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  • Fall 2015 | The Visible Hand | 1

    Volume xxiV. issue i.

    The Visible HandDecember 2015, Volume XXIV, Number I

    Spencer Koo Princeton University Comparing Assimilation and Success Rate of Legal First Generation Asian and Hispanic Immigrants in the United States

    Victor Ghazal Grinnell College CEO Duality and Corporate Stewardship: Evidence from Takeovers

    Ziyi Yan Bryn Mawr College The Effect of Driving Restrictions on Air Quality in Beijing

    Sylvia Klosin and Cameron Taylor University of Chicago Parental Employment and Childhood Obesity

    Damilare Aboaba Cornell University Preserving Financial Stability: Capital Controls in Developing Countries during Times of Finacial Crisis

    Alex Foster and Adam Sudit University of Chicago Veteran Rehabilitation: A Panel Data Study of the American Civil War

    Michael Berton University of California - Santa Bar-bara The Origins of the Federal Reserve

    Wendy Morrison University of Virginia Optimal Liquidity Regulation Given Heterogeneous Risk Preferences and Retrade

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    Volume xxiV. issue i.

    The Visible HandISSN: 1559-8802


    Nivedita Vatsa

    Executive Board:

    Kristina HurleyJames O'Connor

    Anthony MohammedAlina Dvorovenko

    Nabeel Momin

    Editors and Referees:

    Aleksandre NatchkebiaAnthony Mohammed

    Aya AbuosbehCharles Anyamene

    Christian CovingtonDan Liu

    Daniel AboroahaEdward Chen

    Henry Marshall

    Jack EllrodtJohn IndergaardJoshua MensahMargaret Wong

    Monica CaiRishu Jain

    Todd LensmanYasmeen Mahayni

    Wendy Li

    2015 Economics Society at Cornell. All Rights Reserved.The opinions expressed herein and the format of citations are those of the authors and do not represent the view or

    the endorsement of Cornell University and its Economics Society.

    The Visible Hand thanks:

    Jennifer P. Wissink, Senior Lecturer and Faculty Advisor, for her valuable guidance and kind supervi-

    sionThe Student Assembly Finance Commissionfor their generous continued financial support.

    Table of Contents

    3 Editorial Nivedita Vatsa4 Comparing Assimilation and Success Rate of Legal First Generation Asian and Hispanic Immigrants in the U.S. Spencer Koo13 CEO Duality and Corporate Stewardship: Evidence from Takeovers Victor Ghazal22 The Effect of Driving Restrictions on Air Quality in Beijing Ziyi Yan30 Parental Employment and Childhood Obesity Sylvia Klosin and Cameron Taylor 42 Preserving Financial Stability: Capital Controls in Developing Countries during Times of Financial Crisis Damilare Aboaba58 Value-at-Risk: The Effect of Autoregression in a Quantile Process Khizar Qureshi68 Veteran Rehabilitation: A Panel Data Study of the American Civil War Alex Foster & Adam Sudit79 The Origins of the Federal Reserve Michael Berton79 Optimal Liquidity Regulation Given Heterogeneus Risk Preferences and Retrade Wendy Morrison

    Issues of The Visible Hand are archived at

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    Ithaca, NY 14853 or

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    Volume xxiV. issue i.

    Over the past few years, the effects of globalization and the linkages between various international economic and political events have only grown stronger. The negative interest rates set by the European Central Bank have sent waves through the global economy, while the positive and negative effects of an oversupply of crude oil were seen around world. Almost no subject in economics can be analyzed in geographic isolation anymore. This issue of The Visible Hand hopes to provide readers with an appreciation for the complexity of contemporary economic issues. As this issue of our journal goes to print, leaders from 150 countries are meeting in Paris for the 21st Conference of Parties on global climate change. The challenge of reducing greenhouse gas emissions weighs on us now more than ever and Ziyi Yans work in The Effect of Driving Restrictions on Air Quality in Beijing, addresses the way in which environmental change, enforced on an institutional level, can be effective in lowering carbon emissions. In the run-up to the U.S. primary elections, the topics of immigration and the treatment of immigrants are receiving attention from both presidential candidates and social justice activists. The subject of immigration not only shapes the contemporary discussion of economic development, but also the discussion of economic inequality. In Comparing Assimilation & Success Rates of Legal First Generation Asian and Hispanic Immigrants in the United States, Spencer Koo looks into various economic factors such as education and their effect on the wage gap of first-generation immigrants from different ethnicities. This research underscores the importance of identifying policies that ensure progress for all social groups. The recent recession in Brazil and economic slowdown in China have cast a spotlight on the need to find ways of stabilizing economies. In December 2012, the IMF released a statement saying, In certain circumstances, capital flow management measures can be useful. They should not, however, substitute for warranted macroeconomic adjustment. A calibrated approach to capital controls has been seen to lead to financial stability, whereas tight controls have been linked to illegal transactions. Therefore, Damilare Aboabas Preserving Financial Stability: Capital Controls

    in Developing Countries during Times of Financial Crisis, comes at an appropriate time as it explores the ways in which the setup of capital controls in developing economies influences their financial stability. The separation of the roles of chairman and CEO roles in corporate leadership has been the subject of debate for decades. Victor Ghazal, in his paper, CEO Duality and Corporate Stewardship: Evidence from Takeovers, offers a new take on the much-debated question by studying the nature of negotiation and aggressiveness in dual CEOs. The subject of childrens health, particularly the growing obesity epidemic, continues to be an important topic in public debate. Sylvia Klosin and Cameron Taylor explain various causal mechanisms that affect the weight of children in their work, titled Parental Employment and Childhood Obesity. Khizar Qureshis Value-at-Risk:The Effect of Autoregression in a Quantile Process, is more specific study, demonstrating a conditional autoregressive value at risk model. Readers curious about the intersection between finance and mathematics would be particularly interested in this research as it shows how statistical reasoning and various mathematical models contribute to risk management in finance. Regular readers would be interested to know that for the first time The Visible Hand will be publishing an extended online version, which will include additional research that the editorial board was unable to print due to the physical limit on the number of pages in the journal. We are thrilled to have received work of such high caliber and look forward to seeing the journal grow in the future.

    Nivedita Vatsa Editor-in-Chief

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    Unlike previous notable works, which focus pri-marily on comparing immigrant wages against the native white and black populations, this paper will focus solely on the comparison between the United States main immigrant groups: Asians and Hispan-ics. Currently, there are no other important prior pa-pers that concentrate exclusively on the economic impact and equality between Asian and Hispanic immigrants.

    II. Literature Review

    One of the first major papers discussing the earn-ings difference between immigrants and United States natives is Barry Chiswicks The Effect of Americanization on the Earnings of Foreign-born Men (1978). His influential work suggests the im-portance of years resided as well as worked in the United States as major factors affecting the wage gap between natives and foreign-born. Ultimately, he asserts that the foreign-born labor forces average

    I. Introduction

    Despite representing less than five percent of the U.S. population as compared to the near 17% Hispanic population (United States Census Bureau, 2014), Asian-Americans, who are generally looked upon as the model minority, have been left out of the diversity conversation. Some believe they are no longer looked upon as minorities due to their finan-cial success and are thus not given certain advan-tages afforded to other minorities (Linshi, 2014).This paper aims to analyze relatively new, very comprehensive data from the Princeton New Immi-grant Survey (NIS) in order to locate the apparent wage gap between Hispanic and Asian immigrants and to isolate the reasons behind said income dif-ferences2/. However, after locating the wage differ-ence and some reasons behind it, many questions still remain: does one races propensity to find more financial success in a new country justify programs like Affirmative Action? Or, conversely, since most of the Hispanic immigrants in the survey have re-sided in the United States for much longer than their Asian counterparts (Princeton University, 2006), does the wage gap represent a failure of the United States school system and evidence of overall dis-crimination? Putting aside the very complex social and po-litical issues, from an econometric standpoint, this papers findings suggest that Asian immigrants not only earn more income, but, more importantly, they also benefit from schooling moreso than Hispanic immigrants. In fact, the data analysis shows that Asian immigrants earn about six percent more in-come than Hispanic immigrants per each additional year of education. Additionally, Asian wages in-crease significantly more than Hispanic wages per each additional year working in the United States. Such clues point to a clear difference with a com-plex explanation behind it, which makes for eco-nomic and policy questions worth exploring.

