individual taxpayer response to tax cuts 1982 1984 with implications for the revenue maximizing tax rate abstract this paper measures the response of taxpayers to the u s personal rate reductions from 1982 to 1984 a baseline income distribution is created to describe what level and distribution could be expected in the absence of tax changes comparison of this baseline with actual tax return data shows that at least one sixth and probably one quarter of the revenue ascribable to the rate reductions was recouped by changes in taxpayer behavior the data also show that federal income tax revenue would have been maximized at a tax rate of about 35 percent and total income tax revenue maximized at a total tax rate of about 40 percent

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

comment on bergemann and hege dirk bergemann and ulrich hege examine in this paper the reasons why venture capitalists provide funds to entrepreneurs in successive financing rounds or stages this is an interesting analysis of one of the most important mechanisms that venture capitalists employ to control entrepreneurs an issue that surely deserves greater theoretical and empirical attention the authors approach to these issues is a creative and novel one at the same time some assumptions and predictions of the model seem quite at odds with the empirical evidence about venture capital investments in this discussion i will first briefly summarize the key features and predictions of the paper i will then highlight several of my concerns with the model the discussion concludes with some more general thoughts about the rationales for the staging of venture capital investments in young firms the paper depicts the interactions between a single entrepreneur and a venture investor the entrepreneur who has no financial resources must turn to a venture capitalist for funding it is assumed that the entrepreneur initially has the bargaining power in the negotiation the large number of potential venture investors are not diaerentiated dynamic interactions between several venture capitalists in diaerent financing rounds of the type analyzed by admati and pfleiderer 1994 are not considered in this model the project whose quality is initially uncertain can turn out to be one of two types good or bad the good projects are not revealed immediately rather in each period there is some probability that the project will be revealed to be good and generate a fixed return at which point the venture investor s involvement ends the probability of a successful outcome is increasing with

cross border venture capital investments the impact of foreignness on returns against the background of the growing internationalization of venture capital vc investing this is the first global comparison of the returns generated by individual domestic and cross border deals we examine investments worldwide during 1971 2009 and find that cross border investments significantly underperform compared with equivalent domestic investments returns are negatively affected by geographic distances cultural disparities and institutional differences between the home and host countries returns on cross border and domestic deals also decline after the late 1990s international portfolio diversification and the saturation of domestic markets may explain why vc investors make cross border investments despite poor expected returns

bank portfolio exposure to emerging markets and its effects on bank market value abstract this study estimates a model of banking company equity returns taking into consideration book value and market value measures of their exposure to emerging markets debt in this estimation general systematic market factors such as the rate of return on the s p500 stock index and yields on a constant maturity 5 year treasury note are held constant such that the exposure variables are accounting for effects due to banks exposure to emerging market debt the results although not uniform among banking companies support the hypothesis that the extent of exposure to emerging market debt are factored into the valuation of banking company equity contemporaneously the inclusion of a market value indicator adds to the explanation of equity returns of some banks it is also clear that knowing the extent of the exposure on a book value basis is important information alone that may allow investors to take account of or evaluate the effects of changes in banking company equity valuation from ldc debt exposures we also perform an event study for three major debt crises to determine whether the market recognizes the effects of these events on bank valuation the event study results show that there is little information from identifying the time period of the crises on banking company equity returns explanations for this are that the information of these possible crises has been embedded in bank changes in exposure and that the market valuation of the emerging market debt is already accounted for by our model

the market valuation effects of the financial institutions reform recovery and enforcement act of 1989 abstract this paper evaluates the stock market effects of events leading to the passage of the financial institutions reforms recovery and enforcement act of 1989 the evidence suggests that the signing of the act by president bush produced positive abnormal returns for both banks and s ls and that the addition of tougher capital standards produced positive returns for s ls in addition the act increased the risk of both banks and s ls

overreaction in the spanish equity market abstract this paper examines the overreaction hypothesis within the spanish capital market the hypothesis is clearly accepted even after correcting for size when estimating excess returns twelve months after portfolio formation losers win 24 5 more than winners there is also a correspondence between excess returns and changes in the earnings pattern of losers and winners firms

venture capital financing moral hazard and learning we consider the provision of venture capital in a dynamic agency model the value of the venture project is initially uncertain and more information arrives by developing the project the allocation of the funds and the learning process are subject to moral hazard the optimal contract is a time varying share contract which provides intertemporal risk sharing between venture capitalist and entrepreneur the share of the entrepreneur reflects the value of a real option the option itself is based on the control of the funds the dynamic agency costs may be high and lead to an inefficient early stopping of the project a positive liquidation value explains the adoption of strip financing or convertible securities finally relationship financing including monitoring and the occasional replacement of the management improves the efficiency of the financial contracting

the role of demandable debt in structuring optimal banking arrangements demandable debt finance by banks warrants explanation because it entails costs of bank suspension liquidation and idle reserve holdings an explanation is developed in which demandable debt provides incentive compatible intermediation where the banker has comparative advantage in allocating investment funds but may act against the interests of uninformed depositors demandable debt attracts funds by giving depositors an option to force liquidation its usefulness in transacting follows from information sharing between monitors and nonmonitors copyright 1991 by american economic association

technical change organizational form and the structure of bank production of those technological characteristics related to the nature of competition among firms in an industry or market scale economies and technical change are especially important economies of scale are said to exist when an equiproportional increase in all inputs results in a greater than proportional increase in output or equivalently when an increase in output at constant input prices leads to a less than proportional increase in total costs thus average costs decline as output expands depending upon the extent to which costs decline as output increases regulation of the firms in the industry may be necessary l the literature analyzing scale economies in commercial banking is voluminous the early studies on scale economies in banking include those by benston 1965 1972 greenbaum 1967 murphy 1972 and bell and murphy 1968 more recent studies include those by benston hanweck and humphrey 1982 and clark 1984 2 this literature has established that mild scale economies exist in bank

the bright and dark side of staging investment performance and the varying motivations of private equity firms previous papers that examined investment decisions by private equity funds are divided on whether staging has a positive or negative effect on returns we believe these opposing views can be reconciled by studying when staging is used during the life of the investment relationship we find that staging has a positive effect on investment returns in the beginning of the investment relationship consistent with the notion that staging helps mitigate information asymmetry however staging appears to be negatively associated with returns when used prior to the exit decision our unique dataset allows us to measure these intertemporal effects precisely

