speculative investor behavior and learning as traders learn about the true distribution of some asset s dividends a speculative premium occurs as each trader anticipates the possibility of reselling the asset to another trader before complete learning has occurred small differences in prior beliefs lead to large speculative premiums during the learning process this phenomenon helps explain a paradox concerning the pricing of initial public offerings the result casts light on the significance of the common prior assumption in economic models

the perceived returns to education and the demand for schooling economists emphasize the link between market returns to education and investments in schooling though many studies estimate these returns with earnings data it is the perceived returns that affect schooling decisions and these perceptions may be inaccurate using survey data for eighth grade boys in the dominican republic we find that the perceived returns to secondary school are extremely low despite high measured returns students at randomly selected schools given information on the higher measured returns completed on average 0 20 0 35 more years of school over the next four years than those who were not

domestic versus international capital mobility some empirical evidence this paper develops an empirical test to determine whether on average capital moves more easily between industries within a country or between coun tries within an industry the test is applied using cross section dat a on accounting rates of return to capital of u s multinational corp orations in 1966 and 1977 it is found that international capital mob ility was greater in the earlier period but domestic capital mobilit y tended to dominate in the later period these findings are of parti cular importance to the field of international economics since compe ting trade models use opposite assumptions as regards which type of c apital mobility is greater

family welfare cultures strong intergenerational correlations in various types of welfare use have fuelled a long standing debate over whether welfare receipt in one generation causes welfare participation in the next generation some claim a causal relationship in welfare receipt across generations has created a culture in which welfare use reinforces itself through the family others argue the determinants of poverty or poor health are correlated across generations so that children s welfare participation is associated with but not caused by parental welfare receipt however there is little empirical evidence to sort out these claims in this paper we investigate the existence and importance of family welfare cultures in the context of norway s disability insurance di system to overcome the challenge of correlated unobservables across generations we take advantage of random assignment of judges to di applicants whose cases are initially denied some appeal judges are systematically more lenient which leads to random variation in the probability a parent will be allowed di using this exogenous variation we find strong evidence that welfare receipt in one generation causes welfare participation in the next generation when a parent is allowed di their adult child s participation over the next five years increases by 6 percentage points this effect grows over time rising to 12 percentage points after ten years while these findings are specific to our setting they serve to highlight that welfare reforms can have long lasting effects on program participation since any original effect on the current generation could be reinforced by changing the participation behavior of their children as well the detailed nature of our data allows us to compare the intergenerational transmission with spillover effects in other networks and to explore mechanisms our findings point to a special link between parents and their children with little impact due to close neighbors di participation we find suggestive evidence that what may change as a result of a parent being allowed di is their children s beliefs about the efficacy of trying to get on to the di program or their attitudes about di participation and its stigma

moderation in groups evidence from betting on ice break ups in alaska we use a large sample of guessed ice break up dates for the tanana river in alaska to study differences between outcomes of decisions made by individuals versus groups we estimate the distribution of guesses conditional on whether they were made by individual bettors or betting pools we document two major distinctions between the two sets of guesses 1 the distribution of guesses made by groups of bettors appears to conform more to the distribution of historical break up dates than the distribution of guesses made by individual bettors and 2 the distribution for groups has less mass in its tails and displays lower variability than the distribution for individuals we argue that these two pieces of evidence are consistent with the hypothesis that group decisions are more moderate either because groups have to reach a compromise when their members disagree or because individuals with extreme opinions are less likely to be part of a group

what factors drive individual misperceptions of the returns to schooling in tanzania some lessons for education policy evidence on educational returns and the factors that determine the demand for schooling in developing countries is extremely scarce building on previous studies that show individuals underestimati

exit as governance an empirical analysis recent theory posits a new governance channel available to blockholders threat of exit threat of exit as opposed to actual exit is difficult to measure directly however a crucial property is that it is weaker when stock liquidity is lower and vice versa we use natural experiments of financial crises and decimalization as exogenous shocks to stock liquidity firms with larger blockholdings experience greater declines increases in firm value during the crises decimalization particularly if the manager s wealth is sensitive to the stock price and thus to exit threats additional tests suggest exit threats are distinct from blockholder intervention

negotiated block trades and corporate control we identify negotiated trades of large percentage blocks of stock as corporate control transactions when a block trades and the firm is not fully acquired cumulative abnormal returns average 5 6 and 33 of the chief executives are replaced within a year stock price increases are larger when control passes to the new blockholder when management does not resist the blockholder s effort to influence corporate policy and when the block purchaser eventually fully acquires the firm these findings suggest that the specific skills and expertise of blockholders and not just the concentration of ownership are important determinants of firm value we examine 106 negotiated trades of at least 5 of the common stock of new york stock exchange nyse and american stock exchange amex listed corporations our primary objective is to assess the impact of these transactions on the firms whose shares are traded we also investigate the importance of active block investor s specific managerial expertise and incentives for firm value the emerging literature on concentrated ownership focuses on how the level of ownership affects a blockholder s incentives to undertake a variety of corporate decisions although it has been recognized that a blockholder s identity also can be important less attention has been paid to this issue several recent studies however provide evidence that blockholders incentives and expertise are not homogeneous for example holderness and sheehan 1985 find that the stock market reacts more favorably to initial block accumulations by six controversial investors who are often portrayed in the press as raiders than to initial accumulations by a random sample of investors morck shleifer and vishny 1988 find that firm value tends to be lower when the firm is run by a member of the founder s family than when it is run by an officer unrelated to the founder brickley lease and smith 1988 document that institutional blockholders are less willing to vote against management on antitakeover amendments when they are likely to have business dealings with the firm when a block trades the concentration of ownership typically does not change but the blockholder s identity does

