Glenn Boyle

• Doctor of Philosophy
• Professor (Adjunct) at University of Canterbury

We use a conjoint analysis of 551 subjects to compare the reaction of finance professionals to news of a banking crisis with the reactions of non-finance professionals and graduate students. All three groups make greater deposit withdrawals if deposit insurance protection involves a haircut, but the response of finance professionals is more nuanced...

Purpose This study aims to examine the impact of December 2012, New Zealand (NZ) stock exchange operator listing rule change that introduced compulsory disclosure about gender diversity on NZ boards. Design/methodology/approach A quasi-natural experiment setting with a clearly identifiable exogenous event. Findings The rate of growth in female-he...

We explore the value of private investment information using data from a singular source: auctions of yearling racehorses. Horse breeders possess superior information about their own horses and have strong financial incentives to buy the best of these back at auction. However, those they repurchase subsequently perform significantly worse on averag...

This paper is developed around the set of design principles for executive compensation contracts as outlined in the study of Shan and Walter (2014). We propose guidance for determining an appropriate CEO starting compensation level based on past performance and the market for managerial talent. We also outline factors to be considered in determinin...

In an influential paper, Hall and Liebman (QJE, 1998) ask if senior corporate executives are really paid like bureaucrats, and conclude that they are not. In this paper, we ask if senior public service bureaucrats are really paid like bureaucrats, and conclude that they too are not. However, there is an important difference: whereas the Hall and Li...

This paper reviews the business case used to justify the Christchurch council's decision to spend $150 million on a cycleway network at a time where it's facing a $1.2 billion shortfall.

We use a conjoint analysis approach to shed light on depositor behavior in a banking crisis. A multinational sample of respondents is provided with hypothetical account profiles and asked how, following the failure of a large competing bank, they would view each profile in terms of required interest rate premium and deposit withdrawal percentage. R...

The authors examine the propensity of Australian banks to participate in syndicated loans to corporate borrowers from 12 countries in the Asia-Pacific region. As in other studies of international asset allocation, the authors find that these banks participate more often, and more intensively, in syndicates making loans to Australian firms-despite s...

Investor rationality ensures that the possession of additional information is always advantageous, but experimental findings suggest more nuanced effects. We investigate this issue using data from a singular source: auctions of yearling racehorses (akin to ‘equine IPOs’). Like IPO insiders, breeders have superior information about their own horses,...

Purpose – The purpose of this paper is to uncover the stylised facts about NZ corporate boards and identify unanswered questions about their composition, activity and incentives during the 16-year period between 1995 and 2010. Design/methodology/approach – The paper uses annual report data to document the evolution of 22 NZ board characteristics....

"Should we care about investment advisor remuneration?"Co-Chairs for this session are Professor Glenn Boyle and Professor Kevin Davis

Investor rationality ensures that the possession of additional information is always advantageous, but experimental findings suggest more nuanced effects. We investigate this issue using data from auctions of standardbred yearlings between 2005 and 2007. Breeders have superior information about their own horses, but those they choose to re-purchase s...

In an influential paper, Hall and Liebman (QJE, 1998) ask if corporate CEOs are really paid like bureaucrats, and conclude that they are not. In this paper, we ask if senior bureaucrats are really paid like bureaucrats, and conclude that they too are not. However, there is an important difference: whereas the Hall and Liebman CEOs face high-powered...

In a seminal paper, Hall and Liebman (QJE, 1998) ask if corporate CEOs are really paid like bureaucrats, and conclude that they are not. In this paper, we ask if senior bu- reaucrats are really paid like bureaucrats, and conclude that they too are not. However, there is a critical difference – whereas the Hall and Liebman CEOs face high-powered per...

We document changes in New Zealand corporate board characteristics between 1995 and 2010, a period centred around the 2003 introduction of the NZX Corporate Governance Best Practice Code. Unsurprisingly, the representation of non-executive, independent and female directors on NZ boards rose during the period, as did real chair and director fees and...

We find strong evidence of intra-industry information transmission to employee layoff announcements. Although the stock price response for the full sample of industry rivals is weakly positive and consistent with a net competitive effect, we find evidence that contagion and competitive effects could happen simultaneously. Results consistent with th...

