investment and financing activity following calls of convertible bonds abstract the staged financing hypothesis of mayers mayers d 1998 why firms issue convertible bonds the matching of financial and real investment options journal of financial economics 47 83 102 predicts that investment and financing activity will increase following in the money convertible bond calls the prediction for out of the money convertible calls is different no increase is expected we study the rate of both corporate investment and external financing around forced conversions using benchmarks that are analogous to those recommended by barber and lyon barber b lyon j 1996 detecting abnormal operating performance the empirical power and specification of test statistics journal of financial economics 41 359 400 we also examine the cross section of changes in investment and financing activity conversion forcing firms exhibit an increase in both capital expenditures and debt financing around the year of the convertible bond call however the same result holds for the sample firms that conducted out of the money convertible calls further there is no relation between changes in investment activity and changes in debt issuance at the firm level the evidence is inconsistent with the notion that forced conversions serve as a catalyst for staged financing and investment

wage bargaining central bank independence and the real effects of money the effects of financial capital mobility on monetary policy autonomy are relatively well understood but the importance of particular monetary regimes in distinct national institutional settings is not this article is a theoretical and empirical exploration of the effects of monetary policy regimes on unemployment in different national wage bargaining settings based on a rational expectations two stage game of the interaction between the wage behavior of labor unions and the monetary policies of governments i argue that monetary policies have real employment effects in all but the most decentralized bargaining systems specifically in intermediately centralized bargaining systems a credible government commitment to a nonaccommodating monetary policy rule will deter militant wage behavior with salutary effects on unemployment in highly centralized systems by contrast restrictive monetary policies will clash with unions pursuit of wage distributive goals and produce inferior employment performance only in highly fragmented bargaining systems is money neutral in the sense that employment performance is unaffected by monetary regimes the model has clear consequences for the optimal design of central banks and collective bargaining arrangements and suggests new ways to study institutional change hereunder the causal effect of increasingly globalized capital markets the argument is supported by pooled time series data for fifteen oecd countries over a twenty one year period

equality employment and budgetary restraint the trilemma of the service economy this article presents an analysis of the postindustrial economy from a political economy perspective it identifies a set of specific distributional trade offs associated with the new role played by the services sector as the chief source of employment growth in advanced democracies over the last three decades it is argued that three core policy objectives budgetary restraint wage equality and expansion of employment constitute a political trilemma that allows only two of the goals to be successfully pursued at the same time using a combination of statistical and case oriented analysis the authors demonstrate the political and economic salience of the trilemma the distributional tensions inherent in each strategy to cope with it and the political institutional constraints under which these strategies are chosen

the structure of citizen attitudes and the european political space a common concern regarding the viability of institutional reform of the eu is whether european citizens constitute a political community that facilitates democratic governance one important aspect of this concern is whether public perceptions are structured so as to ease or impede political discourse across europe to investigate this question the authors examine whether the eu mass public organizes its attitudes toward eu policy issues in systematic and meaningful ways specifically they examine whether eu citizens attitudes across a broad range of policies decided at the eu level are structured consistently with several prominent models of the eu policy space using eurobarometer data the authors show that citizens policy positions on eu issues are systematically organized along a single dimension that is different from domestic left right

real options agency conflicts and optimal capital structure abstract we examine the impact of a stockholder bondholder conflict over the timing of the exercise of an investment option on firm value and corporate financial policy we find that an equity maximizing firm exercises the option too early relative to a value maximizing strategy and we show how this problem can be characterized as one of overinvestment in risky investment projects equityholders incentive to overinvest significantly decreases firm value and optimal leverage and significantly increases the credit spread of risky debt numerical solutions illustrate how the agency cost of overinvestment and its effect on corporate financial policy vary with firm and project characteristics

optimal asset allocation and risk shifting in money management this article investigates a fund manager s risk taking incentives induced by an increasing and convex relationship of fund flows to relative performance in a dynamic portfolio choice framework we show that the ensuing convexities in the manager s objective give rise to a finite risk shifting range over which she gambles to finish ahead of her benchmark such gambling entails either an increase or a decrease in the volatility of the manager s portfolio depending on her risk tolerance in the latter case the manager reduces her holdings of the risky asset despite its positive risk premium our empirical analysis lends support to the novel predictions of the model