a welfare criterion for models with distorted beliefs this paper proposes a welfare criterion for economies in which agents have heterogeneously distorted beliefs instead of taking a stand on whose belief is correct our criterion asserts an allocation to be belief neutral ine cient if it is ine cient under any convex combination of agents beliefs while this criterion gives an incomplete ranking of social allocations it can identify negative sum speculation in a broad range of prominent models with distorted beliefs

competition and cooperation in corporate governance the effects of labor institutions on blockholder effectiveness in 23 european countries we provide an analysis of the costs and benefits of blockholding in europe where it is a dominant but certainly not universal corporate governance strategy for shareholders of publicly listed firms we find that the effectiveness of blockholding is conditioned by the specific labor institutions that distinguish european countries from the rest of the world and that these institutional effects involve both competition and cooperation between blockholders and collective labor interests we also find that relational blockholders are better able to cope with or benefit from these institutional effects than arm s length blockholders empirically we use advanced meta analytic methods on a total sample of 748 569 firm year observations derived from 162 studies covering 23 european countries

the costs of shareholder activism evidence from a sequential decision model abstract this paper provides benchmarks for monitoring costs and evaluates the net returns to shareholder activism i model activism as a sequential decision process consisting of demand negotiations board representation and proxy contest and estimate the costs of each activism stage a campaign ending in a proxy fight has average costs of 10 71 million i find that the estimated monitoring costs reduce activist returns by more than two thirds the mean net activist return is close to zero but the top quartile of activists earns higher returns on their activist holdings than on their non activist investments the large sample evidence presented in this paper aids in understanding the nature and evolution of activist engagements

returns to education and wage equations the paper shows why considering a number of education dependent covariates in a wage equation decreases the coefficient of education in that equation this result is illustrated empirically with a meta analysis for portugal the education coefficient decreases when covariates are used that can be considered post education decisions on the other hand it is independent of sample size tenure and whether hourly or monthly wages are used these results support the use of a simple specification of the mincer equation for the study of the total returns to education

irreversible investment and knightian uncertainty when firms make a decision about irreversible investment they may not have complete confidence about their perceived probability measure describing future uncertainty they may think other probability measures perturbed from the original one are also possible such uncertainty characterized by not a single probability measure but a set of probability measures is called knightian uncertainty the effect of knightian uncertainty on the value of irreversible investment opportunity is shown to be drastically different from that of traditional uncertainty in the form of risk specifically an increase in knightian uncertainty decreases the value of investment opportunity while an increase in risk increases it

european corporate governance trading off liquidity against control abstract ownership dispersion is a pre requisite for liquid stock markets but it entails a collective action problem individual investors have no incentives to engage in direct monitoring legal devices can provide solutions along three dimensions one they can concentrate or dilute voting power two they can affect liquidity three they can give the right or wrong monitoring incentives this paper shows how these devices are used and how they can depress liquidity legal constraints aimed at strengthening minority protection can reduce the scope for monitoring destroy liquidity and even create incentives for minority abuse for example one share one vote restrictions encourage the formation of pyramidal holding companies the search for solutions that concentrate voting power provide liquidity and protect minorities continues

ownership structure speculation and shareholder intervention an institution holding shares in a firm can use information about the firm both for trading speculation and for deciding whether to intervene to improve firm performance intervention increases the value of the institution s existing shareholdings but intervention only increases the institution s trading profits if it enhances the precision of the institution s information relative to that of uninformed traders thus the ability to speculate can increase or decrease institutional intervention we examine key factors that affect the intervention decision the usefulness of short swing provisions and restricted shares in encouraging institutional intervention and implications for ownership structure across different firms institutional investors hold an ever greater fraction of corporate america s equity traditionally these institutions were stock pickers who tried to beat the market through trading if a firm whose stock they held seemed headed for trouble these investors headed for the door the wall street rule more recently some of these institutions have been using the ownership rights attached to their shares to pressure firms to act in the shareholders interest some have even argued that there is a synergy between gathering information for use in trading shares speculation and intelligently pressuring firms to improve performance intervention we argue that these motives can also conflict analyzing these motives allows us to predict which firms are most likely to attract institutional intervention which in turn has crosssectional implications for firm ownership structure recent examples suggest that institutional investors with large stakes sometimes intervene and sometimes follow the wall street rule so that there is indeed a choice to be studied in the early 1990s there was a wave of activism by a variety of large institutional investors among them calpers the california public employees pension fund putnam management a mutual fund manager and j p morgan a bank holding company these institu