optimal leverage and aggregate investment we analyze the optimal financing of investment projects when managers must exert unobservable effort and can also switch to less profitable riskier ventures optimal financial contracts can be implemented by a combination of debt and equity when the risk shifting problem is the most severe while stock options are also needed when the effort problem is the most severe worsening of the moral hazard problems leads to decreases in investment and output at the macroeconomic level moreover aggregate leverage decreases with the risk shifting problem and increases with the effort problem

corporate tax integration in the united states a general equilibrium approach this paper presents estimates of static and dynamic general equilibrium resource allocation effects for four alternative plans for corporate and personal income tax integration in the united states a medium scale numerical general equilibrium model is used which integrates the u s tax system with consumer demand behavior by household and producer behavior by industry results indicate that total integration of personal and corporate taxes would yield an annual static efficiency gain of around 6 billion 1973 dollars partial integration plans yield less dynamic effects are larger and our analysis indicates that full integration may yield gains whose present value is as large as 500 billion or about 1 0 percent of the discounted present value of the gnp stream to the u s economy after correction for population growth plans differ in their distributional impacts although these findings depend on the nature of replacement taxes used to preserve government revenues the size of dynamic resource allocation effects is sensitive to the choice of the replacement tax while static gains are reasonably robust

the impact of the 1980 depository institutions deregulation and monetary control act on market value and risk evidence from the capital markets the depository institutions deregulation and monetary control act of 1980 brought about major changes in the banking industry this study employs capital market data to examine the act s impact on the relative competitive positions of distinct classes of firms within the industry the evidence supports the hypothesis that federal reserve system banks profited from the regulatory change at the expense of nonmember banks and savings and loans copyright 1988 by ohio state university press

an analysis of intra industry differences in the effect of regulation the case of deposit rate ceilings abstract this study examines the impact of deposit rate ceiling changes on the market value of commercial banks and stock savings and loan associations statistically significant increases in market value are found on announcement of the removal of ceilings on large denomination certificates of deposit in contrast retail commercial banks and savings and loans experienced declines in value on announcement of the elimination or relaxation of deposit rate ceilings on small denomination consumer accounts in addition for all events analyzed significant differences were found in the effect of ceiling changes on the market value of wholesale and retail commercial banks

differential impact on bank valuation of interstate banking law changes abstract by 1988 forty seven states and the district of columbia had enacted legislation liberalizing interstate banking restrictions this study systematically investigates the market impact of these law changes on bank stock prices using an event parameter event study methodology we assess the differential impact on in state and out of state banks to a given state law change we also assess the differential impact of law changes upon banks included in or excluded from any regional compacts among states money center banks are treated as a special class of out of state or excluded banks we find that out of state and out of region banks excluding money center banks have profited most from these law changes and money center banks have been least positively affected both at the time of enactment and at the effective date of the law changes we attribute these findings to the opening of interstate banking opportunities to other than money center and foreign banks thus leveling the playing field

on the computation of returns in tests of the stock market overreaction hypothesis abstract a number of recent studies have attempted to find out whether investors overreact we argue that in many of these studies the method used to compute cumulative returns the arithmetic method is flawed and we show that estimates of portfolio performance can be affected our findings are relevant not only to tests of the overreaction hypothesis but to other areas in finance where the arithmetic method and event study approach are used

the non neutrality of inflation for international capital movements this paper studies the question of how unilateral changes in the rate of inflation affect the international allocation of capital presenting a model that incorporates a transaction motive for money holding and capital income taxation with historical cost accounting it counters the view that inflation will be neutral in a world of perfect foresight and costless arbitrage under mild conditions domestic inflation will unambiguously induce a capital export the paper includes a discussion of the fisher effect the empirical observation of a less than one to one translation of inflation into nominal interest rates is shown to be compatible with the model and in fact the capital export turns out to be stronger the lower the degree of translation

the effects of a shift in monetary policy regime on the profitability and risk of commercial banks abstract this paper examines the effects of the fed s october 6th 1979 change in monetary policy regime on the profitability and risk of commercial banks using capital market data and an event study methodology it was found that bank stocks exhibited significant abnormal returns during the announcement week of the policy change when these abnormal returns were decomposed into a part related to unexpected interest rate changes and a part assumed to reflect increased rate variability the results were consistent with a negative relationship between bank returns and interest rate surprises as well as between bank returns and rate variability

banks non traditional activities under regulatory changes impact on risk performance and capital adequacy using the big six canadian chartered banks quarterly financial statements and daily stock market data from 1982 to 2018 we examine the impact of non interest income on canadian banks risk perfor

the effects of didmca on bank stockholders returns and risk abstract in this paper we examine the effects of the 1980 didmca on bank stockholders returns and risk while at the time of the announcement both commercial banks and thrifts appeared to benefit measured by abnormal returns over a longer period of time surrounding the announcement week it is evident that thrift stockholders were the primary beneficiaries of the acts passage when the effects of didmca on risk was analysed it was found that after the act s passage the total return risk of both money center and regional banks increased while that for thrifts decreased however some of the beneficial effects of the act appear to have been mitigated by an increase in the absolute size of unexpected interest rate risk in the post enactment period

free banking and the stability of early joint stock banking proponents of free banking argue that systems adopting their policies will be stable in this paper we present evidence suggesting that in general early joint stock banking systems did not adopt free banking and those that did proved to be unstable in particular we demonstrate that those systems imposing regulations were generally stable we rationalise the success of regulation as a pragmatic solution to the time inconsistency problem arising from the peculiar nature of the banking firm notably we find that the golden age of free banking stability can be attributed to restrictions on the organisational form of the early banking firm

size seasonality and stock market overreaction recent research finds that the prior period s worst stock return performers losers outperform the prior period s best return performers winners in the subsequent period this potential violation of the efficient markets hypothesis is labeled the overreaction phenomenon this paper shows that the tendency for losers to outperform winners is not due to investor overreaction but to the tendency for losers to be smaller sized firms than winners when losers are compared to winners of equal size there is little evidence of any return discrepancy and in periods when winners are smaller than losers winners outperform losers

the wealth effects of deregulation of canadian financial institutions abstract canada like other industrial countries recently introduced various financial reforms to remove the barriers separating the operations and ownership of banks from non bank financial institutions this study analyzes the wealth effects of the reforms on the banks and non bank financial institutions and the changes in their systematic risk resulting from financial deregulation over the period 1984 to 1991 the results indicate that while there was a significant cumulative gain for the insurance industry unlike a number of u s studies there was no evidence of wealth transfer among the institutions during the period of deregulation of the canadian financial system additional tests indicate that although the regulatory changes did not have a significant effect on the risk of the banks the systematic risk of the non bank financial institutions increased significantly during the period of regulatory reforms