the punishment trap integration referendums as popularity contests it is widely believed that voters care little about foreign policy transforming referendums on international agreements into tests of a government s popularity the authors analyze this notion and present two level games characterized by asymmetric information the article demonstrates that the linking of domestic issues to an international treaty does not convert referendums into pure plebiscites however the two level decision creates a severe dilemma for the electorate uncertainty regarding whether the possible utility of the treaty offsets the value of domestic policies influences the decisions of voters the median voter risks punishing a popular government or failing to express discontent with an unpopular administration our games explore the conditions under which competing elites try to manipulate the uncertainty of constituents about the outcome of international negotiations empirical illustrations are presented in the form of case studies and survey analyses of the ballots in denmark franc

warrant exercise and bond conversion in competitive markets abstract we develop a theory of warrants held by competitive warrantholders not constrained to exercise their warrants as one block the theory also applies to convertible bonds held by competitive bondholders not constrained to convert their bonds as one block we prove that the warrant bond price in each of the competitive equilibria is less than or equal to the price in an economy with the block constraint and for at least one competitive equilibrium the warrant bond price equals the warrant bond price in the block constrained economy we illustrate the paths of competitive warrant exercise and bond conversion and conclude that under realistic assumptions they can be long

asset substitution and structured financing this article shows how structured financing can be used to solve the asset substitution problem in a dynamic setting structuring induces the firm s owner to optimally choose the first best operating strategy even though the owner s value function might be locally convex concave which would ordinarily lead to overinvestment underinvestment in risky projects this result is demonstrated in two different continuous time settings one that is based on the risk shifting framework of leland 1998 and one that generalizes the scaled return model of green 1984 it is shown that the contractual nature of the structuring is a key determinant of the issuing firm s dynamic asset volatility furthermore unlike nonstructured financing the default conversion probability of a structured debt security may be increasing decreasing in the firm s total assets structured securities are therefore hedge assets which potentially explains the popularity of structured securities among investors and third party issuers

perquisites risk and capital structure in a corporate agency problem perquisites and risk interact to produce novel complex comparative statics for example even if additional debt induces risk neutral insiders to increase risk they never seek to increase the market value of their stock instead insiders decrease the present value of their subsequent conditionally optimal perquisites also the firm s optimal capital structure includes a risky bond with an agreement to remove insiders whenever the bond defaults however the optimal sharing rule between corporate claimants cannot be supported solely by standard securities such as bonds stocks options and their hybrids

dependability and organizational bankruptcy an application of agency and prospect theory this paper proposes and tests a new model of organizational bankruptcy based on agency and prospect theory the paper argues that debtors with unprestigious top managers low liquidity and high leverage signal that they will be undependable exchange partners the model proposes that survival is contingent on maintaining an acceptable minimum level of these financial and managerial assets if a firm falls below that threshold level it has a higher probability of bankruptcy because creditors withdraw their financial support from the debtor consistent with agency theory this implies that bankruptcy can be viewed as the legal resolution of severe shareholder creditor conflicts about the levels of financial and managerial assets that the debtor should maintain this new model proposes that maintaining a minimum level of these assets is a necessary but not sufficient condition for bankruptcy some undependable firms delay bankruptcy by using strategies that create the hope that they will become dependable in the future according to prospect theory these strategies work because creditors wish to avoid recognizing significant losses and thus take on more risk than they might otherwise assume

on the resolution of agency problems by complex financial instruments a comment a convertible debt or b a package of external equity and managerial stock options ii the agency problems resulting from the shareholders incentive to bear unwanted risk also referred to as risk shifting can be resolved by issuing callable debt and iii welfare loss due to informational asymmetry between insiders and the market can be reduced by issuing callable debt in this paper we derive results that contradict these conclusions of bhs and hs we prove that convertible debt cannot costlessly resolve the agency problem due to excessive perquisite consumption farmer and winter 4 have recently shown that managerial stock options cannot resolve the problem we also show that convertible debt in general does not even mitigate this problem next we show that the argument that callable debt resolves agency problems due to risk shifting and informational asymmetry is incomplete the paper is organized as follows section i deals with the perquisite consumption problem section ii deals with both risk shifting and informational asymmetry problems since the basis of their resolution in the bhs argument is the same

elections coalitions and legislative outcomes predictions of electoral behavior in a multiparty setting should be a function of the voters beliefs about how parties will perform following an election similarly party behavior in a legislature should be a function of electoral promises and rewards we develop a multistage game theoretic model of three party competition under proportional representation the final policy outcome of the game is generated by a noncooperative bargaining game between the parties in the elected legislature this game is essentially defined by the vote shares each party receives in the general election and the parties electoral policy positions at the electoral stage parties and voters are strategic in that they take account of the legislative implications of any electoral outcome we solve for equilibrium electoral positions by the parties and final policy outcomes