Conventional wisdom suggests that CEO membership of the compensation committee is an open invitation to rent extraction by self-serving executives. However, using data from New Zealand – where CEO compensation committee membership was rel- atively common until quite recently – we find that annual pay increments for CEOs with this apparent advantage...

Racehorse trainers operate unregulated asset management businesses in which the assets owned by outside clients compete with those owned by trainers for the latter’s time, care and attention. However, market mechanisms appear to deal effectively with the resulting agency problem in situations where it matters most. In a sample of 8000 racehorses an...

We examine the propensity of Australian banks to participate in syndicated loans to corporate borrowers from 12 countries in the Asia-Pacific region. We find that these banks participate more often, in greater numbers and in greater quantity for loans made to Australian and New Zealand borrowers. However, much of this apparent bias can be attribute...

New Zealand listed firms vary greatly in the extent to which they allow direct CEO involvement in the executive pay-setting process, so we examine the extent to which this variation has implications for remuneration structures. CEOs who sit on the compensation committee are paid like plutocrats, obtaining annual pay rewards that have high mean (rela...

We examine the market reaction to announcements of an intention to pursue a program of external acquisitions. Although the mean gain is positive, only firms with high Tobin's q and low leverage experience significant abnormal returns. For firms with low q or high leverage, abnormal returns are zero. Moreover, the stock price reaction is an increasi...

New Zealand firms exhibit significant variation in the extent to which they formally involve CEOs in the executive pay-setting process: a considerable number sit on the compensation committee, while others are excluded from the board altogether. Using 1997-2005 data, we find that CEOs who sit on the compensation committee obtain generous annual pay...

A problem that often arises in applied finance is one where decision-makers need to choose a value for some parameter that will affect the cash flows between two parties involved in the operation of an illiquid asset. Because the values of the cash flows also depend on various unobservable parameters, identifying the value of the policy parameter t...

Abstract Although CEO membership,of the compensation,committee is extremely rare in the United States, it is relatively common in New Zealand. To investigate whether this results in more opportunistic CEO behaviour, we estimate a standard model of executive compensation using 1997–2005 New Zealand data and compare the results to those previously ob...

A problem that often arises in applied finance is one where decision-makers need to choose a value for some parameter that will affect the cash flows between two parties, such as a rental rate or an exercise price. Because the values of the cash flows also depend on various unobservable parameters, identifying the value of the policy parameter that...

Local loop unbundling has been widely promulgated by policy-makers as a significant factor stimulating broadband uptake and therefore an essential component of a developing ‘information economy’. Whilst empirical evidence on this issue is sparse, one recent study commissioned and published by the OECD (OECD, 2007) does find a statistically signific...

A large body of evidence suggests that financial development is greater in countries that impose stricter regulatory requirements on their major stock exchanges, but this leaves open the question of whether or not such regulation should be uniformly applied to all equity trading platforms within a country. On the one hand, regulatory variation perm...

In most countries, academic pay is independent of discipline, thus ignoring differences in labor market opportunities. Using some unique data from a comprehensive research assessment exercise undertaken in one such country -- New Zealand -- this paper examines the impact of discipline-independent pay on research quality. I find that the greater the...

In most countries, academic pay is independent of discipline, thus ignoring differences in labor market opportunities. Using some unique data from a comprehensive research assessment exercise undertaken in one such country -- New Zealand -- this paper examines the impact of discipline-independent pay on research quality. I find that the greater the...

working paper series: ISCR 07-01 Introduced in response to several high profile US corporate collapses, the Sarbanes-Oxley Act (SOX) of 2002 has proven to be a gold mine for academic researchers: after only five years, no less than 528 studies of SOX appear on the Social Sciences Research Network (www.ssrn.com). This essay seeks to review the resul...

Does the quality of performance by experts respond to financial incentives? I provide some new evidence on this question by examining the propensity of racehorse trainers to undertake effort-diverting actions. In a sample of 30426 horse races, I find that lower race stakes are strongly associated with more unexpected outcomes, consistent with more...

Using a sample of non-financial New Zealand companies we examine whether firms that use financial derivative instruments are more financially constrained compared to those that do not hedge. We find a significantly positive relationship between derivative usage and financial leverage and a significantly negative relationship between derivative usag...