interest rate risk and the pricing of depository financial intermediary common stock empirical evidence abstract using the likelihood ratio test this paper presents evidence that interest rate risk is priced these results are consistent with earlier findings presented by sweeney and warga based on a different sample and methodology the statistical results further reveal that failure to discern significant interest rate premia is attributable to insufficient rate sensitivity rather than being an outcome of monetary policy i e inadequate rate volatility

changes in interstate banking laws the impact on shareholder wealth this study examines the impact on shareholder wealth of changes in interstate banking laws the research demonstrates that changes in state statutes which allow interstate banking have a positive impact on the stock prices of regional banking organizations and a negative impact on the stock prices of money center banks interstate banking statutes initially exclude those states in which the money center banks are headquartered the findings provide evidence that by excluding money center banks from expansion across state lines the competition from the regional banks may have an adverse competitive effect on the money center banks from june 1982 to september 1986 44 states and the district of columbia passed some form of interstate banking legislation this study measures the impact of these legislative changes on the wealth of bank shareholders when legislation is enacted each state s banks are given the opportunity to engage in interstate merger activity the market s perception of the impact on the affected banks should be reflected in the equity returns of shareholders the results show that while there are no announcement effects for the entire sample there are significant effects among a subsample of the data set money center banks experience negative returns throughout the sample period whereas regional banking organizations experience positive abnormal returns section i reviews the literature section ii describes the data used in this study and defines the event the methodological issues are addressed in section iii the empirical results are in section iv the conclusions are in section v

the 1986 us tax reform and the world capital market the 1986 u s tax reform was a policy of tax cut cum base broadening among other things the corporate and personal tax rates were reduced the investment tax credit itc was lifted the depreciation periods of the accelerated cost recovery system acrs were lenghtened and realized capital gains became fully included in the personal tax base this paper gives a brief overview of the main effects on international capital movements that these measures may have drawing on related and more elaborate discussions of the subject in sinn 1987a ch 7 and 1987b the analysis focuses on the interactions between the real and financial spheres of the economy and unlike most of the existing literature on taxation and international capital flows it is based on a microfoundation of the tax influence on the firms marginal investment conditions the main result is that in the presence of accelerated depreciation and the residence principle for interest income taxation not only the base broadening but also the tax cuts may expel capital from the united states

a new test of the relationship between regulatory change in financial markets and the stability of beta risk of depository institutions the us economy experienced major regulatory changes in the banking and finance industry with the passage of five major acts over the period 1980 to 1991 this has generated an extensive literature investigating the effects of these changes on the us banking industry in particular this body of research has examined the share market reaction to regulatory changes as well as their impact on the risk return market value and profitability of banking industry stocks generally it has been found that the regulatory changes have had a substantial impact although the effect has not been uniform across all depository institutions this paper extends this literature by analysing the stability of a sample of eighteen us banking industry stock betas across five periods a pre regulatory change period a monetary experiment period a deregulation period a reregulation period and a post regulatory change period based on an analysis of weekly returns we find that the level of bank risk has increased further we also find a tendency towards greater beta instability in both the monetary experiment and deregulation samples the degree of beta instability is lowest in the pre regulatory change and post regulatory change samples overall the monetary experiment and regulatory change coincided with an increased tendency towards beta instability we also compare our results to a randomly selected control sample of non banks and find some more general effects of regulatory change on individual stock betas

conditioning the return generating process on firm specific events a discussion of event study methods empirical investigations into the codetermination of security prices and eco nomic events are called event studies there are several ways of estimating the codetermination of interest since fama fisher jensen and roll 8 it has been general practice to first translate variables into rates of return then net out gen eral market movements and finally examine the relationship between residual returns and events the methodology in all of its variants fails under the rubric of 4 residual analysis empirical methods used in residual analysis deviate from the structure and terminology generally found in classical econometrics while this is not a criticism of residual analysis it results in a communication problem that is more than simply pedantic in nature a broad body of econometric literature dealing with parameter estimation statistical inference and hypothesis testing often goes untapped by empiricists in finance who within internally consistent sets of as sumptions have created a separate body of statistical methods in this paper a union of the two disciplines is advocated to provide a forum for comparing and contrasting alternative empirical methods the event study problem is broken down into three phases the parameterization of informa tion arrival applicable to the problem an examination ofthe relationship between parameters in the information arrival process and the estimates resulting from alternative estimation methods and aggregation across firms experiencing simi

what s different about banks abstract negotiable certificates of deposit cd s trade in the capital market in competition with other securities like commercial paper and bankers acceptances if cd s must pay lenders competitive monetary interest the reserve tax on cd s is borne by bank borrowers viability of the tax means there must be something special about bank loans that makes some borrowers willing to pay higher interest rates than those on other securities of equivalent risk moreover there must be something special about banks that prevents other intermediaries from competing to assure that it never pays to finance loans with cd s

takeovers improve firm performance evidence from the banking industry the hypothesis that takeovers provide managers with the incentive to maximize firm value is tested by examining the relationship between profitability and state statutes governing takeover activity among banks the evidence indicates that firms in states with an active takeover market are more profitable when takeover activity is restricted increased use of other mechanisms that provide an incentive to maximize firm value such as concentration of equity ownership and management ownership of stock is observed however these alternative methods have a smaller effect on profitability and do not completely compensate for the absence of an active takeover market

the gains from takeover deregulation evidence from the end of interstate banking restrictions this paper uses interstate banking deregulation to explore the benefits of takeover deregulation and how these benefits are distributed across different firms we find large and significant abnormal returns around the interstate banking and branching efficiency act of 1994 which imply it created 85 billion of value in the banking industry consistent with an active market for corporate control allowing beneficial consolidation and providing needed discipline there is a strong negative relationship between banks abnormal returns and their prior performance consistent with managerial entrenchment limiting takeover discipline banks with higher insider ownership lower outside block ownership and or less independent boards have lower abnormal returns imagine an economy in which strict regulation has prohibited all takeover activity and the governing body suddenly announces that the restrictions on mergers and acquisitions will be eliminated in one year the capital market response to this announcement would establish the aggregate value added from an active corporate control market and differences between individual firms stock price reactions would reveal which firms benefit most from unrestricted consolidation and takeover discipline in some ways this hypothetical situation became reality for the u s banking industry in 1994 when congress wrote and passed the interstate banking and branching efficiency act ibbea this legislation liberalized the bank takeover market by eliminating the various state laws restricting bank mergers across state lines the ibbea was widely expected to accelerate the consolidation already occurring within the banking industry see for example american banker 10 11 94 a more active takeover market should increase firm values in at least two ways first unrestricted consolidation would allow firms to better utilize

