Private Benefits Research Articles

Board reforms and M&A performance: international evidence

This research employs a difference-in-differences framework to study the impact of major board reforms on the performance of mergers and acquisitions (M&As). Using an international sample of board reforms implemented in 61 countries from 1985 to 2021, we document a drastic redistribution of wealth from target shareholders to acquirer shareholders after the board reforms in target countries. This effect is most pronounced in M&A transactions that involve the sale of controlling shares, thereby supporting the hypothesis that corporate board reforms mitigate the private benefits of control in the target firm. Furthermore, these reforms increase expected deal synergies, in that deal-level announcement returns are higher after the implementation of the reforms. When country-level institutional quality and legal protection of shareholders are greater, it reinforces the reform effects. Overall M&A activity remains unchanged following the reforms, yet financial bidders complete fewer transactions, implying a reform-induced squeeze-out of financial bidders from the M&A market in the target country. Collectively, these international results are consistent with the predictions of the private benefits of control theory and underscore the role of institutional quality and investor protection in reinforcing the effects of board reforms worldwide.

Household willingness to pay for various attributes of residential solar panels: Evidence from a discrete choice experiment

The predominant approach in the US environmental policy so far has been to offer financial incentives for renewable energy as a more politically palatable alternative to market based policies. The policies around residential rooftop solar have generally aligned with this approach. However, recent years have witnessed a reversal in the once favorable financial terms for residential solar energy in many states largely due to concerns regarding unfair cost shifting and efficiency. Consequently, solar vendors appear to increasingly hinge their marketing strategies on the narrative of “self-reliance”. A pertinent question is whether there is enough willingness to pay for such non-market, private benefits to sustain the growth of residential solar. To address this, we designed and implemented a discrete choice experiment within a stated preference framework. Respondents were asked to make a choice among different home energy options offering varying financial terms and other attributes such as self-reliance and home battery. Notably, a random subset of the respondents was presented with the net present value (NPV) of the dollar cost of each alternative, while this information was withheld from the rest of the sample. We estimated the utility coefficients through hierarchical Bayes (HB) mixed logit and subsequently derived the marginal willingness to pay (mWTP) for each attribute, along with their individual-level confidence intervals. Our findings indicate substantial heterogeneity in preferences among decision-makers. On average, the willingness to pay for self-reliance falls short of supporting residential solar growth without financial incentives. Furthermore, respondents exposed to NPV information exhibited significantly lower mWTP values, underscoring the potential efficacy of NPV information in improving willingness to pay estimates within investment-oriented settings.

STRATEGIES AND IMPACTS OF FINANCING TECHNOLOGY TRANSFER ENTITIES: A MULTIFACETED APPROACH

The article investigates the impact of various funding sources on Technology Transfer Entities (TTEs), including government support, private sector investments, grants, and European funds. It emphasizes the crucial role these financial mechanisms play in enabling TTEs to bridge the gap between academic research and commercial application. By analyzing the influence of government funding, the significance of licensing and patent revenues, and the benefits of private and European investments, the article demonstrates how these resources assist TTEs in achieving financial stability, fostering innovation commercialization, and navigating the market. It also highlights the importance of aligning TTEs' goals with broader societal and economic objectives. Through case studies, the research illustrates the essential need for a diverse funding strategy and effective management for TTEs to optimize their contribution to the technological innovation ecosystem, economic growth, and societal well-being

Propagation and Insurance in Village Networks

Firms in developing countries are embedded in supply chains and labor networks. These linkages may propagate or attenuate shocks. Using panel data from Thai villages, we document three facts: as households facing idiosyncratic shocks adjust their production, these shocks propagate to other households on both the production and consumption sides; propagation is greater via labor than supply chain links; and shocks in denser networks and to more central households propagate more, while access to formal or informal insurance reduces propagation. Social benefits from expanding safety nets may be higher than private benefits. (JEL D13, D22, G22, I10, L14, L26, O10)

Shareholder Litigation and Private Benefits of Control: Evidence from Derivative Lawsuits

Shareholder Litigation and Private Benefits of Control: Evidence from Derivative Lawsuits

ENDING WASTEFUL YEAR‐END SPENDING: ON OPTIMAL BUDGET RULES IN ORGANIZATIONS

AbstractWhat can organizations do to minimize wasteful year‐end spending? I introduce a two‐period model to derive optimal budget roll‐over and audit rules. A principal tasks an agent with using a budget to fulfill the organization's spending needs, which are private information of the agent. The agent can misuse funds for private benefit. The optimal rules allow the agent to roll‐over a share of the unused funds, but not necessarily the full share, and in most cases to audit only sufficiently large spending. The optimal audit rule can change once fund roll‐over is allowed. Strategically underfunding the agent can be optimal.

