Bounded Rationality, Rights Offerings, and Optimal Subscription PricesWolfgang Breuer
In an asymmetric information context with bounded rationality, investors' loss aversion, mental accounting and buy-and-hold behavior may create opportunities for good-type firms to signal their project quality by choosing lower issuance prices at rights offerings than bad-type firms do. Bad firms are prevented from imitating better ones, as their doing so would induce reference price violations with a loss in utility that would exceed any corresponding additional proceeds from the sale of subscription rights. As a by-product, we have, on average, found positive announcement effects from rights offerings. Our behavioral approach may help to explain differing empirical findings across countries and can thus be interpreted as a (quite rudimentary) contribution to the newly developing field of "cultural corporate finance". pp. 224 - 248
Discussion of
"Bounded Rationality, Rights Offerings, and Optimal Subscription Prices"Christian Schlag
pp. 249 - 250
Distorted Performance Measurement and Relational Contracts
Jörg Budde
I analyze the use of alternative performance measures using an agency model that incorporates both formal and informal agreements. I show that under the proper combination of verifiable and unverifiable performance measures, the two types of contract complement each other regardless of the principal's fallback position. To obtain this complementarity, the principal uses an opting-out clause that allows him to replace part of a piece rate by a predefined bonus. My analysis contrasts with earlier studies, and provides a rationale for the use of subjective information in strategic performance measurement systems.
pp. 251 - 273
Discussion of
"Distorted Performance Measurement and Relational Contracts"Christian Riegler
pp. 274 - 279
Bonus and Malus in Principal Agent Relations with Fixed Pay and Real EffortAnnette Kirstein
Drawing on the proposer-responder game examined by Andreoni, Harbaugh, and Vester-lund (2003), I experimentally test four variations of a principal-agent relationship with fixed pay and real effort. Depending on the treatment, the principal can voluntarily, but at her own expense, (1) only reward her agent, (2) only punish her agent, (3) either reward or punish her agent, or (4) neither reward nor punish her agent. Compared to Andreoni et al., I find substantially higher investments in reward, about the same expenses for pun-ishment, and no significant difference among the four treatments regarding output levels. I attribute these findings to the real effort aspect of the experimental design.
pp. 280 - 303
Discussion of
"Bonus and Malus in Principal Agent Relations with Fixed Pay and Real Effort" Ulrike Stefani
pp. 304 - 318
