sticky prices and monetary policy evidence from disaggregated us data this paper disentangles fluctuations in disaggregated prices due to macroeconomic and sectoral conditions using a factor augmented vector autoregression estimated on a large data set on the basis of this estimation we establish eight facts 1 macroeconomic shocks explain only about 15 of sectoral inflation fluctuations 2 the persistence of sectoral inflation is driven by macroeconomic factors 3 while disaggregated prices respond quickly to sector specific shocks their responses to aggregate shocks are small on impact and larger thereafter 4 most prices respond with a significant delay to identified monetary policy shocks and show little evidence of a price puzzle contrary to existing studies based on traditional vars 5 categories in which consumer prices fall the most following a monetary policy shock tend to be those in which quantities consumed fall the least 6 the observed dispersion in the reaction of producer prices is relatively well explained by the degree of market power 7 prices in sectors with volatile idiosyncratic shocks react rapidly to aggregate monetary policy shocks 8 the sector specific components of prices and quantities move in opposite directions

the differential regional effects of monetary policy this paper examines whether monetary policy has similar effects across regions in the united states impulse response functions from an estimated structural vector autoregression reveal a core of regions new england mideast plains southeast and the far west that respond to monetary policy changes in ways that closely approximate the u s average response of the three noncore regions one great lakes is noticeably more sensitive to monetary policy changes and two southwest and rocky mountains are found to be much less sensitive a state level version of the model is estimated and used to provide evidence on the channels for monetary policy

the distribution of money and prices in search equilibrium this article considers a search theoretic model of monetary exchange agents bargain over both the amount of money and the quantity of goods to be exchanged in bilateral meetings determining endogenously the distributions of money and of prices i show that money is neutral if changes in the money supply are accomplished via proportional transfers however within the class of lump sum transfers an increase of the rate of monetary expansion tends to decrease the dispersion of wealth and prices and to improve welfare when inflation is low but when inflation is high enough the opposite effects occur

the effect of managerial litigation risk on earnings warnings evidence from a natural experiment we examine the causal effect of managerial litigation risk on managers disclosure of earnings warnings in the face of large earnings shortfalls exploring the staggered adoption of universal demand ud laws as an exogenous decrease in litigation risk we find that the adoption leads to a decrease in managers issuance of earnings warnings especially among firms facing a higher litigation risk prior to the adoption in contrast we find no change in managers tendency to alert investors of impending large positive earnings surprises collectively our results provide causal evidence that higher litigation risk incentivizes managers to issue more earnings warnings our results differ from bourveau et al s finding of an increase in the frequency of management earnings forecasts after the adoption of ud laws we reconcile our findings with theirs by demonstrating that the effect of adopting ud laws on management earnings forecasts depends critically on forecast horizon the adoption increases long horizon forecasts but decreases short horizon forecasts

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

institutional development and bank stability evidence from transition countries g21 p30 p34 p52 abstract this paper takes advantage of the dynamic nature of institutional reforms in transition economies and explores the causal effects of those reforms on bank risk using a difference in difference approach we show that banks financial stability increases substantially after these countries reform their legal insti tutions liberalize banking and restructure corporate governance we also find that the effects of legal and governance reforms on bank risk may critically depend on the progress of banking reforms a further examination of alternative risk measures reveals that the increases in financial stability among banks mainly come from the reduction of asset risk banks tend to have lower roa volatility and fewer nonper forming loans after reforming the institutional environment finally we split our sample into foreign and domestic banks and find that the enhancement of financial stability is more pronounced for domestic banks

does multilateral lending aid capital accumulation role of intellectual capital and institutional quality abstract this paper investigates whether multilateral lending is more effective in accumulating capital in countries with a higher level of innovation specifically we examine the role of the world bank or imf financing on the capital stock using data from 175 countries over the period 1970 2017 while considering different types of long term external flows namely fdi and debt we find that fdi as a long term inflow influences domestic capital stock positively but non g7 countries even with a higher level of innovation are unable to benefit from greater fdi flows in boosting their capital stock which we explain considering institutional quality differences across countries with regard to foreign debt flows the multilateral lending only benefits the borrowing country if it has a greater level of intellectual capital or if those funds are used in financing innovative activities as opposed to short term imf loans world bank lending tends to be directed more towards long term development goals thereby helping boost productive capital exploiting a policy intervention with trips agreement the paper uncovers that countries with better institutional quality and greater innovation generate a higher level of capital stock

inflation and welfare in a monetary economy it is in everyone s private interest to try to get someone else to hold non interest bearing cash and reserves but someone has to hold it all so these efforts must simply cancel out all of us spend several hours per year in this effort and employ thousands of talented and highly trained people to help us these person hours are simply thrown away wasted on a task that should not have to be performed at all

monetary policy and investment dynamics evidence from disaggregate data we use disaggregated data on the components of private fixed investment pfi to estimate industry level responses of real investment and capital prices to unanticipated monetary policy the response functions derive from a restricted large scale var estimated over 1959 2007 our results point to significant cross sector heterogeneity in the behavior of pfi prices and quantities for assets belonging to the equipment category of fixed investment we find that quantities rather than prices absorb most of the fallout from a policy shock by contrast the price effects tend to be higher and the output effects lower for nonresidential structures