Reducing maternal labor market detachment: A role for paid family leave

More than one quarter of working women leave the labor force when they have a child. Half of these detachments last at least 10 years and as many as 20 percent last 17 years or more, shrinking the U.S. workforce. Access to paid family leave (PFL) offers many private benefits, but may also offer the public benefit of increasing women’s participation in the labor force. We rely on the implementation of PFL in California in 2004 to examine long-term impacts on women’s labor force participation. We find that, prior to implementation of paid leave, maternal labor market detachment is 25 percent following a birth; it attenuates over time to five percent but takes 14 years to reach that level, and remains significantly different from zero. We find that access to PFL at the time of a birth significantly increases labor market participation by more than five percentage points (21 percent) in the year of a birth; its impact attenuates over time but remains significantly different from zero as much as nine years later. Impacts are greatest among women with bachelor’s degrees, for whom PFL reduces maternal detachment by 12 percentage points (38 percent) in the year of a birth and continues to impact participation for eleven years after a birth. This suggests that PFL offers public benefits of increasing the skilled labor force.

Free riding, democracy, and sacrifice in the workplace: Evidence from a real‐effort experiment

AbstractTeams are increasingly popular decision‐making and work units in firms. This paper uses a novel real‐effort experiment to show that (a) some teams in the workplace reduce their members' private benefits to achieve a group optimum in a social dilemma and (b) such endogenous choices by themselves enhance their work productivity (per‐work‐time production)—a phenomenon called the “dividend of democracy.” In the experiment, worker subjects are randomly assigned to a team of three, and they then jointly solve a collaborative real‐effort task under a revenue‐sharing rule in their group with two other teams, while each individual worker can privately and independently shirk by playing a Tetris game. Strikingly, teams exhibit significantly higher productivity (per‐work‐time production) when they can decide whether to reduce the return from shirking by voting than when the policy implementation is randomly decided from above, irrespective of the policy implementation outcome. This means that democratic culture directly affects behavior. On the other hand, the workers under democracy also increase their shirking, presumably due to enhanced fatigue owing to the stronger productivity. Despite this, democracy does not decrease overall production thanks to the enhanced work productivity.

Motivation for households' investment in photovoltaics in Czechia: An exploratory factor analysis

Photovoltaics (PV) are an integral part of the climate neutrality transition; aside from reducing fossil fuel consumption, they provide additional and impactful private and societal benefits. When purchasing PV, the decision-making of small investors is a complex process. We investigate how households decide to invest in PV on rooftops. From a sample of over 2500 respondents, we found that while personal financial benefits are the primary motivation for acquiring PV plants, other variables, such as production independence and ecological benefits were almost equally important. The factor analysis revealed four latent motivation factors that drive the decision-making: economic, technical, ecological, and surroundings. Additionally, households are not fully homogenous in their decision-making. Education, income, and age influenced the attribution of importance the respondents gave to the specific factors. Conversely, the settlement size was not a strong predictor of the decision-making. The results imply the need for diversified policy design across different groups of investors.

Integrating in situ conservation of plant genetic resources with ex situ conservation management: Involving custodian farmers, benefits and their willingness to accept compensation