    Spencer Koo1Princeton University

    Comparing Assimilation & Success Rates of Legal First Generation Asian and Hispanic Immigrants

    in the United States

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    wage eventually catches up to the natives average wage, even surpassing it in the long run (Chiswick, 1978). However, at the time of his study, foreign-born United States residents and citizens made up only five percent of the total population, a number which has since been far overshadowed. Building off of Chiswicks (1978) basic tenets is George J. Borjas paper, The Economics of Im-migration (1994). His publication introduces the proposed aging effect, which is the rate at which earnings increase over a life cycle. Combined with Chiswicks (1978) assertion that immigrant wages increase the longer he or she resides and works in the US, Borjas claims that the aging effect is greater for immigrant populations as compared to native populations (Borjas, 1994). Similarly to Chiswick (1978), Borjas (1994) studied these effects to com-pare them to the native white and black populations and to make a contention about the effects of immi-grants on those native populations (Borjas, 1994). His regressions on the immigrant wage gap go even further than Chiswicks, and these key variables that Chiswick (1978) and Borjas (1994) identified and pioneered, such as age and years resided in the US, can help explain the difference between differing immigrant groups wages. Since Chiswick (1978) and Borjas (1994) wrote about very broad categorizations of the wage gap,

    many economists and sociologists have since pub-lished papers on the earnings gap between much more specific groups such as particular races, gen-der, immigrants, and more. Tienda and Lii (1987) investigated how the size of minority labor markets affects minority wages (separated by group) and white wages. Using data from 1979, they observed that in labor markets with a large share of minority residents, college-educated minorities experienced a significant earnings loss compared to their white college-educated counterparts while poorly educat-

    ed minorities did not see as large a wage discrep-ancy with poorly educated whites. Much more rele-vant to this paper, Tienda and Lii (1987) discovered that Asians generally had a much higher education level compared to Hispanics, and, thus, on average earned a higher wage. Additionally, in areas without a large minority presence, the wage gap between Asians and whites was significantly lower than the gap between other minorities and whites (Tienda & Lii, 1987). Expanding on these past research endeavors, this paper will seek to find out whether those economic and educational differences still exist amongst mod-ern-day legal first generation Asian and Hispanic immigrants. The paper will also make use of the key economic characteristics pointed out by both Chis-wick (1978) and Borjas (1994) to identify reasons behind any discovered differences between the two groups.

    III. Data

    As briefly mentioned, this paper primarily uses the Princeton New Immigrant Survey (NIS), which offers a comprehensive questionnaire focusing on legal first generation immigrants. Though relatively new, the Princeton NIS (2003 and 2007) is the first nationally representative survey of new immigrants and their children (Princeton University, 2006).

    This paper will focus on NIS responses from adults between 2003 and early 2004 that covered a well-distributed group of respondents who planned on attaining citizenship. The main reason behind using the NIS rather than the United States Census is the amount of de-tail in and accuracy of the survey. Unlike the broad Census, which tends to suffer from non-response and potential inaccuracies in the responses, the NIS took place with carefully selected families from dif-ferent locations around the US, and the focus of the

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    are included to identify the major contributing fac-tors to the wage gap. With the log of wage as the dependent variable, a dummy variable representing the various groups is crucial. Continuing with this method, the first linear re-gression will be run normally and as an entity-fixed regression by state. Additionally, it will only take into account a dummy variable to distinguish the two groups as well as various demographic charac-teristics. It is a simple base-line to show the differ-ence between the groups.

    where logwij is the log of earnings in dollars for im-migrant i and state j, Asiani is a dummy variable which equals 1 if Asian and 0 if Hispanic, Agei is the age, Agei

    2 is age squared since lifetime wage is qua-dratic, and Yij is a vector term, which represents the demographic data of each immigrant such as gender. Next, the same regression will be modified and a vector of economic characteristics of immigrants will be added. After running the regression again both normally and state-fixed, 1 from the regres-sion (1) can be compared with 1 from regression (2) to show the explained effects of the economic terms on the earnings gap.where the variables are the same as regression (1) with the added vector term Xij, which represents

    many of the productive characteristics from Tables I and II such as years of education, English speak-ing ability, English comprehension, years resided in the United States, and years worked in the United States. In the last simple regression, the all-important education variable will be pulled out of the econom-ic characteristics vector, and the same normal and entity-fixed regressions will be run while interacting the education and the Asian dummy variables. This will further explain the wage gap by taking into ac-count race given that immigrant i has a certain level of education.where the variables are the same as regression (2) with the added interaction variables between Asian and education, which is represented by Edui. The final method used for analyzing the dif-ferences between groups is the Blinder-Oaxaca De-composition. The core idea behind this universally used decomposition is to explain the distribution of the outcome variable in question by a set of factors

    data makes up for the lower number of observations. Additionally, one would expect that if a significant difference were found between Asians and Hispan-ics in the NIS, which covers mainly middle class families across the board, there would be an even larger discrepancy in the broader Census. This paper concentrates on a few major variables that are used in related literature on immigration, which include earnings, years of education, age at immigration to the US, language fluency in both speaking and comprehension, age at the time of sur-vey, years resided in the US, and years worked in the US. All the variables from every table only in-clude data for immigrants between working ages of 25-603. These data are broken up between three major groups: Asian, Hispanic, and all other immi-grants as a control. As seen in Table I, there exists a significant wage gap between Asian and Hispanic immigrants. The data is further broken up by years of education with-

    in each group to see if Asians out-earned Hispanics within education-level categories. Again, in Table II, we see that the Asian popula-tion outpaces the Hispanic one at all levels of educa-tion and even their white counterparts at the highest level. However, it can be difficult to interpret some of the data due to the low numbers of respondents certain categories. Nevertheless, the number of Asian immigrants with a higher education versus the number of Hispanic immigrants with only a high school diploma or less is astounding. As the paper moves forward with the regressions, more variables can be removed to further reduce the number of un-derlying factors and omitted variables.

    IV. Methodology

    The commonly accepted approach to analyzing wage gap questions between two or more groups

    involves multiple stages of regressions. In each sub-sequent regression, potentially underlying variables

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    that vary systematically with socioeconomic status (ODonnell, van Doorslaer, Wagstaff, & Lindelow, 2007). In terms of this paper, the Oaxaca Decompo-sition examines the variations in the log of the wage and seeks to find the causal factors or variables that differ systematically based on race, either Asian or Hispanic. More specifically, the income gap be-tween Asians and Hispanics is decomposed into two parts: 1) part that is due to measurable differences in variables, and 2) part that is due to the magnitude of the effect of those variables (ODonnell, van Doors-laer, Wagstaff, & Lindelow, 2007). For example, the measurable, or explained, difference could be the observed higher level of education of Asian immi-

    grants in comparison to Hispanic immigrants. The immeasurable, or unexplained, difference could be a cultural trait for studying more and better work ethic. While the explained results can lead to con-crete policy changes that could potentially lead to greater equality in wages, the unexplained results

    do not give a clear answer. However, knowing the magnitude of the effect for those variables can point policy in the right direction. To visualize the decomposition, start with an even further simplified version of regression (1) where xij is a vector of explanatory variables similar to the previous regressions.

    As seen in the figure4 , the wage gap can be attrib-uted to both the explained sample means of the xs (or the endowments, E), the unexplained s (or the coefficients, C), and the interaction between the two (CE) (ODonnell, van Doorslaer, Wagstaff, & Lin-delow, 2007). In more general terms:which shows the individual parts for the explained endowments (E), unexplained coefficients (C), and the interaction between the two (CE). The Oaxaca Decomposition, again, compares the two by com-bining the interaction term with either the explained or unexplained components (ODonnell, van Doors-laer, Wagstaff, & Lindelow, 2007).

    By combining different terms, the single equation can on two different meanings. The first decomposi-tion assumes that Hispanics are paid fairly based on their characteristics, represented by vector x, while Asians earn more with those same characteristics for some unknown reason. The second decomposition assumes the opposite: Asians are paid according to their characteristics, but Hispanics are discriminated against in the work place. Using Statas Oaxaca ado-file, it is possible to run a Oaxaca Decomposition to see where the gaps come from and to shed light on possible reasons (Jann, DECOMPOSE: Stata module to compute de-compositions of wage differentials, 2005).

    V. Results

    Table III only covers the state-fixed regression data for increased accuracy and less potential survey bias. The outputs are very similar to the regular re-gressions, which indicates that the survey data was sufficiently randomized. As seen in column (1) of Table III, under the simplest regression without any detailed productive characteristics controlled, being Asian accounts for a massive 51% increase in income and is statistical-ly significant at the one percent level. Just as Tienda and Lii (1987) found in their research, Asians far outpaced their minority counterparts in terms of in-come. In fact, all of the basic demographic controls account for a statistically significant impact in the wage discrepancy. Clearly, there is more to earning a higher wage than just race and other demographic statistics as seen by the second regression in column (2) of Table III. When the regression includes major productive characteristics, being Asian continues to account for a very high 35% increase in income and is still statistically significant at the one percent level. Un-surprisingly, English comprehension and speaking

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    ability both contribute greatly to income as well. One must keep in mind that those two data points were measured on a self-rated scale from one to four (with four being best). Since it is not a uniform rat-ing system, it is possible for subjects to over- or un-derestimate their respective English skills; however, it is doubtful that one group would skew the results to a serious degree. Nevertheless, given that most of the Hispanic survey takers took the survey entirely in Spanish (Princeton University, 2006), it is possi-ble that these two characteristics offer much greater insight into the productive advantage of Asians as opposed to Hispanics, which will be covered later.