stock market reactions to the depository institutions deregulation and monetary control act of 1980 abstract this paper evaluates the effects of events leading to the passage of the depository institutions deregulation and monetary control act of 1980 the evidence suggests that the initial proposal of the act by then president carter and the final passage of the act by the house of representatives produced positive abnormal returns to stockholders of large commercial banks stockholders of small commercial banks and small savings and loans on the other hand generally experienced negative abnormal returns furthermore when hopes of passage of the act faced significant negative positive abnormal returns were experienced by stockholders of large small commercial banks

acquisition targets and motives the case of the banking industry findings do not indicate poorly managed firms are more likely to be acquired than well managed firms the analysis uses a sample of 1 046texas banks that existed in 1970 out of which 201 were acqui red during the period 1970 82 a multinomial logit procedure is used to estimate the relationship between the likelihood of acquisition and the characteristics of the target firm and its market additional results suggest that firms with la rge market shares low capital asset ratios and operations in urban areas are r elatively likely to be acquired but not firms with low profits or low growth copyright 1987 by mit press

the effect of capital market characteristics on the value of start up firms we develop an equilibrium model of contracting bargaining and search in which the relative scarcity of venture capital affects the bargaining power of entrepreneurs and venture capitalists this in turn affects the pricing contracting and value creation in start ups the relative scarcity of venture capital is endogenous and depends on the profitability of venture capital investments entry costs and transparency of the venture capital market supply and demand conditions also affect the incentives of venture capitalists to screen projects ex ante we characterize both the short and long run dynamics of the venture capital industry which provides us with a stylized picture of the internet boom and bust periods our model is consistent with existing evidence and provides a number of new empirical predictions

staged financing an agency perspective this paper investigates the structure of outside investment in a profitable entrepreneurial venture though efficient financing the venture up front may be infeasible because the entrepreneur cannot commit to not renegotiate down the outside investor s claim once she s sunk her investment staging the investment over time helps to mitigate this commitment problem the early rounds of investment create collateral that support the later rounds we characterize the optimal staged investment path and show how it is affected by various features of the venture the predictions of the model are consistent with observations on staged financing in venture capital

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

an examination of cost subadditivity and multiproduct production in large u s banks this paper examines the subadditivity of costs for a sample of the largest commercial banks in the u s we introduce into the bank production literature the grid approach developed by evans and heckman 1984 we estimate two models of the bank cost function one where deposits are treated as outputs while in the other deposits are treated as inputs the models are estimated using the commonly used translog and the more flexible miniflex laurent viewed narrowly the findings imply that cost complementarities are not the raison d etre for multiproduct production in the largest commercial banks subadditive costs however are sufficient but not necessary for multiproduct production it is quite possible for multiproduct production to be optimal when output are produced independently levy and haber 1986 and teece 1980 1982 it is only required that inputs be shareable as opposed to joint copyright 1990 by ohio state university press

an analysis of the implications of uncertainty and agency problems on the wealth effects to acquirers of private firms abstract extensive empirical work shows that bidders do not gain from the acquisition of publicly traded targets but experience positive excess returns in the acquisition of privately held firms this study investigates how two important differences between private and public firms namely informational uncertainty and ownership characteristics impact the returns to acquirers a sample of targets that were acquired shortly after filing for an ipo was collected to circumvent the lack of information on private firms in spite of the special characteristics of these targets the listing effect is still prevalent in this sample the results of the analysis are consistent with the hypothesis that acquirers gain in the acquisition of private firms because these targets have a relatively weaker bargaining position due to informational and agency problems and costly access to external capital markets to finance growth opportunities

state passage of interstate banking legislation an analysis of firm legislative and economic characteristics abstract forty nine states and the district of columbia enacted legislation reducing interstate banking restrictions between july 1982 and april 1993 for these 50 banking bills deregulation increased the average price of bank stocks returns vary cross sectionally by firm characteristics regulatory features and economic conditions returns are positively related to the characteristics of acquisition targets furthermore returns are positively related to legislative features that increase the bargaining power of potential targets and economic conditions that are likely to encourage bank acquisition these findings are consistent with the relaxation of geographic restrictions increasing activity in the corporate control market

returns to scale and input substitution for large u s banks the united states commercial banking industry has experienced significant changes in recent years the recent wave of mergers and the near term prospects of interstate banking suggests that the industry is moving toward much larger average banking organizations rhoades 1985 will a more concentrated banking industry result in lower costs due to scale economies we address this question by examining the cost function for large banks numerous studies of economies of scale in banking exist generally tracing their roots to the classic papers by benston 1965 and bell and murphy 1968 a good review of the most recent studies can be found in clark 1988 the majority of the papers uses samples of smaller banks that is under 1 billion in deposits finding generally that economies of scale are quickly exhausted and that further increases in bank size occur at constant or possibly increasing cost the extrapolation of previous findings for samples of smaller banks to large banks may be problematic especially in the current environment first large banks service a different mix of markets and customers than small banks suggesting that large and small banks probably face different cost structures second the process of deregulation may have rendered the results of prior studies moot since the data pertain to periods before significant deregulation since we

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

corporate takeovers the efficiency arguments in recent years the tender offer takeover has been praised and damned with a ferocity suggesting that the survival of capitalism is at stake the truth as in most disputes with substantial metaphysical content is more prosaic some takeovers enhance economic efficiency some degrade it and the balance of effects though not fully known is most likely a close one in this essay i try to lay bare the debate s foundations and bring it back to earth with an injection of evidence

ipos trade sales and liquidations modelling venture capital exits using survival analysis using a detailed sample made up of more than 20 000 investment rounds we analyze the time to ipo trade sale and liquidation for about 6 000 venture backed firms we model these exit times using competing risks models biotech and internet firms have the fastest ipo exits internet firms are also the fastest to liquidate while biotech firms are however the slowest the conditional probability for ipos are clearly non monotonous with respect to time as time flows venture capital backed firms first exhibit an increased likelihood of exiting to an ipo however after having reached a plateau investments that have not yet exited have fewer and fewer possibilities of ipo exits as time increases the bubble period from 1998 to 2000 was an easy money period where venture capitalists gave much more money to firms many of which did not offer outstanding growth potential as they tended to liquidate much faster than in normal times