endogenous market thinness and stock price volatility thin equity markets cannot accommodate temporary bulges of buy or sell orders without large price movements the resulting volatility can induce risk averse transactors who face transaction costs to desert these markets thus thinness and the related price volatility may become joint self perpetuating features of an equity market irrespective of the volatility of asset fundamentals if however appropriate incentive schemes are adopted to encourage entry by additional investors this vicious circle can be broken eventually shifting the market to a selfsustaining superior equilibrium characterized by a higher number of transactors lower price volatility and larger supply of the asset a number of empirical studies cohen et al 1976 telser and higimbotham 1977 pagano 1986 tauchen and pitts 1983 have found that thin speculative markets are ceteris paribus more volatile than deep ones a plausible explanation for this finding is that thin markets are generally characterized by small numbers of transactors per unit time and thus their prices are more sensitive to the impact of individual traders demand shocks conversely in deep markets transactors are so many that the uncorrelated demand shocks experienced by individual traders tend to offset each other and leave market prices largely unaffected while this suggests a rationale for the observed relationship between market size and price volatility it does so by taking market size as the exogenous factor however the volatility of a speculative market may feed back on its size in the sense that the high liquidation risk implied by very volatile prices can induce potential entrants to keep out of the market this paper shows that in a stock market with transaction costs this interaction between thinness and volatility can produce multiple steady state equilibria some characterized by low trade and high volatility and others by high trade and low volatility whether the market will settle in one equilibrium or another depends entirely on the expectations held by economic agents sections 2 and 3 the existence of these multiple bootstrap equilibria can be explained heuristically as follows each additional trader generates a positive externality for other actual or potential traders by decreasing the riskiness of the stock lower risk in turn tends to attract more investors with the effect of raising stock prices and inducing corporations to issue additional equity we thus have a feedback loop between market size and price volatility where market size is measured both along the dimension of the number of traders and along that of the total stock of equities if however investors face transactions costs in the stock market this positive feedback may fail to be operative if the volume of trade is expected to be small investors with relatively high transaction costs will abstain from trading thus the market

strotz meets allais diminishing impatience and the certainty effect abstract decision makers tend to exhibit a higher degree of impatience when considering a delay to an immediate reward than when contemplating an identical delay to an equal future reward this work argues that diminishing impatience originates from the distinction between the certain present and the risky future a simple functional representation of preferences exhibiting time inconsistency when the future is uncertain is derived experimental evidence which is inconsistent with other formulations that account for diminishing impatience supports the proposed approach the new theory uncovers a tight relation between diminishing impatience and well known behavioral regularities in choice under risk and uncertainty jel d12 d81

financial intermediaries and liquidity creation trading losses associated with information asymmetries can be mitigated by designing securities which split the cash flows of underlying assets these securities which can arise endogenously have values that do not depend on the information known only to informed agents bank debt deposits is an example of this type of liquid security which protect relatively uninformed agents and we provide a rationale for deposit insurance in this content high grade corporate debt and government bonds are other examples implying that a money market mutual fund based payments system may be an alternative to one based on insured bank deposits

risk uncertainty and option exercise many economic decisions can be described as an option exercise or optimal stopping problem under uncertainty motivated by experimental evidence such as the ellsberg paradox we follow knight 1921 and distinguish risk from uncertainty to capture this distinction we adopt the multiple priors utility model we show that the impact of ambiguity on the option exercise decision depends on the relative degrees of ambiguity about continuation payoffs and termination payoffs consequently ambiguity may accelerate or delay option exercise we apply our results to investment and exit problems and show that the myopic npv rule can be optimal for an agent having an extremely high degree of ambiguity aversion

multinational firms and the theory of international trade and investment tinational corporation in the arena of economic activity and political influence trade theorists have either ignored it or expressed unguarded skepticism at the ability of the conventional trade models to successfully capture and analyze the features of this new phenomenon the purpose of this paper is twofold first by building upon the contribution by richard caves we will show that the traditional trade models can be adapted in a way that preserves most if not all of the attributes introduced by international firms 2 second we will conduct a comparative statics analysis to explore the implications of tariffs and taxes for resource allocation and international capital movements our results here confirm what has already been well established in myriad empirical studies that maturation of the international firm has vastly increased economic interdependence among trading countries and that few nations can eschew the ripples caused by economic policies of other nations 3

