endogenous business cycles and systematic stabilization policy we study the effects of fiscal policy rules on the determinacy of rational expectations equilibrium in a perfectly competitive monetary model with constant returns government spending implies a distortion of the monetary steady state due to the implied taxation we show that policy rules that let the gnp share of government spending depend sufficiently negatively on increases in gnp stabilize the economy with respect to endogenous fluctuations for arbitrarily little distortion of the steady state at which stabilization occurs the rules do not involve lump sum taxation negative income taxation or exact knowledge of the economy s laissez faire steady state

public health spending old age productivity and economic growth chaotic cycles under perfect foresight abstract this paper analyses the dynamics of a double cobb douglas economy with overlapping generations and public health investments that affect the supply of efficient labour of the old aged it is shown that the positive steady state of the economy is unique moreover we provide necessary and sufficient conditions for the emergence of endogenous deterministic complex cycles when individuals are perfectly foresighted interestingly i the equilibrium dynamics shows rather complicated phenomena such as a multiplicity of bubblings depending on the size of the public health system and ii the higher the degree of thriftiness the likelier an economy is exposed to endogenous fluctuations because the need to save when young to support consumption when old is reduced

cyclical equilibria in multi sector productive economies the role of substitution and factor intensity abstract the paper examines the existence of cyclical perfect foresight equilibria in a two sector overlapping generations economy with production in which both goods enter consumption conditions for the existence of two types of cyclical equilibra are obtained in terms of elasticities of substitution in production and consumption factor shares in production and expenditure shares in consumption the role of substitution possibilities and factor intensities is highlighted it is shown that factor intensity assumptions are not enough to rule out cyclical equilibria and that limit cycles may exist for substantial amounts of substitution possibilities in production what matters is the relative sizes of the consumption and production elasticities the results are illustrated using ces functions a dynamical simulation of an economy which exhibits a hopf cycle is presented

management ownership and market valuation an empirical analysis we investigate the relationship between management ownership and market valuation of the firm as measured by tobin s q in a 1980 cross section of 371 fortune 500 firms we find evidence of a significant nonmonotonic relationship tobin s q first increases then declines and finally rises slightly as ownership by the board of directors rises for older firms there is evidence that q is lower when the firm is run by a member of the founding family than when it is run by an officer unrelated to the founder

agency relationships in family firms theory and evidence does owner management necessarily eliminate the agency costs of ownership drawing on agency literature and on the economic theory of the household we argue that private ownership and owner management expose privately held owner managed firms to agency threats ignored by jensen s and meckling s 1976 agency model private ownership and owner management not only reduce the effectiveness of external control mechanisms they also expose firms to a self control problem created by incentives that cause owners to take actions which harm themselves as well as those around them jensen 1994 p 43 thus shareholders have incentive to invest resources in curbing both managerialand owner opportunism we extend this thesis to the domain of the family firm after developing hypotheses which describe how family dynamics and specifically altruism exacerbate agency problems experienced by these privately held owner managed firms we use data obtained from a large scale survey of family businesses to field test our hypotheses and find evidence which suggests support for our proposed theory finally we discuss the implications of our theory for research on family and other types of privately held owner managed firms

stationary sunspot equilibria in a finance constrained economy abstract stationary sunspot equilibria are shown to exist in a production economy with infinite lived agents when it is not possible to borrow against future wage income equilibrium fluctuations exhibit persistence over time scales of the same order of magnitude as observed business cycles an active fiscal policy that stabilizes aggregate money expenditures can prevent such fluctuations

strategic complementarity in business formation aggregate fluctuations and sunspot equilibria the extent to which changes in beliefs can be important factors in initiating economic fluctuations has been a prominent area of investigation for macroeconomists the notion that beliefs about the future influence current decisions is a property of almost all dynamic economic systems the more challenging task is identifying economic environments in which changes in beliefs alone influence current choices in such a way that the variations in beliefs are self fulfilling because the resulting fluctuations arise in the absence of variations in fundamental variables such as preferences and technology they are often termed sunspot equilibria apart from suggesting that instability of expectations may be a distinct source of cyclical volatility sunspot equilibria may also explain why apparently small disturbances in fundamentals lead to large change in macroeconomic aggregates in this study we demonstrate the possibility of sunspot equilibria in an overlappinggenerations economy characterized by a plausible form of strategic complementarity as more agents enter as producers in any particular sector of the economy they create an incentive for agents to enter as producers into other sectors as well 2 the basis for this

