mark to market accounting for banks and thrifts lessons from the danish experience university of michigan tharvard university we appreciate helpful suggestions received from participants at the stanford summer camp and the price waterhouse symposium workshop participants at the university of chicago cornell university indiana university the ohio state university university of michigan university of pittsburgh university of rochester university of southern california tulane university and university of utah mary barth bill beaver george benston allen berger fisher black paul healy jack hughes robert kaplan richard leftwich jim leisenring niels nielsen finn ostrup bob ruland pete wilson and an anonymous referee we also appreciate the assistance of our contacts in denmark who shared their time and expertise with us so willingly these include mr ole bjarrum and mr lars nielsen of nykredit mr jesper jesperson and mr aksel olsen of kpmg revisionsfirmaet c jespersen mr lars tonnesen and mr birger schmidt of the danish bankers association mr kim hartvig olsen of the danish financial supervisoryauthority mr jorgen kock of den danske bank and professors jens elling merete christiansen finn ostrup and niels nielson of the copenhagen business school we thank professors dwight crane and bob kaplan of the harvard business school and bob swieringa and jim leisenring of the financial accounting standards board for help in conducting this research we are grateful for financial statement data furnished by the danish financial supervisory authority for access to the account database provided by professors elling and christensen of the copenhagen business school and for excellent research assistance by elizabeth andersen christine botosan marlene plumlee and james myers we also appreciate the willingness

information in prices about future earnings abstract stock return over a period reflects the market s revision in expectation of future earnings accounting earnings over the same period however have limited ability to reflect such revised expectations therefore returns anticipate earnings changes and the earnings response coefficient from a regression of returns on contemporaneous earnings changes is biased toward zero we reduce this bias by including leading period returns in price earnings regressions the resulting estimated earnings response coefficient magnitudes suggest that the capital market on average views earnings changes to be largely permanent this is consistent with the random walk time series property of annual earnings

pricing risk adjusted deposit insurance an option based model this paper presents a methodology for arriving at empirical estimates of deposit insurance premiums from market data by using isomorphic relationships betweeen equity and a call option and insurance and a put option the data utilizes the market value of equity to solve for the asset value and its volatility market perceptions of fdic bailout policies are explicitly modeled so as to eliminate the bias in inverted values of assets and their volatility sensitivity analyses are performed to show that rank orderings based on premiums are robust to changes in specification thus facilitating allocation of aggregate premium across banks while economists have long argued in favor of risk adjusted deposit insurance as both more equitable and more efficient than the current system of flatrate premiums various recent developments have further contributed to an increasing dissatisfaction with the current system first both the banking industry and the government seem to be tending to the view that deregulation of the banking industry would be necessary in order to meet more sophisticated future demands on the industry as well as desirable as a policy means of stimulating greater competition among banks moreover a sudden rise in the incidence of bank failures 1 and the vulnerability of the u s banks to the socalled international debt crisis have served to bring to the fore concern about the health of the banking industry in the absence of deposit insurance riskier banks will be able to attract deposits only at higher rates and these higher costs of funding serve as built in market regulated incentives to limit excessive risk taking by banks as introduction of deposit insurance makes deposits equally risk free across banks these incentives disappear and regulation and close supervision of the banking industry must necessarily replace them as deterrents to excessive risk taking thus when insurance is offered at a flat premium regulation is designed to ensure that the risk posed to the insurer both asset and financial risk is appropriately uniform

multivariate tests of the zero beta capm abstract a cross sectional regression test csrt of the capm is developed and its connection to the hotelling t2 test of multivariate statistical analysis is explored algebraic relations between the csrt the likehood ratio test and the langrange multiplier test are derived and a useful small sample bound on the distribution function of the csrt is obtained an application of the csrt suggests that the crsp equally weighted index is inefficient but that the inefficiency is not explained by a firm size effect from february to december

strategic estimation of asset fair values abstract we examine whether fair value fv input levels and estimation sources are related to fv inflation the difference between an insurer s fv estimate and the consensus fv estimate across the security s holders fv inflation is higher and self estimation more likely when insurers report using level 3 inputs when the consensus level is 2 regardless of the level fv is greater when self estimated public insurers that inflate fv through self estimation potentially obfuscate detection by reporting the use of level 2 inputs insurers with stronger incentives to appear financially healthy choose to self estimate resulting in greater aggregate portfolio fv inflation

accounting standards and financial market stability an experimental examination we examine the effects of three alternative accounting methods in an experimental asset market characterised by bubbles and crashes fair value m2m historical cost hc and marked to fundamental value m2f each treatment is replicated under both no leverage and leverage conditions in the no leverage condition we find that accounting methods do not have a significant effect on asset mispricing in the leverage condition both m2m and m2f accounting methods exacerbate asset mispricing yet the two differ in leverage dynamics m2f markets are completely immune to defaults while m2m markets experience the most frequent and the most severe defaults