why hang on to losers divestitures and takeovers we study the divestiture decisions of managers who care about their reputations managers divestiture and investment decisions are publicly observable but managers privately observe signals with respect to the future payoff distribution of investments they have initiated we establish that in equilibrium there is too little divestiture these inefficiencies create the opportunity for wealth enhancing divestiture motivated takeovers a key result is that only managers of targets with middle of the road asset specificity should consider the takeover threat credible these findings suggest that uniqueness of assets is an important determinant of both agency costs and takeover activity our analysis leads to several empirical predictions overwhelming empirical evidence has documented large gains in shareholder wealth that arise from takeovers jarrell brickley and netter 1988 and jensen and ruback 1983 the source of these gains has remained elusive however although takeovers are followed by some infusion of new managerial talent we have not witnessed the kind of profound post takeover restructuring of the productive activities of target firms that would readily justify the documented wealth gains a commonly observed post takeover initiative is divestiture of some of the target s lines of business bhide 1989 and bhagat shleifer and vishny 1990 what is puzzling is that if the gains from takeovers stem from the anticipation of such divestitures then why were these divestitures not undertaken by the target firm s management in the first place the purpose of this paper is to provide a possible answer to this question our focus is on the divergence in incentives between managers and shareholders with respect to divestitures of ongoing projects we show that managers might rationally decide to hang on to projects that should be divested in

what we can expect from interstate banking abstract though interstate banking has been legislatively prohibited commercial banks have circumvented these restrictions this has led to proposals to permit interstate banking in this paper we examine the performance of one set of banks which has been allowed to operate on an interstate basis namely those grandfathered by the bank holding company act of 1956 the data and statistical tests confirm that the grandfathered bhcs have experienced a statistically significant reduction in the share of state deposits and homogenization in their profitability and portfolio composition compared with their peers in the same states over the 1960 1983 period these results suggest that the ability to operate banks interstate has provided little in the way of long run competitive advantages for those bhcs with this privilege it is unlikely that interstate branching will result in the large money center banks dominating local and regional banking markets

stock price reactions to the wall street journal s securities recommendations this paper examines the impact of the heard on the street hots column of the wall street journal on common stock prices the results of the study indicate that the hots column appears to have an impact on stock prices on the publication day however we also find a smaller but statistically significant impact on two days preceding the pub lication the significant abnormal returns on these days are associated with higher trading volume the reaction of stock prices is symmetric with respect to the buy and sell recom mendations and the impact of single company recommendations is greater than the im pact of the multi company recommendations i introduction the efficient market hypothesis assumes that security prices fully and instantaneously reflect all available information considerable evidence has been accumulated during the past decades in support of the hypothesis the acceptance of the hypothesis has raised questions about the economic value of professional investment advice if the market is efficient then the management of port folios based on these recommendations should not consistently outperform the market why then are investors still willing to pay for this information examples of the advice include low cost financial publications brokerage house rec ommendations and subscription financial newsletters that sell for hundreds of dollars recent studies argue that investment advisors can provide information to investors at a lower cost than the investors cost of information production millon and thakor 1985 develop a model that explains the existence of investment advisory agencies they argue that if the information of investment advisory agencies permits security analysts to share information about common uncertainties that affect the value of firms as a whole such as the return on the market portfolio then investment advisory agencies can produce information more cheaply than individual investors this model is consistent with the study of

deposit insurance and wealth effects the value of being too big to fail this paper investigates the effect on bank equity values of the comptroller of the currency s announcement that some banks were too big to fail and that for those banks total deposit insurance would be provided using an event study methodology we find positive wealth effects accruing to tbtf banks with corresponding negative effects accruing to non included banks we demonstrate that the magnitude of these effects differed with bank solvency and size we also show that the policy to which the market reacted was that suggested by the wall street journal and not that actually intended by the comptroller the role of deposit insurance has become a topic of increasing debate advocates argue that by removing the incentive to run deposit insurance protects individual financial institutions from instability in the intermediation process thereby providing stability to the financial system as a whole 1 the recent rise in bank failures and the concomitant crises in the s l industry however demonstrate that this stability is not guaranteed moreover critics note that deposit insurance may introduce incentive problems and wealth effects into the financial system both of which can impede the effective functioning of any deposit insurance system these problems have prompted concern about the structure of the current deposit insurance system and have led to numerous proposals regarding its restructuring 2 this paper investigates one aspect of this debate by analyzing the effect on bank equity values of the policy decision to insure completely some banks but not others specifically in september 1984 the comptroller of the currency testified before congress that some banks were simply too big to fail tbtf and that for those banks total deposit insurance would be provided while not explicitly naming the banks the comptroller admitted that this policy would apply to the eleven largest banks using an event study methodology we analyze

financial contracting theory meets the real world an empirical analysis of venture capital contracts we compare the characteristics of real world financial contracts to their counterparts in financial contracting theory we do so by studying the actual contracts between venture capitalists vcs and entrepreneurs the distinguishing characteristic of vc financings is that they allow vcs to separately allocate cash flow rights board rights voting rights liquidation rights and other control rights we describe and measure these rights we then interpret our results in relation to existing financial contracting theories we also describe the interrelation and the evolution across financing rounds of the different rights query 1 query 2

performance changes around bank mergers revenue enhancements versus cost reductions this paper examines operating performance around commercial bank mergers we find that industry adjusted operating performance of merged banks increases significantly after the merger large bank mergers produce greater performance gains than small bank mergers activity focusing mergers produce greater performance gains than activity diversifying mergers geographically focusing mergers produce greater performance gains than geographically diversifying mergers and performance gains are larger after the implementation of nationwide banking in 1997 further we find improved performance is the result of both revenue enhancements and cost reduction activities however revenue enhancements are most significant in those mergers that also experience reduced costs

measuring the effects of regulation with stock price data this article examines the usefulness of stock returns in measuring the effects of regulation when the dates on which market expectations change are not known and standard sources e g the wall street journal are used to choose announcement dates twenty major changes in regulatory constraint since 1887 are considered tests using either monthly or daily data are found to have surprisingly little ability to detect the effects of regulation the evidence shows that formal regulatory announcements are generally anticipated in cases where it is unclear when expectations change