multiple steady states and endogenous fluctuations with increasing returns to scale in production abstract the purpose of this paper is to study the influence of the elasticity of capital labor substitution and of the labor supply elasticity on the existence of multiple pareto ranked stationary equilibria local indeterminacy bifurcations and expectations driven fluctuations in economies with external and internal increasing returns to scale in production this is done through general geometrical methods that do not depend upon particular specifications for preferences and technology for the sake of concreteness the analysis focuses on the model with heterogeneous agents and financial constraints presented in woodford j econ theory 40 1986 128 137 and extended by grandmont pintus and de vilder capital labor substitution and competitive nonlinear endogenous business cycles crest working paper 9728 1997 to account for capital labor substitution increasing returns to scale are incorporated in two different market structures an economy with aggregate production externalities and perfectly competitive markets an economy with increasing returns internal to the firm and imperfect competition in the product s market s only journal of economic literature classification numbers c61 e32

on competitive cycles in productive economies abstract in a model of overlapping generations with production money and an endogenous labor supply general conditions are given for the existence of two different types of cyclical equilibria the conditions are given in terms of the elasticities of demand for savings and for capital with respect to the interest rate and of the capital consumption ratio at the golden rule steady state examples using ces technologies are also studied

competitive business cycles in an overlapping generations economy with productive investment abstract this paper examines the emergence of long run competitive periodic equilibria in a two period overlapping generations model with capital accumulation the existence of periodic equilibria is a consequence of the existence of an aggregate bubble money and of a non linear behaviour of aggregate savings the technique used is to show that the problem can be reduced to the study of a dynamical map from an interval into itself although it is originally two dimensional this will allow us to study the occurrence of cycles from a global point of view

optimal growth when tastes are inherited we address the issue of optimal growth when standard of living aspirations are transmitted from one generation to the next we derive the condition for the optimal solution to be stable in the saddle point sense and show that this optimal solution may display damped oscillations even when the planner does not discount the utility of future generations golden rule case the decentralization of the optimal solution aims at correcting the inter generational externality by use of an investment subsidy and allows to avoid socially damaging rushes on consumption in expansion periods it also allows to stabilize output in the case of competitive economies displaying endogenous fluctuations

chaotic dynamics in economic time series abstract there has recently been considerable interest in chaotic dynamics in a variety of disciplines this paper introduces and then surveys some of the associated literature and techniques applications to economic theory are discussed but the primary focus is on empirical applicability in addition to surveying the literature we also provide an example of the use of these techniques in economics we conclude by highlighting the importance of the techniques for empirical work as well as considering their context in econometric methodology

the sustainability of bond financed deficits an overlapping generations approach abstract the last decade has witnessed a dramatic and fundamental shift in the expenditure and taxation policies of many western democracies a shift unprecedented in peacetime history balanced budgets have virtually disappeared from the scene in their place deficit financing has arisen as an alternative for many countries becoming a focus of both professional interest and public debate the current literature has examined this issue by assessing the likelihood that governments violate their intertemporal budget constraint this paper takes a different tack we incorporate permanent fiscal deficits into an overlapping generations model and evaluate the implications we already know that if the steady state interest rate is less than the growth rate then permanent deficits are indeed sustainable however this is a necessary but not a sufficient condition in addition these deficits and the current stock of debt must also not be too big we calibrate the model to u s data with plausible parameters of taste and technology derive the theoretical limit to the maximal sustainable deficit implied by this model and discuss the relevance of our findings for current policy issues

the dynamics of bequeathed tastes if children inherit life standard aspirations from their parents then their savings are affected and cycles may appear in overlapping generations olg models with production at some point of an expansion aspirations grow faster than wages savings decrease and a contraction begins

