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Ebook QNet: A Tool for Querying Protein Interaction Networks

Submitted by wulan on Thu, 07/30/2009 - 03:35

The study of biological networks has gained substantial interest in recent years. In particular, technological advances, such as the yeast two-hybrid and co-immunoprecipitation assays, have enabled the large-scale mapping of protein-protein interactions (PPIs) across many model species. The newly available PPI networks present a host of new challenges in studying protein function and evolution. Key to addressing these challenges is the development of efficient tools for network database searches, much the same as sequence searches have been instrumental in addressing similar problems at the genome level.

Network queries call for searching a “template” subnetwork within a net-work of interest. Commonly, the query is a known pathway, and the network is searched for subnetworks that are similar to the query. Similarity is measured both in terms of protein sequence similarity and in terms of topological similarity. The hardness of the problem stems from the non-linearity of a network, making it difficult to apply sequence alignment techniques for its solution.

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PDF Ebook Outside Directors’ Equity-based Compensation and Earnings Management

Submitted by antoq on Mon, 04/12/2010 - 08:08

The past two decades have witnessed a rapid growth of option-based and stock-based compensation for corporate directors. According to Executive Compensation Reports, only about 1.6% of the 1,000 largest companies in the US offered equity-based compensation for directors in 1983, but by 1994, about 20% of firms did. Another survey conducted by Mercer Human Resource Consulting of 350 major companies reports that about 50% of firms offered stock options to directors in 1996, and about 80% did so in 2001 (Lublin and Bulkeley 2006). Similar to executive pay, outside director equity-based compensation has been a subject of heated debate, triggered by an unprecedented number of accounting and governance scandals in recent years. In this study, we examine how equity-based compensation for outside directors affects the board’s monitoring effectiveness over the financial reporting process as reflected in the extent of earnings management.

Boards of directors serve as an important mechanism to monitor senior management and reduce agency costs arising from the separation of ownership and control (Fama and Jensen 1983). Among other tasks, boards are responsible for overseeing firm accounting, auditing and internal control to ensure the integrity of financial reports. Board compensation, particularly performance-based compensation, can influence directors’ monitoring incentives. There are two competing views regarding the impact of equity-based compensation on directors’ monitoring effectiveness. Firms that rely on options and stocks to compensate outside directors argue that exposing directors’ wealth to the firm’s stock price is an effective way to align directors’ interests with those of shareholders. Some institutional investors and shareholder activists also advocate performance-based compensation such as option and stock awards for directors. Supporting this view, Yermack (2004) and Bryan and Klein (2004) show that the cross-sectional patterns of stock and option awards to outside directors conform to agency and contracting theories. In addition, Fich and Shivdasani (2005) and Becher et al. (2005) find that equity-based compensation for outside directors increases shareholder value. If equity-based compensation motivates outside directors to more effectively monitor executives and deter managerial opportunism, then greater equity incentives for outside directors would reduce opportunities for manipulation of accounting information and improve the integrity of financial reports.

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PDF Ebook Cost of Capital in Imperfect Competition Settings

Submitted by antoq on Fri, 04/23/2010 - 02:15

This paper analyzes the role of information in pricing and cost of capital in security markets characterized by imperfect competition: that is, in markets that are less than perfectly liquid. Standard setters and policy makers often claim that high-quality information and a level playing field are essential to the efficient allocation of capital in the economy. For example, Robert Herz, chairman of the Financial Accounting Standards Board states: “It’s about lowering the cost of capital, lowering the cost of preparation, and lowering the cost of using it,” (see Wild, 2004). Similarly, Arthur Leavitt, former chairman of the Securities and Exchange Commission, argues that “high quality accounting standards ... improve liquidity [and] reduce capital costs,” (see Leavitt, 1997).

Yet information issues are largely absent in conventional models of asset pricing and cost of capital. For example, in a Capital Asset Pricing Model (CAPM) framework, all investors are presumed to have homogeneous information, so issues that arise from information asymmetry are precluded from occurring. Moreover, only non-diversifiable risk is priced, and the relevant non-diversifiable risk is the covariance of the firm’s cash flows with the market. Therefore, the only way information can affect cost of capital is through its impact on this covariance. In noisy rational expectations models (e.g., Grossman and Stiglitz, 1980; Hellwig, 1980; Diamond and Verrecchia, 1981), heterogeneous information plays a prominent role, and the aggregation of this information through price is an important part of the analysis. The literature finds, however, that only the average precision of investors’ information matrices (e.g, the inverse of their assessed covariance matrices) is relevant in deriving the equilibrium cost of capital (see, e.g., Lintner,1969; Admati, 1985; and Lambert, Leuz, and Ver-recchia, 2009). Information asymmetry across investors can affect cost of capital, but only through its effect on investors’ average precision. Controlling for average precision, the degree of information asymmetry across investors (e.g., the amount that investors’ information precisions differ from the average) does not affect cost of capital.

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