medium of payment in corporate acquisitions evidence from interstate bank mergers it has been known for some time that the medium of payment used in acquisitions is an important factor to consider see carleton et al 1983 it has also been noted that different methods of financing a project have different infor lllational implications myers and majluf 1984 krasker 1986 furthermore a substantial volume of empirical literature on stock issues reports negative stock price reactions to new offerings of seasoned common stock for example asquith and mullins 1986 kalay and shimrat 1987 this paper examines the role of medium of payment in corporate acquisitions with the help of evidence from a large sample of interstate bank mergers which took place over the five year period from 1982 through 1986 under state statutes passed in compliance with the douglas amendment to the bank holding company act 1956 initiated in 1982 merger activity of this type has grown rapidly in volume ever since and has already dramatically changed the stiucture of the commercial banking industry in this country the results of this study indicate that when the full sample of banks involved in interstate bank mergers is divided into subsamples by medium of payment the abnormal announcement period returns for the subsamples are equal to each other as well as to the results for the full sample the finding that bidder returns are not affected by the bidder s choice of medium of payment is in contrast with findings of the existing empirical studies that have explored this issue in the context of nonbank mergers see asquith biuner and mullins 1987 travlos 1987 eckbo and langohr 1989 franks hams and mayer 1988 they all report significantly higher bidder returns from cash financed acquisitions than from stock financed acquisitions

on the possibility of an inverse relationship between tax rates and government revenues abstract when arthur laffer and other supply side advocates plot total tax revenue as a function of a particular tax rate they draw an upward sloping segment called the normal range followed by a downward sloping segment called the prohibitive range a brief literature review indicates that tax rates on the prohibitive range in theoretical and empirical models have been the result of particularly high tax rates high elasticity parameters or both the labor tax rate which maximizes total revenue for example will depend on the assumed labor supply elasticity this paper introduces a new curve which summarizes the tax rate and elasticity combinations that result in maximum revenues separating the normal area from the prohibitive area a general purpose empirical u s general equilibrium model is used to plot the laffer curve for several elasticities and to plot the newly introduced curve using the labor tax example results indicate that the u s could conceivably be operating in the prohibitive area but that the tax wedge or labor supply elasticity would have to be much higher than most estimates would suggest

technological change in large u s commercial banks this article examines technological change its relationship to firm size and its impact on the efficient scale of output and product mix for large u s commercial banks the results suggest that technological change lowered real costs by about one percent per year increased the cost minimizing scale of outputs and affected product mix the authors do not find support for the galbraith schumpeter hypothesis this suggests that the largest banks cannot use innovation alone to outpace smaller banks the major implications are that public policies allowing freer banking combinations do not necessarily run counter to the public interest copyright 1991 by university of chicago press

regional reciprocal interstate banking the supreme court and the resolution of uncertainty abstract in 1985 the supreme court affirmed the ability of the states to enter into regional reciprocal compacts in northeast bancorp inc et al v board of governors of the federal reserve system the current study tests the hypotheses that the court s decision exerted a material influence on the wealth of shareholders in bank holding companies bhcs operating within regional banking compacts and that shareholder reactions were affected by the size of their bhc as a proxy for the likelihood that a bhc would be an acquiror vs a target in the new legislative climate the analysis uses a sample of 52 bhcs that were members of regional interstate banking compacts and a control sample of 107 bhcs based in states that had not passed such enabling legislation as of the event date both portfolios of bhcs exhibited a statistically significant average positive reaction to the supreme court decision further there is evidence that the average bhc in each group reacted significantly differently to that event the reactions of bhcs in regional compacts were associated negatively with their relative size within their respective regional compact but related positively to their absolute size interestingly the reactions of bhcs in the control sample were also negatively associated with their relative size within their home office s state but also positively related to their absolute size all in all shareholders viewed the interstate banking opportunities brought by the supreme court decision to be consistent with their interests

staging of venture capital investment a real options analysis this paper uses contingent claims analysis to investigate the staging decision of venture capitalist vc in a principal agent framework venture capital investment opportunities are modeled as real options with multiple volatilities and the entrepreneur s incentive is assumed to maximize the probability of getting funded in the next financing round two celebrated formulae in the option pricing literature are generalized to evaluate these real options we find that staging not only gives the vc a waiting option but also mitigates the agency problem of the entrepreneur undertaking too conservative activities moreover we find that the vc tends to stage her investment when the expected growth rate of the venture s market value is lower however the risk free interest rate is not an important factor in the staging decision our model also provides a good explanation for existing empirical evidence on the staging of venture capital investment

de jure interstate banking why only now this paper tackles three tasks it reviews the history of restrictions on interstate banking it summarizes the provisions of the interstate banking and branching efficiency act of 1994 underscoring the opt in and opt out lobbying pressure this act assigns to state legislatures finally the paper develops a lobbying pressure model designed to explain statutory changes in the framework of financial regulation the model implies that de facto liberalization of a regulatory regime precedes its de jure liberalization once adopted statutory restrictions on banks remain in place until technology and competitive regulatory enforcement have fashioned loopholes wide enough to reverse the statute sponsoring balance of lobbying pressure copyright 1996 by ohio state university press

tax policy and capital allocation summary the purpose of this paper is to analyze the impact of u s tax policy on the efficiency of capital allocation to achieve this objective we employ an intertemporal general equilibrium model of the u s economy implemented econometrically for annual data covering the period 1955 1980 we present a detailed model of the provisions of u s tax law applicable to income from capital we use intertemporal equilibrium paths corresponding to alternative tax policies to evaluate proposals for tax reform we find that dramatic gains in economic welfare would result from a shift from direct to indirect taxation

deregulation and bank financial policy the standard view that banks can value maximize by exploiting non risk rated deposit insurance ignores the potential loss of a valuable bank charter due to insolvency recognition of this effect changes the bank s optimal financial policy and can induce extreme risk averting as well as risk taking behavior however as the value of the bank charter falls the risk taking strategy is more apt to dominate therefore current deregulation of the banking industry by easing entry and devaluing charters holds the potential for increases in the incidence of insolvency unless offsetting policies are instituted

on the efficiency of least squares regression with security abnormal returns as the dependent variable monte carlo procedures are used to compare the finite sample performance of several estimators that may be used in cross sectional regressions with security abnormal returns as the dependent variable alternative models of event induced increases in stock return variance are examined for the event clustering scenario event clustering implies crosssectional correlation and heteroskedasticity in market model prediction errors violating one of the fundamental ordinary least squares ols assumptions i i d disturbances nonetheless provided that the conditions for asymptotic validity derived by greenwald 1983 are met the ols estimator is well specified in finite samples further for sufficiently large cross sections there is no advantage to several other more complex estimators