    From an intuition standpoint, given the sheer amount of resources required to move half-way across the globe versus within the same or con-necting continent, it remains more than plausible that legal Asian immigrants had a better education growing up. Said education would most likely in-clude learning English before coming to the United States. Those differences are apparent in Table I. This would give Asians a significant leg up in terms of job opportunities and wages earned. Just as Chis-wick (1978) and Borjas (1994) claim, the longer the immigrant population resides and works in the United States, the better off they become (Chiswick, 1978) (Borjas, 1994). Simply put, Asians are mul-tiple steps ahead of Hispanics due to greater initial education, English language ability, and resources. Additionally, this theory of better and greater previous education is reflected in the United States immigration policies. Currently, US policy allocates many more visas and permanent resident statuses to skilled workers, investors, and persons that hold ad-vanced degrees (Immigration Policy Center, 2014).

    Since this study focuses on legal immigrants seek-ing citizenship and the Asians interviewed have resided in the United States for less time and were older at the time of immigration (see Table I), it is reasonable to assume that they are highly educated or skilled workers. Additionally, they most likely had careers and lives in their countries of origin, which further helped with finding jobs of equal stat-ure and pay in the United States. This does not mean that all of the studys Hispan-ic immigrants were not educated when they arrived. However, based on the data, Hispanic immigrants arrived at a much younger age, and even though they were legal and seeking citizenship at the time of the study, it says nothing about how they got to the United States. Given the proximity and history of Hispanic immigration to the United States, there are most likely many more immigrants of Hispanic origin that came as children or teenagers with little education and less resources who sought legal status after the fact. Given that the average age at the time of the 2003 NIS was about 39 years old (see Table I), arriving illegally in the 1980s would have been easier than in the present, so legal status could have been sought between then and the time of survey. Looking again at Table III, the effect of total years of education, though statistically significant at the one percent level, is smaller than the effect of characteristics like race and gender. In order to find the magnitude of the effect more education has on the Asian immigrant population, the Asian dummy variable must be interacted with the education vari-able as seen in the regression from column (3). This key interaction variable reveals that for each ad-ditional year of education, Asians earn six percent more than Hispanics. This could mean a few things: 1) there is a greater focus on education in Asian countries so the quality of schooling is better and students attend for more years on average, 2) Asians, through some immea-surable characteristics such as work ethic, intelli-gence, or cultural or family pressure, get more out of schooling than Hispanics, or 3) legal Asian immi-grants have more resources than legal Hispanic ones in their home countries and, thus, receive a better education including study skills and other immea-surable traits. At this point, the greatest contributions to a higher wage for Asian immigrants (other than gender and age, which were used just as controls) are education related as seen by the coefficients on years of educa-tion and the interaction variables. In fact, as men-tioned above, even English skills can be attributed to a better education. However, it is still difficult to

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    discern exactly why Asians get more out of educa-tion from these basic regressions. The Blinder-Oax-aca Decomposition and analysis will reveal more about where exactly the gaps lie and how much is still unexplained. In the first step of the Blinder-Oaxaca Decom-position, the Asian dummy variable is removed, and two separate models for each corresponding immi-grant group are run. Unlike the simpler regressions from Table III, which included an Asian dummy variable, Table IV reveals far fewer statistically sig-nifiant variables. Table IV exists mainly to point out the differences between each group independent of the other. The table clearly shows a much larger return to each ad-ditional year of education that Asians receive. This could be due to discrimination in US schools against Hispanics, bias in origin nations against Hispanics that tend to emigrate to the United States, or immea-surable traits that cause Asians to get much more use out of their education. The one variable that leads to a greater wage for Hispanic immigrants is years resided in the United States. Despite the data, it is important to keep in mind that, as seen in Table I, the average number of years resided and worked in the United States is more than double for Hispanic immigrants. There-fore, the small and statistically insignificant magni-tude effect of the number of years resided in the US for the Asian model will most likely have drastically risen since the time of the survey according to Chis-wick (1978) and Borjas (1994). Additionally, despite the lower amount of time resided in the United States, the magnitude at which Asians wages increase per year worked in the US

    is more than threefold their Hispanic counterparts. Again, these results could suggest discrimination against Hispanic immigrants or advantages for Asians in terms of previous education. Such ad-vantages like resources and a better school system, would explain why Asians make more money per each additional year of school. A major clue that favors the theory of better previous education and resources is that despite having lived in the United States for much less time, Asian survey takers have a far greater understanding of English than their His-

    panic counterparts. Again, it must be stressed that, even though the survey was offered in more than 19 languages, 73.1% of Hispanic respondents took the survey in Spanish (Princeton University, 2006). This sets the stage, as discussed in the meth-odology, to combine and compare the two groups on equal terms. Running the second step of the Blinder-Oaxaca decomposition will separate out the cumulative effects of the two groups and compare Asian wages as if they had the endowments and co-efficients of Hispanics. This will reveal how much of the wage gap is explained by their respective en-dowments, coefficients, and the interaction between the two. Column (1) of Table V shows the overall ef-fect of all of the factors on both groups. There is a clear difference between the cumulative effects of the two groups, which is statistically significant at the one percent level. In other words, when the endowments, coefficients, and interaction terms of Hispanics are applied to Asians, there is a statisti-cally significant decrease of 59.5% in Asian wages. According to the overall effect given in column (1), the effect of replacing the Asian coefficients with Hispanic ones accounts for a decline of 49.7% in

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    Asian wages. This coefficient effect is more statis-tically significant than the effect of changing the endowment values, which decreases Asian wages by 34%. The interaction term, which is the simul-taneous effect of applying Hispanic endowments and coefficients to Asians, is the only factor that fa-vors Hispanic wages. More specifically, it indicates that if Hispanic endowments and coefficients were simultaneously applied to Asians, Asians wages would actually rise by 24.2%. However, the interac-tion term is not statistically significant so it can be ignored for the most part. Even though column (4) shows that parts of the interaction effect are signifi-cant, those parts have been countered by the insig-nificance of a majority of the other variables. Next, and most importantly in the Oaxaca De-composition, columns (2), (3), and (4) show the breakdown of each individual variables contribu-tion to the effects of the endowments, the coef-ficients, and the interaction. These values provide further insight into whether the main force behind the wage gap is driven by the explained measured data, the unexplained immeasurable traits, or a com-bination of both. Starting with column (2), the statistically sig-nificant variables for the endowment effect, or mea-sured data, are years worked in the United States, English comprehension, and total years of educa-tion. The data for the number of years worked in the United States shows a large effect in favor of the Hispanic immigrant income. Specifically, the decomposition states that if Asians had been work-ing in the United States as long as Hispanics have, their income would increase by 56.5%. Intuitively, this result makes perfect sense. According to the analysis presented in both this paper and the works of Chiswick (1978) and Borjas (1994), the longer an immigrant resides and works in the United States, the more wages he or she will earn. Looking back at Table I, it is clear that Hispanics have both resided and worked in the US for more than twice as long as their Asian counterparts. Despite that advantage, Asian income still far outperforms that of the Hispanics. This means that there are even stronger forces working either against Hispanics in the form of discrimination or in favor of the Asian immigrant population in the form of better work ethic, greater prior resources, or other data not measured in the survey or a mix of all three. Though only significant at the 10% level, English comprehension favors Asian wages by nearly 20%. The decomposition shows that if Asians immigrants from the survey understood English as well as the Hispanic respondents, they would earn 20% less.