mixed signals central bank independence coordinated wage bargaining and european monetary union plans for the european monetary union emu are based on the conventional postulate that increasing the independence of the central bank can reduce inflation without any real economic effects however the theoretical and empirical bases for this claim rest on models of the economy that make unrealistic information assumptions and omit institutional variables other than the central bank when signaling problems between the central bank and other actors in the political economy are considered we find that the character of wage bargaining conditions the impact of central bank independence by rendering the signals between the bank and the bargainers more or less effective greater central bank independence can reduce inflation without major employment effects where bargaining is coordinated but it can bring higher levels of unemployment where bargaining is less coordinated thus currency unions like the emu may require higher levels of unemployment to control inflation than their proponents envisage they will have costs as well as benefits and these will be unevenly distributed among and within the member nations depending on the changes they induce in the status of the bank and of wage coordination

risky debt investment incentives and reputation in a sequential equilibrium the agency relationship of corporate insiders and bondholders is modeled as a dynamic game with asymmetric information the incentive effect of risky debt on the investment policy of a levered firm is studied in this context in a sequential equilibrium of the model a concept of reputation arises endogenously resulting in a partial resolution of the classic agency problem of underinvestment the incentive of the firm to underinvest is curtailed by anticipation of favorable rating of its bonds by the market this anticipated pricing of debt is consistent with rational expectations pricing by a competitive bond market and is realized in equilibrium some empirical implications of the model for bond rating debt covenants and bond price response to investment announcements are explored

call options and the risk of underlying securities abstract merton 1973 in his seminal article theory of rational option pricing showed that the rationally determined price of a call option is a non decreasing function of the riskness of its associated common stock in deriving his results merton made restrictive assumptions about the way the market prices payoff distributions and used the rothschild stiglitz 1970 measure to compare the riskiness of securities i show by means of an example that the merton result will not in general be true i then derive a sufficient condition for the option on one stock to have higher market value than the option on another stock when both the stocks have the same price and explain why the merton result is valid in the black scholes environment

who wants the euro and why economic explanations of public attitudes towards a single european currency the paper looks at whether public attitudes towards a single european currency held in the european union member states reflect a rational evaluation of the involved benefits and costs it finds that they do the looser monetary and fiscal policy was in the past and the more time a country spent in the ems the more citizens welcome the euro attitudes towards the euro do not seem consistent with attitudes towards a european central bank however upon closer scrutiny opponents of a single currency appear to be less consistent and less rational in their responses than proponents

bankruptcy and agency costs their significance to the theory of optimal capital structure we support and generalize our original results 1978 in light of potential impediments to a pure market solution to agency problems and potential causal links between liquidation and bankruptcy in the case of bankruptcy costs market impediments are easily elimi nated through the inclusion of simple provisions in corporate charters and bond inden tures further we demonstrate that recent attempts to link liquidation costs to capital structure are without merit if the firm is to be liquidated on the basis of a rule other than one that maximizes the total value of all the claimants arbitrage profits arise and informal reorganization will discipline management to follow the liquidation rule that is optimal for existing securityholders also we find that the pure market solution is not readily generalizable to other classes of agency problems particularly the risk incentive problem how ever the alternative solution of the risk incentive problem through complex financing contracting may be useful in explaining complexities in contemporary financial contracts in a previous paper 1978 we employed arbitrage arguments to show that in a well functioning market bankruptcy costs are an insignificant determinant of a firm s capital structure we also pointed out that the decision to liquidate and its associated costs can be separated from the event of bankruptcy moreover any costs actually associated with the event of bankruptcy must be limited to the costs associated with an informal reorganization of the capital structure in the capital market prior to default these results were argued to hold under a com plex environment with multiple periods multiple securities and heterogeneous expectations we concluded that bankruptcy costs would be a significant deter minant of capital structure only in the face of irrationality on the part of market participants or unavoidable impediments to the arbitrage process since the publication of our paper there has been an accumulation of the

