Keiichi Hori - Academia.edu (original) (raw)
Papers by Keiichi Hori
RePEc: Research Papers in Economics, Apr 1, 2011
Given an owner's noncommitment timing strategy and a manager's hidden action, we consider how the... more Given an owner's noncommitment timing strategy and a manager's hidden action, we consider how the optimal compensation contract for the manager is designed and how the corresponding timing decisions to launch the project and replace the manager are determined. Using a real options approach, we show that in comparison with the firstbest case, the higher (lower)-quality project is launched later (at the same time as the first-best case), whereas the incumbent manager is replaced earlier. We also indicate that compared with the case of the owner's commitment timing strategy and the manager's hidden action, the higher (lower)-quality project is launched later (at the same time as the first-best case), whereas the incumbent manager is (is not necessarily) replaced later if the hidden-action problem is severe enough (is not severe enough). Unlike the folklore result of the standard moral hazard model, severance pay may serve to minimize the compensation for the manager's loss of his option value caused by loss of corporate control by committing the owner to delaying replacement of the manager if the hidden-action problem is not too severe.
Social Science Research Network, 2012
ABSTRACT A continuous-time agency model is explored where the agent has loss-aversion preferences... more ABSTRACT A continuous-time agency model is explored where the agent has loss-aversion preferences. Regardless of whether the reference point is formulated exogenously or endogenously, we show that the optimal contract includes a part that is less sensitive to the agent's continuation payoff; however, this part is preceded and followed by a range of option-type payoffs. Furthermore, the introduction of loss aversion induces investors to reward the agent earlier, and to use a higher-powered incentive scheme. Implementing the optimal contract through a combination of equity, long-term debt, and a line of credit, we provide possible explanations for the evolution of CEO compensation with a low level of stability of CEOs' equity ownership in the United States, and for corporate dividend-smoothing policy.
Social Science Research Network, 2003
This paper considers how firm-specific factors affected the financial relations between banks and... more This paper considers how firm-specific factors affected the financial relations between banks and firms in Japan during the period in which deregulation and reform of the financing decisions of firms were almost completed. This was also a period in which Japanese banks incurred large bad loans. Our empirical results suggest that: (i) main banks make more short-term loans to firms with smaller prospects for growth and a greater likelihood of financial distress; (ii) main banks misuse their private information for their self-interest at the expense of the other banks in bond underwriting, and (iii) main banks hold a greater number of shares of firms with smaller prospects for growth. These findings indicate that the role of main banks as a lender to firms with greater prospects for growth but a greater likelihood of financial distress is constrained. To overcome this problem, the authorities may be allowed to nationalize most of the major Japanese banks and attempt to reorganize a new banking system that promotes lending to firms with greater prospects for growth but a greater likelihood of financial distress.
The Japanese Economic Review, Mar 1, 2017
Given an owner's noncommitment timing strategy and a manager's hidden action, we consider how the... more Given an owner's noncommitment timing strategy and a manager's hidden action, we consider how the optimal compensation contract for the manager is designed and how the corresponding timing decisions to launch the project and replace the manager are determined. Using a real options approach, we show that in comparison with the firstbest case, the higher (lower)-quality project is launched later (at the same time as the first-best case), whereas the incumbent manager is replaced earlier. We also indicate that compared with the case of the owner's commitment timing strategy and the manager's hidden action, the higher (lower)-quality project is launched later (at the same time as the first-best case), whereas the incumbent manager is (is not necessarily) replaced later if the hidden-action problem is severe enough (is not severe enough). Unlike the folklore result of the standard moral hazard model, severance pay may serve to minimize the compensation for the manager's loss of his option value caused by loss of corporate control by committing the owner to delaying replacement of the manager if the hidden-action problem is not too severe.