    This is further proof of potentially better education and resources from the Asian survey takers coun-tries of origin. Despite living and working in the US for much shorter periods of time, they understand English at a higher level. Although not statistically significant, the decomposition shows that they also speak English at a higher level as well. By far the most important factor is total years of education, which is significant at the one percent level. The measured endowment effect strongly favors Asian immigrant wages. In simple terms, if Asians had the same number of years of educa-tion as the Hispanic respondents, their wages would drop by a massive 53.2%. As seen in Table I, Asians average 4.1 years more of education than Hispanics, which is the difference between a college graduate and a high school diploma. Nevertheless, despite the huge educational disparity, there is still no hard evidence of discrimination. Both bias against His-panics and better prior education of Asians or some other intangible traits could be the root cause. Beyond the two major control variables of age and gender, the other insignificant variables are years resided in the United States and English speaking skills. While years resided is very closely related to years worked in the United States, it is intuitive that one would have to be working and gaining experi-ence to earn a higher income. Residency itself is not a major factor. In terms of English speaking skills, although very closely associated with English com-prehension, the difference between the Hispanics and Asians ability to speak does not make a statisti-cally significant impact on wages. In column (3), the statistically significant vari-ables for the unexplained terms, or the magnitude of each variables effect, are years worked in the Unit-ed States and total years of education. Significant at the five percent level, the decomposition reveals that if Asians got the same out of each year worked in the United States as Hispanics, their income would decrease by 27.6%. Here, it appears that Asians have much better returns to their income for each year they spend working in the US. The effects that Chiswick (1978) and Borjas (1994) proposed seem to have a much larger effect on the Asian immigrant population. Though not statistically significant, the coefficient on the number of years resided in the United States intuitively favors Hispanics. Since, on average, they have resided in the US for much longer than the Asian immigrants from the survey, they have been able to settle, find jobs, and work their way up for longer. Due to this stability, it makes sense that ap-plying the Hispanic coefficient for years resided on

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    the Asian model would improve Asian wages. Nev-ertheless, running a Blinder-Oaxaca decomposition on the updated data from the 2007 NIS could prove the current decomposition inaccurate in terms of years resided. The major significant variable again concerns education. When the Hispanic coefficient, or how much they get out of each year of school, is applied to Asians, Asian wages decrease by a whopping 92.4%, significant at the one percent level. The co-efficient effect conveys that the overall quality of the education that Hispanics receive does not re-motely compare to that of the Asians. Again, this does not say exactly why Hispanics get much less effectiveness out of each year of education, but it does clearly nudge the conclusion in the general di-rection of education. It seems that once again, there are a couple clear possibilities. One could fairly assume that the rea-son Asians get more return out of each year worked in the United States is due to better and more effec-tive education that they also get a high return from. The other possibility is discrimination against these Hispanic immigrants in the United States and in their respective countries of origin. In reality, it is most likely a mix of the two factors. The last component of the difference is from column (4), the interaction effect. Even though variables within the effect are significant, the over-all effect is not statistically significant. Because of the lack of significance, it is difficult to say how the combination of the endowments and coefficients applied to the Asian immigrants actually affects the wage gap. Therefore, the interaction effect can be ignored for the most part. Clearly, the lack of observations hurts this data set and its analysis. Having a larger data set or com-paring this decomposition using the 2007 NIS could provide more insight into whether the endowment effect of years worked in the United States as well as other values are accurate. By conducting an even more recent survey, the endowment effect of years worked would most likely decrease in favor of Asian wages because both groups have been in the United States for a sufficient amount of time. Another strat-egy would be to take United States Census data to re-run the Blinder-Oaxaca Decomposition. While it would no longer cover only legal immigrants, it may give a more accurate intuition into how years worked in the United States affects the two groups, even if one might expect the wage disparity to be even more in favor of Asians. Ideally, a careful study specifically focused on the education of immigrants, old and new, would need

    to be done. The survey must focus on years of edu-cation in the country of origin, years of education in the United States, school district within the United States, time devoted to education in the home, atten-tion from parents concerning education, evidence of bullying and discrimination at school in both the country of origin and the United States, and more along those lines. With those data points in line, it would be possible to more accurately figure out where and why Asians immigrants benefit so much more from the education they receive.

    VI. Conclusion

    After identifying clear differences between the Asian and Hispanic first generation immigrants from the Princeton NIS, careful statistical analysis and a Blinder-Oaxaca Decomposition were performed to identify the causes behind the discovered wage gap. In summary, the evidence and analysis discov-ered that the wage gap can be attributed to Asian immigrants greater amount of education as well as greater return from their years in school. How-ever, the source of the Asian populations success in school cannot be statistically identified as either discrimination against Hispanics or immeasurable traits that improve Asian school performance and, subsequently, wages. Without that concrete conclu-sion, there cannot be any suggestions toward correct policy changes. Nevertheless, this is a start. More surveys and investigation that focus specifically on education must occur. With newly researched data, the ques-tion can be re-analyzed to not only provide answers to the statistical questions, but also help shape future policy. Rather than arbitrarily giving certain advan-tages to only select minority groups or filling quo-tas through Affirmative Action and guess work, the United States can help fix the education system and, in the process, bolster the work force and the lives of its citizens and future citizens.

    VII. References5

    Black, D. A., Amelia, H. M., Sanders, S. G., & Tay-lor, L. J. (2008, Summer). Gender Wage Disparities among the Highly Educated. (630-659, Ed.) The Journal of Human Resources, 43(3), 630-659. Re-trieved December 09, 2014

    Borjas, G. J. (1994, December). The Economics of Immigration. Journal of Economic Literature, 32(4), 1667-1717. Retrieved December 10, 2014

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    Chiswick, B. R. (1978, October). The Effect of Americanization on the Earnings of Foreign-born Men. Journal of Political Economy, 86(5), 897-921. Retrieved December 10, 2014

    Cotton, J. (1988). On the Decomposition of Wage Differentials. Review of Economics and Statistics, 70(2), 236-243.

    Fairlie, R. W. (2003, November). An Extension of the Blinder-Oaxaca Decomposition Technique To Logit and Probit Models. Economic Growth Center. Retrieved December 10, 2014

    Immigration Policy Center. (2012, October 25). De-ferred Action for Childhood Arrivals: A Resource Page. Retrieved April 17, 2015, from Immigration Policy Center: American Immigration Council

    Immigration Policy Center. (2014, March 01). How the United States Immigration System Works: A Fact Sheet. Retrieved April 17, 2015, from Immigration Policy Center: American Immigration Council

    Jann, B. (2005, May 12). DECOMPOSE: Stata module to compute decompositions of wage dif-ferentials. Bern, Switzerland. Retrieved March 26, 2015

    Jann, B. (2008). The Blinder-Oaxaca decomposi-tion for linear regression models. (J. Newton, & N. J. Cox, Eds.) The Stata Journal, 8(4), 453-479. Re-trieved December 10, 2014

    Linshi, J. (2014, October 14). The Real Problem When It Comes to Diversity and Asian-Americans. Time. Retrieved 03 20, 2015

    Neumark, D. (1988). Employers Discriminatory Behavior and the Estimation of Wage Discrimina-tion. Journal of Human Resources, 23(3), 279-295.

    ODonnell, O., van Doorslaer, E., Wagstaff, A., & Lindelow, M. (2007). Analyzing health equity using household survey data : a guide to techniques and their implementation. Washington, D.C.: The Inter-national Bank for Reconstruction and Development / The World Bank. Retrieved March 26, 2015

    Princeton University. (2006). Study Goals: Why Study Immigration in America? Retrieved Decem-ber 10, 2014, from The New Immigrant Survey

    Reimers, C. W. (1983). Labor Market Discrimina-tion against Hispanic and Black Men. Review of Economics and Statistics, 65(4), 570-579.

    The Blinder-Oaxaca Decomposition. (n.d.). Re-trieved December 10, 2014, from Washington Uni-versity

    Tienda, M., & Lii, D.-T. (1987, July). Minority Con-centration and Earnings Inequality: Blacks, Hispan-ics, and Asians Compared. American Journal of Sociology, 93(1), 141-165. Retrieved December 09, 2014

    United States Census Bureau. (2014, December 03). State & Country Quickfacts. Retrieved December 10, 2014

    VIII. Footnotes

    1. Special thanks to Professor Jessica Pan and Ji Huang for useful comments and assistance. Addi-tional thanks to Monica Cai and Anthony Moham-med for edits and comments.