international factor movements commodity trade and commercial policy in a specific factor model two events in the decade of the 1970s had a major impact on world trade and factor movements the collapse of the bretton woods fixed exchange rate system and opec s success in raising petroleum prices the enormous current account surplus accruing to some of the opec members was successfully recycled by the international capital markets to among others the oil importing developing countries in addition the vastly increased tempo of investment in the capital rich labour poor opec members in west asia attracted migration of labour skilled as well as unskilled to these countries from some of the oil importing developing countries the remittances from these workers in turn eased the problem of the labourexporting countries in adjusting to the increased cost of oil imports thus both borrowing from private capital markets and export of labour became very important elements in cushioning the oil shock for a number of countries the post opec movements of labour and financial capital while dramatic are only the more recent instances of a phenomenon of much greater antiquity the seventeenth and eighteenth centuries saw vast migration of people out of europe though these movements were the result of conquests and colonization rather than movements from one sovereign state into another but the nineteenth century particularly the latter half saw migration of the latter kind from europe to countries of north and south america as well as capital investment by residents of europe in these

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

american taxation of multinational firms publisher summary this chapter discusses the american taxation of multinational firms it is assumed that a multinational firm starts with an existing stock of foreign and domestic investment and seeks the optimal change in its position over the next year as the earnings generated by existing investments are an important source of capital for new investment one cannot ignore the role of the past in shaping the present the chapter presents an analysis that focuses not only on the levels of foreign and domestic investment but also on the financing of that investment it is also assumed that the foreign subsidiary can deduct from its taxable income interest on intrafirm debt as well as royalties head office charges and other such payments for intrafirm services

does compulsory school attendance affect schooling and earnings we establish that season of birth is related to educational attainment because of school start age policy and compulsory school attendance laws individuals born in the beginning of the year start school at an older age and can therefore drop out after completing less schooling than individuals born near the end of the year roughly 25 percent of potential dropouts remain in school because of compulsory schooling laws we estimate the impact of compulsory schooling on earnings by using quarter of birth as an instrument for education the instrumental variables estimate of the return to education is close to the ordinary least squares estimate suggesting that there is little bias in conventional estimates every developed country in the world has a compulsory schooling requirement yet little is known about the effect these laws have on educational attainment and earnings 1 this paper exploits an unusual natural experiment to estimate the impact of compulsory schooling laws in the united states the experiment stems from the fact that children born in different months of the year start school at different ages while compulsory schooling laws generally require students to remain in school until their sixteenth or seventeenth birthday in effect the interaction of school entry requirements and compulsory schooling laws compel students born

why are the returns to schooling higher for women than for men many studies have found that the impact of schooling on earnings is greater for females than for males despite the fact that females tend to earn less both absolutely and controlling for personal characteristics this study investigates possible reasons for this effect using data from the national longitudinal survey of youth 1979 one explanation is that education appears to have a double effect on the earnings of women it increases their skills and productivity as it does with men and in addition it appears to reduce the gap in male and female earnings attributable to factors such as discrimination tastes and circumstances the latter appear to account for about half of the differential in the returns to schooling

estimating outcome distributions for compliers in instrumental variables models in imbens and ingrist 1994 angrist imbens and rubin 1996 and imbens and rubin 1997 assumptions have been outlined under which instrumental variables estimands can be given a causal interpretation as a local average treatment effect without requiring functional form or constant treatment effect assumptions we extend these results by showing that under these assumptions one can estimate more from the data than the average causal effect for the subpopulation of compliers one can in principle estimate the entire marginal distribution of the outcome under different treatments for this subpopulation these distributions might be useful for a policy maker who wishes to take into account not only differences in average of earnings when contemplating the merits of one job training programme vs another we also show that the standard instrumental variables estimator implicitly estimates these underlying outcome distributions without imposing the required nonnegativity on these implicit density estimates and that imposing non negativity can substantially alter the estimates of the local average treatment effect we illustrate these points by presenting an analysis of the returns to a high school education using quarter of birth as an instrument we show that the standard instrumental variables estimates implicitly estimate the outcome distributions to be negative over a substantial range and that the estimates of the local average treatment effect change considerably when we impose nonnegativity in any of a variety of ways

efficient and inefficient sales of corporate control this paper develops a framework for analyzing transactions that transfer a company s controlling block from an existing controller to a new controller this framework is used to compare the market rule which is followed in the united states with the equal opportunity rule which is used in many other countries the market rule is superior to the equal opportunity rule in facilitating efficient transfers of control but inferior to it in discouraging inefficient transfers conditions under which one of the two rules is overall superior are identified for example the market rule is superior if existing and new controllers draw their characteristics from the same distributions finally the rules effects on surplus division are analyzed and this examination reveals a rationale for mandatory rules

too dispersed to monitor ownership dispersion monitoring and the prediction of bank distress this paper conducts an empirical assessment of the theories stating that ownership concentration improves the quality of shareholders monitoring in contrast with other studies we do not use regressions of risk performance on ownership concentration instead we build an early warning model of bank distress that includes a leading indicator derived from banks share price the merton kmv distance to default dd the significance of this indicator depends on the efficacy of shareholders monitoring on a sample of european banks we show that the predictive power of the dd is satisfactory only when banks shareholding is characterized by the presence of blockholders

