convertible debt corporate call policy and voluntary conversion this paper examines why in contrast to the predictions of finance theory firms do not call convertible debt when the conversion price exceeds the call price the empirical results suggest that the principal reason is because some firms enjoy an advantage of paying less in after tax interest than they would pay in dividends were the bond converted this cash flow incentive is the inverse of an investor s incentive to convert voluntarily if the converted dividends are greater than the bond s coupon because of taxation however the decisions by investors and firms are not symmetric and there exist bonds which the firm may not call and an investor will not convert the results also find that voluntary conversion is significantly related to both the conversion price and the differential between the coupon and the dividends on the converted stock

consensus building how to persuade a group many decisions in private and public organizations are made by groups the paper explores strategies that the sponsor of a proposal may employ to convince a qualified majority of group members to approve the proposal adopting a mechanism design approach to communication it emphasizes the need to distill information selectively to key members of the group and to engineer persuasion cascades in which members who are brought on board sway the opinion of others the paper unveils the factors such as the extent of congruence among group members and between them and the sponsor and the size and governance of the group that condition the sponsor s ability to maneuver and get his project approved

pricing the strategic value of putable securities in liquidity crises putable security holders have a de facto rst claim on the rm s liquid assets and can threaten to force solvent issuers to bear nancial distress costs their threatening power implies that the puts have a strategic value larger than their intrinsic value strategic value depends on the issuer s size potential distress costs and the distribution of put ownership relative to the rm s liquidity position the analysis of kmart s put induced crisis in 1995 and a calibration to observed secondary market yield reductions on poison put bonds shows that strategic value is an important determinant of payouts received by bondholders 2001 elsevier science s a all rights reserved

persuasion bias in science can economics help we investigate the impact of conflicts of interests on randomised controlled trials in a game theoretic framework a researcher seeks to persuade an evaluator that the causal effect of a treatment outweighs its cost to justify acceptance the researcher can use private information to manipulate the experiment in three alternative ways i sampling subjects based on their treatment effect ii assigning subjects to treatment based on their baseline outcome or iii selectively reporting experimental outcomes the resulting biases have different welfare implications for sufficiently high acceptance cost in our binary illustration the evaluator loses in cases i and iii but benefits in case ii

bargaining foundations of shapley value1 a transferable utility economy in which each agent holds a resource which can be used in combination with the resources of other agents to generate value according to the characteristic function v is studied using a dynamic model of bargaining the main theorem establishes that the payoffs associated with efficient equilibria converge to the agents shapley values as the time between periods of the dynamic game goes to zero in addition it is demonstrated that an efficient equilibrium exists and is unique when an additivity condition is satisfied to demonstrate the sensitivity of the solution to the institutional detail we modify the model to allow for partnerships and show that the shapley value is no longer achieved

learning from coarse information biased contests and career profiles an organization s promotion decision between two workers is modelled as a problem of boundedly rational learning about ability the decision maker can bias noisy rank order contests sequentially thereby changing the information they convey the optimal final period bias favours the leader reinforcing his likely ability advantage when optimally biased rank order information is a sufficient statistic for cardinal information the leader is favoured in every period in other environments bias in early periods may i favour the early loser ii be optimal even when the workers are equally rated and iii reduce the favoured worker s promotion chances this paper presents a model of boundedly rational learning by an organization the aims are to represent in a simple form the costs of gathering processing or transmitting information and to analyse their implications for the procedures selected to handle information as well as for the decisions actually made like other recent work on the internal organization of firms this work explores to what extent organizational structure and behaviour as well as organizational performance can be explained by adaptation to the costs associated with information in the learning model we formulate the decision maker not only selects a rule specifying what action to take as a function of his observations but also chooses sequentially the information partitions generating those observations this general problem is interpreted in the context of an organization which needs to make an important promotion decision and which attempts to maximize the value of the information generated during the observation periods that precede the decision one of the motivations for this analysis was the finding by organizational sociologists that earnings and promotions in the later stages of a worker s career are strongly correlated with earnings and promotions in the early stages kanter 1977 rosenbaum 1984 later success is positively associated with early success even when one controls for the effect of observable characteristics likely to affect performance such as education one obvious source of this correlation is differences in ability that persist over time and that are not captured by the observable covariates in this paper we focus on differences in ability which are initially unobservable by organizations and their workers as well as by researchers we present a simple model of an organization trying to learn about differences in ability and show