do capital adequacy requirements reduce risks in banking abstract in a dynamic framework it is shown that capital adequacy rules may increase a bank s riskiness in addition to the standard negative effect of rents on risk attitudes of banks a further intertemporal effect has to be considered the intuition behind the result is that under binding capital requirements an additional unit of equity tomorrow is more valuable to a bank if raising equity is excessively costly the only possibility to increase equity tomorrow is to increase risk today

equilibrium models displaying endogenous fluctuations and chaos abstract this paper surveys current developments in dynamic general equilibrium theory concerned with conditions under which endogenous fluctuations are possible existing contributions are divided into two classes the larger one consists of models with a unique perfect foresight equilibrium while the second includes models where equilibrium is indeterminate and the set of equilibria involving endogenous fluctuations includes sunspots equilibria while the two classes of models involve oscillations of different natures and with different policy implications we show that both are consistent with optimizing behavior and competitive equilibrium

the capital crunch neither a borrower nor a lender be the dramatic reduction in the growth rate of bank lending associated with the 1990 91 recession particularly in new england has evoked claims by many observers of a credit crunch however because of the difficulty in determining whether the observed slow credit growth is a demand or supply phenomenon convincing evidence of the practical importance of credit crunches for economic activity remains elusive we overcome this obstacle by examining a cross section of banks in new england that have experienced the same economic downturn effectively controlling for changes in demand we find empirical support for a capital crunch whereby poorly capitalized institutions shrink to satisfy capital requirements this alone is not a sufficient condition for a credit crunch however we find s6me additional evidence that the ca ital crunch may have limited credit availability in new england

capital requirements monetary policy and aggregate bank lending theory and empirical evidence capital requirements linked solely to credit risk are shown to increase equilibrium credit rationing and lower aggregate lending the model predicts that the bank s decision to lend will cause an abnormal runup in the borrower s stock price and that this reaction will be greater the more capital constrained the bank i provide empirical support for this prediction the model explains the recent inability of the federal reserve to stimulate bank lending by increasing the money supply i show that increasing the money supply can either raise or lower lending when capital requirements are linked only to credit risk the motivation of this article is first to examine the impact of risk based capital requirements namely those that link mandatory capital to asset ratios for banks to their loans on aggregate bank lending these requirements called the basle capital rules or bis guidelines went into effect in march 1989 for banks in the leading industrialized nations these rules initially required banks to maintain capital equal to 7 25 percent of business and most consumer loans with the requirement increasing to 8 percent by the end of 1992 secondly i wish to understand the link between monetary policy and aggregate bank credit in the presence of risk based capital requirements my curiosity is sparked in part by two recent phenomena one is the experience of the u s economy which displayed sluggish growth during 1989 93 despite a monetary policy that attempted to spur bank lending and economic activity and the other is the striking decline in loans relative to security holdings mostly government bonds in the asset portfolios of u s

understanding the determinants of managerial ownership and the link between ownership and performance comment abstract himmelberg et al j financial econom 53 1999 353 384 argue that fixed effects estimators should be used in examination of the relationship between managerial ownership and firm performance i show that managerial ownership while substantially different across firms typically changes slowly from year to year within a company with rational managers maximising long term utility small one year changes in ownership are not likely to reflect notable changes in incentives that would lead to substantive within year changes in performance by relying on within variation fixed effects estimators may not detect an effect of ownership on performance even if one exists

can regulators allow banks to set their own capital ratios abstract basel regulators have received widespread criticism for failing to prevent two credit crises that hit the u s over the last two decades nonetheless banks were considerably overcapitalized prior to the onset of the 2007 2009 subprime crisis compared to those which had undergone the 1990 1991 recession therefore if capital requirements were achieved prior to the subprime crisis how could the basel framework be blamed again for having accelerated if not caused another credit crunch we find that the answer to this question lies in the relationship between the capital ratio and the leverage ratio which is governed by risk weights categories determined by the basel regulation we show that changes to risk weight categories which affect the correlation pattern between both ratios are not reflected in the subprime crisis this minimizes the implication of the basel ii regulation in the crunch that succeeded its announcement in contrast to basel i we demonstrate that these dynamics are governed by a formula linking the two ratios together which derives from the sensitivity of the risk based capital ratio to a change in its risk weight s one implication of our work regarding the basel iii regulation consists in validating the newly established capital increments in a mathematical rather than heuristical approach