RePEc: Research Papers in Economics, Sep 16, 2017
Journal of Behavioral Economics and Finance, 2012
数理解析研究所講究録, 2006
This paper examines firms' incentives to make irreversible investments under an open access polic... more This paper examines firms' incentives to make irreversible investments under an open access policy with stochastically growing demand. Using a simple model, we derive an access-to-bypass equilibrium. Analysis of the equilibrium confirms that the introduction of competition in network industries makes a firm's incentive to make investm ents greater than those of a monopolist. We then show that a change in access charges induces a trade off in social welfare. That is, a decrease in the access charge expands the social benefit flow in the access duopoly, and deters not only the introduction of a new network facility, but also a positive network externality generated by the construction of an additional bypass network. The feasibility of socially optimal investment timing is then discussed,
European Corporate Governance Institute (ECGI) - Finance Working Paper Series, 2014
In this paper, we adapt a continuous-time agency model to incorporate the loss-aversion preferenc... more In this paper, we adapt a continuous-time agency model to incorporate the loss-aversion preferences of agents. To this end, by distinguishing between the gains in capital and income driven by variations in the agent's continuation payoff, we provide a theoretical model which overcomes the problem that the loss of utility arising from loss aversion disappears entirely with a continuous-time limit. We then show that the optimal contract includes part that is strictly positive but insensitive to the agent's continuation payoff, and part that encompasses a range of option-type payoffs. Implementing the optimal contract using a combination of equity, long-term debt, and a line of credit, we also predict that dividend payments are insensitive to changes in the firm's performance as long as its performance is moderately good. In addition, we derive some relations between dividends, the credit line balance (equity value), the limit of the credit line, and long-term debt. These r...
SSRN Electronic Journal, 2011
This paper considers how managers choose the timing of investment in risky but value-increasing p... more This paper considers how managers choose the timing of investment in risky but value-increasing projects with a liquidation possibility for their firm when their personal objectives are not aligned with those of shareholders but their compensation is endogenously determined. Using a real options approach for a broad class of managerial preferences, we show that without hidden information, the startup of the project is more likely to be delayed with a higher liquidation possibility, whereas the grant size of stock-based managerial compensation is independent of the liquidation possibility but is decreasing in the volatility of the firm's cash flow stream and the degree of managerial impatience if the manager is risk neutral. We also indicate that restricted stock is optimal in a general class of compensation schedules, regardless of the manager's risk preferences. Further, if there exists hidden information on the volatility of project returns and if the risk-neutral manager is as impatient as the shareholders, the equilibrium must be pooling. Then, the startup of the high- (low-)volatility project is advanced (delayed) in comparison with the case without hidden information.
The Japanese Economic Review, 2006
SSRN Electronic Journal, 2021
We explore an equilibrium allocation and efficiency when private firms are listed by merging with... more We explore an equilibrium allocation and efficiency when private firms are listed by merging with a SPAC, compared with those when they are listed through a traditional IPO. We show that a traditional IPO is more informationally efficient than a SPAC, except if the traditional IPO process is sufficiently long and costly. We also indicate that the private firms' willingness to select merging with a SPAC instead of a traditional IPO depends strongly on the choices of the information acquisition strategies of underwriters and sponsors. Our comparative static results suggest that in a hotter market, SPAC acquisitions are more likely to occur than traditional IPOs in a typical situation in which underwriters acquire information but sponsors do not. However, if the traditional IPO process becomes substantially long and costly, these predictions may be modified.
SSRN Electronic Journal, 2007
We explore the timing of the replacement of a manager as an important incentive mechanism, using ... more We explore the timing of the replacement of a manager as an important incentive mechanism, using a real options approach in a situation where the timing of the decision to replace the manager is related to a major change in a firm's strategies that involves spending large amounts of various sunk adjustment costs. In particular, we study this problem not only in a growing firm, but also in a declining firm under a continuous-time agency setting. We show that when renegotiation is not possible, the early replacement of the manager of a lower quality project (prior to the first-best trigger level) occurs only if a moral hazard problem exists. In addition, we indicate that the possibility of renegotiation drastically changes the results. The comparative static results with respect to the volatility of the business environment, the strength of the firm's governance and the competitiveness of the managerial labor market provide several empirical predictions related to executive compensation and turnover.
SSRN Electronic Journal
Abstract We explore how the timings of compensation payments and contract terminations are jointl... more Abstract We explore how the timings of compensation payments and contract terminations are jointly determined in a continuous-time principal–agent model under the discretionary termination policy of investors (the principal) when the manager (agent) has loss–averse preferences. Our theoretical findings provide several new empirical implications for backloaded compensation and forced managerial turnover. Our model also shows that mandatory deferral regulation governing incentive pay induces investors to terminate the contract relation earlier and results in the more frequent replacement of managers.