Compensation for custodian farmers to provide agrobiodiversity-conservation services in their farms (in situ) is an emerging global approach because it can generate public benefits when it comes to important plant genetic resources (PGRs) for food and agriculture. This review focused on: i) the integration of in situ conservation to the PGR management involving custodian farmers in a systematic conservation approach; ii) the private benefits obtained by custodian farmers to increase their willingness to actively participate in the conservation service; and iii) the willingness to accept (WTA) compensation of the farmers in providing conservation service relative to opportunity costs. The most recent approaches suggest the integration of in situ conservation with ex situ conservation management for efficient conservation programmes, especially in relation to governance of local agrobiodiversity. Involving custodian farmers in the comprehensive genetic-improvement system appears to be an activity that increases their willingness to participate in agrobiodiversity conservation schemes. Farmers receive private benefits, which are simultaneously reflected in the provision of public benefits. Therefore, WTA compensation, which employs mechanisms in the design of payments for better agro-environmental conservation services, controls the opportunity costs. Overall, farmers seem willing to participate in any type of compensation scheme that is proposed in the different countries. Furthermore, it is possible to capture the WTA, therefore significant progress requires more studies of primary schemes, indepth analysis to capture farmers' preferences on economic, socio-cultural, and environmental factors in scheme design, and the implementation of incentive policies designed with pragmatic tools.

The impact of boundary conditions on the relationship between value creation and value appropriation in buyer-supplier relationships

Purpose This study aims to investigate whether higher value creation leads to higher value appropriation and to identify the boundary conditions in a buyer–supplier relationship that can explain why a particular supplier can appropriate higher value than others. Design/methodology/approach The study uses questionnaire surveys. The sample of the survey has 150 publicly-listed supplier firms in Taiwan. The unit of analysis is the buyer–supplier relationship. Findings In the buyer–supplier relationship, suppliers’ bargaining power, partnership and a supplier’s original brand manufacturing (OBM) business can strengthen the positive relationship between value creation and value appropriation. Research limitations/implications This study adopts the unilateral viewpoint of suppliers; however, some constructs might require dyadic evaluation. This study only explores the spillover effect of OBM business on the relationship between value creation and appropriation. Practical implications The spillover effect of a supplier’s OBM business in a buyer–supplier relationship allows the buyer to share more common benefits and the supplier to capture more private benefits as compensation. By broadening its customer base, a supplier can increase its bargaining power. A supplier can also maintain a strategic partnership with each essential buyer. Originality/value To avoid the dark-side effect of partnership, the model provides the contingency that a supplier can capture more value from a buyer–supplier relationship.

Economic framework to assess the impact of banning pesticides, with application to sulfuryl fluoride for drywood termites (Blattodea: Kalotermitidae) in California.

Sulfuryl fluoride (SF) is a fumigant used to eliminate drywood termites (DWT: Kalotermitidae; Froggatt) and other structural pests. Because of its global warming potential, it has been suggested that SF be restricted as a greenhouse gas (GHG). We present an economic model to assess the net social cost of restricting SF. We consider 3 approaches to address DWT control- no treatment, allowing SF fumigation and localized treatments, and only local treatment. Each approach generates private and public benefits and costs. We estimate that the annual damage and home equity loss by DWT in California is US$4.5-16.8 billion without treatment. If fumigation is used on 20% of the houses and local treatments on the others, the combined social cost of treatment, damage, and GHG emissions are between US$1-US$2 billion annually. The annual cost of local treatments only would be between US$3.2 and US$4.9 billion. If the application of SF is severely restricted or banned, the social costs will increase between US$1.43 and US$4.31 billion annually. The implied cost per ton of CO2 eliminated is between US$624 and US$1,465, much above the price range of CO2 in other applications. The restriction/ban has significant equity and environmental effects, impacting low-income individuals living in rented properties and replacing damaged wood in housing will increase GHG emissions. We further recommend the continued use of SF until a comparable whole-structure alternative is developed that fits the parameters of our model.

Optimal Accounting Rules, Private Benefits of Control, and Efficient Liquidation

We study optimal accounting rules that alleviate inefficiencies caused by managerial private benefits. Accounting signals generated by the accounting rules guide the continuation decision at an interim project stage. The entrepreneur enjoys private benefits from continuation, which may induce inefficient decisions. The optimal accounting rule is characterized by a threshold, with a higher threshold representing more conservative accounting. The first-best is achieved under small private benefits. As private benefits increase, the first-best eventually is not achievable and more informative bad news is required for the manager to terminate, resulting in less conservative accounting rules. Therefore, more conservative accounting rules are associated with more efficient investment decisions. This paper was accepted by Suraj Srinivasan, accounting. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2019.03087 .