real flexibility and financial structure an empirical analysis i examine the empirical relation between real flexibility and financial structure i test whether real flexibility increases debt capacity by lowering default risk and making assets more marketable or decreases debt capacity by facilitating risk shifting and asset substitution i measure real flexibility as the sensitivity of marginal production and investment decisions to variations in the economic environment i find that financial leverage is negatively related to production flexibility but positively related to investment flexibility this split in results suggests that although asset substitution facilitated by investment flexibility can be prevented contractually risk shifting facilitated by production flexibility is intractable copyright 2003 oxford university press

multiple wage bargaining systems in the single european currency area little attention in the emu literature has been paid to the interaction between central bank monetary rules and systems of collective wage bargaining analytically and empirically coordinated wage bargaining systems respond with real wage restraint to non accommodating monetary policy since wage determination is dominated by collective bargaining in all the emu member states and wage coordination within the member states has grown since 1980 this is a topic of potential importance in particular the replacement of the bundesbank directly targeting german inflation by an ecb targeting european inflation has removed a major institutional support of wage restraint in germany the consequences of this for emu are worked out under two scenarios that inflation expectations will be generated by ecb monetary policy and that they will reflect german inflation outcomes possible institutional developments are discussed including government union bargains the bundesbank has also played a major role in maintaining fiscal rectitude by targeting excess fiscal deficits in germany again its replacement by the ecb targeting if at all european rather than german fiscal policy loosens fiscal constraints for underlying structural reasons therefore it is possible that germany and other emu countries will move to a period of fiscal activism with wage restraint and low inflation purchased through social contract negotiations

imf conditionality threat perception and political repression a cross national analysis this article investigates the impact of international monetary fund imf conditionality on political repression conditionality refers to the conditions that borrowing countries must implement bef

on the asset substitution problem in their seminal paper modigliani and miller 11 12 demonstrate that if capital markets are perfect and investment policy is held constant the market value of the firm is independent of its financial decisions furthermore if capital markets are perfect stockholders have incentive to choose the investment policy which maximizes the market value of the firm see 6 motivated by this assumption the firm has been viewed as a black box namely as one homogeneous unit whose clear objective is to maximize its market value however in a growing body of recent literature see 1 2 7 9 13 and 14 researchers recognize that the firm in an imperfect capital market is a collection of groups whose interests can and do conflict jensen and meckling 9 study the roles of three important groups the owner manager the stockholders and the bondholders focusing on the potential costs resulting from divergence of interests among them they provide a theory of optimal capital structure in terms of reducing the costs of these conflicts

interaction of debt agency problems and optimal capital structure theory and evidence e oeg more leverage always wcfsen tbe debt ageocy problem this paper ptesents a unified analysis that acconntb for both risk shifting and nixler iiivestiiient ddbt agency problems for firms with positive marginal volatility of investment defined as the change in cash flow volatility cone ponding to a change of itwestment scale equity holders risk shifting incentive will midgate the under investment problem this inqdies that coturary to ccmventional views the total agency cost of debt does not unifcsmly increase with leverage this model fiiither predicts tbat for mg growth firms in which the under investment problem is severe the optimal debt ratio is positively related to the marginal volatility of investmenl empirical results suppmt this prediction

corporate risk management and the incentive effects of debt this paper demonstrates how the incentive of manager equityholders to substitute toward riskier assets commonly referred to as the asset substitution problem is related to the level of observable risk in the firm when observable and unobservable risks are sufficiently positively correlated increases decreases in observable risk generate the incentive for manager equityholders to increase decrease unobservable risk thus credible commitments to hedge observable risk can benefit the firm s manager equityholders by reducing the incentive to shift risk and the associated agency cost of debt this provides a positive rationale for hedging diversifiable risk at the firm level in the last few years a sizeable literature has emerged which is devoted to explaining how shareholders can benefit from hedging undertaken by the firm such hedging may include the purchase of insurance the use of financial futures and options and even diversification at the level of the firm four lines of reasoning have been pursued in the literature smith and stulz 1985 and campbell and kracaw 1987 rely on the fact that under optimal contracting between managers and shareholders managers are less diversified than are shareholders hedging by the firm which reduces the manager s exposure to risk can improve on the optimal compensation contract between the manager and equityholders this argument may be applied to a firm with any capital structure or any degree of leverage the other arguments apply to firms which are financed with risky debt smith and stulz show that hedging may be useful in reducing expected bankruptcy costs they also show as does macminn 1985 that hedging by the firm may reduce the probability that depreciation tax shields may be lost due to financial distress finally diamond 1984 has shown that monitoring costs may be reduced through diversification macminn s result is of particular interest part of his analysis is based on an earlier paper by green and talmor 1985 which demonstrates that the equityholders of a levered firm will have an incentive to underinvest in risky assets if the firm cannot capture its interest and depreciation tax shields with certainty in green and talmor s analysis the firm has no mechanism to reduce or hedge the uncertainty surrounding its tax shields other than to alter its investment decisions however as macminn argues if the firm is allowed to hedge its risks

