interacting with co-workers and clients than with employers, and the reason is that employers monitor the behaviour, evaluate performance and oversee work of the employees which brings discomfort as they prefer more autonomy. Constant monitoring also brings about irritation, restraints emotional expressions and behaviour (Ryan and Deci, 2000). Since the negative interactions of the mood of employees were found to be about five times stronger than the effects of positive mood, therefore, any positive effect of a good mood is easily overshadowed by negative mood (George and Zhou, 2001). The second hypothesis tells that there is a positive correlation between managers and leaders when the transformation leadership managers affect the employees, and the positive vibe lasts throughout the whole workday (Green, 2014). Transformational leadership among managers brings about happiness, enthusiasm and prevents triggering of anger, frustration or anxiety in employees (Sy et al., 2005). As opined by Humphrey, Ashforth and Diefendorff (2015), the third hypothesis states, regulating emotions like faking positive emotions and hiding negative emotions is positively related to stress in individuals and negatively associated with individual job satisfaction. Emotional regulation is a process where employees chose to behave and show their expressions in a certain way as to conform to the environment of the workplace (Little, 2000). The article includes research from other studies which shows this phenomenon to be harmful to the employees as it means involves pretending which is not authentic. Suppressing emotions said to have the greater strain on cardiovascular, cognitive and physiological health (Beal et al., 2013). The fourth hypothesis states that, when managers and leaders engage in transformational leadership, the more focused is a positive balance between job satisfaction and emotional control than when the focus on the leadership is less (Hackman and Johnson, 2013). When transformational leadership is stronger, the link between stress and emotional regulation is very less compared to when the transformation leadership is weaker. With this leadership, the employees felt more consistent and self-congruent with own values and interests. The study presents two theories of Goal Self-concordance and self-determination theory to show that employees at workplace experience feel which leads separation of self and depersonalization (Sheldon and Elliott, 1999). It says that transformational leaders are not only empathetic, but the managers who practice the leadership style also find the greater social support of their employees (Zapf, 2002). Practical Implications of the Journal Article According to Brief and Weiss (2002), many organizational kinds of literature speak in details about the leaders and managers mood with affecting emotions and moods, but there has been little research data to back it up. In contrast, this study proposed a research study for the same. The outcome of this study was that when the employees did interact with co-workers, customers, and clients, there was a rise in a positive mood, optimism, enthusiasm, and happiness than communicating with supervisors (Bersade, 2002). The same level of increase in mood was observed when the employees reported to their supervisors who practiced transformational leadership as this leadership acts as a buffer for the employee's moods. By this study, it was also found out that, employees who regulate their emotions at work tend to have less job satisfaction even though the effects of it were short-lived (Lee and Allen, 2002). In comparison, the effects of stress were more long-lasting. There were some practica l limitations too of this study. The examiners stated that they could not examine the subgroups of employees in a service, sample studies were taken only from one organization, most of the participants were populated by females, and therefore the same cannot be held true for men (Pugh, 2001). References: Barsade, S.G., 2002. The ripple effect: Emotional contagion and its influence on group behavior.Administrative Science Quarterly,47(4), pp.644-675. Beal, D.J., Trougakos, J.P., Weiss, H.M. and Dalal, R.S., 2013. Affect spin and the emotion regulation process at work.Journal of Applied Psychology,98(4), p.593. Brief, A.P. and Weiss, H.M., 2002. Organizational behavior: Affect in the workplace.Annual review of psychology,53(1), pp.279-307. George, J.M. and Zhou, J., 2001. When openness to experience and conscientiousness are related to creative behavior: an interactional approach.Journal of applied psychology,86(3), p.513. Green III, R., 2014. 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