economic distress financial distress and dynamic liquidation many firms emerging from a debt restructuring remain highly leveraged continue to invest little perform poorly and often reenter financial distress the existing literature interprets these findings as inefficiencies arising from coordination problems among many creditors or an inefficient design of bankruptcy law in contrast this paper emphasizes that creditors lack the information that is needed to make quick and correct liquidation decisions it can explain the long term nature of financial distress solely as the result of dynamic learning strategies of creditors and suggests that it may be an unavoidable byproduct of an efficient resolution of financial distress financial distress is often a long term process and has an impact on the capital structure investment policies and performance of many firms even after they emerge from debt restructurings james 1995 finds that many firms increase their investment expenditures only by very little in the first two years after a debt restructuring hotchkiss 1995 shows that in each of the first five years after emerging from bankruptcy between 35 percent and 41 percent of all firms have negative operating income according to gilson 1997 more than 75 percent of firms that complete debt restructurings emerge with a leverage ratio that is higher than industry median and most are still significantly more highly leveraged than before the onset of financial distress furthermore between one quarter and one third of all distressed firms

venture capital funds flow performance relationship and performance persistence this paper finds that venture capital funds that are expected to be backed by more skilled investors show no performance persistence but a significant flow performance relationship in contrast funds that are expected to be backed by less skilled investors show performance predictability and have a non significant flow performance relationship these results suggest that only skilled investors use all available information to adjust their capital allocation and as a result eliminate performance predictability as argued theoretically by berk and green 2004 results also show that kaplan and schoar 2005 overstate the persistence in fund performance by not using an ex ante measure of the performance of earlier funds whether or not an ex ante measure is used however the persistence is largely due to unsophisticated investors when investors are sophisticated the performance of earlier funds sequence and fund size do not help predict the performance of the focal fund

replacing the u s income tax with a progressive consumption tax a sequenced general equilibrium approach abstract this paper examines the welfare consequences of changing the current u s income tax system to a progressive consumption tax we compute a sequence of single period equilibria in which savings decisions depend on the expected future return to capital in the presence of existing income taxes the u s economy is assumed to lie on a balanced growth path with the change to a consumption tax individuals save more and initially consume less as the capital stock grows consumption eventually overtakes that of the original path and the economy approaches the new balanced growth path with higher consumption and a greater capital stock both the transition and the balanced growth paths enter our welfare evaluations we find the discounted present value of the stream of net gains is approximately 650 billion in 1973 dollars just over 1 percent of the discounted present value of national income larger gains occur if further reform of capital income taxation accompanies the change we examine the sensitivity of the results both to the design of the consumption tax and to the values of elasticity and other parameters the paper also contains estimates of the time required to adjust from one growth path to the other

intra industry effects of bank privatization a clinical analysis of the privatization of the commonwealth bank of australia abstract this paper provides a comprehensive analysis of the effects of the privatization of the commonwealth bank of australia cba on the bank s performance and that of the rival banks first we find that the major rival banks reacted negatively to the privatization announcements although the initial partial privatization and the final full privatization announcements elicited stronger stock market reaction from the rival banks second we find that the cba s long term stock market performance improved markedly as the proportion of government ownership decreased with the bank s cumulative abnormal returns being 50 more than those of its rivals three years after the bank had been fully privatized also the cba has not only been very efficient in reducing cost and improving its profitability in the post privatization period it has outperformed its rivals on almost all the operating performance measures and has become the most profitable bank in australia a particularly noteworthy finding is that the improvements in the cba s operating and stock market performance and the rival banks reaction to the partial and full privatization announcements were strongest after the bank had been fully privatized the implication of the results for governments contemplating privatization of state owned enterprises is that full privatization is necessary in order to achieve strong gains in efficiency profitability and stock market performance

on back testing zero investment strategies zero investment strategies typically involve forming a long portfolio in one set of securities and a short portfolio in another with the two identified by the use of some trading rule when back testing such strategies the ex post difference in their abnormal returns represents an unbiased estimate of their economic profitability in perfect markets and thus serves as an indication of market efficiency however regulation t s short selling constraints are a potentially significant imperfection facing retail and institutional investors after development of a procedure that recognizes these constraints in measuring returns the impact of these constraints on economic profitability is analyzed copyright 2000 by university of chicago press

rewarding risk taking or skill the case of private equity fund managers abstract we examine whether typical private equity fund compensation contracts reward excessive risk taking rather than managerial skill our analysis is based on a novel model of investment value cash flows and fee dynamics of private equity funds given the embedded option like fee components our results demonstrate that fund managers indeed have an incentive for excessive risk taking when only fee income from the current fund is considered however when managers also consider potential compensation from follow on funds their risk taking incentives depend on their individual skill levels and skilled managers will have an incentive to reduce fund risk we also show that managers must generate substantial abnormal returns in order to compensate investors for the given fee components

the joint production of confidence endogenous regulation and nineteenth century commercial bank clearinghouses during the nineteenth century deposits increased relative to bank notes c ausing increased information asymmetry problems in banking this pape r describes how bank clearinghouses lowered these costs by monitoring bank activities and establishing mechanisms of managerial control i n effect regulating bank behavior such actions enforced the loca l one to one exchange rate between deposits and specie clearinghouse s increased regulation during financial panics creating and enforcin g a risk sharing device loan certificates for addressing panic rela ted information problems this paper concludes that the market s capacity to control bank managers depends on the banking product mix and more generally on information costs copyright 1987 by ohio state university press

market expectations of the effects of the tax reform act of 1986 on banking organizations abstract this study investigates market expectations regarding the effect of the tax reform act of 1986 on the banking industry the evidence shows that overall the tax reform did not adversely affect the stocks of banking institutions the findings suggest that overall banking organizations were expected to largely mitigate any negative effects of the tax reform on their cash flow by rebalancing and or repricing their portfolios of assets and liabilities the most significant provision of the new act was the limitation on foreign tax credits interestingly the markets did not expect any adverse valuation effects from the recapture of loan loss reserves or the elimination of the interest deductibility for carrying tax exempt securities

an intertemporal general equilibrium analysis of financial crowding out a policy model and an application to australia abstract this paper constructs a two period perfect foresight general equilibrium model that analyzes crowding out private investment is debt financed while government deficits are financed by money and debt the existence of equilibrium is demonstrated and the model is applied to australia for 1981 1982 the last years for which australia had a fixed exchange rate a benchmark solution is derived and two counterfactual simulations are carried out small increases in real government spending are found not to lead to crowding out while an increase in the debt financed portion of the government s budget deficit does lead to crowding out

conflict of interest in commercial bank security underwritings canadian evidence abstract the recent repeal of the glass steagall act in the us has cleared the way for commercial banks to enter the securities underwriting business many of the concerns that resulted in the original passage of the glass steagall act however still exist one of these is the possible conflict of interest a universal bank faces this paper provides evidence on this issue from the experience of canada following its removal of restrictions on chartered bank ownership of investment dealers both ex ante bond yield comparisons between commercial and investment bank underwritten issues and equity price reactions to bond issue announcements provide no evidence of a conflict of interest