Racehorse trainers operate asset management businesses in which the assets owned by outside clients compete with those owned by managers for the latter's time, care and attention. Although this potentially leads to serious conflicts of interest, we find no evidence of an agency problem: in a sample of 8000 racehorses and their associated stables, c...

In choosing between forward and spot hedging, cash constrained and/or high credit risk firms are more likely to hedge foreign currency transactions forward than firms of greater quality. This arises because the cost of the levered component of a spot hedge is greater than the cost of the unlevered component and this premium increases with higher cr...

From 2007, New Zealand firms must report the cost of granting employee stock options (ESOs). Market-based option pricing models assume that option holders are unconstrained in their portfolio choices and thus are indifferent to the specific risk of any firm. By contrast, ESO holders are frequently required to hold portfolios that are over-exposed t...

When interest rates are uncertain, the net-present-value threshold required to justify an irreversible investment is increasing in the length of a project's payback period. Therefore, slow-payback projects should face a higher hurdle than fast-payback projects, just as investment folklore suggests. This result suggests that the widely disparaged us...

ISCR: 06-04 In September 2005, the New Zealand Commerce Commission (NZCC) released a document (The Weighted Average Cost of Capital for Electricity Lines Businesses by Dr Martin Lally, referred to as LINES hereafter) that estimates a weighted average cost of capital (WACC) for New Zealand electricity lines businesses and proposes ameans for detecti...

In applying the Capital Asset Pricing Model (CAPM) to cost of capital calculations, practitioners treat the market risk premium as a free parameter to be estimated from data. However, this process ignores equilibrium in the cash market and therefore the implications of the CAPM for the premium itself Full equilibrium relates the premium to underlyi...

A large body of evidence suggests that investor protection regulation assists the development of major stock exchanges, but this leaves open the question of whether or not the same level of regulation should be applied to all centralised trading platforms. This paper argues that regulatory variation permits a wider choice of investment opportunitie...

In 1988, the US Commodity Futures Trading Commission gave permission for the University of Iowa to begin operating the Iowa Electronic Market (IEM), thus ushering in the world's first information market (sometimes called a prediction market). Similar markets have subsequently appeared at the University of British Columbia and Vienna University of T...

Popular investment advice recommends that stock/bond and stock/wealth ratios should rise with investor risk tolerance and investment horizon respectively, prescriptions that are difficult to reconcile with the simple mean-variance model. We show that extending the mean-variance model to include human capital, without any other modifications, can si...

We analyze the optimal hedging policy of a firm that has flexibility in the timing of investment. Conventional wisdom suggests that hedging adds value by alleviating the under-investment problem associated with capital market frictions. However, our model shows that hedging also adds value by allowing investment to be delayed in circumstances where...

Previous studies of the relationship between deposit insurance and bank market values have usually been limited to consideration of minor changes in bank regulations, but the 1987 initiation of deposit insurance in Denmark permits examination of a potentially major policy shift. It is found that the market values of large Danish banks exhibited a m...

Our consulting experiences indicate that many New Zealand businesses and their managers are increasingly aware of the shortcomings of conventional methods for evaluating capital investment projects, particularly in situations where there is considerable flexibility subsequent to the project's commencement. With the busy executive in mind, we offer...

We analyse the reaction of the New Zealand stock market to five economicallyneutral events that psychology research indicates have varying degrees of influence on emotion and mood. Contrary to behavioural finance principles, only one of these events is associated with mean or median returns that are statistically different from those on non-event d...

In a model with stochastic interest rates, irreversible investment, and two investment dates, the value of investment delay has two components: the expected gain from committing now to investment at a future date and the potential gain from the ability to reverse this commitment. Holding net present value constant, we show that the values of both t...

We analyze the dynamic investment decision of a firm subject to an endogenous financing constraint. The threat of future funding shortfalls lowers the value of the firm's timing options and encourages acceleration of investment beyond the first-best optimal level. As well as highlighting another way by which capital market frictions can distort inv...

This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection a...

Motivated by psychology research showing that individual mood is affected by weather and daylight savings changes respectively, Saunders (American Economic Review 83, 1337-1345, 1993) and Kamstra et al. (American Economic Review 90, 1005-1011, 2000) find that stock prices are systematically related to these economically-neutral events. Another larg...