predisclosure information firm capitalization and security price behavior around earnings announcements several studies on the relationship between earnings reports and security price behavior provide evidence suggesting that a significant portion of the information revealed through earnings reports is reflected in security prices prior to the report month e g ball and brown 1968 and brown and kennelly 1972 this has been attributed at least partly to the existence of other more timely sources of information which allow market agents to forecast earnings prior to their release the evidence above reflects an average finding across all firms one question of interest is whether there are significant systematic crosssectional differences in the security price reactions to earnings announcements of firms which are associated with specific firm characteristics that lead to differential amounts of predisclosure information this study focuses on firm size capitalization as one such characteristic a firm

a reformulation of the marginal productivity theory of distribution reformulating marginal productivity theory by replacing productivity with respect to commodities with productivity with respect to persons and then defining perfectly competitive equilibrium as an allocation at which each person receives the marginal product of his her contribution called a no surplus allocation there emerges a competitive theory of price determination characterizations of no surplus allocations are given in models with a nonatomic continuum of agents and an infinite dimensional commodity space comparisons between the no surplus and walrasian equilibrium definitions of competitive equilibrium are made and some sufficient conditions are obtained for the existence of a no surplus allocation

convertible bonds are not called late starting with ingersoll 1977b the academic literature has repeatedly sought to explain why convertible bonds are called late the findings here demonstrate there is no call delay to explain this paper finds that most convertible bonds given their call protection are called as soon as possible for those that are not there are significant cash flow advantages to delaying the median call delay for all convertible bonds is less than four months if a safety premium is desired to assure the conversion value will exceed the call price at the end of call notice period the median call period is less than a month the question of what is the optimal call policy for convertible bonds has attracted considerable attention since brennan and schwartz 1977 and ingersoll s 1977a seminal work that work suggests that the optimal call policy is to call the bond when the conversion value first exceeds the call price since forcing conversion eliminates the bondholders premium or option value however empirical studies e g ingersoll 1977b and constantinides and grundy 1987 claim that firms consistently deviate from this call policy and delay calls this claim is based on ingersoll s finding that firms wait on average until the conversion value exceeds the call price by 43 9 a result confirmed in mikkelson 1985 trying to explain this call delay phenomenon has generated an impressive literature to date however no one has actually documented whether there is a delay or measured how long the delay is in addition the existing empirical work has focused either on a subsample of called bonds or on a subsample of bonds remaining uncalled at a given point in time these partial samples are not adequate to empirically determine average call delays for convertible bonds or to distinguish between the various hypotheses proposed for call

market efficiency bounded rationality and supplemental business reporting disclosures the aicpa special committee on financial reporting has urged disclosure of relevant forward looking information on risks and opportunities to supplement conventional financial statements we conduct a laboratory market experiment to assess the effects of such disclosures on capital allocation decisions we develop two sets of competing hypotheses regarding how capital markets react to supplemental disclosures one set is based on the assumption of semi strong market efficiency while the other posits that the bounded rationality of individual traders leads to inefficient market prices we find that explicit disclosure of management s best estimate of an uncertain quantity improves market efficiency even though this disclosure is redundant with information in financial statements second we find disclosure of an upper bound of management s estimate has the potential to bias security prices upward while informationally equivalent disclosure of both upper and lower bounds removes this bias these results suggest that experimental market reactions to these supplemental disclosures are inconsistent with market efficiency supplemental analyses of individuals price predictions and trading behavior support our conclusion that inefficiencies are at least partially attributable to individual information processing biases

large sample evidence on firms year over year md a modifications the securities and exchange commission sec has expressed concern about the informativeness of firms management discussion and analysis mda the price reaction to md a modification scores has also weakened suggesting a decline in md a usefulness

the spillover effects of md a disclosures for real investment the role of industry competition abstract we explore whether disclosures in the management discussion analysis mda it is stronger when firms operate in industries that have lower entry costs are larger and have less substitutable products we obtain similar results for investment efficiency overall our evidence suggests that md a disclosures have spillover effects for investment that can improve investment efficiency and that spillover effects are moderated by industry competition