    2. The Princeton NIS covers legal, first-generation immigrants as well as their spouses and children.

    3. Major outliers have been removed from the sum-mary statistics and analysis.

    4. Graph modified from (ODonnell, van Doorslaer, Wagstaff, & Lindelow, 2007).

    5. APA style used for references and footnotes and American Economic Review style used for general formatting.

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    I. Introduction

    When do Chief Executive Officers act in the in-terest of shareholders? A large literature in financial economics asks which specific incentives induce CEOs to act in the best interests of firms and share-holders (e.g., Shleifer & Vishny, 1988). One such incentive, or form of leadership structure, is CEO duality, a situation where a CEO also serves as the Chair of a companys board of directors. The existing scholarly literature remains divided about whether a CEO should also chair the board of directors. On the one hand, agency theorists argue that Board-Chair CEOs abuse their excessive un-checked power in a way that destroys shareholder value (e.g., Eisenhardt, 1989; Fama & Jensen, 1983; Roe, 2004; Williamson, 1985). Stewardship theo-rists, on the other hand, argue that excessive moni-toring destroys the CEOs incentive to take risks while also degrading the trust between CEOs and boards, and that good CEOs should be given addi-tional opportunities to take responsibility and initia-tive, which will consequently elevate firm perfor-mance and outcomes (e.g., Brickley & Coles, 1997; Chen, Lin, & Yi, 2008; Jensen & Meckling, 1976; Sridharan & Marsinko, 1997). These two views would make the following predictions about CEO negotiating behavior during an impending acquisi-tion:

    H0= Dual CEOs, due to lower levels of monitoring, negotiate less aggressively than single role CEOs, leading to lower levels of value maximization for the firm (Agency Hypothesis).

    H1= Dual CEOs, due to lower levels of monitoring, negotiate more aggressively than single role CEOs, leading to higher levels of value maximization for the firm (Stewardship Hypothesis).

    However, examination of these hypotheses is complicated by a fundamental epistemological chal-lenge, which is that scholars often test the value-maximizing merits of incentives (like CEO duality) by empirically estimating their effects on outcomes (like deal premia). This trend is common among studies that use ready-made data sets, often includ-ing aggregate performance measures like ROA or ROE to test the effectiveness of a policy within the firm. The prevalent usage of performance measures to test the merits of incentives stems from the lack of suitable proxies for behavior. Since we, as research-ers, cannot monitor CEO behavior by putting cam-eras in offices or tapping phones to directly quantify and measure effort, this kind of day-to-day behav-ioral data typically does not exist. While these stud-ies have made significant contributions to the cor-porate governance literature, it is worth noting that

    Victor GhazalGrinnell College

    CEO Duality and Corporate Stewardship:Evidence from Takeovers

    * Acknowledgement: I would like to thank Professor Caleb Stroup at Davidson College for his excellent mentorship, support, and guidance on this paper.

    Many scholars have been quick to criticize the merits of CEO duality, a situation where a companys Chief Executive Officer is also the Chairman of the Board, by claiming that CEO duality undermines the boards ability to effectively monitor and constrain self-interested CEOs. These criticisms are often based on em-pirical studies that use firm outcomesaggregate performance measuresas proxies to evaluate the merits of an incentive structure such as duality on the behavior of CEOs. In this paper, I construct a more direct measure of CEO behavior by gathering information submitted by companies to the Securities and Exchange Commission. The novel variable I introduce in this paper measures how aggressively a CEO whose com-pany is being sold negotiates with a prospective buyer during the pre-announcement sale process. I find that dual CEOs act in the interest of their shareholders by bargaining 16.1% more aggressively in takeover negotiations than do single role CEOs. The papers main finding is consistent with the view that top manag-ers, when given higher levels of responsibility, act as good corporate stewards on behalf of their respective firms and shareholders.

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    it is not the incentive that influences the outcome, but the behavior of the economic agent the incentive is designed to influence (Finkelstein, Hambrick, & Canella Jr., 2009). In this paper, I advance the understanding of CEO incentive structures by hand-collecting a novel dataset that permits the construction of a more di-rect proxy for a CEOs behavior, thus allowing me to directly examine the effect of incentives on be-havior, rather than attempting to infer behavioral changes from overall corporate outcomes, such as profitability, which are known to be influenced by many other factors (e.g., regulation, product market competition, international business cycles) that a CEO cannot directly control. I proceed in doing so by exploiting the fact that public disclosure require-ments mandate that proceedings leading to substan-tive changes made public by publically traded com-panies be made available to the public for current and potential investors1. The specific contribution of this paper is to em-pirically examine the link between a particular in-centive, CEO duality, and CEO behavior. Figure 1 illustrates that the relationship between leadership structures and outcomes is indirect, and is mediated by CEO behavior. This implies that regressions of deal premia on CEO duality are unlikely to pro-vide insight about the possible effect of duality on a CEOs behavior.

    In Figure 1, leadership structure, an incentive, affects the behavior of the CEO, which then influ-ences corporate outcomes, such as the profitability of the firm. If incentives that lead to good CEO be-havior are chosen, then the positive behavior is ex-pected to lead to a de facto best-case scenario for the firm and its shareholders when an outcome occurs. This is the case because outcomes are determined by not only the behavior of a singular agent, but also by market risk and idiosyncratic firm noise. These

    two terms refer to the innumerable factors such as the number of potential bidders for a target, the tar-gets industry, profitability, the financial suitability of acquirers, government regulations, overall mar-ket forces, among many others, that influence ob-served deal premia. In other words, whether or not the CEO of a company also holds the title of Chair-man of the Board may not necessarily lead to better deal outcomes. The presence of these other features (market risk and firm noise) introduces measurement error that clouds what would otherwise be a clear empirical relationship between leadership structure and cor-porate outcomes. Table 1 illustrates the difficulty of attempting to evaluate the merits of an incentive with an outcome by reporting estimates of the effect of CEO duality2 and CEO Negotiating Aggressive-ness3 (a behavior) on the price received by share-holders when their company is sold (i.e. the deal premium4). Column (1) shows that the estimated effect of CEO duality on the deal premium is statistically in-distinguishable from zero, indicating the presence

    of measurement error, described above. The low R-Squared in Column (1) indicates the high amount of econometric measurement error present when at-tempting to measure the merits of an incentive with an outcome. My empirical approach is to hand-collect data on initial bids contained in documents submitted to the Securities and Exchange Commission by merging companies. This information allows me to construct a noveland directmeasure of a CEOs behavior. This measure is Negotiating Aggressiveness, which proxies for the extent to which the CEO of a selling company bargains with a purchasing com-pany to obtain the highest possible price. Column (2) of Table 1 shows that negotiating ag-gressiveness has a statistically significant and posi-

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    tive estimated effect on the deal premium.Figure 2 illustrates why my empirical approach, which regresses negotiating aggressiveness on CEO duality, circumvents the measurement error chal-lenge: The new measure allows me to directly es-timate the relationship between CEO duality and CEO behavior which is presumed to affect the final price paid. To date, no study that has tested the effect of duality on value maximizing behavior within firms. The present study is the first to evaluate the value maximizing merits of this leadership structure in

    in the setting of M&A negotiations, adding another dimension through which the advantages and disad-vantages of monitoring structures can be weighed.

    II.A Methodology

    I begin by measuring CEO Negotiating Aggres-siveness, NAGGi, as the final bid minus the initial bid over the initial bid in deal i. This equation mea-sures how many percentage-points the buyers final bid is removed from the initial bid. Final bid before sale, FBi, is calculated as the price per target share that is accepted as the sale priceby the target upon the execution of the merger agreement in deal i. The initial bid of the future buyer, IBi, is measured as the first bid submitted by the eventual acquirer in deal i. If a range of prices is indicated, the lower of two amounts is assumed.

    NAGGi = FBi - IBi IBiNAGGi: Negotiating AggressivenessFBi: Final Bid before SaleIBi: Initial Bid of Future Buyer

    This measure is a tool to shed insight on M&A

    negotiating behavior and, thus, value maximizing behavior. Subramanian (2011) describes dealmak-ing as two parties meeting somewhere in a zone of possible agreements (ZOPA). Negotiation theory tells us that buyers and sellers approach a negotia-tion table with a range of acceptable prices by which to strike a deal. This is a useful way to think about negotiations when considering value maximization because it is a truly relative term, meaning people have different views on what specifically constitutes maximization. While the law aims to protect share-holders by imposing a fiduciary obligation on man-agers, this does not change the relativity of the term. Therefore, thinking about the existence of a ZOPA allows us to judge value maximization as the extent to which each CEO will negotiate to remove the bidder from his or her initial willingness to pay. High levels of negotiating aggressiveness must be value-adding if one accepts the premise that the buyer does not make an indication of interest or an initial bid with a price that is not truly reflective of his or her willingness to pay. With this in mind, there must be implications for corporate governance if there is a leadership structure that is more condu-cive to these higher levels of negotiating aggressive-ness. An intuitively appealing methodological ap-proach to estimate the effect of duality on negotiat-ing aggressiveness would be Equation (1). NAGGi = 0 + 1 DUALi + i (1) Where DUALi is a dummy variable that takes a value of one if the CEO of the selling company is also the Chairman of the Board in deal i. The coeffi-cient of interest is 1-hat. Without control variables, a causal interpretation of a positive estimate of 1 would lead to the rejection of the null hypothesis, H0. Conversely, a negative estimate of 1 would cause an idealized econometrician to fail to reject the null hypothesis. However, a potential challenge with this causal interpretation is the possibility that certain firms at-tract more bidders than others. One could imagine that the presence of each additional bidder would detach the CEO from being the chief negotiator, as the bidders would compete with each other. Due to this added sense of competition, the effect of the CEOs negotiating aggressiveness will be weakened because bidders will shade their initial bids upwards to factor in the presence of additional bidsmean-ing that number of bidders would be negatively cor-related with negotiating aggressiveness. Addition-ally, dual role led firms may attract more bidders