behind the scenes the corporate governance preferences of institutional investors we survey institutional investors to better understand their role in the corporate governance of firms consistent with a number of theories we document widespread behind the scenes intervention as well as governance motivated exit these governance mechanisms are viewed as complementary devices with intervention typically occurring prior to a potential exit we further find that long term investors and investors that are less concerned about stock liquidity intervene more intensively finally we find that most investors use proxy advisors and believe that the information provided by such advisors improves their own voting decisions

vocational training programs and youth labor market outcomes evidence from nepal abstract lack of skills is arguably one of the most important determinants of high levels of unemployment and poverty in response policymakers often initiate vocational training programs in effort to enhance skill formation among the youth using a regression discontinuity design we examine a large youth training intervention in nepal we find twelve months after the start of the training program that the intervention generated an increase in non farm employment of 10 percentage points itt estimates and up to 31 percentage points for program compliers late estimates we also detect sizeable gains in monthly earnings women who start self employment activities inside their homes largely drive these impacts we argue that low baseline educational levels and non farm employment levels and nepal s social and cultural norms towards women drive our large program impacts our results suggest that the program enables otherwise underemployed women to earn an income while staying at home close to household errands and in line with the socio cultural norms that prevent them from taking up employment outside the house

ownership structure governance and innovation abstract this paper tests the impact of firms ownership structure on innovation in a context featuring pronounced ownership concentration and conflicts between large and minority shareholders using data for 20 000 italian manufacturers and accounting for the possible endogeneity of ownership levels we find that ownership concentration negatively affects innovation especially by reducing r d effort conflicts between large and minority shareholders appear to be a determinant of this effect moreover risk aversion induced by lack of diversification exacerbates large shareholders reluctance to innovate family owners support innovation more than financial institutions but the benefits of financial institutions increase with their equity stakes

blocks liquidity and corporate control the paper develops a simple model of corporate ownership structure in which costs and benefits of ownership concentration are analyzed the model cornpares the liquidity benefits obtained through dispersed corporate ownership with the benefits from efficient management control achieved by some degree of ownership concentration the paper reexamines the free rider problem in corporate control in the presence of liquidity trading derives predictions for the trade and pricing of blocks and provides criteria for the optimal choice of ownership structure the recent incomplete contracting approach in corporate finance has considerably improved our understanding of how small firms determine their capital structure the basic setting considered in this line of research is one where a founder manager seeks funding from one or several financiers the main premise is that the founder manager in her dealings with the financiers is primarily concerned with maintaining her private benefits of control for small firms these are often quite large relative to the financial returns thus for a small firm the problem of determining the financial structure often reduces to the problem of how to obtain fundingr while giving away as little control as possible to the financiers of course most financiers insist on some form of protection so that the final compromise reached in most financial contracts for small firms is one resembling a debt contract or a venture capital contract which protects the founder manager s control as long as the firm is performing adequately this perspective for small firms does not extend naturally to large firms because the private benefits of control of the managers for large firms are likely to be small relative to the firm s monetary returns so that protection of these benefits is not an overriding consideration moreover large firms

ownership concentration corporate control activity and firm value evidence from the death of inside blockholders we analyze how ownership concentration affects firm value and control of public companies by examining effects of deaths of inside blockholders we find shareholder wealth increases ownership concentration falls and extensive corporate control activity ensues share price responses are related to the deceased s equity stake control group holdings fall for two thirds of the firms due to either the estate s dispersal or inheritors selling stock a majority of firms become targets of control bids three quarters of bids are successful one third are hostile our evidence is broadly consistent with stulz s 1988 model of the relationship between ownership concentration and firm value the objective of this paper is to assess how changes in insider ownership concentration affect firm value corporate governance and the control of public companies we obtain our evidence on these issues by examining the effects of the death of an inside blockholder that is a member of the firm s control group as defined by securities and exchange commission sec disclosure rules who holds 5 percent or more of a firm s equity overall we find that the death of an inside blockholder an exogenous event is value enhancing reduces ownership concentration and leads to extensive corporate control activity our analysis has three components one we use market based evidence to evaluate how changes in ownership concentration affect firm value by analyzing the share price response to the death of an inside blockholder financial market efficiency implies that share prices capitalize gains or losses from changes in ownership concentration and future control events expected to ensue from an inside blockholder s death thus such valuation effects provide a test of the continuing controversy as to whether ownership concentration promotes managerial entrenchment or aligns insider and noninsider interests we find that the share price response to the death of an inside blockholder is significantly positive when the level of ownership concentra

the going public decision and the development of financial markets this paper explores the linkages between stock price efficiency the choice between private and public financing and the development of capital markets in emerging economies generally the advantage of public financing is high if costly information is diverse and cheap to acquire and if investors receive valuable information without cost the value of public firms generally depends on public market size which implies that there can be a positive externality associated with going public so that an inferior equilibrium can exist where too few firms go public the model is consistent with empirical observations on financial market development