antitakeover charter amendments and stockholder wealth abstract many large corporations have recently adopted antitakeover charter amendments which make the transfer of corporate control more difficult this paper develops and tests competing theoretical explanations for the passage of these amendments in one view antitakeover provisions are adopted because incumbent management seeks job protection at stockholders expense the alternative hypothesis is that antitakeover provisions benefit stockholders perhaps by extracting greater payment in exchange for corporate control although inconclusive the evidence provides weak preliminary support for the hypothesis that antitakeover amendments are best explained as a device for managerial entrenchment

disaggregate evidence on the persistence of consumer price inflation this paper uses disaggregate inflation data spanning all of consumption to examine i the persistence of disaggregate inflation relative to aggregate inflation ii the distribution of persistence across consumption sectors and iii whether persistence has changed assuming mean inflation to be unchanged disaggregate persistence inflation is consistently below aggregate persistence taking into account an early 1990s shift in mean inflation identified by break tests yields much lower estimates of both aggregate and disaggregate persistence for 1984 2002 but with the mean break average disaggregate persistence is actually as great as aggregate inflation persistence a factor model provides a natural framework for interpreting the relationship between aggregate and disaggregate persistence copyright 2006 john wiley sons ltd

labor unemployment insurance and earnings management abstract we provide new evidence that firms appear to manage long run earnings upward in order to manage rank and file employees perceptions of employment security in particular we exploit exogenous state level changes in unemployment insurance benefits and test for partial unwinding of prior upward earnings management when benefits increase consistent with the hypothesis we find a significant reduction in abnormal accruals increased recognition of special items and write downs and greater likelihood of net income reducing restatements following an increase in state level unemployment benefits a number of cross sectional results are also consistent with the hypothesis

dual class recapitalizations as antitakeover mechanisms abstract we report evidence on shareholder wealth effects of 94 firms recapitalizing with dual classes of common stock with disparate voting rights we find significant negative abnormal stock price returns at the announcement of the dual class recapitalization when we consider recapitalizations separately announced since the nyse imposed a moratorium is june 1984 on the delisting of companies with dual classes of equity we find significant negative abnormal returns as compared with insignificant returns in the earlier period those firms recapitalizing from june 1986 through may 1987 experienced the most significant negative returns observed

the design of securities abstract this paper investigates the determinants of security design we consider the assignment of both cash flows and voting rights focusing on corporate control we postulate that a conflict of interest exists between contestants for control and outside investors the conflict arises because private benefits of control give contestants an incentive to acquire control even when this reduces firm value security design is a tool for resolving these conflicts and maximizing firm value our main result is that a single voting security is optimal

interpreting the macroeconomic time series facts the effects of monetary policy existing theory and evidence on the effects of monetary policy are reviewed substantial room for disagreement among economists remains new evidence based on multivariate time series studies of several countries is presented while certain patterns in the data consistent with effective monetary policy are strikingly similar across countries others particularly the tendency of interest rate increases to predict high inflation are harder to reconcile with effective monetary policy

how responsive is business capital formation to its user cost an exploration with micro data abstract the response of business capital formation to its user cost is critical to evaluating tax reform deficit reduction and monetary policy evidence for a substantial user cost elasticity however is sparse most evidence has been based on aggregate data although several recent studies with firm level data report substantial effects with a particularly rich micro dataset containing over 26 000 observations this paper explores what can be learned about the user cost elasticity while the results depend to some extent on the specification and econometric technique various diagnostics lead us to prefer a precisely estimated but small elasticity of approximately 0 25 this paper is dedicated to the memory of robert eisner who labored early and ably on uncovering the determinants of investment spending and highlighting the importance of the question found in the title of this paper

small sample bias and adjustment costs the response of most stock variables e g capital housing consumer durables and prices to exogenous impulses involves a dynamic or short run reaction and a target or long run reaction the difference between these two is typically attributed to some form of adjustment cost in this paper i argue that the small sample problems of cointegrating procedures used to estimate the long run component are particularly severe when adjustment costs are important more precisely elasticity estimates will tend to be biased downward i illustrate the empirical relevance of this by showing that the target elasticity of capital with respect to its cost is severely downward biased when estimated with conventional ols cointegration procedures once this is corrected the elasticity of the u s capital output ratio to the cost of capital is found to be large and close to minus one copyright 1994 by mit press

selling to advised buyers in many cases agents that make purchase decisions are uninformed and rely on the advice of biased experts for example when contemplating an acquisition the board of the bidder relies on the advice of the managerial team when deciding what oer to make for the target in this paper we study how to sell assets to such advised buyers if the goal is i to maximize revenues ii to maximize allocative eciency in static mechanisms such as rst and second price auctions advisors communicate a coarsening of information and a version of the revenue equivalence theorem holds in contrast dynamic mechanisms such as multiple round auctions result in more informative communication between buyers and their advisors which leads to more ecient allocations and may lead to higher revenues when advisors are biased toward overpaying an ascending price auction dominates any static mechanism in terms of both eciency and revenues when advisors are biased towards underpaying a descendingprice auction dominates static mechanisms in terms of eciency but often results in