Community benefit agreements for solar energy: Examining values, preferences and perceived benefits in the United States using a discrete choice experiment

Large-scale solar energy developments bring significant environmental and community benefits, but they can also impose negative impacts, particularly on host communities. Community Benefit Agreements (CBAs) have emerged as a strategy to mitigate these adverse effects. This study examines community preferences regarding CBAs associated with large-scale solar farms. Our investigation focuses on two critical CBAs aspects: the choice between mandated or voluntary implementation and the preference for private or collective benefit distribution. Additionally, we explore how individual values shape community members' attitudes towards solar technology. Our findings reveal a clear preference within the surveyed community for privately distributing benefits over establishing a collective trust fund, and for voluntary implementation rather than government mandates. However, it is essential to recognize that the community is not monolithic and can be placed into three classes: a minority of solar-reluctant individuals (7.5 %), a significant solar-receptive group (24.2 %), and a substantial disengaged majority (68.3 %). Among these groups, the solar-receptive segment displays the most interest in private benefits; yet, they favor government-mandated agreements. Moreover, values play a significant role in shaping preferences within each group, with biospherism correlating with greater support for mandated, private benefits among respondents in the reluctant and receptive groups. Conversely, hedonistic values predict a greater inclination among the reluctant group to live further away from solar developments. Based on these findings, policies should prioritize voluntary, private benefit distribution while remaining adaptable to align with community preferences. Engaging community members in the decision-making can help tailor solutions that resonate with their values and preferences.

Shareholder nomination of independent directors: Evidence from China

This study explores the motives behind individual shareholders nominating independent directors (IDs) in China. By tracing ID nominations to the specific nominators that independent directors represent and provides direct evidence how ID nomination is linked to the individual shareholders' motives of monitoring managerial self-interest and private benefits of control, we uncover two primary insights. Firstly, compared to nominations made by the board of directors, individual shareholders are more inclined to nominate IDs for oversight of managerial self-interest (monitoring motive). However, they tend not to make such nominations when it would enable them to potentially accrue private benefits of control (conspiring motive). Additional tests present the influence of ownership structure, state ownership and the cumulative voting system on ID nominations by these shareholders. Moreover, we find such nominations by individual shareholders amplify firm value by mitigating Type I agency costs between managers and shareholders, enhance financial reporting quality and alleviate information asymmetry. Our study suggests that ID nominations by individual shareholders serve as an effective governance tool, particularly beneficial for non-majority shareholders. These findings carry relevance for researchers and regulators concerned with corporate governance and capital markets.

Private benefits from ambient air pollution reduction policies: Evidence from the household heating stove replacement program in Chile

We estimate the key private benefits from a program to improve ambient air quality during winter in central Chile by replacing inefficient wood-fired home heating stoves with more efficient pellet stoves. We are interested in the private benefits to households, because they represent additional value of the program and likely drive adoption. Combining electronic stove surface temperature and air pollution monitoring with household surveys, we estimate the effects of adoption on household fuel expenditures, indoor temperatures and indoor air pollution concentrations (PM2.5) when the stoves are in use. We also explore heterogeneous effects of the program by income group and energy poverty status. Our results suggest that, after controlling for observable characteristics of individuals and dwellings, users of pellet stoves on average enjoy 14 % lower indoor PM2.5 concentrations during hours in which stoves are in use compared with those who use traditional stoves during the same periods of time. Lower-income and energy-poor households receive much greater than average improvements in indoor air pollution than those with higher-incomes, driving the overall estimate and indicating that the program is progressive in this dimension. The improved heating stove has significantly higher operating costs, however, and we find that these costs are most salient for low-income and energy-poor households.

Green industrial policy, information asymmetry, and repayable advance

AbstractThe energy transition requires the deployment of risky research and development programs, most of which are partially financed by public funding. Recent recovery plans, associated with the COVID‐19 pandemic and the energy transition, increased the funding available to finance innovative low‐carbon projects and called for an economic evaluation of their allocation. This paper analyzes the potential benefit of using repayable advance: a lump‐sum payment to finance the project that is paid back in case of success. The relationship between the state and innovative firms is formalized in the principal‐agent framework. Investing in an innovative project requires an initial observable capital outlay. We introduce asymmetric information on the probability of success, which is known to the firm but not to the state agency. The outcome of the project, if successful, delivers a private benefit to the firm and an external social benefit to the state. In this context a repayable advance consists in rewarding failure. We prove that it is a superior strategy in the presence of pure adverse selection. We investigate under what conditions this result could be extended in the presence of moral hazard. Implications for green industrial policy are discussed.