in search of capital crunch supply factors behind the credit slowdown in japan the seeming failure of loose monetary policy to reactivate japan s economy has led some observers to suggest that the usual credit channels through which monetary policy affects the real economy are blocked and this is because of a pervasive shortage of bank capital that has induced a leftward shift in the supply of bank credit this is the so called capital crunch hypothesis this paper finds support for the hypothesis in the bank data for 1997 a year during which the landscape of the japanese financial system underwent some fundamental changes

risk in banking and capital regulation this paper investigates the role of bank capital regulation in risk control it is known that banks choose portfolios of higher risk because of inefficiently priced deposit insurance bank capital regulation is a way to redress this bias toward risk utilizing the mean variance model the following results are shown a the use of simple capital ratios in regulation is an ineffective means to bound the insolvency risk of banks b as a solution to problems of the capital ratio regulation the theoretically correct risk weights under the risk based capital plan are explicitly derived and c the theoretically correct risk weights are restrictions on asset composition which alters the optimal portfolio choice of banking firms the recent increase in bank failures especially after the 1980 and 1982 deregulatory acts has again ignited a controversy over the risk portfolio of the banking industry given the importance of this sector there has been increased scrutiny of the industry s motives for risk taking and possible regulatory changes to improve its stability these investigations have centered around two rather complementary areas the first of these is the role of deposit insurance and how its current pricing procedure encourages risk taking and justifies current bank regulations the works of buser chen and kane 4 kane 9 and benston et al 2 have made substantive contributions the authors demonstrates the way in which our current fixed rate insurance system rewards risk taking by the firm and insulates it through deposit insurance from the market discipline that needs to exist to ensure proper risk evaluation this realization has led these authors to propose a series of regulatory changes to encourage proper portfolio choice within the industry these include a shift to market value accounting risk based deposit insurance premiums and additional capital regulation the last of these serves as a method of coinsurance whereby higher capital levels require the bank to absorb greater losses in the event of failure and encourage additional prudence in management in essense it is one method of risk reduction that may offset the risk preference imposed on the industry due to the inappropriate insurance pricing because the amount of capital influences the probability of bank insolvency and thus the soundness of the entire banking system the regulators ceteris paribus prefer more capital to

keynesian issues and economic theory recent research helped in clarifying the nature of short run price and quantity adjustments in keynesian macroeconomic models and the possible causes of a persistent excess labour supply it is argued however that theories involving imperfect competition and real wage rigidities generate classical unemployment where multipliers act through supply side effects while nominal inertia seems to be at the root of truly keynesian multipliers the appraisal also contains a nontechnical presentation of recent models of endogenous expectations driven business fluctuations cycles sunspots monetary policy can then have persistent real effects under complete information money as a sunspot

on endogenous competitive business cycles the belief that the long run equilibrium of a competitive monetary economy that does not experience any exogeneous shocks whether originating from the external environment or from policy should be modelled as a state that is stationary or perhaps growing at a constant rate seems to be deeply rooted in the mind of some economists

commodity price fluctuations price dependent delays and nonlinearities as explanatory factors this paper develops a price adjustment model for a single commodity market with state dependent production and storage delays conditions for the equilibrium price to be stable are derived in terms of a variety of economic parameters when stability of the equilibrium price is lost a hopf bifurcation occurs giving rise to an oscillatory commodity price with a period between two and four times the equilibrium production storage delay

endogenous real exchange rate fluctuations in an optimizing open economy model abstract this paper constructs a simple intertemporal model of a small open economy inhabited by forward looking agents in which endogenous fluctuations in the real exchange rate can arise in equilibrium i e fluctuations that are not linked to movements in economic fundamentals the key condition for the main results is the assumption that the marshall lerner condition does not hold i e that the country s exports and imports are inelastic to its real exchange rate it is shown that given that the marshall lerner condition fails there exist periodic equilibria and or stationary sunspot equilibria in the neighborhood of the stationary state