optimal monetary policy with durable consumption goods abstract we document that the durable goods sector is much more interest sensitive than the nondurables sector and then investigate the implications of these sectoral differences for monetary policy we formulate a two sector general equilibrium model that is calibrated both to match the sectoral responses to a monetary shock derived from our empirical var and to imply an empirically realistic degree of sectoral output volatility and comovement while the social welfare function involves sector specific output gaps and inflation rates the performance of the optimal policy rule can be closely approximated by a simple rule that targets a weighted average of aggregate wage and price inflation in contrast a rule that stabilizes a more narrow measure of final goods price inflation performs poorly in terms of social welfare

employment protection and takeovers labor restructuring is a key driver of takeovers and the associated synergy gains worldwide in a difference in differences research design we show that major increases in employment protection reduce takeover activity by 14 27 and the combined firm gains synergies by over half consistent with the labor channel behind these effects deals with greater potential for workforce restructuring show a greater reduction in volume number and synergies the reforms do impede layoffs and the associated wage costs match the magnitude of synergy losses offer prices are not fully adjusted with both bidders and targets exhibiting lower returns following the reforms

sources of the great moderation a time series analysis of gdp subsectors recent work finds evidence that the volatility of the u s economy fell dramatically around the first quarter of 1984 we trace the timing of this so called great moderation across many subsectors of the economy in order to better understand its root cause we find that the interest rate sensitive sectors generally experience a much earlier volatility decline than other large sectors of the economy the changes in federal reserve stabilization policies that occurred during the early 1980s support the view that an improved monetary policy played an important role in stabilizing real economic activity we find only mild evidence that good luck was important and little evidence to support the claim that improved inventory management was important

foreign equity investment restrictions capital flight and shareholder wealth maximization theory and evidence this article provides a theory of foreign equity investment restrictions we consider a model where the demand function for domestic shares differs between domestic and foreign investors because of deadweight costs in holding domestic and foreign securities that depend on the country of residence of investors we show that domestic entrepreneurs maximize firm value by discriminating between domestic and foreign investors the model implies that countries benefitting from capital flight have binding ownership restrictions such that foreign investors pay a higher price for shares than domestic investors the empirical implications of this theory are supported by evidence from switzerland article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

entrepreneurial finance and innovation an introduction and agenda for future research the increasingly large role played by financial intermediaries such as venture capitalists and angels in nurturing entrepreneurial firms and in promoting product market innovation has led to great research interest in the area of entrepreneurial finance and innovation this paper introduces the special issue of the review of financial studies dedicated to entrepreneurial finance and innovation and highlights some of the promising topics for future research in this area the special issue combines papers presented at the june 2010 entrepreneurial finance and innovation efic conference which was jointly sponsored by the kauffman foundation and the review of financial studies with other related papers

monetary stimulation bank relationship and innovation evidence from china using china s four trillion yuan stimulus package of 2008 4 trillion plan as an exogenous shock we find that monetary stimulation could benefit the real economy to some extent specifically compared with propensity score matched control firms firms more likely affected by the stimulus plan e g bank connected firms are granted with 18 to 24 more patents afterwards further evidence shows that the effect of monetary stimulation is more pronounced in firms with financial constraints in firms located in regions with lower house price growth and in firms with better corporate governance finally monetary stimulation also increases r d expenditure leaving innovation efficiency unaffected

state regulation of takeovers and shareholder wealth the case of new york s 1985 takeover statutes past studies of takeover regulations have found that such rules increase the premiums paid to the shareholders of successfully acquired targets jarrell and bradley argue that these higher premiums harm shareholders by discouraging takeover activity and protecting inefficient managers bebchuk argues that the higher premiums do not significantly reduce the number of takeovers so that shareholders benefit on average from the higher premiums paid in successful acquisitions this article uses the event study method to measure the net effect of two takeover statutes passed by the new york state legislature in 1985 the results support the conclusion of jarrell and bradley that despite the higher premiums paid to successfully acquired target shareholders ex post these laws on average harm shareholders ex ante

product market competition and the cost of bank loans evidence from state antitakeover laws abstract the extant literature documents a positive relationship between a firm s takeover vulnerability and its agency cost of debt using state antitakeover laws as an exogenous measure of variation in takeover vulnerability i investigate whether product market competition has a disciplinary effect that can lower a firm s cost of bank loans after taking into account the industry composition of borrowers i find that banks charge higher spreads to borrowers that are vulnerable to takeovers but only in concentrated industries in the absence of disciplinary competitive pressure the effect of takeover vulnerability on the cost of bank loans is mitigated for larger firms firms followed by analysts firms with existing credit ratings non family firms and for borrowers with shorter maturity loans or loans with covenants and collateral in place taken together the results suggest that the effect of governance on the cost of financing is not homogenous across all industries and that concentrated industry firms may need to use supplementary governance mechanisms to mitigate debt holder agency problems

state intervention in the market for corporate control abstract this study investigates the impact of pennsylvania senate bill 1310 on the share prices of pennsylvania corporations considered the most severe of the second generation antitakeover laws the statute limits the ability of shareholders to challenge management through the proxy process and eliminates the traditional fiduciary obligation of directors to promote shareholders interests we find that pa sb1310 significantly decreased share values and estimate the loss to shareholders of pennsylvania firms at 4 billion however firms with antitakeover charter amendments already in place were less affected and firms that exempted themselves from pa sb1310 recovered a portion of shareholders wealth