![Research paper thumbnail of On the Determinants of Corporate Cash Holdings in Japan: Evidence from Panel Analysis of Listed Companies [in Japanese]](https://attachments.academia-assets.com/67031874/thumbnails/1.jpg)
](
Japan and the World Economy, 1997
This paper examines whether or not production-based asset pricing model holds for the Japanese st... more This paper examines whether or not production-based asset pricing model holds for the Japanese stock market over the period 1971–1991. This model characterizes an intertemporal marginal rate of substitution as a function of the return on physical investment. An implication of the model is that returns on investment inferred from investment data through a production function and an adjustment cost
![Research paper thumbnail of On the Determinants of Corporate Cash Holdings in Japan: Evidence from Panel Analysis of Listed Companies [in Japanese]](https://attachments.academia-assets.com/40526113/thumbnails/1.jpg)
](Exploiting dramatic changes in individual corporate behavior as well as macroeconomic environment... more Exploiting dramatic changes in individual corporate behavior as well as macroeconomic environment for the period between 1982 and 2005, this paper empirically investigates the determinants of corporate cash holdings using the panel data of the companies listed at the three major stock exchanges. We find that like in Pinkowitz and Williamson (2001), the rent extraction by banks over industry firms promoted corporate cash holdings in the early 1980s. However, the weakened bank power was not responsible for a drastic decrease in the cash/asset ratio observed during the first half of the 1990s. Instead, the ratio declined as a consequence of the contraction of investment opportunities, the buildup of business credits as an alternative financial instrument, less needs for dividend payments, and higher costs of cash holdings.
This paper examines the effect of open access policy on competition in network industries under u... more This paper examines the effect of open access policy on competition in network industries under uncertainty. Comparing a competition under an open access policy with a facility-based competition, we confirm that allowing access to an essential facility makes the timing of a follower's entry earlier than that in a facility-based competition, irrespective of the level of access charge. Furthermore, a leader's (i.e., an incumbent's) incentive for network investment under open access policy can be larger than without open access, depending on the relative magnitude between the level of access charge and positive network externality generated by an additional network facility.
RePEc: Research Papers in Economics, Apr 1, 2011
Given an owner's noncommitment timing strategy and a manager's hidden action, we consider how the... more Given an owner's noncommitment timing strategy and a manager's hidden action, we consider how the optimal compensation contract for the manager is designed and how the corresponding timing decisions to launch the project and replace the manager are determined. Using a real options approach, we show that in comparison with the firstbest case, the higher (lower)-quality project is launched later (at the same time as the first-best case), whereas the incumbent manager is replaced earlier. We also indicate that compared with the case of the owner's commitment timing strategy and the manager's hidden action, the higher (lower)-quality project is launched later (at the same time as the first-best case), whereas the incumbent manager is (is not necessarily) replaced later if the hidden-action problem is severe enough (is not severe enough). Unlike the folklore result of the standard moral hazard model, severance pay may serve to minimize the compensation for the manager's loss of his option value caused by loss of corporate control by committing the owner to delaying replacement of the manager if the hidden-action problem is not too severe.
Social Science Research Network, 2012
ABSTRACT A continuous-time agency model is explored where the agent has loss-aversion preferences... more ABSTRACT A continuous-time agency model is explored where the agent has loss-aversion preferences. Regardless of whether the reference point is formulated exogenously or endogenously, we show that the optimal contract includes a part that is less sensitive to the agent's continuation payoff; however, this part is preceded and followed by a range of option-type payoffs. Furthermore, the introduction of loss aversion induces investors to reward the agent earlier, and to use a higher-powered incentive scheme. Implementing the optimal contract through a combination of equity, long-term debt, and a line of credit, we provide possible explanations for the evolution of CEO compensation with a low level of stability of CEOs' equity ownership in the United States, and for corporate dividend-smoothing policy.
