Limitations and Suggestions for Future Research

Một phần của tài liệu Public financial management edited by howard a frank (Trang 528 - 536)

The findings must be interpreted in light of several limitations. First, the data are cross sectional: assessing the effects of governance practices and investment strategies on financial performance with longitudinal data is critical. Second, the choice of index is likely to be somewhat of a deter- mining factor in the construction of abnormal returns. Risk adjusted finan- cial performance, as a key construct, could be stronger if better measures were available. Third, investment strategies examined here are not the only tactics used by public pension funds. These decisions should be examined in conjunction with other strategies such as hedging. Finally, structural equation modeling would be beneficial in assessing the simultaneous effects of multiple factors.

Nonetheless, we hope that this econometric study of state and local government retirement systems during the last decade of the 20th century has contributed in some positive way. And, we look forward to the advances of the future.

Notes

1. According to the American Association of Retired Persons (1999, p. 1) ‘‘Baby Boomers represent the largest single sustained growth of the population in the history of the United States . . . this generation has reinterpreted each successive stage of life. . .they are again poised to redefine the next stage, retirement.’’

An Econometric Assessment of State and Local Government g 499

2. The following figures are available from http://www.census.gov/

govs/www/index.html. Last Accessed 08/02/04.

3. In public defined benefit plans, participants are promised a benefit depending on factors such as salary, length of employment, inflation, etc. (Nofsinger, 1998, 89). By comparison, defined contribu- tion plans do not guarantee such a benefit and essentially shift decision making and risk towards plan participants. This chapter limits the discussion to defined benefit schemes which currently dominate state and local government retirement systems (GFOA, 2000, 29).

4. Most states and localities hold each member of a retirement board to fiduciary standards of conduct known as the prudent- person rule. This concept, grounded in English common law, requires each board member to perform his or her duties as a prudent person would when acting in a like capacity and in a similar situation (Eitelberg, 1997, 9).

5. For a discussion of this topic see Coronado et al. (2003), pages 581–582.

6. A strictly theoretical or practical administrative dichotomy does not exist within the literature as some researchers investigate both aspects at the same time. However, the dissection is useful for the purpose of discussion.

7. The definitions of agency costs and residual claimants as given above can generally be attributed to Fama and Jensen (1983). However, the demarcation seems very apposite from a political economy per- spective. See Bickers and Williams (2001), pages 22–24 for a discus- sion on delimiting the relevant public.

8. Useem and Hess (2001) also note the theoretical possibility of a curvilinear relationship between the number of board members and performance. However, empirical verifications of this pros- pect do not appear to exist in the PERS econometric literature at this time.

9. To illustrate, in the public sector there would be nothing unusual about having a county retirement system largely staffed by members whose primary occupations are that of high school educators.

10. As noted by Coronado et al. (2003) during the 1980s, many public plans restricted investment in South Africa in protest of the government’s apartheid policy. While these restrictions no longer exist today, many states require investment managers to invest only in companies follow- ing the MacBride principles, which restrict religious discrimination in employment in Northern Ireland (584).

11. An argument could be made that ETIs are investment strategy decisions. However, they are not considered as such in this chapter.

12. Interestingly, a theme underlying the work of Ibbotson and Kaplan (2000) was that the overall conclusion of the Brinson et al.

studies was not being interpreted correctly by financial researchers.

Their extension of the earlier investigations really amounted to a very informative demonstration of this observation and a correction in interpretations.

13. Presumably funds that do this believe that capital gaps exist and that the market is inefficient in not channeling resources to these projects.

14. There are variations on the theory of efficient markets. But the important point here is the view of PERS concerning whether or not asset prices reflect all available information.

15. In the authors’ opinions national schemes have received far more attention.

16. Most of the data for these studies comes from the Government Finance Officers Association’s periodic surveys of state and local government retirement systems.

17. These classifications follow that used by Useem and Hess (2001) and Useem and Mitchell (2000).

18. To be clear, percentage elected is not defined (measured) exactly the same way for each of these studies. To facilitate discussion we simply mean this to be a general category for this variable.

19. The sample period for both studies is 1992.

20. This statement is a variation on that given by Useem and Mitchell (2000) on pages 489 and 502. However, in their study the authors are referring only to investment strategy decisions.

21. As noted by Gallagher (2003), risk-adjusted performance metrics commonly employed in the published literature rely heavily on the theoretical Capital Asset Pricing Model (CAPM). Readers interested in an accessible discussion of this subject may wish to consult Haugen (1997), pages 305–340.

22. Nofsinger (1998) acknowledges the lack of appropriate data on page 91.

23. One way around this might be to simply interpret equities as a proxy for risk. But this potentially confounds a meaningful inter- pretation of equities as a strategy variable.

24. Ambachtsheer (1994) refers to this measure as ‘‘implementation return’’.

25. Specifically, the data for the 1997 and 2000 surveys may be purchased from the Government Finance Officers Association (GFOA), along with accompanying software packages which are collectively known as the PENDAT 1997 and 2000 databases. The data for the 2001 survey can be downloaded free of charge as a Microsoft Access 2000 database from the PPCC’s web site at www.ppcc.grsnet.com.

An Econometric Assessment of State and Local Government g 501

26. While not a major concern of this study one might wish to note that the PENDAT FILES and the Microsoft Access 2000 database include other information concerning a system’s auditing and accounting, fund- ing practices, benefit mixes, etc. There are some time series items asso- ciated with the PENDAT databases as well.

27. Missing data and reporting errors are certainly not confined to this investigation. For example, Nofsinger (1998) and Mitchell and Hsin (1997) report the existence of similar problems in their studies using earlier PENDAT surveys. For a more detailed discussion of remedies in relation to the 2000 survey see Albrecht and Hingorani (2004) and Albrecht (2001). We note in passing that portfolios distributions summing to 1003 percent were considered acceptable for this study.

28. An important point to note is that in order to directly connect to earlier studies we do not employ any of the remedies listed above during the univariate portions of this study. Therefore, the data remains as is. However, to improve sample size we do import missing infor- mation for the total rate of return variable from the 2001 survey to use during the bivariate analysis relative to abnormal return and all multi- variate procedures.

29. The authors did not examine appointed membership.

30. These were the years for which data was available.

31. The authors did not examine the prudent standard.

32. The indexes here are not completely identical to that used in the companion analysis by Albrecht and Hingorani (2004). However, all indexes are common in the financial literature.

33. This figure is comparable with the4 percentage points Albrecht and Hingorani (2004) find when analyzing the more restrictive sample.

34. Beginning with the bivariate analysis, we import reported values for the 1998 total return from the 2001 survey for those which are missing in the 2000 survey.

35. Pearson’s r is the reported coefficient unless both variables are dichotomous. Under these conditions Phi is the statistic that is reported.

36. Tabachnick and Fidell (2001) discuss the problems associated with

‘‘deflated correlations’’ on pages 57–58.

37. This step is noticeably absent in the econometric literature dis- cussed earlier.

38. The Z score above is given in Kenny, Kashy, and Bolger (1998) on page 260. Their derivation of the statistic is based on the work of Sobel (1982).

39. This form of mediation is essentially that discussed by Useem and Mitchell (2000).

40. Partial and complete mediation are the terms used by Baron and Kenny (1986).

41. To facilitate comparison, only those systems with both measures of financial performance are included. Otherwise the number analyzed for total return would be higher than that for abnormal return.

42. This procedure replicated that of Useem and Mitchell (2000).

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