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Measuring Managerial Skill in the Mutual Fund Industry

October 23, 2014 Comments off

Measuring Managerial Skill in the Mutual Fund Industry
Source: Stanford Graduate School of Business

Using the dollar-value a mutual fund manager adds as the measure of skill, we find that not only does skill exist (the average mutual fund manager adds about $2 million per year), but this skill is persistent, as far out as 10 years. We further document that investors recognize this skill and reward it by investing more capital with skilled managers. Higher skilled managers are paid more and there is a strong positive correlation between current managerial compensation and future performance.

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Cross-Border Data Flows, the Internet and What it Means for U.S. and EU Trade and Investment

October 23, 2014 Comments off

Cross-Border Data Flows, the Internet and What it Means for U.S. and EU Trade and Investment
Source: Brookings Institution

The most globally significant bilateral trade and investment relationship is between the U.S. and the European Union. An increasing amount of this economic relationship is underpinned by cross-border flows of data.

Whether the U.S. and the EU are able to take full advantage of the opportunities for international trade and investment presented by their increasingly online and digital populations will affect transatlantic economic relations. As the world’s two largest economies, the U.S. and EU decisions on support for cross-border data flows will also have global implications.

New From the GAO

October 22, 2014 Comments off

New GAO Report
Source: Government Accountability Office

Reissue

1. Individual Retirement Accounts: Preliminary Information on IRA Balances Accumulated as of 2011, by James R. McTigue, director, strategic issues, and Charles A. Jeszeck, director, education, workforce, and income security issues, to the Senate Committee on Finance. GAO-14-878T, September 16.
http://www.gao.gov/products/GAO-14-878T
Highlights – http://www.gao.gov/assets/670/665805.pdf

This statement was amended on October 22, 2014, to revise the estimated individual retirement account and defined contribution plan accumulations for our illustrative contribution scenarios with balances invested in an S&P 500 portfolio. The original estimates used a price index that did not include reinvested dividends. Table 2 and the text on page 8 have been updated to reflect total returns on the investments.

CRS — Conflict Minerals and Resource Extraction: Dodd-Frank, SEC Regulations, and Legal Challenges (October 15, 2014)

October 20, 2014 Comments off

Conflict Minerals and Resource Extraction: Dodd-Frank, SEC Regulations, and Legal Challenges (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

Two sections of the Dodd-Frank Wall Street Reform and Protection Act (Dodd-Frank) require that the Securities and Exchange Commission (SEC or Commission) issue regulations to make public the involvement of U.S. companies in conflict minerals and in resource extraction payments. Supporters of the Dodd-Frank conflict minerals statute and the SEC implementing rule believe that such disclosures could have an impact on the amount of violence involved with the mining of conflict minerals. Opponents of the statute and rule argue that they require disclosures that are arbitrary and capricious and that some of the required disclosures violate the First Amendment guarantee of freedom of speech. Supporters of the resource extraction statute and the SEC implementing rule believe that they are needed to achieve the goal of the transparency of payments made by resource extraction issuers to governments in order to foster reform and anticorruption and to improve the tax collection process. Opponents believe that they are arbitrary and capricious and violate the First Amendment. Legal challenges to the statutes and regulations have occurred, based primarily on administrative law and First Amendment grounds.

UK — Social Investment by Charities: The Law Commission’s Recommendations

October 15, 2014 Comments off

Social Investment by Charities: The Law Commission’s Recommendations (PDF)
Source: Law Commission

We are pleased to announce the publication of our recommendations on social investment by charities as part of our ongoing project on selected issues in charity law.

Social investment provides financial returns while at the same time generating social benefits. It is an important and developing area for charities that helps them meet their charitable objectives by combining investment and spending.

We have been told that some charity trustees lack the confidence to make social investments because they are unsure whether their legal powers and duties permit them to do so. To clarify and simplify the law, we are recommending that charity trustees be given a specific statutory power to make social investments.

Law Commissioner Professor Elizabeth Cooke said: “Social investment represents a significant opportunity for charities, but the existing law is unclear. Our recommended reforms will clarify the law for trustees as to their powers and duties. They will make social investment more straightforward in law and give trustees the confidence to make the best of the opportunities it offers.”

2014 Environmental Finance Innovation Summit (White Paper)

October 14, 2014 Comments off

2014 Environmental Finance Innovation Summit (PDF)
Source: Goldman Sachs

The underlying thesis for investing in solutions that benefit the environment is increasingly compelling, given the macro trends of a rapidly growing population and increased urbanization, the social pressures to more effectively manage the environmental spillovers that come with growth, and the security imperatives of protecting against extreme weather. At the same time, capital flow into environmentally beneficial opportunities is often constrained by uncertainties around public policy, budgetary challenges, and the natural fits and starts of nascent technologies. In response to the opportunities and challenges, a number of innovative financing mechanisms and capital markets solutions are being deployed to scale-up investments in clean technology, energy efficiency, water and green infrastructure solutions.

To raise awareness about these developments and to facilitate dialogue, Goldman Sachs hosted the Environmental Finance Innovation Summit on February 13, 2014. The Summit coincided with the powerful nor’easter Pax, which underscored the importance of the topic at hand. With a group of nearly 200 participants, the Summit provided a forum to discuss emerging innovative financing vehicles, identify obstacles and solutions to scaling up these financing mechanisms, offer policy input, and foster partnerships to drive further progress.

The following paper summarizes key takeaways from the summit.

The Price of Silence: When No One Asks Questions During Conference Calls

October 6, 2014 Comments off

The Price of Silence: When No One Asks Questions During Conference Calls
Source: Social Science Research Network

We document economically significant indirect costs of providing conference calls — increase in information asymmetry and more negative immediate market reaction — when managers fail to elicit questions during the calls’ question-and-answer (Q&A) session. We establish this result by focusing on earnings calls where managers fetch either zero questions or “too few” questions when they open the floor for questions. We extend the literature on conference calls as an important corporate communication medium by examining hereto unexamined costs, and propose remedies for firms to avoid such indirect costs of corporate communication.

Hat tip: PW

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