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    because the CEO may have more freedom to contact more prospective buyers without having to receive approval from the board, which would cause duality and the number of bidders to be positively corre-lated. If this were true, it would cause the 1-hat co-efficient to be downwardly biased. So, I control for this potential issue with the BDRSi control variable, which is measured as the total number of potential buyers that submit a formal indication of interest or a binding or non-binding letter of intent in deal i. Another factor to consider when observing the takeover process is that failing firms may lack bar-gaining power, causing this status to be negatively correlated with negotiating aggressiveness. Addi-tionally, it may be the case that dual CEOs are at the helm of less failing firms that are for sale because they may have more power to stay in business. If this is the case, failing firms are be negatively cor-related with duality. To avoid downwardly biasing 1-hat, I address the issue with FAILi, a dummy vari-able takes a value of one if firm failure or industry decline are cited as a motivation for the sale in the Reasons for the Merger section in the SEC proxy statement in deal i. An important feature of takeovers is that some occur through an auction process. If an auction is present before the final sale, then this may lead to upward bias in the coefficient of interest. Atkas & De Bodt (2009) find empirical evidence that sug-gests that the threat of auction, latent competition, is factored into bidding behavior. Bids occurring be-fore an auction tend to be biased upwards to deter the seller from initiating an auction and introduc-ing new competition. This may create in upwardly biased starting bid, weakening the statistical effect that the aggressiveness variable picks up, which would cause the lack of a previous auction to be negatively correlated with negotiating aggressive-ness. Also, one might imagine that dual role CEOs may be more likely to engage in pure negotiations instead of resorting to an auction because in a one-on-one negotiation, the dual CEO can more effec-tively exercise his or her freedom. This may cause duality and no previous auction to be negatively correlated. To control for the potential upward bias, I include the PAi control variable, which is measured as an indicator variable takes a value of one if an auction has not taken place before a negotiation leading to a sale in deal i. A specific buyers over-eagerness to acquire a firm may downwardly bias 1-hat in the bivariate causal interpretation presented in Equation (1). An indication of this factor can be measured as whether the acquirer or the target makes the initial contact in

    a given deal. One might imagine that if the acquirer makes initial contact, it may be indicative of a high willingness or ability to pay, which may bias ini-tial bids upwards to ward off the targets potential impetus to contact additional competitors (Atkas & De Bodt, 2009). Thus, since initial bids would be shaded upwards, this decreases the statistical effect of the NAGGi variable, causing them to be negative-ly correlated. In addition, firms with dual leadership may have CEOs who take more ownership over the sale process and reach out to more biddersmaking duality and acquirer initiated contact positively cor-related. If this is true and the coefficient of interest is downwardly biased, I avert the problem by includ-ing the AINITi dummy variable, which takes a value of one if the eventual acquirer initiates first contact in deal i. Another biasing factor that may corrupt the es-timated duality coefficient is the size of the target company. More information about the value of the firm, before due diligence, may be known about bigger firms. If this is the case, initial bids may be shaded upwards, closer to a symmetrically known value, leading to less negotiating on behalf of the CEO. If this is valid, then size is negatively corre-lated with aggressiveness. Further, dual CEOs may tend to lead larger firms at the time of sales, caus-ing duality and size to be positively correlated. This makes sense, given that dual CEOs may tend to start at small firms that grow over time, which are then sold to bigger firms or competitors. Boone and Mul-herin (2004) find that the mean and median target equity value is 56% and 27% of that of the aver-age bidder respectively, which provides evidence in support of this prediction. Because failure to include an adequate control variable would bias my coeffi-cient upwards, I use MKTCi. This variable is taken as the log target market capitalization of the target firm in deal i, in millions of dollars. Moreover, an issue with the causal interpreta-tion of Equation (1) is the possibility that CEOs are also the owners of their firms, which may bias the estimation of 1 in an upward direction. Hermalin & Weisbach (2003) find that CEOs who are also owners behave differently than non-owner CEOs. Due to this, CEOs who are also owners may have an unobservable attachment to the firm that may cause a positive correlation to exist between owner-ship and aggressiveness. Further, one might imagine that duality and ownership are positively correlated because founders or owners of firms may want to place themselves in positions to exercise full over-sight over their firms. To avoid this potential biasing factor, I include OWNi, which is a dummy variable

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    that takes a value of one if the standing CEO at the time of the sale in deal i is also the owner. A final factor that may drive upward bias in the coefficient of interest is post-deal employment perks. One might imagine that if the CEO wants to be retained, he or she may be more likely to exhibit loyalty and competency. If this is the case, post-deal employment is correlated with aggressiveness. Ad-ditionally, dual CEOs may be more valuable to the post-merger firms or may be in a better position to bargain for retention as part of the sale than single role CEOscausing duality and post-deal employ-ment to be positively correlated. To avoid the up-ward bias in 1-hat, I control for post-deal employ-ment with EMPi, which is an indicator variable that takes a value of one if the CEO of the target com-pany is retained in some capacity at the new firm post deal i. In the previous discussion, I proposed theoretical biases based on my understanding of each variables respective relationships with duality and negotiat-ing aggressiveness. To supplement this analysis, I also provide a correlation matrixcorrelation matrix is included in the Appendix to further support the directions and magnitudes of potential biases. Rewriting the main estimating equation and plug-ging in control variables for potentially biasing fac-tors yields Equation (2).

    NAGGi = 0 + 1 DUALi + 2 BDRSi + 3 FAILi + 4 PAi + 5 AINITi + 6 MKTCi + 7 OWNi + 8

    EMPi + i (2) NAGGi: Negotiating AggressivenessDUALi: CEO DualityBDRSi: Number of BiddersFAILi: Failing FirmPAi: No Previous AuctionAINITi: Acquirer InitiatedMKTCi: Log Market Cap (M)OWNi: CEO OwnershipEMPi: Post-deal CEO Employment

    II.B Data

    I examine a sample of 45 M&A deals from the year 2013. These 45 deals are chosen at random from a list of all S&P 1500 mergers completed in 2013 with deal values greater than $1.0 million, where the acquirer gains outright ownership of the target firm. . The sample is not considered small in comparison to other studies with hand-collected data. By only focusing on the year 2013, I attempt to decrease time variant noise effects. I draw data

    on dual CEO/Cchair positions, ownership status, post-deal employment, and market cap by investi-gating the company history and financial status on the from the Bloomberg Terminal. I gather confir-matory data to support these variables from SEC Edgar. Additionally, I hand-collect the data on CEO negotiating behavior from the Background to the Deal sections of publicly available proxy state-ments (i.e., DEFM-14A, S-4, SC-14D9, and 8-K fil-ings) through the SEC Edgar database (e.g., Boone & Mulherin, 2004; Gentry & Stroup, 2015). I also gather information on the number of bidders, wheth-er the deal occurs pre- or post-auction, whether the acquirer or the target initiates contact, and bid and sale information from the Background to the Deal sections in those proxy statements. I gather confir-matorydouble-check details on final sale amount and deal premia from the announcement documents in the 8-K filings (i.e., EX-99.1) on SEC Edgar and the Bloomberg Terminal. I draw further data on firm failure from the Reasons for the Merger section provided in these documents, often directly below the Background to the Deal sections. I remove deals that are hostile takeovers from my sample, as those deals do not fully reflect the CEOs ability to negotiate. The data I collect for deal premia, used in Table 1 and Figure 3, are taken from the Bloomberg Terminal and depict the percent premium over the closing price from the day before the deal execution.

    Table 2 reports descriptive statistics for each vari-able used in this paper. Interestingly, approximately one-third of the randomly selected sample of M&A deals from 2013 involves firms with CEO-Chaired boards. The number of bidders in the sample ranges from 1 to 20, reflecting a large variance in not only

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    the number of firms contacted but those that make formal indications of interest. The negotiating ag-gressiveness variable has a minimum value that is negative, which may suggest two possibilities, ei-ther certain CEOs are extremely poor negotiators or the variable is not impervious to firm-specific bias-ing factors. If the second suggestion is valid, then the R-Squared value should increase from Equation (1) to Equation (2) and the usage of control variables is justified in depicting a more accurate estimate of the effect of duality on aggressiveness.