bank regulation and the credit crunch abstract this study investigates the direct link between regulatory enforcement actions and the shrinkage of bank loans to sectors likely to be bank dependent we partition the shrinkage due to loan supply into the component due to explicit regulatory enforcement actions and that due to a voluntary response by bank management to low capital to asset ratios we find that banks with formal actions shrink at a significantly faster rate than those without even after controlling for differences in capital to asset ratios furthermore much of the reduced lending has been in categories containing primarily loans to bank dependent borrowers

managerial ownership of voting rights abstract managers of firms with dual classes of common stock can choose different quantities of votes for a given cash flow interest by choosing different quantities of the two securities we study managerial stock holdings in 45 dual class firms and find that vote ownership per se is an important motivation for these holdings in that corporate officers and their families hold a median 56 9 of the votes and 24 0 of the common stock cash flows we also find significant family involvement in many sample firms and document four case studies in which explicit acquisition premiums were paid for superior voting shares

competitive equilibrium cycles recently there has been a surge of interest in endogenous business cycles that arise in competitive laissez faire economies in the context of standard overlapping generations economies conditions for the existence of equilibrium cycles have been given by grandmont 1983 and by benhabib and day 1982 models of the economy with extrinsic uncertainty or sunspots that have been developed by shell 1977 and by cass and shell 1983 see also balasko 1983 can also lead to equilibrium cycles

on the transition from local regular to global irregular fluctuations abstract we present a general framework for understanding the transition from local regular to global irregular chaotic behaviour of nonlinear dynamical models in discrete time the fundamental mechanism is the unfolding of quadratic tangencies between the stable and the unstable manifolds of periodic saddle points to illustrate the relevance of the presented methods for analysing globally a class of dynamic economic models we apply them to the infinite horizon model of woodford 1988 j economic theory 40 128 137 amended by grandmont et al 1998 j economic theory 80 to account for capital labour substitution so as to explain the appearance of irregular fluctuations through homoclinic bifurcations when parameter values are far away from local bifurcation points

a reexamination of mean variance analysis of bank capital regulation abstract the mean variance framework has been used to analyze the effects of bank capital regulation on the asset and bankruptcy risk of insured utility maximizing banks this literature claims that more stringent capital regulation will increase asset risk and can increase bankruptcy risk these conclusions are notable because they are opposite to those obtained for insured value maximizing banks in this paper we show that the utility maximization literature does not support its conclusions regarding the effects of bank capital regulation because it has mischaracterized the bank s investment opportunity set by neglecting the option value of deposit insurance

equilibrium cycles in an overlapping generations economy with production abstract perfect foresight equilibrium trajectories of an overlapping generations model with production may include stable or unstable invariant closed curves these orbits are detected using the hopf bifurcation theorem where the parameter of bifurcation is purely technological the paper also proves that there is a stabilization policy that completely eliminates the cycle finally using a c e s production function it is shown that the range of values of the elasticity of substitution between capital and labor for which cycles may exist is bounded above

deficits and cycles abstract this paper shows that periodic equilibria may arise in a simple overlapping generations model with capital if the government follows a policy of fixing the value of the deficit rather than fixing the value of government debt then the difference equation that describes competitive equilibria may posses complex roots in the neighborhood of the golden rule stationary state one may show that if there exist parametric families of economies for which these roots change stability then locally there exists an invariant closed curve the paper provides two simple examples that generate such equilibria and it solves these examples numerically