stage financing and the role of convertible securities venture capital financing is characterized by extensive use of convertible securities and stage financing in a model where a venture capitalist provides staged financing for a project we illustrate an advantage of convertible debt or warrants over a mixture of debt and equity essentially when the venture capitalist retains the option to abandon the project the entrepreneur has an incentive to engage in window dressing and bias positively the short term performance of the project reducing the probability that it will be liquidated an appropriately designed convertible security prevents such behaviour because window dressing also increases the probability that the venture capitalist will exercise the conversion option becoming the owner of a substantial fraction of the project s equity

the contrarian investment strategy does not work in canadian markets this paper tests the overreaction hypothesis using monthly data for stocks listed on the toronto stock exchange over the 1950 1988 period unlike de bondt and thaler 1985 1987 it finds statistically significant continuation behavior for the next one and two year s for winners and losers and insignificant reversal behavior for winners and losers over longer formation test periods of up to ten years while the systematic risks of the winners decrease significantly over all test periods the systematic risks of the losers increase significantly for only the 12 month formation test periods unlike chan 1988 the only significant change in variance from the formation to test periods occurs for the losers for the 12 month formation test periods the findings are robust for january versus non january and size based portfolios unlike zarowin 1989 1990 the findings are robust for various performance measures specifically market adjusted car and the jensen 1968 and sharpe 1966 portfolio performance measures

an examination of the impact of the garn st germain depository institutions act of 1982 on commercial banks and savings and loans this paper evaluates the effects of events leading to the passage of the garn st germain depository institutions act of 1982 the evidence suggests that the call for reform by president reagan s housing commission and the senate passage of the bill produced positive abnormal returns to stockholders of large savings and loans and commercial banks stockholders of small s ls and banks on the other hand generally experienced negative abnormal returns furthermore when hopes of passage of the act faded significant negative positive abnormal returns were experienced by stockholders of large small s ls and banks this study examines the impact of the passage of the garn st germain depository institutions gsgdi act of 1982 on commercial bank and savings and loan stockholder returns the gsgdi act represents one of two major revisions of the financial system over the last twenty years the other being the depository institutions deregulation and monetary control act of 19801 the proposal for such a change reflected the growing inadequacy of the regulatory structure of financial institutions to adapt to rapid changes in technology shifting consumer demands for financial services and extremely volatile interest rates efforts to reform the financial system resulted in passage of the gsgdi act of 1982 which included provisions seeking to improve both the implementation of monetary policy and the degree of equity in the regulation of financial institutions such improvements were intended to reduce the operational and financial risk of financial institutions a central issue in the economics of regulation is whether regulatory actions benefit the economic agents they are intended to benefit a large body of literature exists which examines the economic effects of regulation much of this literature has utilized the concepts and methods of welfare economics to assess the extent

robust financial contracting and the role of venture capitalists we derive a role for inside investors such as venture capitalists in resolving various agency problems that arise in a multistage financial contracting problem absent an inside investor the choice of securities is unlikely to reveal all private information and overinvestment may occur an inside investor however always makes optimal investment decisions if and only if he holds a fixed fraction contract where he always receives a fixed fraction of the project s payoff and finances that same fraction of future investments this contract also eliminates any incentives of the venture capitalist to misprice securities issued in later financing rounds in this article we develop a model of financial contracting with multiple investment decisions and show how conflicts of interest and informational asymmetries can be effectively resolved by an inside investor i e an investor who not only provides capital but also works closely with the firm monitors it frequently and is generally very well informed about the firm s prospects and investment opportunities venture capitalists are obvious examples of inside investors and their function has been an important motivation for this article banks especially in japan and germany are also involved in monitoring and can be viewed as playing the role of inside investors in this article we examine the potential benefits of inside investors in a context where there are no restrictions beyond limited liability on the type of financial contracts that can be written we address a basic financial contracting problem involving an entrepreneur who has an idea for a project but does not have sufficient capital to fund it an important assumption is that there are several stages in the project s development and that a decision must be made at each stage whether the project should be continued or abandoned if the project is continued the amount of additional capital to be invested must also be determined we assume that the entrepreneur as an insider observes private information about the project s profitability at each stage this information is not

financial determinants of bank takeovers note in recent years more takeovers have occurred in banking than in any other industry mergers acquisitions 1987 this activity resulted partly from liberalized laws affecting branch and interstate banking and partly from the number of failed banks t as more states liberalize their laws regarding banking structure and regional pacts takeovers of bank and nonbank financial institutions are expected to increase 2 thus understanding the determinants of the prices paid in bank takeovers is important to the large portion of the banking industry that is either a potential target or potential bidder or both greater knowledge of the determinants of purchase prices can also help shed light on commercial bank operations 3 several recent studies examine the determinants of bank merger pricing these studies tend to focus on the characteristics of the target and to downplay the characteristics of the acquiror these studies also tend to use a single proxy for each theoretical effect for example one measure of the target s earnings the individual studies are reviewed below but in general they find a positive relationship between purchase price and some measure of the target s potential growth and a negative relationship between purchase price and some measure of the ratio of the target s total assets to the acquiror s total assets other variables including those for the target s profitability are sometimes but not always statistically significant one difference between this study and prior studies is that this study places greater emphasis on acquiror related characteristics acquirors tend to pay a premium for a controlling interest in banks this premium suggests that the firm

are stock price reversals really asymmetric a note abstract one of the enigmatic findings about the stock market overreaction effect is that it is asymmetric we argue that this apparent anomaly may be entirely illusory resulting from the peculiar properties of returns the test period return on a contrarian portfolio is not always a satisfactory measure of the strength of price reversals this also renders interportfolio comparisons about the symmetry of reversals more difficult we develop an alternative measure the reversal coefficient which takes account of this deficiency some empirical corroboration is also provided

taxation corporate financial policy and the cost of capital the cost of capital plays an important role in the allocation of resources among competing uses in a decentralized market system the purpose of this paper is to organize and present what is known and what is hypothesized about the effects of taxation on the incentive to invest via the cost of capital taking full account of important issues that arise independently from the question of taxation included in the analysis is a discussion of empirical findings about the interaction of inflation and taxation in influencing the incentive to invest and a treatment of taxation and uncertainty this abstract was borrowed from another version of this item

the irrelevance of detail in and computable general equilibrium model abstract we eliminate many complicated features of a computable general equilibrium model and reevaluate several reforms of capital taxation results of the simple model are surprisingly similar welfare gains depend more on a key unknown elasticity than on all the additional modeling complications combined