can aggregation explain the persistence of inflation abstract an aggregation exercise is proposed that aims at investigating whether the fast average adjustments of the disaggregate inflation series of the euro area cpi is coherent with the slow adjustment of euro area aggregate inflation estimating a dynamic factor model for 404 inflation sub indices of the euro area cpi allows to decompose the dynamics of inflation sub indices into a part due to a common macroeconomic shock and to sector specific idiosyncratic shocks although idiosyncratic shocks dominate the variance of sectoral prices one common factor appears to be the main driver of aggregate dynamics in addition the heterogenous propagation of this common shock across sectoral inflation rates and in particular its slow propagation to inflation rates of services generates the persistence of aggregate inflation we conclude that the aggregation mechanism explains a significant amount of aggregate inflation persistence

competition or manipulation an empirical evidence of determinants of the earnings persistence of the u s banks we examine the impact of competition on bank earnings persistence by exploiting a natural experiment following interstate banking deregulation that increased bank competition we find that bank earnings adjustment speed increases after their states implement the deregulation this relationship is weakened however with the increase of bank s abilities to sustain earnings as reflected in size diversification managerial efficiency and safety we further find that the impact of compeititon on bank earnings adjustment speed is direct but not indirectly through the channel of earnings management

money in search equilibrium in competitive equilibrium and in competitive search equilibrium we compare three market structures for monetary economies bargaining search equilibrium price taking competitive equilibrium and price posting competitive search equilibrium we also extend work on the microfoundations of money by allowing a general matching technology and entry we study how equilibrium and the effects of policy depend on market structure under bargaining trade and entry are both inefficient and inflation implies first order welfare losses under price taking the friedman rule solves the first inefficiency but not the second and inflation may actually improve welfare under posting the friedman rule yields the first best and inflation implies second order welfare losses

institutional and legal context in natural experiments the case of state antitakeover laws we argue and demonstrate empirically that a firm s institutional and legal context has first order effects in tests that use state antitakeover laws for identification a priori the size and direction of a law s effect on a firm s takeover protection depends on i other state antitakeover laws ii preexisting firm level takeover defenses and iii the legal regime as reflected by important court decisions in addition iv state antitakeover laws are not exogenous for many easily identifiable firms we show that the inferences from nine prior studies related to nine different outcome variables change substantially when we include controls for these considerations

own company stock in defined contribution pension plans a takeover defense abstract if managers induce employees to hold company stock in defined contribution pension plans as a form of takeover defense then changes in state laws that enhance managerial protection should lead to a reduction in employer stock in 401 k plans delaware s mid 1990s validation of the poison pill in conjunction with a staggered board was followed by a significant decline in employee ownership within defined contribution plans for firms incorporated in delaware evidence using governance data suggests that this is due to responses of firms with staggered boards binary choice models confirm that employee ownership in defined contribution plans lowers takeover probabilities

investment tax incentives prices and the supply of capital goods using data on the prices of capital goods this paper shows that much of the benefit of investment tax incentives does not go to investing firms but rather to capital suppliers through higher prices the reduction in the cost of capital from a 10 percent investment tax credit increases equipment prices 3 5 7 0 percent this lasts several years and is largest for assets with large order backlogs low import competition or with a large fraction of buyers able to use investment subsidies capital goods workers wages rise too instrumental variables estimates of the short run supply elasticity are around 1 and can explain the traditionally small estimates of investment demand elasticities in absolute value the demand elasticity implied here exceeds 1

house prices borrowing constraints and monetary policy in the business cycle i develop a general equilibrium model with sticky prices credit constraints nominal loans and asset prices changes in asset prices modify agents borrowing capacity through collateral value changes in nominal prices affect real repayments through debt deflation monetary policy shocks move asset and nominal prices in the same direction and are amplified and propagated over time the financial accelerator is not constant across shocks nominal debt stabilises supply shocks making the economy less volatile when the central bank controls the interest rate i discuss the role of equity debt indexation and household and firm leverage in the propagation mechanism finally i find that monetary policy should not target asset prices as a means of reducing output and inflation volatility

dynamic resource allocation with hidden volatility abstract we study a firm s internal resource allocation using a dynamic principal agent model with endogenous cash flow volatility the principal supplies the agent with resources for productive use but the agent has private control over both project volatility and resource intensity and may misallocate resources to obtain private benefits the optimal contract can yield either overly risky or overly prudent project selection it can be implemented with a constant pricing schedule i e a static decentralized linear mechanism giving the agent control over the resource quantities project risk and agent s equity share the implementation rationalizes the use of hurdle rates above a firm s cost of capital and transfer prices above marginal cost while showing that hurdle rates or transfer prices may not vary with the agent s risk choice

economic consequences of deregulation evidence from the removal of voting cap in indian banks abstract we examine the effect of the 2005 banking regulation amendment bill and the 2011 banking laws amendment bill proposals for removal of the 10 percent voting rights cap in indian banks the 2011 banking laws bill was first introduced in 2005 but lapsed with the dissolution of the 14th lok sabha the bill was passed in december 2012 and raised the voting cap in private sector banks from 10 to 26 percent we present evidence that the removal of the voting cap enhances the value of votes of bank stocks by reducing the wedge between cash flow and control rights thus increasing monitoring and the probability of takeover post deregulation analysis reveals that the passage of the bill was followed by increasing blockholders number and percentage of shares held in larger and government banks furthermore a stronger negative relationship between banks profitability and size as well as share of non performing loans is observed this study makes an important contribution to the growing literature on the valuation impact and efficiency gains of liberalization of ownership restrictions in emerging markets as well as the rich literature on corporate governance and control relating to the value of voting privilege in companies with disparate voting rights