    III. Findings

    Column (1) of Table 3 reports the main estimating equation in the bivariate case, as shown in Equation (1). Further, in Column (2) the findings from Equa-tion (2), which presents the estimated effect of dual-ity on negotiating aggressiveness in the multivariate case, are reported. Column (1) reports a positive and significant cor-relation between duality and aggressiveness in the bivariate case. When I introduce control variables in Column (2), I find that the coefficient on CEO

    duality remains positive and statistically significant at the 1% level. The results suggest that dual CEOs negotiate 16.1% more aggressively than single role CEOs. That is, when the CEO also occupies the role of the companys Chairman of the Board, the exis-tence of that relationship in the context of an M&A deal negotiation is associated with a 16.1 percent-age point increase from initial to final bid, ceteris paribus. I therefore reject the null hypothesis that dual CEOs bargain less aggressively than single role

    CEOs, leading to lower levels of value maximiza-tion. I also find that the presence of each additional bidder is associated with a -1.1% decrease in nego-tiating aggressiveness. This result is significant at the 5% level. In theory, the presence of more buyers should decrease the amount of bargaining the CEO has to do because of the added sense of competi-tion among prospective buyers. I am surprised that none of my other control variables were significant, but acknowledge that this may be due to the small sample size. Figure 3 below reports a 2-dimensional visual representation of the 3-dimensional relationship between the incentive (duality), the behavior (ne-gotiating aggressiveness), and the outcome (deal premium). The contour plot illustrates two important conclu-sions from this study. First, CEO duality and deal premia have no systematic relationship, as shown in Table 1. Observing the chart, the red-shaded area, indicating duality, is not disproportionately to the

    north or south of the graph, confirming this asser-tion. Second, the notable divide between the right and left sides of the plot, the red- and blue-shaded areas, confirms the findings in Table 3 in a striking manner; dual CEOs bargain more aggressively than single role CEOs. The results indicated in Figure 3 taken together with Table 2, which suggests that aggressiveness and deal premia are positively correlated at the 1% level, confirms our rejection of the null hypothesis. That is, if we accept the premise that higher deal pre-mia is good for shareholders, then it is clear that the duality structure is more conducive to CEO value maximizing behavior in M&A target negotiations.

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    FASB. (1980). Statement of financial accounting concepts no. 2: Qualitative characteristics of ac-counting information. Stamford, Conn.: Financial Accounting Standards Board.

    Finkelstein, S., & Daveni, R. (1994). CEO Duality As A Double-Edged Sword: How Boards Of Di-rectors Balance Entrenchment Avoidance And Uni-ty Of Command. Academy of Management Jour-

    IV. Conclusion In this paper, I push the frontier of what we know about the role of CEO duality in the firm and pro-vide insight about the role of this leadership struc-ture in the context of takeover negotiations. I expose the fundamental identification problem that occurs when we try to judge the merits of an incentive with an outcome variable, and circumvent the lack of strong behavioral variables by creating my own, CEO Negotiating Aggressiveness, using underuti-lized public information. Using negotiating aggressiveness as the depen-dent variable, I create an estimating equation aimed to measure the effect of duality on CEO negotiat-ing effort. I find that CEO duality has a positive and statistically significant relationship with nego-tiating aggressiveness at the 1% level. I reject the null hypothesis, which states that duality leads to lower levels of negotiating aggressiveness, and thus lower value maximization. I attribute the lack of sig-nificance among my control variables to the small sample size, which is common among studies using hand-collected measures. These conclusions bear implications for corpo-rate governance. Stricter governance does not nec-essarily lead to higher value maximization, at least in the case of negotiations. I believe the added free-dom afforded by duality creates a more conducive atmosphere within the firm for successful negotia-tions. While my results imply that leadership struc-ture matters in M&A dealmaking, the specific aspect of duality that drives these findings remains unclear. Future research can hopefully explore and identify the exact mechanism behind this relationship.

    V. References Adams, R., Hermalin, B., & Weisbach, M. (2010). The Role Of Boards Of Directors In Corporate Gov-ernance: A Conceptual Framework And Survey. Journal of Economic Literature, 58-107.

    Aktas, N., Bodt, E., & Roll, R. (2009). Negotiations under the threat of an auction. Journal of Financial Economics, 241-255.

    Bhagat, S., & Bolton, B. (2007). Corporate Gover-nance And Firm Performance. Journal of Corporate Finance, 257-273.

    Boone, A., & Mulherin, J. (2004). How Are Firms Sold? The Journal of Finance, 847- 875.

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    ernance. Harvard Law School John M. Olin Center for Law, Economics and Business Discussion Paper Series, 488, 1-28.

    Sampson-Akpuru, M. (1992). Is CEO/Chair Duality Associated with Greater Likelihood of an Interna-tional Acquisition? Michigan Journal of Business, 81-97.

    Shleifer, A., & Vishny, R. (1988). Value Maximiza-tion and the Acquisition Process. Journal of Eco-nomic Perspective, 7-20.

    Smith, A. (1976). An inquiry into the nature and causes of the wealth of nations. E. Cannan (Ed.). Chicago: University of Chicago Press. (Original work published 1776)

    Sridharan, U. & Marsinko, A. (1997). CEO Duality In The Paper And Forest Products Industry. Journal Of Financial And Strategic Decisions, 10(1), 59-65.

    Subramanian, G. (2011). Dealmaking: New deal-making strategies for a competitive marketplace . New York: W.W. Norton & Co.

    Williamson, O. (1985). The economic institutions of capitalism: Firms, markets, relational contracting. New York: Free Press.

    VI. Footnotes

    1. From the perspective of the law, substantive is defined by the concept of materiality, which is de-fined as the magnitude of an omission or misstate-ment of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement (FASB, 1980).2. CEO duality is measured as an indicator variable that takes a value of one if the CEO of the company is also the Chairman of the Board.

    3. CEO Negotiating Aggressiveness, the main vari-able I construct in this paper, is defined in the Meth-odology section.

    4. Summary statistics on each variable used in Table 1 are provided in the Data section.

    For appendices and other notes, please refer to the electronic issue at

    nal, 37(5), 1079-1108.

    Finkelstein, S., Hambrick, D., & Canella Jr., A. (2009). Strategic leadership: Theory and research on executives, top management teams, and boards. New York: Oxford University Press.

    Gentry, M., & Stroup, C. (2015). Entry and Compe-tition in Takeover Auctions. 1-57.

    Grinstein, Y., & Hribar, P. (2003). CEO Compensa-tion And Incentives: Evidence From M&A Bonuses. Journal of Financial Economics, 119-143.

    Hansen, R. (2001). Auctions of companies. Eco-nomic Inquiry, 30-43.

    Hartzell, J., Ofek, E., & Yermack, D. (2003). Whats In It for Me? CEOs Whose Firms Are Acquired. Re-view of Financial Studies, 37-61.

    Hermalin, B., & Weisbach, M. (2003). Boards of Directors as an Endogenously Determined Institu-tion: A Survey of the Economic Literature. FRBNY Economic Policy Review, 7-26.

    Iyengar, R., & Zampelli, E. (2009). Self-selection, endogeneity, and the relationship between CEO du-ality and firm performance. Strategic Management Journal, 1092-1112.

    Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs and own-ership structure. Journal of Financial Economics, 3(4), 305-360.

    Lam, K., Mcguinness, P., & Vieito, J. (2011). CEO gender, executive compensation and firm perfor-mance in Chineselisted enterprises. Pacific-Basin Finance Journal, 1136-1159.

    Malmendier, U., & Tate, G. (2003). Who Makes Ac-quisitions? CEO Overconfidence and the Markets Reaction. 1-64.

    Oh, K., Pech, R., & Pham, N. (2014). Mergers and Acquisitions: CEO Duality, Operating Performance and Stock Returns. 1-34.

    Rechner, P., & Dalton, D. (1991). CEO duality and organizational performance: A longitudinal analy-sis. Strategic Management Journal, 12, 155-160.

    Roe, M. (2004). The Institutions of Corporate Gov-

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    stewards of the firm. Proponents of duality contend that combining the CEO and Chair positions pro-vides a company with a unified command structure and a consistent leadership direction (Chen, Lin, & Yi, 2008). This means the firm incurs fewer costs in decision-making. Jensen & Meckling (1976) and Brickley & Coles (1997) contend that the agency cost of separating CEOs in dual roles is higher than the net benefits gained. Oh, Pech, & Pham (2014) found that duality has a significant and positive effect on the decisions made by Vietnamese firms in mergers, primarily in terms of long-term value added. Hermalin & Weis-bach (2003) argue that board size, an indication of corporate governance strength, is negatively related to corporate performance. This finding supports the idea that top-management does not need to be con-stantly monitored in order to maximize shareholder value (Boyd, 1995). Sridharan & Marsinko (1997) investigated the impact of CEO duality on firm value in the paper and forest products industry and found that dual firms possessed higher market values than firms with baseline leadership structures. Under this line of thinking, duality in firms may also lead to enhanced collegiality and collaboration between board directors and company executives, facilitat-ing smooth and resourceful decision-making.

