Recent changes to the system of Higher Education (HE) funding in the UK that require graduates to contribute more to the cost of their HE than previously, brought to the forefront of the policy debate just how much graduates earn over their working lifetimes. Various estimates of average graduate earnings were cited, and of earnings of hypothetical graduates, though they were all too often politically expedient, clouding as they did the range of uncertainty about lifetime earnings. This policy debate formed the main motivation behind this paper, and indeed the ultimate application of the methodology set out in this paper is to estimate the distribution of lifetime earnings of graduates and non-graduates in the UK. Our methodology that underlies the construction of lifetime earnings uses statistical distributions characterised by copulas to model the dynamics of earnings. With the exception of Bonhomme and Robin (2005), this approach is new to the literature on modelling earnings dynamics.
In this paper we illustrate both the usefulness of copulas as a statistical technique for modelling dependence in earnings across the lifecycle, as well as contrast it with more traditional approaches for modelling earnings dynamics that appear in the literature. Our model can be estimated using a two-period panel on earnings, in contrast to more traditional approaches which generally require a panel of at least three periods for identification. We show that this is not at the expense of any of the richness inherent in such models, by illustrating how our method captures the same features of the dynamics of earnings that show up in traditional linear models. We then go on to apply our method to the estimation of lifetime earnings distributions in the UK for four groups characterised by education and gender.
The modern legal understanding of property ownership in the United States is expressed through a metaphor as a “bundle of rights” or a “bundle of sticks.” This is an abstract notion that analytically describes property as a collection of rights vis-à-vis others, rather than rights to a “thing,” like a house or a piece of land. It is a legal construct that has evolved to describe the rights as well as the responsibilities that attend ownership quite independently of whatever “thing” is owned. The bundle of rights also demonstrates the many ways in which ownership can be divided. In this sense, the concept works to illustrate both tangible and intangible property equally well—for example, 100 acres of land or 100 shares in a corporation.
In recent years, an academic debate has raged about whether the bundle of rights is a correct or useful way of thinking about property rights. Whatever its faults or inadequacies, the bundle of rights is the dominant legal paradigm for the courts and the theory of property that is taught to American law students.
Raising outside equity capital is one of the major financial decisions at the discretion of top managers. Received theory suggests that managerial discretion in the timing and pricing of equity offerings impacts shareholder value (e.g. Akerlof (1970), and Myers and Majluf (1984)). Myers and Majluf's model rests critically on the assumption that managers act in the interest of existing, or 'old,' shareholders, which invites the question of how managerial incentives affect corporate equity financing policies. To date, empirical tests of the theory have given little consideration to this important issue. We reason that the incentive for managers to maximize the benefit accruing to the ’old’ shareholders from the new equity offer depends on the degree of alignment between the goals of managers and those of existing shareholders. This study examines the link between managerial incentives and the equity issue decision, and develops implications for cross-sectional variation in the market response to seasoned equity offerings (SEOs).
The recent surge in interest in the link between executive compensation and major discretionary managerial decisions, such as corporate investments and dis-investments (see e.g., Datta, Iskandar-Datta, and Raman (2001), and Mehran, Nogler, and Schwartz (1998)) has accentuated the importance of internal control mechanisms in determining the information content of equity offerings. Given these recent evidence linking executive compensation and corporate investment decisions, managerial compensation is expected to have important implications for corporate financing decisions as well.