technology debt and the exploitation of growth options abstract this paper analyzes the effect of the firm s technology on the agency costs of debt it is shown that for an important class of technologies agency costs are not a uniformly rising function of leverage for these technologies relatively high leverage can be consistent with a small tax subsidy the effect of technology on the exploitation of real options by a levered firm is examined the analysis provides a framework for a direct test of the agency cost of debt hypothesis using cost data

the effects of imf programs in the third world debate and evidence from latin america abstract this article reviews the debate about the effects of imf sponsored stabilization programs in the third world after examining recent studies by fund economists results of a new study on a latin american country set are presented in this research imf programs are associated with insignificant changes in the current account significant improvements in the overall balance of payments increases in inflation mixed effects on growth and a strong and consistent pattern of reduction in labor share of income the latter result is incorporated into a distribution oriented critique of fund policy

debt agency costs and industry equilibrium we show that risk characteristics of projects cash flows are endogenously determined by the investment decisions of all firms in an industry as a result in reasonable settings financial structures which create incentives to expropriate debtholders by increasing risk are shown not to reduce value in an industry equilibrium without taxes capital structure is irrelevant for individual firms despite its effect on the equityholders incentives but the maximum total amount of debt in the industry is determinate allowing for a corporate tax advantage of debt capital structure becomes relevant but firms are indifferent between distinct alternative debt levels the effect of firms financial structures on subsequent investment and output decisions has recently received considerable attention in the finance literature the central insight that equityholders control the firm s investment and production decisions and in general do not maximize the value of a levered firm has been applied to the analysis of risk shifting underinvestment and firms abilities to enter into optimal contracts with their customers existing models of firms financial structures and their effect on investment decisions are generally based on a single firm framework and do not take into account the relationship between project cash flows and the investment decisions of all firms in the industry 2 in this paper we allow the distribution of investment projects within an industry to adjust and show that this generates new insights and reverses several key results of single firm agency cost models the new predictions conform with well documented

asset substitution and the agencycosts of debt financing agency costs of debt have been advanced in the literature as an important consideration foroptimal corporate debt policies recently there have been some doubts concerning the theoretical foundations of the notion that these costs increase as the firm employs more debt in this paper we examine explicitly the incentive for asset substitution by solving endogenously for the optimal risk policy the results support the notion that more debt aggravates shareholders incentives to take risk we also investigate the marginal agency cost function and discuss conditions for interior optimal capital structure

economic stabilization conditionality and political stability imf conditionality is seldom so important that it dominates all other considerations for political stability imf stabilization programs often shift benefits from one group to another they expose elites to charges of selling the sovereignty of their countries the imposition of imf conditions particularly subsidy cuts may lead to sharp outbreaks of civil disorder nonetheless the imf provides resources that make adjustment easier and thus may lessen the chances of political instability for a country imf programs are seldom implemented fully as negotiated and the penalties for partial compliance are not great debtor countries have more flexibility in imposing austerity measures and the economic constraints are less binding than often assumed the very availability of alternatives to imf programs results in internal divisions because some favor debt repudiation and others oppose it groups now contend over solutions to the debt problems of their countries

an equilibrium analysis of debt financing under costly tax arbitrage and agency problems in his recent paper merton miller 12 extends the notion of tax induced differential returns on securities into a general equilibrium framework in which firms make adjustments in the supply of corporate debt in an environment of progressive personal taxation the interest rates on taxable corporate bonds are greater than rates on tax exempt securities so as to compensate investors for the associated tax burden on the supply side value maximizing firms have an incentive to issue additional debt so long as the personal tax induced compensation is less than the tax savings from interest payment deductions at the corporate level miller argues that in the final equilibrium the interest rate differential between taxable and tax exempt bonds exactly reflects the tax advantage of debt financing at the corporate level thus the tax subsidy disappears in its entirety and we are back to an environment in which corporate leverage is inconsequential to the value of any particular firm what emerges in equilibrium is merely an optimal debt equity ratio for the corporate sector as a whole 1 miller derives this invariance proposition under the following assumptions 1 progressive personal tax rates reach a maximum at a level beyond the corporate tax rate 2 no tax arbitrage by individuals and firms is allowed 3 there is a personal tax rate differential in favor of income from stocks and 4 the opportunity for riskless borrowing and lending exists 2 indeed miller s equilibrium analysis is based on a zero effective personal tax rate on income from stocks but