We analyse the reaction of the New Zealand stock market to five economically-neutral events that psychology research indicates have varying degrees of influence on emotion and mood. Contrary to behavioural finance principles, only one of these events is associated with mean or median returns that are statistically different from those on non-event...

We analyze the dynamic investment decision of a firm subject to an endogenous financing constraint. The threat of future funding shortfalls lowers the value of the firm's timing options and encourages acceleration of investment beyond the first-best optimal level. As well as highlighting another way by which capital market frictions can distort inv...

Considerable debate within academia and the banking community continues to focus on the role of fixed rate deposit insurance. In particular, some argue that mispriced deposit insurance creates further incentives for bank stockholders to take on additional risk. While previous studies of the relationship between deposit insurance and bank market val...

We analyze the cross-sectional variation in New Zealand executive compensation during the first year of public disclosure (1997) and find no evidence of a positive relationship between pay and performance, regardless of firm size, risk, leverage and board structure. Instead, CEO pay seems to depend primarily on firm size. However, the group of firm...

Zealand Finance Workshop, and the Southern Finance Association annual meeting. All remaining errors and ambiguities are our responsibility.

We examine the wealth effects of two widely-advocated monetary rules. An inflation rule offers lower dividend volatility than a money growth rule, but the latter can provide higher expected dividends. Thus, the real value of the stock market is higher under the inflation rule if and only if the market’s intertemporal elasticity of substitution is s...

We examine the stock price reaction to announcements of the intention to pursue a program of external acquisitions. Using a 1977-92 sample of 65 firms that have announcement dates which (i) can be explicitly identified and (ii) are uncontaminated by other firm-specific events, we confirm the Schipper and Thompson (1983) finding that the mean gain t...

Insider ownership and antitakeover provisions both affect a firm's vulnerability to takeover, its value, and its managers' incentives and utility. We examine the simultaneous determination of insider ownership and takeover protection using data from mutual savings and loan associations converting to stock form. At low levels of insider ownership, w...

1 PAYBACK AND THE VALUE OF WAITING TO INVEST * Despite being rejected by finance theory, payback continues to be widely used as a method for evaluating capital investment projects. In situations where investment can be delayed, we show that the value of waiting to invest is an increasing function of payback period. Consequently, the optimal investm...

The extensive 1980's deregulation of New Zealand financial markets is exploited to provide a unique test of capital structure theory. Specifically, debt choices of New Zealand corporate firms during pre-reform (1982-1985) and post-reform (1986-1989) periods are analysed and compared. However, consistent with evidence from other countries, existing...

Using data from six OECD countries, we examine the proposition that the costs associated with shareholder- debtholder agency conflicts can be reduced by allowing banks to hold equity in the firms to which they lend. Although the sensitivity of leverage to potential wealth expropriation is indeed significantly lower in Japan than in the U.S., no obs...

The capital investment/dividend decision of the firm is analyzed under alternative assumptions about the system of dividend taxation. Relative to the classical system, imputation can yield (1) more disagreement amongst shareholders as regards the optimal investment plan, (2) less capital investment on aggregate, and (3) fewer gains from mergers. Mo...

The authors develop and analyze a simple general equilibrium model of asset pricing in a monetary economy where the growth rate in money is partially determined by the policy of the monetary authority. Their model implies that the relationship between stock prices and consumption risk is systematically dependent on the monetary policy regime, indic...

In the presence of a riskless asset, mean-generalized coefficient of variation (MGCV) investors choose the same risky asset portfolio as mean-standard deviation investors, in contrast to the situation where there is no riskless asset. The standard CAPM relationship therefore continues to hold for an economy wholly or partially populated by admissib...

Interest rate and institutional data from thirteen OECD countries are used to test whether depositors view the provision of deposit insurance and restrictions on permissible bank activities as risk-increasing or -decreasing. On average, the deposit risk premium is 25 basis points lower in countries with explicit insurance schemes, consistent with t...

A simple model of rent determination for homogeneous shopping center space predicts that landlords use tenant characteristics, such as default probability and customer traffic-generating potential, to set rental rates in a discriminatory manner. Empirical tests conducted on a sample of shopping center leases support these predictions. Differences i...