the rationale behind interfirm tender offers information or synergy this paper investigates the rationale behind interlirm tender offers by examining the returns realized by the stockholders of lirms that were the targets of unsuccessful tender offers and lirms that have made unsuccessful offers our results suggest that the permanent positive revaluation of the unsuccessful target shares documented by dodd and ruback 1977 and bradley 1980 is due primarily to the emergence of and or the anticipation of another bid that would ultimately result in the transfer of control of the target resources we also find that the rejection of a tender offer has differential effects on the share prices of the unsuccessful bidding firms depending upon whether the tender offer process results in a change in the control of target resources on the basis of these results we conclude that acquisitions via tender offers are attempts by bidding firms to exploit potential synergies not simply superior information regarding the true value of the target resources

do union wealth concessions explain takeover premiums the evidence on contract wages abstract this paper investigates whether union wealth concessions caused by changes in real wage growth following takeovers explain target firm share price premiums point estimates imply that union wealth changes in the six years following the acquisition account for 1 to 2 of shareholder premiums this figure rises to 5 over 18 years for hostile takeovers union wealth increases by roughly 3 and 10 of shareholder gains over 6 and 18 year periods the 95 confidence interval for wage changes implies that unions may lose up to a quarter or gain up to a fifth of what target shareholders gain

exploring the role delaware plays as a domestic tax haven abstract we examine whether delaware is a domestic tax haven we find that taxes play an economically important role in determining whether u s firms locate subsidiaries in delaware and that a delaware based state tax avoidance strategy lowers state effective tax rates by between 0 7 and 1 1 percentage points on average the tax savings represent a 15 24 decrease in the state income tax burden and translate to an increase in net income of 1 04 1 47 however we find that the tax benefits of delaware tax strategies are diminishing over time in response to initiatives by state governments to limit multistate tax avoidance

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

research and development cash flow agency and governance uk large companies this paper investigates the determinants of r d expenditure using a sample of uk listed companies with the highest spend from 2000 to 2005 we investigate the effect of corporate governance and ownership on r d using panel data the results provide some evidence that more governance tends to depress r d activity a finding that is robust to whether a composite or disaggregated index of governance is used one innovation of the paper is that we treat agency and finance effects interactively the ownership stake of the ceo appears to be supportive for r d

why higher takeover premia protect minority shareholders posttakeover moral hazard by the acquirer and free riding by the target shareholders lead the former to acquire as few sharcs as necessary to gain control as moral hazard is most severe under such low ownership concentration inefficiencies arise in successful takeovers moreover share supply is shown to be upward sloping rules promoting ownership concentration limit both agency costs and the occurrence of takeovers furthermore higher takeover premia induced by competition translate into higher ownership concen tration and are thus beneficial finally one share one vote and simple majority are generally not optimal and socially optimal rules need not emerge through private contracting

intellectual property rights reform and the cost of corporate debt abstract this paper investigates the role of intellectual property rights ipr protection on the cost of bank loans for firms in 48 countries using substantial reforms of patent rights as a source of identifying variation the paper provides strong evidence that borrowers from countries that underwent ipr reform experience significant reductions in the cost of bank debt importantly the effects of ipr reform on loan rates are significantly larger in industries that are more ip intensive additional analysis shows that in the wake of reforms borrowers obtain larger size loans which indicates that improvements in ipr are associated with greater credit availability ipr reform also increases foreign lenders participation in loan syndicates overall these findings suggest that legal protection afforded to intellectual property has a significant impact on the cost of corporate borrowing and the ability of innovative firms to raise debt capital

do takeover defense indices measure takeover deterrence many researchers use the g index or e index to measure firms takeover defenses others argue that these indices are not related to firms takeover likelihoods we find that unlike their raw values the instrumented versions of these indices are significantly and negatively related to acquisition likelihood the difference between the raw and instrumented results indicates that the g index and e index include an endogenous component and highlights the importance of accounting for endogeneity in tests that use takeover indices to measure takeover deterrence we provide data on new instruments that researchers can use to address these issues received april 13 2016 editorial decision october 14 2016 by editor david dennis

trade secrets law and corporate disclosure causal evidence on the proprietary cost hypothesis this study exploits the staggered adoption of the inevitable disclosure doctrine idd by u s state courts as an exogenous shock that generates variations in the proprietary costs of disclosure we find that firms respond to idd adoption by reducing the level of disclosure regarding their customers identities supporting the proprietary cost hypothesis our results are stronger for firms in industries with a higher degree of entry threats for firms in more volatile industries and for firms with a lower degree of external financing dependence overall this study represents one of the first efforts in identifying the causal effect of proprietary costs of disclosure on the supply of disclosure this article is protected by copyright all rights reserved

is there discretion in wage setting a test using takeover legislation anecdotal evidence suggests that uncontrolled managers let wages rise above competitive levels testing this popular perception has proven difficult however because independent variation in the extent of managerial discretion is needed in this paper we use states passage of anti takeover legislation as a source of such independent variation passed in the 1980s these laws seriously limited takeovers of firms incorporated in legislating states since many view hostile takeovers as an important disciplining device these laws potentially raised managerial discretion in affected firms if uncontrolled managers pay higher wages we expect wages to rise following these laws using firm level data we find that relative to a control group annual wages for firms incorporated in states passing laws did indeed rise by 1 to 2 or about 500 per year the findings are robust to a battery of specification checks and do not appear to be contaminated by the political economy of the laws or other sources of bias our results suggest that discretion significantly affects wages they challenge standard theories of wage determination which ignore the role of managerial preferences