the relative pricing of high yield debt the case of rjr nabisco holdings capital corporation the authors derive and investigate empirically arbitrage pricing restrictions among three bonds of rjr nabisco holdings capital corporation the three rjr bonds are virtually identical in all respects except for the form in which interest is paid the authors document large and persistent errors in the market pricing of the three bonds over a two year period the cash paying bond was consistently more expensive than either the pay in kind or deferred coupon bonds the magnitude of the pricing errors is too large to be explained by market imperfections copyright 1993 by american economic association

evidence that the zero earnings discontinuity has disappeared abstract discontinuities in earnings distributions at zero have been widely cited as evidence of earnings management but not without controversy recent research suggests discontinuities may be mere artifacts of certain research design choices we find that the well known zero earnings discontinuity disappears soon after passage of the sarbanes oxley act sox and has not returned we also find that neither the discontinuity nor its disappearance require the effects of widely cited alternative non earnings management explanations for the zero earnings discontinuity

economic consequences of accounting standards the lease disclosure rule change this accounting standard essentially rearranged capital lease disclosures from footnotes to the balance sheet mandated capitalization substantially altered key accounting ratios our results document a systematic substitution from capital leases to operating leases and nonlease sources of financing in addition lessees appear to reduce book leverage by increasing equity and reducing conventional debt the magnitudes of these responses are cross sectionally related to preadoption levels of footnoted capital leases

debt and the marginal tax rate abstract do taxes affect corporate debt policy this paper tests whether the incremental use of debt is positively related to simulated firm specific marginal tax rates that account for net operating losses investment tax credits and the alternative minimum tax the simulated marginal tax rates exhibit substantial variation due to the dynamics of the tax code tax regime shifts business cycle effects and the progressive nature of the statutory tax schedule using annual data from more than 10 000 firms for the years 1980 1992 i provide evidence which indicates that high tax rate firms issue more debt than their low tax rate counterparts

a measure of competition based on 10 k filings in this paper we develop a measure of competition based on management s disclosures in their 10 k filing and find that firms rates of diminishing marginal returns on new and existing investment vary significantly with our measure we show that these firm level disclosures are related to existing industry level measures of disclosure e g herfindahl index but capture something distinctly new in particular we show that the measure has both across industry variation and within industry variation and each is related to the firm s future rates of diminishing marginal returns as such our measure is a useful complement to existing measures of competition we present a battery of specification tests designed to explore the boundaries of our measure and how it varies with the definition of industry and the presence of other measures of competition

non cooperative bargaining theory an introduction the paper provides an informal introduction to some of the main themes of the recent literature on non cooperative or sequential bargaining models it focuses in particular on the relationship between the new approach and the traditional axiomatic approach exemplified by nash bargaining theory it illustrates the new insights offered by the non cooperative approach by reference to a detailed analysis of the manner in which the presence of an outside option available to one of the parties will affect the negotiated outcome finally the difficulties which arise in extending this analysis to two person bargaining with incomplete information and to n person bargaining are discussed this is a revised version of the fourth review of economic studies lecture presented in april 1985 at the joint meeting of the association of university teachers of economics and the royal economic society held in oxford the choice of lecturer is made by a panel whose members are currently professors hahn mirrlees and nobay and the paper is refereed in the usual way this paper aims to provide an informal and elementary introduction to an approach to bargaining which has received a great deal of attention over the past few years the approach involves writing down some particular sequence of moves offers and replies to be made over time in the course of negotiations and then looking for a non cooperative equilibrium in the game thus specified in practice a perfect equilibrium or in games of incomplete information a sequential equilibrium while the approach appears at first sight to be very different in spirit from the traditional axiomatic approach in which a bargaining solution is specified by appealing to a number of general requirements which are deemed appropriate on the basis of some a priori considerations the two approaches are in fact complementary while the

the role of supplementary statements with management earnings forecasts we investigate managers decisions to supplement their firms management earnings forecasts we classify these supplementary disclosures as qualitative soft talk disclosures or verifiable forward looking statements we find that managers provide soft talk disclosures with similar frequency for good and bad news forecasts but are more likely to supplement good news forecasts with verifiable forward looking statements we examine the market response to these forecasts and find that bad news earnings forecasts are always informative but that good news forecasts are informative only when supplemented by verifiable forward looking statements supporting our argument that these statements bolster the credibility of good news forecasts