Integrating host-country political heterogeneity into MNE–state bargaining: insights from international political economy

The international business (IB) literature has emphasised the heterogeneity of firm strategies in shaping MNE–state bargaining, but largely ignored the heterogeneity of states. In contrast, the international political economy (IPE) literature provides a more nuanced consideration of state strategies and their economic and political priorities. We seek to address this oversight by making two related contributions. In the context of MNE–state bargaining, we first discuss how differences in political systems and the political and economic objectives of states may affect their negotiating stance with MNEs. We consider the impact of changes in the balance of state objectives by considering how much importance governments assign to improving the welfare of its broader population, relative to how important they are concerned with the “private benefits” that accrue to the political elites. This enables us to add micro-foundations to the characterisation of the state. Second, we apply a Nash bargaining framework to MNE–state negotiations that vividly captures the relative bargaining powers of the MNE and the state, including how “outside options” available to these two actors can influence the shape of actual bargains. We discuss the implications of these two contributions for future research.

Water Crisis in Mexico.Reflections on Its Shortage and Management

Mexico is experiencing a water crisis particularly in the central and northern regions of the country due to increasing droughts. Millions of liters of water are used by the processed food industry or soft drink or beer companies, the agricultural and livestock industry among others, these are the economic activities that consume the most water. Therefore, it is important that the water crisis experienced in Mexico should not be addressed based on the lack of rain, the implementation of effective public policies for the supply of water that respond to the expectations of the population should also be considered. Another aspect that must be taken into account is that the Mexican legislation that regulates the exploitation or use of national waters, as well as their distribution, control and preservation of their quantity and quality, has to be reviewed, renewed and adapted to the current needs of the country to guarantee the human right to water. In this context and using an inductive-deductive methodology, a documentary review of national and international legislation was carried out, as well as literature related to the water crisis affecting Mexico. In short, it is important to state that the management of water resources must be based on principles of solidarity, collective access and equity, which are by definition incompatible with any commercial approach motivated by private benefit and public benefit. Definitely, the implementation of public policies that effectively combat water scarcity in Mexico must be linked to the management, protection and infrastructure for the distribution and storage of water. This includes regulating water extraction and promoting sustainable practices in all sectors of the economy.

Multiple Blockholders, Audit Committee’s Power and Earnings Management: Evidence from Indonesia

Objective – The purpose of this study is to empirically analyze the impact of the power status of audit committees and multiple blockholders on accrual earnings management. Methodology – This study applied a quantitative research method with secondary data from the annual report. In this research, manufacturing companies were used as samples listed on the Indonesia Stock Exchange with a total of 4 years ranging from the period of 2018 – 2021. This research used multiple regression with fixed effect driscoll-kraay standard error. Findings – It is revealed that multiple blockholders have a positive impact on accrual and real earnings management, while the power status of the audit committee has no impact on accrual and real earnings management. It can be implied that in Indonesia, multiple blockholders play a significant role in increasing earnings management, and audit committees’ power cannot reduce earnings management in the presence of multiple blockholders. Novelty – Previous literature argues that the power of audit committees should be bigger than management to control earnings management. However, in the context of Indonesia, where a concentrated ownership structure is prevalent, multiple blockholders can play a significant role in earnings management. This study is the first to analyze the negative effect of multiple blockholders in the country, which is dominant with a concentrated ownership structure. If multiple blockholders enjoy the private benefits of control through earnings management, the audit committee’s power over management would be useless. Type of Paper: Empirical JEL Classification: C33, D22, G34 Keywords: Earnings Management; power status of audit committee; multiple blockholder; monitoring; ownership. Reference to this paper should be made as follows: Rudyanto, A.; Hidagusti, R.R. (2023). Multiple Blockholders, Audit Committee’s Power and Earnings Management: Evidence from Indonesia, J. Fin. Bank. Review, 8(2), 105 – 115. https://doi.org/10.35609/jfbr.2023.8.2(3)