the geography of equity listing why do companies list abroad this paper documents aggregate trends in the foreign listings of companies and analyzes their distinctive prelisting characteristics and postlisting performance in 1986 1997 many european companies listed abroad mainly on u s exchanges while the number of u s companies listed in europe decreased european companies that cross list tend to be large and recently privatized firms and expand their foreign sales after listing abroad they differ sharply depending on where they cross list the u s exchanges attract high tech and export oriented companies that expand rapidly without significant leveraging companies cross listing within europe do not grow unusually fast and increase their leverage after cross listing foreign listings are becoming an increasingly important strategic issue for companies and stock exchanges alike as companies become global in their product market and investment strategies direct access to foreign capital markets via an equity listing can yield important benefits at the same time the international integration of capital markets has led to unprecedented levels of competition among stock exchanges in this competitive struggle the winners are the exchanges that manage to attract more foreign listings and the attendant trading volume and business opportunities despite the importance of these issues still little is known about which exchanges succeed in capturing more listings from abroad and why this question is intimately related to a second issue namely which advantages companies expect to get from a foreign listing securing cheap equity capital for new investment allowing controlling shareholders to divest on a liquid market preparing for foreign acquisitions or simply enhancing the compa

two way capital flows cross hauling in a model of foreign investment this paper presents a simple model of a small open economy which is open to both commodity trade and foreign investment of a sector specific kind and which exhibits the phenomenon of cross hauling or reverse flows of internationally mobile capital in two different sectors the model which assumes that a single domestic factor is combined with internationally mobile but sector specific capital in each of two sectors one of which produces a non traded good appears to be the simplest possible which permits cross hauling as an endogenous phenomenon

ambiguity and the corporation group disagreement and underinvestment abstract we study a dynamic corporate investment problem where decisions have to be made collectively by a group of agents holding heterogeneous beliefs and adhering to a utilitarian governance mechanism in which each agent has a given influence in the decision in this setting we show that i group decisions are typically dynamically inconsistent ii dynamic inconsistency leads to inefficient underinvestment and iii the ability to trade securities among insiders or with outsiders may restore efficient investment decisions but it may in some cases lead to inefficient overinvestment our theory can help explain the empirical evidence on the effect of diversity of groups such as corporate boards on firms outcomes and more generally on the difference between group and individual behavior

why governments should invest more to educate girls abstract women and men often receive the same percentage increase in their wage rates with advances in schooling because these returns decline with more schooling the marginal returns for women will tend to exceed those for men especially in countries where women are much less educated the health and schooling of children are more closely related to their mother s education than father s more educated women work more hours in the market labor force broadening the tax base and thereby potentially reducing tax distortions these three conditions it is argued justify the disproportionate allocation of public expenditures toward women s education

an analysis of the stock price reaction to sudden executive deaths implications for the managerial labor market abstract certain characteristics of managerial employment arrangements and of the managerial labor market make shareholder wealth dependent on an executive s continued employment these wealth effects are investigated by examining the common stock price reaction to unexpected deaths of senior corporate executives abnormal stock price changes are documented for a sample of fifty three events these abnormal stock price changes are associated with the executive s status as a corporate founder and with measures of the executive s talents and decision making responsibility and of the transaction costs associated with renegotiating or terminating the employment agreement

principal principal conflicts and corporate philanthropy evidence from chinese private firms the principal principal perspective suggests that controlling shareholders have excessive influence on corporate philanthropy and may direct corporate funds to charitable causes to support their personal interests analysis of a sample of chinese private firms listed on the shenzhen or shanghai stock exchange between 2004 and 2011 shows that 1 there is a significant and negative relationship between corporate giving and the share held by the largest shareholders suggesting that controlling shareholders are opportunistic in directing corporate charitable contributions 2 there is a significant and positive relationship between corporate giving and the political connections of the largest shareholders and their agents suggesting compatibility between corporate contributions and the personal interests of the controlling shareholders 3 there is a stronger negative relationship between corporate giving and the share of the company held by the largest shareholders in politically connected firms suggesting that political connections contribute to increased opportunistic corporate giving overall our study provides important evidence for the one dominant controlling shareholder phenomenon yigududa by testing and extending the principal principal framework and showing that the largest shareholders of chinese firms appear to donate to charitable causes that ultimately serve their personal interests at the expense of minority shareholders

diversification and ownership concentration abstract if controlling shareholders can divert profits equity ownership is more concentrated the higher the stock returns correlation a higher returns correlation reduces the benefits of diversification giving rise to both a higher investment by the controlling shareholder in the asset that he controls and a lower investment by the non controlling shareholders the empirical analysis supports the predictions of the model equity ownership is more concentrated in countries where the stock returns correlation is higher moreover the intensity of the relationship between the stock returns correlation and ownership concentration is amplified by poor investor protection