on the resolution of agency problems by complex financial instruments a reply not always possible to design callable debt to resolve the problem of risk shifting and to mitigate the problem of asymmetric information moreover he incorrectly argues that the rationalization of complex financial contracting as a means of resolving or reducing agency conflicts falls merely because it fails to succeed in every case we feel that narayanan s confusion stems from his misreading of the two underlying articles 2 5 and the original work including chapter 6 of our book 1 consequently we shall reproduce the relevant quotations from the original work by way of responding to the issues raised regarding the three types of complex securities namely executive stock options convertible debt and callable debt

the pricing of convertible debt offerings abstract we present the first empirical evidence on the pricing of convertible debt offerings using a sample of 91 convertible debt offerings from the period 1988 1992 we show a significant mean initial excess return of 1 11 our underpricing result is invariant to zero nonzero coupons maturity issue size or bond ratings further analysis reveals that various types of risk inherent in the new convertible issues are useful in explaining the cross sectional variation in the initial excess returns we offer an explanation for our results based on the arguments of the differential information model

the nonneutrality of monetary policy with large price or wage setters monetary rules matter for the equilibrium rate of employment when the number of price wage setters is small even when assuming rational expectations complete information central bank precommitment and absence of nominal rigidities if the central bank is nonaccommodating sufficiently large unions bargaining independently have an incentive to moderate sectoral money wages and thereby expected real wages the result is an increase in the real money supply and hence higher demand and employment this does not hold with accommodating monetary policy since unions wage decisions cannot then affect the real money supply a similar argument holds for large monopolistically competitive price setters

political uncertainty and corporate debt financing empirical evidence from china we examine the influence of political uncertainty on corporate debt financing under the chinese highly specialized political system a new reasonable and effective alternative indicator official t

political repression and economic doctrines the case of argentina recent studies linking political repression to free market economic policy have failed to explain fully the relationship to uncover important theoretical linkages this article will examine the principles behind policy and argue that increases in governments use of force are principally a function of 1 shifts in economic stabilization doctrines from structuralist to orthodox which are prompted by severe economic crises and 2 strengthened alliances between ruling elites and international financial institutions partial to orthodox deflationary strategies multiple regression analysis on time series data from argentina over a 23 year period provides a strong statistical confirmation for these suppositions even when holding constant for particular regime types a historical narrative has been provided to buttress these results by establishing the precise timing and sequence of events that precipitated the use of coercion by state leaders

public opinion toward immigration in the european union does it matter the literature on immigration has been divided with regard to the constraints particularly of public opinion on eu policy cooperation analysts have suggested that there is a disjuncture between

resolving the agency problems of external capital through options this paper investigates the role of stock options in resolving the agency problems of external capital as originally identified by jensen and meckling 1976 these problems are precipitated by managerial incentives a to consume excessive non pecuniary benefits or perquisites beyond the optimal level for sole ownership and b to engage in risk shifting in productive decisions so as to transfer wealth from external capital contributors these incentive problems can be resolved through a strategy that judiciously combines call and put options retained by the owner manager and external financiers respectively the resolution of the agency problems through this mechanism provides an economic rationale for the existence of managerial stock options and convertible debt the work by jensen and meckling 7 has brought more realism to the theory of the firm in their paper jm address agency problems in the context of a firm which is viewed as a nexus of contracts among various factors of production the contractual relationships involve incentive conflicts arising from the pursuit of self interest by limiting themselves to an entrepreneur or owner manager who retains complete control of the firm jm have demonstrated that financing through the issuance of common stock or debt to outsiders engenders costs these costs are precipitated in part by the manager s propensity to consume nonpecuniary benefits or perquisites perks by employing certain resources in excess of their optimal usage 1 and by his propensity to engage in high risk investment projects so as to transfer wealth from bondholders to stockholders 2