Social Science Research Network, 2003
This paper considers how firm-specific factors affected the financial relations between banks and... more This paper considers how firm-specific factors affected the financial relations between banks and firms in Japan during the period in which deregulation and reform of the financing decisions of firms were almost completed. This was also a period in which Japanese banks incurred large bad loans. Our empirical results suggest that: (i) main banks make more short-term loans to firms with smaller prospects for growth and a greater likelihood of financial distress; (ii) main banks misuse their private information for their self-interest at the expense of the other banks in bond underwriting, and (iii) main banks hold a greater number of shares of firms with smaller prospects for growth. These findings indicate that the role of main banks as a lender to firms with greater prospects for growth but a greater likelihood of financial distress is constrained. To overcome this problem, the authorities may be allowed to nationalize most of the major Japanese banks and attempt to reorganize a new banking system that promotes lending to firms with greater prospects for growth but a greater likelihood of financial distress.
The Japanese Economic Review, Mar 1, 2017
Given an owner's noncommitment timing strategy and a manager's hidden action, we consider how the... more Given an owner's noncommitment timing strategy and a manager's hidden action, we consider how the optimal compensation contract for the manager is designed and how the corresponding timing decisions to launch the project and replace the manager are determined. Using a real options approach, we show that in comparison with the firstbest case, the higher (lower)-quality project is launched later (at the same time as the first-best case), whereas the incumbent manager is replaced earlier. We also indicate that compared with the case of the owner's commitment timing strategy and the manager's hidden action, the higher (lower)-quality project is launched later (at the same time as the first-best case), whereas the incumbent manager is (is not necessarily) replaced later if the hidden-action problem is severe enough (is not severe enough). Unlike the folklore result of the standard moral hazard model, severance pay may serve to minimize the compensation for the manager's loss of his option value caused by loss of corporate control by committing the owner to delaying replacement of the manager if the hidden-action problem is not too severe.
RePEc: Research Papers in Economics, Sep 16, 2017
Journal of Behavioral Economics and Finance, 2012
数理解析研究所講究録, 2006
This paper examines firms' incentives to make irreversible investments under an open access polic... more This paper examines firms' incentives to make irreversible investments under an open access policy with stochastically growing demand. Using a simple model, we derive an access-to-bypass equilibrium. Analysis of the equilibrium confirms that the introduction of competition in network industries makes a firm's incentive to make investm ents greater than those of a monopolist. We then show that a change in access charges induces a trade off in social welfare. That is, a decrease in the access charge expands the social benefit flow in the access duopoly, and deters not only the introduction of a new network facility, but also a positive network externality generated by the construction of an additional bypass network. The feasibility of socially optimal investment timing is then discussed,
European Corporate Governance Institute (ECGI) - Finance Working Paper Series, 2014
In this paper, we adapt a continuous-time agency model to incorporate the loss-aversion preferenc... more In this paper, we adapt a continuous-time agency model to incorporate the loss-aversion preferences of agents. To this end, by distinguishing between the gains in capital and income driven by variations in the agent's continuation payoff, we provide a theoretical model which overcomes the problem that the loss of utility arising from loss aversion disappears entirely with a continuous-time limit. We then show that the optimal contract includes part that is strictly positive but insensitive to the agent's continuation payoff, and part that encompasses a range of option-type payoffs. Implementing the optimal contract using a combination of equity, long-term debt, and a line of credit, we also predict that dividend payments are insensitive to changes in the firm's performance as long as its performance is moderately good. In addition, we derive some relations between dividends, the credit line balance (equity value), the limit of the credit line, and long-term debt. These r...
SSRN Electronic Journal, 2011
This paper considers how managers choose the timing of investment in risky but value-increasing p... more This paper considers how managers choose the timing of investment in risky but value-increasing projects with a liquidation possibility for their firm when their personal objectives are not aligned with those of shareholders but their compensation is endogenously determined. Using a real options approach for a broad class of managerial preferences, we show that without hidden information, the startup of the project is more likely to be delayed with a higher liquidation possibility, whereas the grant size of stock-based managerial compensation is independent of the liquidation possibility but is decreasing in the volatility of the firm's cash flow stream and the degree of managerial impatience if the manager is risk neutral. We also indicate that restricted stock is optimal in a general class of compensation schedules, regardless of the manager's risk preferences. Further, if there exists hidden information on the volatility of project returns and if the risk-neutral manager is as impatient as the shareholders, the equilibrium must be pooling. Then, the startup of the high- (low-)volatility project is advanced (delayed) in comparison with the case without hidden information.