multinational firms acquisitions and job tasks we revisit the question how inward fdi and multinational ownership affect relative labor demand motivated by the recent literature that distinguish between skills and tasks we argue that the impact of multinational and foreign ownership on the demand for labor is better captured by focusing on job tasks rather than education we use swedish matched employer employee data and find that changes of local firms to both foreign and swedish multinationals increase the relative demand for non routine and interactive job tasks in the targeted local firms hence in a high income country both inward and outward fdi have a task upgrading impact on local firms the effect is primarily driven by wage effects leading to increased wage dispersion for workers with different non routine and interactive task intensity we also show that the effect is not the same as skill upgrading since dividing employees by educational attainment does not capture changes in the relative labor demand hence our results suggest a new aspect of the labor market consequences of fdi less

price and probability decomposing the takeover effects of anti takeover provisions we study the effects of anti takeover provisions atps on the takeover probability the takeover premium and target selection voting to remove an atp increases both the takeover probability and the takeover premium that is there is no evidence of a trade off between premiums and takeover probabilities we provide causal estimates based on shareholder proposals to remove atps and address the endogenous selection of targets through bounding techniques the positive premium effect in less protected firms is driven by better bidder target matching and merger synergies

going to haven corporate social responsibility and tax avoidance this study examines the endogenous relation between corporate social responsibility csr and tax avoidance by focusing on a common strategy of corporate tax avoidance i e establishing entities in offshore tax havens using hand collected data on a sample of u s firms we find that firms csr ratings increase substantially in the two years after they first open tax haven affiliates we provide evidence by using the controlled foreign corporations cfc look through rule enacted by congress in 2006 that facilitates offshore profit shifting we find that firms that are affected by the cfc legislation increase their csr practices in response overall our results are consistent with the risk management theory which argues that firms hedge against the potential negative consequences of aggressive tax avoidance practices through an increase in positive csr activities

sticky price models and durable goods the inclusion of a durable goods sector in sticky price models has strong and unexpected implications even if most prices are flexible a small durable goods sector with sticky prices may be sufficient to make aggregate output react to monetary policy as though most prices were sticky in contrast flexibly priced durables with sufficiently long service lives can undo the implications of standard sticky price models in a limiting case flexibly priced durables cause monetary policy to have no effect on aggregate output our analysis suggests that durable goods prices are the most relevant data for calibrating price rigidity jel e21 e23 e31 e52

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

uncertainty inflation and welfare this paper studies the welfare costs and the redistributive effects of inflation in the presence of idiosyncratic liquidity risk in a microfounded search theoretical monetary model we calibrate the model to match the empirical aggregate money demand and the distribution of money holdings across households and study the effects of inflation under the implied degree of market incompleteness we show that in the presence of imperfect insurance the estimated long run welfare costs of inflation are on average 40 to 55 smaller compared to a complete markets representative agent economy and that inflation induces important redistributive effects across households

signalling by underpricing in the ipo market abstract empirical evidence suggests the existence of hot issue markets for initial public offerings in certain periods and in certain industries new issues are underpriced and rationing occurs this paper develops a model consistent with this observation which assumes the firm itself best knows its prospects in certain circumstances firms with the most favorable prospects find it optimal to signal their type by underpricing their initial issue of shares and investors know that only the best can recoup the cost of this signal from subsequent issues

can foreign stock investors influence policymaking foreign portfolio stock investors fpsis often attach political criteria to their investment choices sometimes in the hope of pressuring policymakers in boycotted markets to adjust their policies

multinationals cross border acquisitions and wage dispersion we examine the impact of cross border acquisitions on intra firm wage dispersion using a detailed swedish linked employer employee data set including data on all firms and about 50 of the swedish labour force with information on job tasks and education foreign acquisitions of domestic multinationals and local firms increase wage dispersion but so do also other types of cross border acquisitions hence it is the acquisition itself rather than foreign ownership that increases wage dispersion the positive wage effect is concentrated to ceos and other managers whereas other groups are either negatively affected or not affected at all

r d and ceo departure date do financial incentives make ceos more opportunistic the purpose of this article is to examine whether research and development r d expenditure is biased downward because of self serving behavior of highly incentivized managers this offers an insight into the general relationship between incentives and opportunism using instrumental variables and panel data methods for a sample of high r d spenders in the uk we examine whether r d is reduced in cases of imminent departure of the ceo results show evidence for this but only for the sample above the median in intensity of stock and options in the compensation package this suggests that opportunism is enhanced by inappropriately strong incentives the main results are robust to the inclusion of a number of corporate governance variables jel classification g30 o30

a unified framework for monetary theory and policy analysis search theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential however tractable versions of these models typically make strong assumptions that render them ill suited for monetary policy analysis we propose a new framework based on explicit micro foundations within which macro policy can be studied the framework is analytically tractable and easily quantifiable we calibrate the model to standard observations and use it to measure the cost of inflation we find that going from 10 percent to 0 percent inflation is worth between 3 and 5 percent of consumption much higher than previous estimates