A continuous-state model of asset pricing with autocorrelated output growth is used to derive stock market volatility as a continuous function of relative risk aversion, gamma. Stock market volatility need not be an increasing function of gamma and can even be non-monotonic, a possibility overlooked by previous authors.

Researchers have inferred negative relationships between ex ante stock returns and ex ante inflation from regressions of ex post stock returns on nominal interest rates. In a general equilibrium model subject to real disturbances, the observed ex post relationships between nominal stock returns and interest rates hold so long as preferences are not...

The determinants of lease rentals are of fundamental importance to real estate researchers and practitioners. Retail leases are unique in that they typically have two rental components: a base rent and an "overage" rent equal to a percentage of the tenant's gross sales above some threshold level. In this paper, we develop and test a simple cash flo...

A monetary model of asset pricing is used to explain observed correlations between money velocity and stock prices. Output shocks cause velocity and nominal stock prices to move in opposite directions, but may cause velocity and deflated stock prices to move in the same direction. Although monetary shocks are neutral, changes in monetary expectatio...

In a dual-currency, flexible exchange rate model, both nominal and real foreign exchange premia depend on investor risk attitudes, consumption parameters, and the stochastic structure of currency and commodity supplies. When supplies are random, their joint correlation structure determines the sign of the premia. If the money supplies are identical...

By explicitly deriving investor utility from underlying consumption preferences, asset choice in the presence of stochastically fluctuating commodity prices is examined. In contrast to the standard claim, a logarithmic utility function is shown to be necessary, but not sufficient, for the separation of asset choice from commodity price behavior whe...

Risk premiums on dollar-denominated forward and futures contracts depend on risk attitudes, consumption parameters, and the stochastic structure of money and outputs. Pure monetary uncertainty leads to forward market backwardation; pure output uncertainty leads to contango under high risk aversion. Similar conclusions hold for futures contracts if...

An expected-utility-maximizing investor spends his portfolio income on commodities and real balances. Commodity prices and asset payoffs are determined endogenously in general equilibrium. The impact of commodity prices on investor welfare yields surprising relationships among the expected returns required on financial assets. Real (monetary) distu...

January 2012 *Bronwyn Howell is General Manager of the New Zealand Institute for the Study of Competition and Regulation. The author thanks Rowena Cullen for reviewing the article, and acknowledges research collaboration, assistance, insights, discussion, critical review and other helpful comments from a vast network of colleagues in New Zealand an...

We review the ability of the ex post internal rate of return (IRR) to detect monopoly profits. When market values are used as entry and exit values, the ex post IRR simply reveals whether the firm did better or worse than the market expected at the entry date. It says nothing about monopoly profits. When replacement costs are used as entry and exit...

We examine the implications of costly external financing for investment in a dynamic environment. More specifically, we consider the investment timing decision of a firm that must rely on the cash generated by its existing assets in order to finance any new investment. This requirement restricts the states in which the firm can invest, so both the...

Although the theoretical framework for determining equilibrium rental rates on commercial land is well-established, applying this framework in practice is difficult because of its dependence on unobservable parameters such as land growth and discount rates. We show how this problem can be overcome by a straightforward application of nonlinear regre...

From 2007, New Zealand firms must report the cost of granting employee stock options (ESOs). Market-based option pricing models assume that options are continuously tradable and thus that option holders are indifferent to the specific risk of the firm. ESOs, by contrast, cannot be traded and so their cost depends on the risk aversion and under-dive...

Although animal welfare issues have become increasingly important to the economic fortunes of many producers, the interests of animals themselves are absent from standard economic analysis. By contrast, scholars from other disciplines such as philosophy and law have examined animal issues in considerable detail. This paper outlines a simple way of...

Responsibility for approving proposed transmission investment programmes in New Zealand has recently been placed in the hands of a newly-formed government regulator. In this paper, we develop an analytical framework for conceptualising the investment test proposed by this regulator. Our framework reveals that the test involves a complex set of trad...

Can the reputational incentives that arise in a dynamic setting mitigate standard agency problems, as Fama (1980) suggests? We examine this issue using data from the horse racing industry, where trainers have an incentive to devote more effort to horses they own themselves, but in doing so run the risk that horses owned by clients will be transferr...