warrant exercise dividends and reinvestment policy in this paper we examine sequential exercise strategies by warrantholders and the gain from hoarding warrants we analyze several obstacles to acquiring large blocks in order to exploit sequential strategies first we identify several reinvestment policies for which sequential exercise is not advantageous thereby eliminating the gain from hoarding however sequential exercise strategies may be advantageous for monopoly or oligopoly warrantholders even absent dividends because using exercise proceeds to repurchase stock or to expand the firm s scale increases the riskiness of an equity share second oligopoly warrantholders can receive a smaller warrant value than perfectly competitive warrantholders suggesting a potential cost to unsuccessful hoarding

europeans and the european community the dynamics of public support for european integration europeans evaluate the european community ec according to its economic performance political salience and role in international relations during the last two decades their measured attitudes toward european integration warmed especially when inflation rates fell as the ec share of the country s trade expanded when ec elections and referenda increased attention to the community and to some extend during periods when east west relations were relaxed europeans did not vary their support according to their countries shares of the brussels budget thus notwithstanding denmark s 1992 rejection of the maastricht treaty and the end of the cold war recent ec reforms that increase monetary stability intra european trade and political attention are all likely to maintain or increase citizen support for the ec these findings result from a model that blends comparative political economy with international relations in one of the first applications of pooled cross sectional and time series analysis to the comparative study of public opinion

investment incentives debt and warrants abstract this paper models and characterizes investment incentive problems associated with debt financing the decision problem of residual claimants is explicity formulated and their investment policies are characterized the paper also analyzes the use of conversion features and warrants to control distortionary incentives these claims reverse the convex shape of levered equity over the upper range of the firm s earnings and this mitigates the incentive to take risk it is shown that under certain conditions such claims can be constructed to restore net present value maximizing incentives and simultaneously meet the financing requirements of the firm

an examination of the factors affecting the formation of interest groups in oecd countries perhaps the best way to summarize the empirical results is to classify the hypotheses into three groups those which can be readily accepted because they are supported in all tests those which can be readily rejected because no test results support them and those upon which one should remain agnostic because the test results are not consistent in the first group are population pop decentralization of government dcnt and length of time of modernization date one can state quite confidently that these three variables are determinants of interest group activity in the second group are the variables measuring characteristics of the political system poly dem1 dem2 pfrc one can with ease reject the hypotheses to which these variables are relevant there is a large group of variables which stand in the middle group however for these variables there are gradations of success in the tests the variables on socioeconomic development inc agri news and number of industries and political subdivisions nind regp are only significant in the one variable tests especially important is their failure to obtain the correct signs in the tests reported in table 3 the variables on ethnic fractionalization efrc and olson s hypothesis on destruction of groups ndfo have the correct signs in table 3 and are significant in table 1 thus it is more difficult to reject efrc and ndfo as determinants of interest group activity than inc nind and regp finally it should be mentioned that once appropriate simultaneous equations techniques are applied government size is no longer supported as a significant variable this paper will conclude with comments of a more conjectural nature on the implications of the results in the case of three specific variables first the results on hypothesis 3 suggest that population affects the number of interest groups independently of indirect effects through other variables this direct effect occurs because groups become proportionately smaller and more homogeneous as population increases hence one can expect the political economy of larger countries to be significantly different from that of smaller countries the results suggest that larger countries will have a denser array of interest groups and that these groups because of their homogeneity will find it easier to decide on and pursue policies in the narrow interests of their members secondly the results support olson s claim that there will be a gradual accumulation of interest groups in developed democracies given that olson attributes to interest groups a large role in determining the economic fortunes of a country the fact that his accumulation hypothesis is supported is a result of some significance finally if one accepts the two stage least squares results it has been shown that changes in government size do not induce changes in interest group activity an important conclusion can be reached when this result is taken in combination with the results of other studies which show that interest groups induce changes in the size of government mccormick and tollison 1981 and mueller and murrell 1983 these results do not support the capture theory of government that governmental institutions are created perhaps in the public interest and then dominated by interest groups rather the results support the theory that the institutions themselves are the creatures of interest group activity

ex ante costs of violating absolute priority in bankruptcy a basic question for the design of bankruptcy law concerns whether value should be divided in accordance with absolute priority research done in the past decade has suggested that deviations from absolute priority have beneficial ex ante effects in contrast this paper shows that ex post deviations from absolute priority also have negative effects on ex ante decisions taken by shareholders such deviations aggravate the moral hazard problem with respect to project choice increasing the equityholders incentive to favor risky projects as well as with respect to borrowing and dividend decisions