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We argue that the cost to a family of holding a large block of shares in a company, or under-diversifying, is reflected in the diversification benefits that the family forfeits. These costs can be substantial. For example, given a constant relative risk aversion parameter of 2, the median cost...
Persistent link: https://www.econbiz.de/10005452004
This paper uses agent-based simulation to analyze how financial markets are affected by market participants with convex incentives, e.g. option-like compensation. We document that convex incentives are associated with (i) higher prices, (ii) larger variations of prices, and (iii) larger bid-ask...
Persistent link: https://www.econbiz.de/10011241667
Tournament incentives’ schemes have been criticized for inducing excessive risk-taking among financial market participants. In this paper we investigate how relative performance-based incentive schemes and status concerns for higher rank influence portfolio choice in laboratory experiments. We...
Persistent link: https://www.econbiz.de/10010743982
One potential reason for bubbles evolving prior to the financial crisis was excessive risk taking stemming from option-like incentive schemes in financial institutions. By running laboratory asset markets, we investigate the impact of option-like incentives on price formation and trading...
Persistent link: https://www.econbiz.de/10010744184
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In this study we use direct estimates of the portfolio diversification of the largest shareholder in a firm to study the impact of shareholder diversification on the firm. For firms where the controlling shareholder is an individual, our tests indicate that the owner-managers use debt, dual...
Persistent link: https://www.econbiz.de/10005312574
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This paper investigates the value consequences of stock splits in a market where institutional characteristics minimize the effects of price realignment and signaling. We find that despite these market conditions, stock splits by Greek firms produce positive price reaction around the...
Persistent link: https://www.econbiz.de/10005388874