    Correlation Matrix

    VI. Appendix

    Literature Review

    Agency Theory Agency theory predicts that dual CEOs cannot maximize shareholder value because they are not monitored effectively. The prevailing view behind this theory is that CEOs are profoundly selfish and will always put the maximization of their utility over that of the firm and its stakeholders. Proponents of agency theory believe that without proper monitor-ing structures, CEOs pursue selfish interests that are inconsistent with their responsibilities to sharehold-ers (Williamson, 1985). In fact, Adam Smith (1776) theorized:

    The directors of [joint stock] companies, however, being the managers rather of other peoples money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance [as owners].... Negligence and profusion, therefore, must always prevail, more of less, in the management of the affairs of such a company.

    Eisenhardt (1989) found that M&A takeover decisions are opportunistic and driven by CEO self-interest unless properly monitored. Such opportu-nistic behavior may include shirking of day-to-day responsibilities and monetary indulgences at the expense of shareholders (Roe, 2004; Williamson, 1985). The model of the opportunistic and individu-alistic economic actor, who is primarily concerned with the maximization of his or her own economic gain, can be traced to the field of organizational psychology through McGregors (1960) Theory X (Donaldson & Davis 1991). Daily and Dalton (1994) also found a signifi-cant positive association between CEO duality and firm bankruptcies. Fama and Jensen (1983) warn that allowing duality signals to shareholders that the corporation has failed to separate its decision man-agement from its decision control, which increases the likelihood that the CEO-Chair will take inef-ficient and opportunistic actions that deviate from shareholder interests and reduce shareholder wealth.

    Stewardship Theory Stewardship theory predicts that dual CEOs en-hance firm performance and maximize shareholder value to a larger degree than baseline CEOs. The underlying view backing this theory portrays CEOs as benevolent and selfless leaders. The more respon-sibility they are entrusted with, the better they are as

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    Ziyi YanBryn Mawr College

    The Effect of Driving Restrictions on Air Quality in Beijing

    I. Introduction

    Rapid economic growth and urbanization have dramatically changed Chinas transportation, espe-cially in the major cities. For example, in Chinas capital, Beijing, unlike before, residents are not only traveling longer distances, but also making more trips and relying more on motorized modes. Rapid motorization has contributed to a series of problems including air pollution, oil price hikes, congestion, and growing greenhouse gas emissions. In Beijing, peak-hour speeds on urban arterials and express-ways often drop below 15 or even 10 kilometers per hour and it is on the list of the World Health Organi-zations most polluted cities (Sun, Zheng and Wang, 2014). To address the problems brought on by the ex-ploding growth of car ownership, Beijing has adopt-ed a wide range of policies, including investments in public transportation, ratcheting up vehicle emis-sion standards, as well as restrictions on both driv-ing and new vehicle purchases. Among them, the policy of restricting driving is considered to be an efficient way to alleviate the traffic pressure in Bei-jing and it was first introduced in 2008. Beijing im-plemented the odd-even license plate policy of road space rationing during the 2008 Olympic Games. (BBC, 2008) Due to the success in improving the air quality and the increased road space availability, the government issued a modified version of road space rationing, end-number license plate policy af-ter the 2008 Olympic Games. The odd-even license plate policy limits the use of cars on the alternative days by the parity of the end-number of license plate that if the last digit of license plate is odd, the car is only allowed to be used on the day which has date that is odd and if the last digit of license plate is even, the car is only allowed to be use on the day which has data that is even. For example, if a car has end-number of 7, it is only allowed to be used on 1st, 3rd, 5th, 7thdays of a month and if a car has end-number of 2, it is only allowed to be used on 2nd, 4th, 6th, 8thdays of a month. Similarly, the

    end-number license plate policy limits every car on only one day of a week based on the end number of its license plate. If a car has an end-number of 1 or 6, it is only allowed to be used on the Monday of that week. If a car has an end-number of 2 or 7, it is only allowed to be used on the Tuesday of that week, etc. The main objective of the restraint policies is to re-duce the amount of exhaust gas generated by motor vehicles and alleviate the traffic pressure. Moreover, in consideration of the rapid increase in the number of cars, the government implemented a policy that restricts the purchase of small passen-ger cars, started from January 2011. In 2010, the av-erage monthly increase in registered new cars was 66,000, and given the increase, the car ownership is expected to hit 6 million before 2016 (Mu, 2012). The new policy requires the citizens who wish to purchase passenger cars with less than five seats to follow the small passenger car purchase policy to be applicable for purchasing a passenger car. Accord-ing to the policy, the individual purchaser must not already have a passenger car registered under his or her name, and must fulfill various requirements such as having a driving license and living in Beijing; if the purchaser fulfills all of the requirements, he or she could apply for a quota, and then wait for the monthly license plate lottery. During the 26th of every month the Traffic Management Bureau would take all of the eligible quotas and select a certain amount of them randomly, similar to the way of lot-tery where numbers are drawn randomly. Usually the lottery rate is under 10% (Yang, Liu, Qin and Liu, 2014). In China, pollution is one aspect of the broader topic of environmental issues and as China indus-trialized, various forms of pollution have increased, including air pollution, which is damaging the health condition of Chinese People. According to the stud-ies by World Bank, World Health Organization, and the Chinese Academy for Environmental Planning on the effect of air pollution on health, between 350,000 and 500,000 Chinese die prematurely each year because of air pollution1. The hazardous level

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    of air pollution has urged the government to make efforts to fight the pollution and as a city, which underwent serious condition of airpocalyse since 2013, Beijing has desired adequate policies to effec-tively reduce air pollution. Since vehicles have al-ways been claimed as one of the major sources of air pollution, the government has aimed to reduce the level of air pollution by controlling the rapid growth in the use of vehicles, using the different kinds of policies that restrict driving. In this paper, I will evaluate the effect of the driv-ing restrictions on improving the air quality, during the time period from 2008 to 2013. Among the vari-ous measurements of air quality, the level of PM2.5 measures the level of tiny particles that have a width smaller than 2.5 micrometers. PM 2.5 is a type of air pollutant that is a concern for peoples health when levels are high and high levels of PM 2.5 reduce visibility and cause the air to appear hazy. Since these particles are relatively small, they are able to travel deeply into the respiratory tract, reach-ing the lungs. Exposure to PM2.5 can cause health effects such as eye, nose, throat and lung irritation, coughing, sneezing, running nose, and shortness of breath. Studies also suggest that long-term ex-posure to PM2.5 may be associated with increased rates of chronic bronchitis, reduced lung function and increased mortality from lung cancer and heart disease2. Besides, vehicle pollution is found to con-tribute about 22% of PM 2.5 in Beijing3. Therefore, based on this particularity of PM 2.5, in this paper, I will use the level of PM 2.5 as the measurement of air quality and my working hypothesis is: during the time period 2008-2013, policies that target to reduce car pollution, including the restriction on car pur-chases and road space rationing, help to improve the air quality in Beijing, with the indicator as PM2.5. In this paper, Section 2 offers a review of pre-vious studies which examine driving restriction effects. Section 3 introduces the description of the empirical strategy used, along with the summary of the data. Section 4 presents the results of the regres-sion and the interpretation. Section 5 discusses the reason and explanation behind the results from Sec-tion 4. Section 6 concludes the paper with policy recommendation, major limitations and interest for future research.

    II. Literature Review

    Chile is the first country that adopted driving restriction policy that in 1986, it implemented the policy Restriction Vehicular in its capital, Santiago,

    to prohibit vehicles to be used on certain days based on the vehicles plate number. Since then, similar policies have been used in several large cities across the world. Sun et al. (2014) points out that the popu-larity of these policies is attributed to the policys simplicity, perceived quick effects on congestion and air quality, and low cost to regulators. To evaluate the effect of car-related policy on air quality, it is important to know what factors de-termine the traffic emissions in the air. Besides the amount of cars in use, both Viard and Fu (2011) and Sun et al. (2014) state that the determinants of traffic emissions include but not limited to: temperature, humidity, wind speed, supply and cost of public transportation, and fuel price, Furthermore, accord-ing to the geographical loc

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