the consequences of the fasb s 1998 proposal on accounting for stock option repricing abstract we examine repricing activity surrounding the fasb s 1998 announcement regarding accounting for repriced options we find that repricing increases during and decreases after the 12 day window between the announcement and proposed effective dates consistent with firms timing repricings to avoid recording an expense we find that firms experiencing increasing earnings patterns firms with earnings around zero and growth firms are more likely to reprice in the window but having repriced recently decreases the likelihood of doing so the evidence suggests that firms trade off financial reporting benefits against reputation costs in decisions to time repricings to get favorable accounting treatment

disclosure and choice an agent chooses among projects with random outcomes his payoff is increasing in the outcome and in an observer s expectation of the outcome with some probability the agent will be able to disclose some information about the true outcome to the observer we show that choice is inefficient in general we illustrate this point with a characterization of the inefficiencies that result when the agent can perfectly disclose the outcome with some probability and can disclose nothing otherwise as in dye 1985a in this case the agent favours riskier projects even with lower expected returns on the other hand if information can also be disclosed by a challenger who prefers lower beliefs of the observer the chosen project is excessively risky when the agent has better access to information excessively risk averse when the challenger has better access and efficient otherwise we also characterize the agent s worst case equilibrium payoff we give examples of alternative disclosure technologies illustrating other forms the inefficiencies can take for example in a two dimensional setting we demonstrate a hitting for the fences effect where the agent systematically focuses on the harder dimension at the expense of success on the easier

the willingness to pay by households for improved reliability of electricity service in north cyprus abstract this research examines households willingness to pay wtp for an improved electricity service households wtp is estimated using the payment ladder contingent valuation cv data from 350 in person interviews in north cyprus in order to avoid the cost of outages households are willing to incur a 13 8 increase in their monthly electricity bill a cost benefit analysis cba indicates that the annualized economic benefits of improved reliability of the electricity service would be approximately usd 35 6 million for the residential sector this figure is more than enough to finance the investments needed to completely eradicate any electricity outages in addition the fuel savings from substituting the generation of the new plants for the old plants would yield about usd 32 9 million per year in fuel savings hence a change from the current low reliability policy to one of providing a high quality service would yield an economic net present value to the residents of north cyprus of twice the investment costs or usd 173 3 million within five years

the optimal amount of discretion to allow in disclosure in this paper a party with private information can verifiably disclose some but not all of his information the optimal amount of discretion to allow the informed party is studied that is should the informed party be allowed unlimited discretion in choosing which elements of his information set to disclose or should restrictions be imposed that limit this discretion the model is formulated in the spirit of a persuasion game it is demonstrated that under certain circumstances rules that limit discretion increase the informativeness of disclosures and thus improve economic decisions

a theory of environmental risk disclosure abstract the regulation of environmental risks increasingly emphasizes the awareness and empowerment of stakeholders the success of this approach however seems to depend crucially on the quality of environmental disclosures in this paper we investigate the amount and quality of the information that would be voluntarily delivered to some stakeholder by a potential polluter we find that information may be hazier when the stakeholder is confident or naive a priori the cost of analyzing the received reports increases little with their complexity or a polluter s net expected payoff from undertaking an industrial activity that would turn out to be unsafe is small a worried stakeholder and a low cost of producing more accurate figures on the other hand favor disclosure of high quality information by delivering information of very good quality safe firms can set themselves apart more easily from dangerous ones the higher the relative ex post payoff from their current industrial activity implications of this framework for the scope and design of public programs of environmental disclosure are briefly examined

earnings management through transaction structuring contingent convertible debt and diluted earnings per share in this article we examine whether firms structure their convertible bond transactions to manage diluted earnings per share eps we find that the likelihood of firms issuing contingent convertible bonds cocos which are often excluded from diluted eps calculations under statement of financial accounting standard sfas 128 is significantly associated with the reduction that would occur in diluted eps if the bonds were traditionally structured we also document that firms use of eps based compensation contracts significantly affects the likelihood of coco issuance and find weak evidence that reputation costs measured using earnings restatement data play a role in the structuring decision these results are robust to controlling for alternative motivations for issuing cocos including tax and dilution arguments in addition an examination of announcement returns reveals that investors view the net benefits and costs of cocos as offsetting one another our results contribute to the literature on earnings management diluted eps financial reporting costs and financial innovation