stabilization policy can lead to chaos stabilization policy can lead to chaos nonlinearities in economies as elsewhere can generate chaotic equilibria the presence of pareto inferior chaotic equilibria might seem reason enough to use stabilization policy to select preferable equilibria however i show that a stabilization policy with feedback can itself lead to chaotic dynamics thus the existence of nonlinearities in the economy does not by itself justify monetary or fiscal policies aimed at reducing economic instability current evidence cannot distinguish whether monetary policy stabilizes a nonlinear economy creates nonlinear dynamics in the economy or both i introduction in recent years the claim has been made that nonlinearities and self fulfilling expectations in the private economy generate economic instability that can and should be offset by government policies this instability shows up as a positive variance in the steady state of an economy that otherwise would have a steady state with zero variance and higher utility for households on the basis of such models grandmont and malgrange 1986 9 conclude that we should expect a free market economy to perform rather badly under laissez faire in addition there is a possible role for deterministic stabilization policies that would if understood and believed eliminate forecasting mistakes and the corresponding efficiency losses and would guarantee the ultimate disappearance of endogenous fluctuations the purpose of this note is to provide a simple example of stabilization policy leading to chaotic time series behavior this example is an elaboration of friedman s 1953 classic argument that with uncertain knowledge about the economy stabilization policy can increase the variance of the goal variable nonlinearities can make as much a case against stabilization policy as for it the example is ad hoc in some respects but it is based on common ingredients of many models ii a simple example interesting aspects of an economy can be summarized by the quantity equation 1 mv y assume that real income y is constant which implies that changes in nominal income are proportional to changes in the price level in one respect using the quantity equation means that the example below does not have the same force as a tight general equilibrium model of the economy without the underlying detail equation 1 is ad hoc in another respect the example below has more force an equation such as 1 commonly characterizes the general equilibrium models in which money has a significant effect on the economy hence one interpretation is that the example has some generality assume that the monetary authority targets nominal income and knows 1 that the quantity theory characterizes the long run equilibrium of the economy and 2 the level of velocity that is consistent with zero inflation v in these circumstances there is one obvious equilibrium consistent with the goal the money stock is constant and the public expects a constant money supply and zero inflation in this equilibrium nominal income can be stabilized at the target level of nominal income y the monetary authority just need set the money supply to m v 1y if the monetary authority is uncertain about the public s response to its actions one strategy is to adopt a cautious stabilization policy to support the economy s approach to the long run deterministic equilibrium one commonly proposed set of feedback rules is the proportional policies introduced by phillips 1954 in the levels such a rule for the money supply is 2 m m alpha y y sub 1 where y sub 1 is last period s nominal income and alpha is the adjustment parameter assume that private agents believe that the monetary authority eventually will accomplish its goal of setting y equal to y

estimating the value of employee stock option portfolios and their sensitivities to price and volatility the costs associated with compiling data on employee stock option portfolios is a substantial obstacle in investigating the impact of stock options on managerial incentives accounting choice financing decisions and the valuation of equity we present an accurate method of estimating option portfolio value and the sensitivities of option portfolio value to stock price and stock return volatility that is easily implemented using data from only the current year s proxy statement or annual report this method can be applied to either executive stock option portfolios or to firm wide option plans in broad samples of actual and simulated ceo option portfolios we show that these proxies capture more than 99 of the variation in option portfolio value and sensitivities sensitivity analysis indicates that the degree of bias in these proxies varies with option portfolio characteristics and is most severe in samples of ceos with a large proportion of out of the money options however the proxies explanatory power remains above 95 in all subsamples

corporate behavior in adjusting to capital structure and dividend targets an econometric study this study of financing decisions by u s corporations examines the issuance of long term debt issuance of short term debt maintenance of corporate liquidity issuance of new equity and payment of dividends given costs and imperfections inherent in markets a firm s financial behavior is characterized as partial adjustment to long run financial targets individual firm data are used so that speeds of adjustment are allowed to vary by company and over time the results suggest that financial decisions are interdependent and that firm size interest rate conditions and stock price levels affect speeds of adjustment this study of financing decisions by u s corporations examines the issuance of long term debt short term debt and equity the maintenance of corporate liquidity and the payment of dividends the firm s financial behavior is characterized as partial adjustment to long run financial targets and individual firm data 1966 1978 are used to estimate firm specific time varying speeds of adjustment the results suggest that financial decisions are interdependent and that firm size interest rate conditions and stock price levels affect speeds of adjustment also the estimated coefficients are more plausible than the very small taggart 28 or very large spies 26 values found in earlier studies section i of the paper introduces the general model in section ii a tractable empirical model is developed section iii presents the data to be used in the study and discusses econometric issues in section iv results and conclusions are offered

