The stock market and capital accumulation
The value of a firm's securities measures the value of the firm's productive assets. If the assets include only capital goods and not a permanent monopoly franchise, the value of the securities measures the value of the capital. Finally, if the price of the capital can be measured or inferred, the quantity of the firm's capital is the value divided by the price. A standard model of adjustment costs enables the inference of the price of installed capital. I explore the implications of the proposition using data from U.S. non-farm, non-financial corporations over the past 50 years. The data ...
Risk, economic growth and the value of U.S. corporations
This paper documents a strong association between total factor productivity (TFP) growth and the value of U.S. corporations (measured as the value of equities and net debt for the U.S. corporate sector) throughout the postwar period. Persistent fluctuations in the first two moments of TFP growth predict two-thirds of the medium-term variation in the value of U.S. corporations relative to gross domestic product (hence-forth value-output ratio). An increase in the conditional mean of TFP growth by1% is associated to a 21% increase in the value-output ratio, while this indicator declines by 12% ...
CEO incentive contracts, monitoring costs, and corporate performance
The after-tax real wage of the average worker in the United States has fallen 13 percent in the last 20 years, while the average chief executive officer has received a pay raise of over 300 percent. This glaring contrast has sparked a flood of papers analyzing CEO compensation contracts. One of the main justifications for the extraordinary pay of top CEOs is that they receive contracts that link CEO compensation to the performance of the firm. The empirical literature, however, has found little evidence that CEO contracts provide such incentives. The compensation of CEOs appears to respond ...
People are the key to success
Japan's corporate groups
Taxes, regulations, and the value of U.S. and U.K. corporations
We derive the quantitative implications of growth theory for U.S. corporate equity plus net debt over the period 1960?2001. There were large secular movements in corporate equity values relative to GDP, with dramatic declines in the 1970s and dramatic increases starting in the 1980s and continuing throughout the 1990s. During the same period, there was little change in the capital-output ratio or earnings share of output. We ask specifically whether the theory accounts for these observations. We find that it does, with the critical factor being changes in the U.S. tax and regulatory system. ...
CEOs, clerks, computers, and the rise of competition in the late 20th century.
Leonard Nakamura suggests that a new era of heightened creative destruction that began in the late 1970s also ushered in a new era of heightened competition. Such intensified competition has made leaders of large industrial enterprises vulnerable to a level of uncertainty previously reserved for managers of small and new firms. Consequently, managerial careers now less often have benign endings. The story was much different during the previous 100 years. From the 1870s to the 1970s, however, the large industrial corporation was highly stable partly because of investments in a corporate ...