proxies for the corporate marginal tax rate abstract this paper focuses on how best to measure the corporate marginal tax rate which is an important input into financial analysis of the cost of capital financing policy corporate hedging and corporate reorganizations the results indicate that the simulated tax rate used by shevlin 1990 and graham 1996 although difficult to calculate is the best available proxy for the true marginal tax rate if the simulated rate is unavailable an easy to calculate trichotomous variable or the statutory marginal tax rate which captures the progressivity in the tax schedule are reasonable alternatives better than most commonly used tax variables

voluntary conversion of convertible securities and the optimal call strategy abstract we provide an explanation of why convertibles are called long after the conversion value exceeds the call price delaying the call benefits the firm if enough investors are expected to delay their voluntary conversions consistent with this theory we document that a substantial number of investors do not voluntarily convert when the common dividend exceeds the convertible s dividend plus its premium over conversion value we find that firms would not have increased common stock returns by switching to the strategy of calling to force conversion as soon as possible surprisingly we find that convertible preferreds frequently sell below conversion value

reorganization in bankruptcy and the issue of strategic risk abstract the decision by creditors to force the firm into bankruptcy where bankruptcy includes reorganization is shown to involve the valuation of a lottery over cooperative games rather than a lottery over specific monetary outcomes in the absence of assumptions about strategic negotiating risk the value of creditor claims is seen to be ambiguous this paper extends van horne s model of the optimal initiation of bankruptcy proceedings to include the reorganization option and strategic risk a modified decision rule is obtained to determine the optimal solution

political pricing of electricity can it go with universal service provision abstract political parties in india are known to use electricity prices as a tool to secure a win in the democratic election process this article examines the setting of electricity prices from a political economy perspective citizens differ in their willingness to pay for electricity and the consumer surplus and electoral uncertainty seem to influence their choices while exercising their franchise to win political parties must receive a majority of votes and a party in power may try to achieve this by choosing to ignore a consumer group either by charging a price higher than their willingness to pay or by choosing to satisfy them by charging a lower price two theoretical models are proposed the first model computes the possible prices when common perfectly correlated electoral shocks are anticipated while the second model computes the possible prices for independent and identically distributed electoral shocks we test these models with available data on willingness to pay and electricity price for agricultural domestic and industrial consumers in an indian state by generating prices that would be charged to each of these types of consumers to maximize the chances of re election actual prices seem to confirm the second model more than the first

an evaluation of alternative measures of corporate tax rates abstract this paper examines the ability of financial statement measures of average and marginal tax rates mtr to capture tax attributes utilizing firm level tax and financial data the results suggest commonly used average tax rate measures provide little insight about statutory tax burdens and may introduce substantial bias into analyses of tax incidence financial statement based proxies for mtr particularly those based on simulation methods are found to perform well in estimating current year tax rates both current year and present value mtr are found to be highly correlated with an easily constructed binary proxy of firms tax status

disclosure decisions by firms and the competition for price efficiency this paper develops a model of the relationship between investment decisions by firms and the efficiency of the market prices of their securities it is shown that more efficient security prices can lead to more efficient investment decisions this provides firms with the incentive to increase price efficiency by voluntarily disclosing information about the firm disclosure decisions are studied it is shown that firms may expend more resources on disclosure than is socially optimal this is in contrast to the concern implicit in mandatory disclosure rules that firms will expend too few resources on disclosure this paper develops a model of the relationship between firms investment decisions and the efficiency of the market prices of their securities it is shown that more efficient security prices can lead to more efficient investment decisions this provides firms with the incentive to increase price efficiency by voluntarily disclosing information about the firm disclosure decisions are studied the costs of disclosure are twofold first there are costs of producing and disseminating the information included here are opportunity costs of firms employees auditing and legal expenses costs of printing and distribution and costs associated with the release of any proprietary information second there are traders costs of assimilating the information for instance while it is not very costly to obtain a firm s 8 k and 10 k once produced it is quite costly to understand the implications of their contents while the former costs have been recognized in the literature on disclosure the latter costs have not that is while traders are sometimes viewed as having access to some costly information the information contained in firms disclosures is typically taken to be costlessly observed by all see for instance diamond 1985 and dye 1987 1 taking traders costs of learning the information content of firms disclosures into account leads to new conclusions regarding incentives to expend resources on disclosure in particular it is shown that firms may spend more on disclosure than is socially optimal this overdisclosure results from firms competing for the attention of traders this is an interesting result given the public policy concern that firms on their own will spend less on disclosure than is socially optimal