institutional change in contemporary capitalism coordinated financial systems since 1990 what happens when the unstoppable force of liberalization collides with the immovable object of national financial institutions in the advanced industrial democracies to answer this question and evaluate alternative mechanisms to explain institutional change this article examines the cases of the three large european economies with concentrated share ownership france germany and italy in the formal legal mechanism interest coalitions adopt new laws leading actors to deviate from formerly stable patterns of behavior in shareholding in the joint belief shift mechanism collective actors use a triggering event to jointly reevaluate their views of how the world works and thus how their interests can best be pursued using the metric of patient capital this article shows that institutional change took place in france but not in germany or italy despite the fact that germany and italy experienced significant regulatory change in the area of corporate governance while france did not this evidence fits joint belief shift and is inconsistent with the formal legal mechanism it is likely that the importance of the two mechanisms of institutional change depends on the degree of strategic interdependence among institutional actors where it is high the joint belief shift mechanism is likely to precipitate change and where it is low the formal legal mechanism is likely to precipitate change

schooling and labor market consequences of school construction in indonesia evidence from an unusual policy experiment between 1973 and 1978 the indonesian government engaged in one of the largest school construction programs on record combining differences across regions in the number of schools constructed with differences across cohorts induced by the timing of the program suggests that each primary school constructed per 1 000 children led to an average increase of 0 12 to 0 19 years of education as well as a 1 5 to 2 7 percent increase in wages this implies estimates of economic returns to education ranging from 6 8 to 10 6 percent

do markets differ much this essay reports the results of a crosssection study of differences in accounting profitability that sheds light on some basic controversies in industrial economics most previous cross section studies in this field have been concerned with testing hypotheses about structural coefficients in models meant to apply to essentially all markets as we have learned more about the difficulties of constructing such general models and of performing tests on their structural parameters properly structural cross section analysis has fallen out of fashion in contrast to most of the cross section literature the analysis reported here is fundamentally descriptive it does not attempt directly to estimate or to test hypotheses about structural parameters i hope to show by example that one can perform illuminating analysis of cross section data without a host of controversial maintained hypotheses cross section data can yield interesting stylized facts to guide both general theorizing and empirical analysis of specific industries even if they cannot easily support full blown structural estimation one can view the sort of search for stylized facts conducted here as either a replacement for or an input to interindustry structural estimation depending on one s feeling about the long run potential of that research approach this study also departs from much of the cross section literature by being fundamentally concerned with the importance of various effects not just with coefficient signs and t statistics in particular this essay provides estimates of the relative importance of firm market and market share differences in the determination of business unit divisional profitability in u s manufacturing using 1975 data from the line of business program of the u s federal trade commission ftc i find support neither for the existence of firm effects nor for the importance of market share effects moreover while industry effects apparently exist and are important they appear to be negatively correlated with seller concentration in these data section i relates firm market and share effects to current issues and controversies in industrial economics and thus supplies the motivation for our empirical analysis the remainder of the essay treats the data and

dual class ipos a theoretical analysis we consider an incumbent who wishes to sell equity to outsiders at an ipo to implement his firm s project he may be talented lower cost of effort comparative advantage in project implementation or untalented the project may have high intrinsically more valuable but showing less signs of success in the near term or low near term uncertainty under a single class share structure the incumbent has a greater chance of losing control to potential rivals if he undertakes the project with high near term uncertainty since outsiders may vote for the rival if they believe the project is not progressing well a dual class share structure allows the incumbent to have enough votes to prevail against any rival but may be misused by untalented incumbents to dissipate value our results help to explain firms choices between dual class and single class ipos and the post ipo operating performance of dual class versus single class firms

public trading and private incentives this article studies the link between public trading and the activity of a firm s large shareholder who can affect firm value public trading results in the formation of a stock price that is informative about the large shareholder s activity this increases the latter s incentives to engage in value increasing activities indeed if he has to liquidate part of his stake before the effect of his activity is publicly observed a more informative price rewards him for his activity implications are derived for the decision to go public capital structure and security design we consider a firm with a large shareholder and otherwise dispersed shares which are publicly traded the block holder is an insider in the sense that he can undertake actions that directly affect the firm s value moreover the insider might not take all value increasing actions as at least some of them involve a private cost for him in other words there is an incentive problem the article s main premise is that public trading as part of the price formation process generates information not only about exogenous factors affecting firm value but also about the insider s activity for instance as a result of public trading a firm s stock price will incorporate the market s evaluation of how a controlling shareholder allocates corporate resources we identify two sources of incentives for the insider to engage in activities that will increase firm value the first one is his stake in the firm since the insider participates in a value increase in proportion to his equity stake a larger stake increases the benefit to him from the firm value being high the view that large shareholders affect firm value is indeed widespread shleifer and vishny 1997 they alleviate the free rider problem pervasive in firms with passive dispersed investors unable or unwilling to affect the firm s operations that is outsiders