The Japanese Economic Review, 2006
SSRN Electronic Journal, 2021
We explore an equilibrium allocation and efficiency when private firms are listed by merging with... more We explore an equilibrium allocation and efficiency when private firms are listed by merging with a SPAC, compared with those when they are listed through a traditional IPO. We show that a traditional IPO is more informationally efficient than a SPAC, except if the traditional IPO process is sufficiently long and costly. We also indicate that the private firms' willingness to select merging with a SPAC instead of a traditional IPO depends strongly on the choices of the information acquisition strategies of underwriters and sponsors. Our comparative static results suggest that in a hotter market, SPAC acquisitions are more likely to occur than traditional IPOs in a typical situation in which underwriters acquire information but sponsors do not. However, if the traditional IPO process becomes substantially long and costly, these predictions may be modified.
SSRN Electronic Journal, 2007
We explore the timing of the replacement of a manager as an important incentive mechanism, using ... more We explore the timing of the replacement of a manager as an important incentive mechanism, using a real options approach in a situation where the timing of the decision to replace the manager is related to a major change in a firm's strategies that involves spending large amounts of various sunk adjustment costs. In particular, we study this problem not only in a growing firm, but also in a declining firm under a continuous-time agency setting. We show that when renegotiation is not possible, the early replacement of the manager of a lower quality project (prior to the first-best trigger level) occurs only if a moral hazard problem exists. In addition, we indicate that the possibility of renegotiation drastically changes the results. The comparative static results with respect to the volatility of the business environment, the strength of the firm's governance and the competitiveness of the managerial labor market provide several empirical predictions related to executive compensation and turnover.
SSRN Electronic Journal
Abstract We explore how the timings of compensation payments and contract terminations are jointl... more Abstract We explore how the timings of compensation payments and contract terminations are jointly determined in a continuous-time principal–agent model under the discretionary termination policy of investors (the principal) when the manager (agent) has loss–averse preferences. Our theoretical findings provide several new empirical implications for backloaded compensation and forced managerial turnover. Our model also shows that mandatory deferral regulation governing incentive pay induces investors to terminate the contract relation earlier and results in the more frequent replacement of managers.
Japan and the World Economy, 1997
This paper examines whether or not production-based asset pricing model holds for the Japanese st... more This paper examines whether or not production-based asset pricing model holds for the Japanese stock market over the period 1971–1991. This model characterizes an intertemporal marginal rate of substitution as a function of the return on physical investment. An implication of the model is that returns on investment inferred from investment data through a production function and an adjustment cost
Exploiting dramatic changes in individual corporate behavior as well as macroeconomic environment... more Exploiting dramatic changes in individual corporate behavior as well as macroeconomic environment for the period between 1982 and 2005, this paper empirically investigates the determinants of corporate cash holdings using the panel data of the companies listed at the three major stock exchanges. We find that like in Pinkowitz and Williamson (2001), the rent extraction by banks over industry firms promoted corporate cash holdings in the early 1980s. However, the weakened bank power was not responsible for a drastic decrease in the cash/asset ratio observed during the first half of the 1990s. Instead, the ratio declined as a consequence of the contraction of investment opportunities, the buildup of business credits as an alternative financial instrument, less needs for dividend payments, and higher costs of cash holdings.
This paper examines the effect of open access policy on competition in network industries under u... more This paper examines the effect of open access policy on competition in network industries under uncertainty. Comparing a competition under an open access policy with a facility-based competition, we confirm that allowing access to an essential facility makes the timing of a follower's entry earlier than that in a facility-based competition, irrespective of the level of access charge. Furthermore, a leader's (i.e., an incumbent's) incentive for network investment under open access policy can be larger than without open access, depending on the relative magnitude between the level of access charge and positive network externality generated by an additional network facility.