event risk an analysis of losses to bondholders and super poison put bond covenants ten percent of the investment grade industrial bonds that were associated with major capital restructurings between 1 983 and 1988 had already been downgraded to speculative grade as of august 1989 in response to these downgrades and the corresponding wealth losses for bondholders over 40 percent of recently issued investment grade industrial bonds are protected from this type of event risk by virtue of specialized covenants these event risk convenants may have initially reduced interest costs for borrowers by roughly 20 to 30 basis points however the magnitude of the effect appears to have declined along with the general decline in corporate restructurings the wave of corporate restructurings in the 1980s and the accompanying expansion of debt gave rise to a marked deterioration in credit quality in the corporate bond market the financing of the restructurings typically included new debt with a priority equal to or higher than that of the firm s outstanding bonds as a result of the increase in risk billions of dollars in outstanding bonds were downgraded from investment grade to speculative grade in the process investors became increasingly concerned with event risk the risk of a substantial decline in the market price of a firm s outstanding bonds arising from an unforeseen and major change in its capital structure since late 1988 several corporate bond offerings have included event risk covenants as a safeguard against leverage induced losses most of the covenants are super poison puts which give investors the right to sell their bonds back to the issuer at par in the event of a leveraged restructuring and subsequent downgrading to speculative grade

the effect of accounting procedure changes on ceos cash salary and bonus compensation abstract this paper examines the effect of accounting procedure changes on cash salary and bonus compensation to ceos we estimate whether there is an adjustment to the statistical relation between compensation and corporate earnings following changes that lower earnings fifo to lifo inventory valuation and that raise earnings accelerated to straight line depreciation the results indicate that 1 subsequent to these changes salary and bonus payments are based on reported earnings rather than earnings under the original accounting method and 2 the potential compensation effect of the changes is small compared to the effect of economy or industry wide changes in compensation

electricity tariffs in india an assessment of consumers ability and willingness to pay in gujarat abstract a sample of electricity consumers covering agricultural residential and industrial consumers in the indian state of gujarat was surveyed in 1997 to investigate the consumers ability and willingness to pay for electricity supplied from the grid the ability to pay was estimated using the weight of the cost of electricity to meet at least the basic household needs in relation to the overall income or expenditure the willingness to pay was estimated using the costs of meeting the needs by alternative sources of energy namely diesel in the case of farmers to pump water for irrigation and captive power generation using diesel generators in the case of industrial users survey results reveal the proportion of consumers in different categories which do not have the ability to pay more or are even not willing to pay more for electricity the survey findings have been used as a guideline in the proposed adjustment of tariffs charged by the gujarat electricity board

near sighted justice chapter 11 structures complex negotiations between creditors and debtors that are overseen by a bankruptcy court we identify conditions where the court should sometimes err in determining which firms should be liquidated such errors affect actions by both good and bad entrepreneurs we first characterize the optimal error rate without renegotiation when creditors and debtors can renegotiate to circumvent an error riven court for one class of actions a blind court that ignores all information is optimal for another class the court should place the burden of proof on the entrepreneur the robust feature is that the court should sometimes err chapter 11 structures complex negotiations between creditors and debtors that are overseen by a bankruptcy court it is often unclear whether it is socially optimal for a bankrupt firm to be reorganized as a continuing entity or whether it should be liquidated and the proceeds from liquidation distributed if creditors and debtors cannot reach a settlement then the bankruptcy court may impose one this paper asks the following questions is it always optimal for the court to make the right decision if liquidation is efficient should the court always mandate liquidation if the bankrupt firm could be a profitable entity should the court always allow it to restructure under the existing management and continue or is it optimal for the court to sometimes make mistakes how does the possibility of negotiated settlements affect the optimal design of the court at one level the answers to these questions are straightforward in a world where more accurate appraisals of a firm s quality are more costly the optimal allocation by a court of resources to evaluate the bankrupt firms will always reflect trade offs between the marginal costs of better appraisals and the marginal benefit of decision making based on more accurate appraisals in this paper we show that a court should also consider how the probability that it misidentifies the quality of a bankrupt firm affects the ex ante behavior of management and hence the probability that the firm becomes bankrupt