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

did risk based capital allocate bank credit and cause a credit crunch in the united states this paper examines the reallocation of bank credit from loans to securities in the early 1990s using data on virtually all u s banks from 1979 to 1992 the authors investigate implementation of risk based capital and other regulatory and nonregulatory changes as possible causes of a supply driven credit crunch the main empirical implication of these credit crunch hypotheses that the reallocation of credit would be most associated with low capital high risk banks generally is not consistent with the data much of the reallocation is associated with demand side factors but it is difficult to differentiate cleanly among these factors copyright 1994 by ohio state university press

corporate performance and managerial remuneration an empirical analysis abstract economic theories of efficient compensation predict a positive relationship between executive pay and corporate performance and yet efforts to document this relationship have been largely unsuccessful in this paper we argue that previous cross sectional studies have omitted important variables which seriously bias their results using data that focus on individual executives over time we find that executive compensation is strongly positively related to corporate performance as measured by shareholder return and growth in firm sales the results are robust to the stock market performance measure utilized

risk based capital standards and the credit crunch the failure of the banking system to play its normal role in the transmission of the monetary stimulus to the economy may have contributed to the 1990 91 recession and the sluggish recovery from it this paper examines the 1988 basel agreement on risk based capital standards as a possible shock to the credit supply system and finds that banks with larger capital surpluses resulting from the risk based requirements had faster loan growth between 1987 and 1991 than those with smaller surpluses or which failed the new standards newly issued capital in banks with larger capital surpluses was associated with greater loan growth than were the same capital additions in banks with smaller capital surpluses copyright 1995 by ohio state university press

capital controls and bank risk abstract we analyze the effects of deposit guarantees on banks loan portfolio in contrast to earlier work we view bank loans net of evaluation and monitoring costs as non zero npv investments e g market securities deposit guarantees lead to inefficient investment and under plausible circumstances capital requirement increases lead banks to increase asset risk the risk increase reduces the beneficial effects of capital increases on the probability of default and on the economic efficiency of bank lending in some cases a tightening of the capital constraint even leads to an increase in the probability of default and financial instability and to higher expected costs of transferring assets to regulatory agencies increases in bank capital are not a substitute for risk monitoring and control and may imply an increased need for such surveillance

capital regulation and bank risk taking a note abstract this paper examines theoretically the effects of more stringent capital regulation on bank asset portfolio risk the analysis shows that for a value maximizing bank incentives to increase asset risk decline as its capital increases thus as long as regulatory efforts to contain asset risk and size are not reduced more stringent capital regulation unambiguously reduces the expected liability of the deposit insurance system

the structure of ownership and the theory of the firm the separation of ownership from control produces a condition where the interests of owner and of ultimate manager may and often do diverge and where many of the checks which formerly operated to limit the use of power disappear in creating these new relationships the quasi public corporation may fairly be said to work a revolution it has divided ownership into nominal ownership and the power formerly joined to it thereby the corporation has changed the nature of profit seeking enterprise 1

deviations from optimal ceo ownership and firm value abstract the transaction cost theory of managerial ownership and firm value predicts that deviations from optimal managerial ownership reduce firm value this paper empirically tests the transaction cost theory by studying the relation between deviations on either side of optimal ceo ownership and firm value we find that both above optimal and below optimal deviations reduce firm value we find that a change in ceo ownership is associated with a higher lower abnormal return if it moves the ownership towards away from the optimal level these findings are consistent with the transaction cost theory of managerial ownership and firm value

endogenous competitive business cycles with positive outside money and positive interest elasticity of savings abstract an overlapping generations model is studied where young agents supply labour and old agents supply entrepreneurial ability endogenous competitive cycles emerge if labour demand is appropriately inelastic with positive outside money and positive interest elasticity of savings

safe debt risky capital the author extends the diamond 1965 model of national debt in two directions she first introduces technological uncertainty and then she allows the stock of debt to vary the author studies the dynamical equilibria of the resulting stochastic system and she establishes conditions for the existence of stationary states that are expressed in terms of invariant distributions since conditions that ensure the existence of a stochastic stationary state with positive debt are very restrictive in this model financial instability is a pervasive phenomenon and allocations are in general dynamically inefficient copyright 1994 by the london school of economics and political science