monetary policy in a data rich environment abstract most empirical analyses of monetary policy have been confined to frameworks in which the federal reserve is implicitly assumed to exploit only a limited amount of information despite the fact that the fed actively monitors literally thousands of economic time series this article explores the feasibility of incorporating richer information sets into the analysis both positive and normative of fed policymaking we employ a factor model approach developed by stock j h watson m w diffusion indices journal of business economic statistics 2002 20 2 147 forecasting inflation 1999 journal of monetary economics 44 2 293 that permits the systematic information in large data sets to be summarized by relatively few estimated factors with this framework we reconfirm stock and watson s result that the use of large data sets can improve forecast accuracy and we show that this result does not seem to depend on the use of finally revised as opposed to real time data we estimate policy reaction functions for the fed that take into account its data rich environment and provide a test of the hypothesis that fed actions are explained solely by its forecasts of inflation and real activity finally we explore the possibility of developing an expert system that could aggregate diverse information and provide benchmark policy settings

preferences inflation and welfare abstract this paper systematically examines how degrees of household risk aversion ra and elasticity of intertemporal substitution eis impact the welfare costs of inflation in a heterogeneous agent environment featuring capital and essential money empirical evidence suggests that households have degrees of ra and eis that differ on average from traditional values and display large amounts of dispersion capturing these empirical features of preference values in an otherwise standard model leads to welfare enhancements of inflation due to household substitution of money for capital the analysis also compares the welfare implications for alternative ways to implement monetary policy

has u s monetary policy changed evidence from drifting coefficients and real time data despite the large amount of empirical research on monetary policy rules there is surprisingly little consensus on the nature or even the existence of changes in the conduct of u s monetary policy three issues appear central to this disagreement 1 the specific type of changes in the policy coefficients 2 the treatment of heteroskedasticity and 3 the real time nature of the data used this paper addresses these issues in the context of forwardlooking taylor rules with drifting coefficients the estimation is based on real time data and accounts for the presence of heteroskedasticity in the policy shock the findings suggest important but gradual changes in the rule coefficients not adequately captured by the usual split sample estimation in contrast to orphanides 2002 2003 i find that the fed s response to the real time forecast of inflation was weak in the second half of the 1970s perhaps not satisfying taylor s principle as suggested by clarida gali and gertler 2000 however the response to inflation was strong before 1973 and gradually regained strength from the early 1980s onward moreover as in orphanides 2003 the fed s response to real activity fell substantially and lastingly during the 1970s

takeover threats and managerial myopia this paper examines the familiar argument that takeover pressure can be damaging because it leads managers to sacrifice long term interests in order to boost current profits if stockholders are imperfectly informed temporarily low earnings may cause the stock to become undervalued increasing the likelihood of a takeover at an unfavorable price hence the managerial concern with current bottom line the magnitude of the problem depends on a variety of factors including the attitudes and beliefs of shareholders the extent to which corporate raiders have inside information and the degree to which managers are concerned with retaining control of their firms

labor protection and leverage this paper exploits inter temporal variations in employment protection across countries and finds that rigidities in labor markets are an important determinant of firms capital structure decisions over the 1985 2007 period we find that reforms increasing employment protection are associated with a 187 basis point reduction in leverage we interpret this finding to suggest that employment protection increases operating leverage crowding out financial leverage this result is robust across measures of employment protection and leverage and does not appear to be due to pre treatment differences between treated and control firms omitted variables unobserved changes in regional economic conditions and reverse causality heterogeneous treatment effects are consistent with our economic intuition we find that the negative effect is more pronounced in firms that are subject to frequent hiring and firing

investigating capitalism aversion capitalism aversion there are two non mutually exclusive theories of individual variations in pro capitalism opinions the first theory views pro capitalism opinions as self serving individuals are opposed to market forces when they threaten their economic rents the second theory views differences in such opinions as reflecting genuine disagreement on the efficiency of various economic systems using individual data we investigate the validity of both theories focusing on attitudes toward private ownership private profit and competition we find evidence that the first theory explains some of the variations in attitudes however consistent with the second theory we also find evidence of individual learning about the comparative virtues of economic systems the learning is slow home biased and path dependent long run cultural and historical determinants of pro market attitudes such as religion and legal origins explain more than 40 of the cross country variations in capitalism aversion last we provide tentative evidence that at the country level pro market opinions affect the nature of economic institutions our results suggest that the feasibility of economic reform does not depend solely on its impact on the distribution of rents ideological a prioris are likely to be important as well

evidence on the role of cash flow for investment abstract recent work in macroeconomics argues that imperfections in capital markets may lead to business cycle fluctuations by propagating relatively modest shocks evidence for such a mechanism also known as the financial accelerator consists largely of firm level studies showing that cash flow is an important predictor of investment but this evidence is often viewed with skepticism because cash flow is also a good indicator of investment opportunities in this paper we develop a framework for estimating the extent to which the predictive power of cash flow can be attributed to its role as a fundamental versus its role in alleviating credit frictions for firms with access to commercial paper and bond markets we find that the perfect capital markets model of investment can fully account for the role of cash flow for firms with only limited access to capital markets as indicated by lack of participation in public debt markets however investment appears to be excessively sensitive to fluctuations in cash flow these results thus clarify the role of cash flow in investment equations and provide support for the existence of a financial accelerator