financial distress and underemployment a reasonable model of the labour market over the business cycle should predict among other things that a in very low states of product demand there may be too little employment from an efficiency perspective but as the state improves employment will increase until ultimately it is efficiently deployed and b in low states of demand a worker s welfare level will be low and as the state of the world improves so will the worker s welfare except possibly at high levels of demand where the worker s utility may start to fall surprisingly there does not exist a labour contract based model that is consistent with predictions a and b in fact the standard results in the literature are if leisure is a normal good then there will be too much employment in essentially all states of the world and the welfare of the worker declines as the state of the world improves in this paper a labour contracting model is constructed that is consistent with the above mentioned predictions two necessary ingredients in the model are the possibility of financial distress in low demand states and partial provability in contracting financial distress can be viewed as frustrating renegotiation and thus inefficient outcomes are possible in equilibrium partial provability the ability of an informed player to make verifiable claims or statements to an uninformed player eliminates certain kinds of inefficient outcomes in particular it eliminates the possibility that in equilibrium there is too much employment this last result is interesting in itself because it is commonly believed that normality of leisure necessarily implies that labour contracting models will generate employment levels that are too high from an efficiency perspective

implementation with partial provability we extend implementation theory by allowing the social choice function to depend on more than just the preferences of the agents and allowing agents to support their statements with hard evidence we show that a simple condition on evidence is necessary for the implementation of a social choice function f when the preferences of the agents are state independent and sufficient for implementation for any preferences including state dependent with at least three agents if the social planner can perform small monetary transfers beyond those called for by f if transfers can be large f can be implemented in a game with perfect information when there are at least two players under a boundedness assumption for both results transfers only occur out of equilibrium the use of evidence enables implementation which is robust in the sense that the planner needs little information about agents preferences or beliefs and agents need little information about each others preferences our results are robust to evidence forgery at any strictly positive cost

strategic environmental disclosure evidence from the doe s voluntary greenhouse gas registry abstract although mandatory disclosure programs have been studied extensively strategic voluntary environmental disclosures by firms are not well understood we study the motivations for and impacts of firms strategic disclosure of greenhouse gas reductions to the us government we first model firms joint abatement and disclosure decisions incorporating both economic and political incentives we then use data from the department of energy s voluntary greenhouse gas registry to compare reported reductions to actual emissions we find that participants in the program engage in highly selective reporting in the aggregate they increase emissions over time but report reductions in contrast non participants decrease emissions over time participants tend to be large firms facing strong regulatory pressure pressure from environmental groups reduces the likelihood of participation suggesting such groups viewed the program as a form of greenwash participating in the 1605 b program had no significant effect on a firm s changes in carbon intensity over time

an analysis of value destruction in at t s acquisition of ncr abstract at t s 7 5 billion acquisition of ncr decreased the wealth of at t shareholders by between 3 9 billion and 6 5 billion and resulted in negative synergies of 1 3 to 3 0 billion we find that at t paid a documented 50 million and possibly as much as 500 million to satisfy pooling accounting thus boosting eps by roughly 17 but leaving cash flows unchanged we conclude that at t s decision to acquire ncr in what the market perceived as a value destroying transaction was related at least in part to the 1984 consent decree with the department of justice that led to the break up of at t

the self perpetuation of biased beliefs to overcome strong prior beliefs strong evidence to the contrary is needed if a person is predisposed to choosing a certain action the advice from an advisor who sets a low threshold for recommending the alternative action is not of much use the preference for like minded advisors who supply coarse information implies that the advice a person receives is likely to reinforce his existing priors this effect can lead to polarisation of opinion and the emergence of self serving beliefs the learning process is prolonged and the induced short run bias can become perpetual if information is costly