earnings schooling ability and cognitive skills conventional estimates now available for a large number of countries generally indicate that the social returns to education are positive large and competitive with returns to investment in physical capital that such estimates are good guides for public resource allocation has however been questioned the heart of the problem lies in the interpretation of the positive relationship between the education and the earnings of workers whether as the conventional estimates assume the coefficient of the education variable in the earnings function measures the effect on the productivity of workers of human capital acquired in school it has been hypothesized that education in part or instead represents screening for native ability and motivation or credentialism and that as a consequence conventional measures of the social benefit of education are substantially upward biased 2 in this paper we attempt to distinguish the influence on earnings of cognitive achievement native ability and years of education as a means of adjudicating the human capital screening and credentialist hypotheses our econometric analysis is based on two rigorously comparable micro data sets from kenya and tanzania generated by surveys of the urban wage labor force specifically for this study these data sets contain the usual variables found in earnings function estimates of the benefits of schooling individual earnings years of education and years of employment experience in addition they contain two variables measures of the worker s cognitive skills and of his or her reasoning ability not previously found in studies of developing countries and only rarely found in studies of the education earnings relationship in developed countries 3 with these variables we can estimate the direct effects on earnings of cognitive skills ability and years of schooling by using them to estimate educational production functions and educational attainment functions and linking these functions with the earnings function in a recursive framework we can also assess the various indirect effects on earnings of ability and years of schooling having data sets from two countries very similar with respect to size resource endowments structure of production and employment and level of development means that not only can we subject our results to the usual statistical tests but we can also assess their replicability both kenya and tanzania have nearly achieved the objective of universal primary education while university enrollments remain at less than 1 percent of the relevant age group the important policy issues re boissiere development research department the world bank 1818 h street washington d c 20433 knight institute of economics and statistics oxford university sabot williams college williamstown ma 01267 we are grateful to the educational testing service of princeton for the design of tests used in this study and to j armitage j behrman j hausman d hendry d jamison and an anonymous referee for their insights and advice helpful comments were also received from participants in seminars at oxford and yale universities the views presented here are our own they should not be interpreted as reflecting those of the world bank george psacharopoulos 1973 1981 contains a listing of 44 countries in which rate of return studies had been conducted and of the estimates obtained 2for instance kenneth arrow 1973 mark blaug 1976 samuel bowles and herbert gintis 1976 john riley 1979 michael spence 1976 and lester thurow 1975 3for attempts to control for ability and or for cognitive achievement in studies for the united states see jere behrman et al 1980 gary chamberlain and zvi griliches 1977 griliches and william mason 1972 michael olneck 1977 paul taubman and terence wales 1974 taubman 1975 and david wise 1975 see also the survey articles by griliches 1977 1979 in most instances the data refer to special subgroups in the population and clear distinction cannot be made between natural ability and cognitive skills acquired in school

insider ownership and financial flexibility this study examines the cash flow sensitivity of external financing financial flexibility ff of firms from the perspective of the agency by focusing on whether and how insider ownership has a modifying effect on the ff of firms given the documented relationship between corporate governance and cost of external financing insider ownership an important proxy of corporate governance should affect ff via the agency cost channel a review of the us nonfinancial firms from 1992 to 2009 indicates that insider ownership aids in determining the ff of firms more specifically results indicate the existence of optimal insider ownership and any deviation from it causes ff to decrease in addition ff is higher when ceo ownership is lower 0 08 and this phenomenon is more pronounced for financially unconstrained firms furthermore ff is higher when non ceo insider ownership is in the middle range 0 12 0 43 for financially constrained firms whereas non ceo insider ownership has minimal impact on ff fo

returns to investment in education a global update the author updates compilations of rate of return estimates to investment in education published since 1985 and discusses methodological issues surrounding those estimates some key patterns among the three main levels of education primary education continues to exhibit the highest social profitability in all world regions private returns are considerably higher than social returns because of the public subsidization of education the degree of public subsidy increases with the level of education which is regressive social and private returns at all levels generally decline by the level of a country s per capita income overall the returns to female education are higher than those to male education but at individual levels of education the pattern is more mixed the returns to the academic secondary school track are higher than the vocational track since unit cost of vocational education is much higher and the returns for those who work in the private competitive sector of the economy are higher than in the public noncompetitive sector and the returns in the self employment unregulated sector of the economy are higher than in the dependent employment sector controversies in the literature are discussed in the light of the new evidence the undisputable and universal positive correlation between education and earnings can be interpreted in many ways the causation issue on whether education really affects earnings can be answered only with experimental data generated by randomly exposing different people to various amounts of education given the fact that moral and pragmatic considerations prevent the generation of such pure data researchers have to make do with indirect inferences or natural experiments some have been attempted the author looks at the research on overeducation or surplus schooling the conclusions reinforce earlier patterns they confirm that primary education continues to be the number one investment priority in developing countries they also show that educating females is marginally more profitable than educating males that the academic secondary school curriculum is a better investment than the technical vocational tract and that the returns to education obey the same rules as investment in conventional capital that is they decline as investment is expanded