inflation and the distribution of relative prices the role of productivity and money supply shocks this paper examines the role of aggregate productivity and money supply shocks in determining the relationship between inflation and the distribution of relative commodity prices i estimate a restricted var that includes aggregate variables and individual commodity prices and compute the cross sectional distribution of the dynamic responses of commodity prices to these aggregate shocks the findings indicate that both shocks lead to positive correlation between inflation and the dispersion of relative prices and that the response of prices across commodities is not uniform even in the long run

macroeconomic forecasting using diffusion indexes this article studies forecasting a macroeconomic time series variable using a large number of predictors the predictors are summarized using a small number of indexes constructed by principal component analysis an approximate dynamic factor model serves as the statistical framework for the estimation of the indexes and construction of the forecasts the method is used to construct 6 12 and 24 monthahead forecasts for eight monthly u s macroeconomic time series using 215 predictors in simulated real time from 1970 through 1998 during this sample period these new forecasts outperformed univariate autoregressions small vector autoregressions and leading indicator models

changes in the effects of monetary policy on disaggregate price dynamics abstract based on a time varying factor augmented vector autoregression we demonstrate that the propagation mechanism of monetary policy disturbances differs across disaggregate components of personal consumption expenditures while many disaggregate prices rise temporarily in response to a monetary tightening in the early part of the sample there is no evidence of a price puzzle at the aggregate level the share of disaggregate prices that exhibit the price puzzle diminishes from the early 1980s onwards there also is evidence of a substantial decline in the dispersion of disaggregate price responses over time this gradual decrease in cross sectional heterogeneity of disaggregate price responses is associated with a dampening effect on aggregate real economic activity and a stronger effect on the aggregate price level we illustrate by means of a multi sector sticky price model augmented by a cost channel how key structural parameters would have had to change to match this evolution of sectoral price dynamics

asymmetric timely loss recognition adverse shocks to external capital and underinvestment evidence from the collapse of the junk bond market abstract using the collapse of the junk bond market in the early 1990s as an exogenous shock to external capital i document in both difference in differences and triple difference designs that speculative grade firms that recognize economic losses in a timely manner experience a smaller reduction in investment following the collapse the effect is more pronounced for speculative grade firms with a low level of asset liquidation value using the excess bond premium as a proxy for fluctuations in the supply of capital i also extend the generalizability of my findings to a broader sample of 84 421 firm years over the 1972 2011 period

enjoying the quiet life corporate governance and managerial preferences much of our understanding of corporations builds on the idea that managers when they are not closely monitored will pursue goals that are not in shareholders interests but what goals would managers pursue this paper uses variation in corporate governance generated by state adoption of antitakeover laws to empirically map out managerial preferences we use plant level data and exploit a unique feature of corporate law that allows us to deal with possible biases associated with the timing of the laws we find that when managers are insulated from takeovers worker wages especially those of white collar workers rise the destruction of old plants falls but the creation of new plants also falls finally overall productivity and profitability decline in response to these laws our results suggest that active empire building may not be the norm and that managers may instead prefer to enjoy the quiet life

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

the end of the opportunism vs trust debate bounded reliability as a new envelope concept in research on mne governance modern transaction cost economics tce thinking has developed into a key intellectual foundation of international business ib research but the williamsonian version has faced substantial criticism for adopting the behavioral assumption of opportunism in this paper we assess both the opportunism concept and existing alternatives such as trust within the context of ib research especially work on multinational enterprise mne governance case analyses of nine global mnes illustrate an alternative to the opportunism assumption that captures more fully the mechanisms underlying failed commitments inside the mne as a substitute for the often criticized assumption of opportunism we propose the envelope concept of bounded reliability brel an assumption that represents more accurately and more completely the reasons for failed commitments without invalidating the other critical assumption in conventional tce and internalization theory thinking namely the widely accepted envelope concept of bounded rationality brat bounded reliability as an envelope concept includes two main components within the context of global mne management opportunism as intentional deceit and benevolent preference reversal the implications for ib research of adopting the bounded reliability concept are far reaching as this concept may increase the legitimacy of comparative institutional analysis in the social sciences

the causal effects of proximity on investment evidence from flight introductions we use the introduction of direct flights as an exogenous shock to the travel time between mutual funds and firms to estimate the causal effects of proximity on fund investment decisions and performance we find that a fund invests significantly more in firms that become more proximate following the introduction of direct flights and that these more proximate investments exhibit superior performance our findings are robust to including a variety of fixed effects and potential confounders such as firm level shocks fund level shocks and time trends collectively our results indicate that proximity enhances investors ability to acquire value relevant information about firms

the macroeconomics outcome of oil shocks in the small eurozone economies in this work we provide an analysis over the period 1999 2015 of the effects of oil shocks on prices and gdp in a group of small euro area economies the group includes austria belgium finland greece ireland italy netherlands portugal and spain we use the structural near var methodology and are thus able to model the joint interaction of area wide macroeconomic variables and national variables we find that under the emu oil price shocks have been important drivers of business cycle fluctuations in almost all these countries moreover an increase in oil prices produces significant recessionary effects in all the countries included in the investigation thus although there are different sizes in the responses of output in the investigated countries our main conclusion is that oil prices still matter for european economies