the limitations of market value accounting and a more realistic alternative abstract market value accounting mva might improve market and regulatory discipline on financial institutions unfortunately there are serious conceptual measurement and incentive problems with implementing mva that have not received significant attention these problems are suggested by the theory of asymmetric information and the role intermediaries play in solving information and monitoring problems after analyzing the problems with mva we develop an alternative approach that applies mva principles where they are most feasible and uses a statistical procedure where asymmetric information problems make mva particularly problematic an empirical analysis suggests that this procedure may substantially improve the distribution of regulatory discipline

nonstationary expected returns abstract recent evidence reveals significant negative serial correlation in aggregate market wide stock returns we extend this result to relative market adjusted returns demonstrating negative serial correlation in five year returns we then test two competing explanations 1 market mispricing and 2 changing expected returns in an efficient market the tests are conducted using the capital asset pricing model to estimate relative returns the evidence suggests that negative serial correlation in relative returns is due almost entirely to variation in relative risks and therefore expected relative returns through time we document substantial relative risk shifts particularly for extreme performing stocks

predisclosure information firm capitalization and security price behavior around earnings announcements several studies on the relationship between earnings reports and security price behavior provide evidence suggesting that a significant portion of the information revealed through earnings reports is reflected in security prices prior to the report month e g ball and brown 1968 and brown and kennelly 1972 this has been attributed at least partly to the existence of other more timely sources of information which allow market agents to forecast earnings prior to their release the evidence above reflects an average finding across all firms one question of interest is whether there are significant systematic crosssectional differences in the security price reactions to earnings announcements of firms which are associated with specific firm characteristics that lead to differential amounts of predisclosure information this study focuses on firm size capitalization as one such characteristic a firm

nuclear decommissioning costs the impact of recoverability risk on valuation abstract mounting nuclear plant decommissioning costs and utility deregulation focused attention on accounting for decommissioning liabilities fasb s exposure draft 158 b proposes balance sheet recognition of the projected future decommissioning cost liability at initial plant commission we expect market valuation of each dollar of decommissioning cost apportioned to utilities to vary with utility specific factors related to the probability of cost recovery via rates we find a more negative decommissioning cost firm value association for utilities with higher business or financial risk also equity value is significantly associated with total decommissioning cost across all nuclear units in which a utility has ownership interest

are disclosures about bank derivatives and employee stock options value relevant abstract the papers by venkatachalam 1996 and aboody 1996 provide some interesting evidence on issues that are important to accounting regulators as well as accounting academics however for econometric as well as economic reasons there are limits to what we can learn from this type of research cross sectional levels studies careful attention to methodological issues in this type of research design can reduce but likely will not eliminate these interpretational difficulties

friction in the trading process and the estimation of systematic risk abstract this paper considers how estimates of the market model beta parameter can be biased by friction in the trading process information decision and transaction costs that a leads to a distinction between observed and true returns b causes observed returns to be generated asynchronously for a set of interdependent securities and c thereby introduces serial cross correlation into security returns several propositions are derived from which consistent estimators of beta are obtained and the effect of differencing interval length on beta estimates is specified the formulation is contrasted with the related analyses of scholes williams 1977 and dimson 1979

measuring customer relationships the case of the retail banking industry arguing that gaap is ill suited for estimating the future profitability of intangibles the accounting literature e g kaplan and norton 1996 lev 2001 has recently proposed alternative measurement models these models view intangibles as composed of a set of fundamental business activities and use multiple financial and nonfinancial metrics causally interlinked to profits to represent this view using a unique and proprietary cross sectional data set of the retail banking industry we provide some of the first tests on the empirical validity of such measurement models we characterize the core deposit intangible an important retail banking intangible representing a bank s relationships with its customers using financial and nonfinancial metrics on price service customer usage and customer satisfaction we find that the metrics do not individually predict future earnings but gain individual significance in a collective setting increasing the predictive power substantially we argue that this result occurs because the activities underlying the measures are causally interlinked to profits and explicitly illustrate these linkages with a structural path model our measurement model also predicts significant interactive effects in the way our measures are informative about future profits and we document such effects not just among the individual measures but also across the measures and environmental factors such as the bank s strategy in sum our measurement model illustrates the key drivers measures and interactions in retail banking customer relationships

a direct test of roll s conjecture on the firm size effect empirical research indicates that small firms earn higher average rates of return than large firms even after accounting for beta risk roll conjectured that the small firm effect might be attributed to improper estimation of security betas the evidence shows that while the direction of the bias in beta estimation is consistent with roll s conjecture the magnitude of the bias appears to be too small to explain the firm size effect

crossovers dividends and the size effect the size effect may have been the result of high stock volatility and low dividend payments suppose an equity market is partitioned into a large stock index and a small stock index and suppose that over a given period of time each of the indexes retains its share of the total market capitalization price volatility will cause some stocks to cross over from one index to the other which will result in higher returns for the small stock index and lower returns for the large stock index dividend payments by large companies could offset the effect of the crossovers but they have historically been insufficient to do so hence the size effect

aggregation of test statistics an evaluation of the evidence on contracting and size hypotheses abstract more powerful tests of a theory of choice of accounting methods and the effect of changes in these choices on equity values are provided the power increase comes from efficiently aggregating results across studies one conclusion is that at least six variables common to more than one study have explanatory power these variables are managerial compensation leverage size risk and constraints on interest coverage and dividends another conclusion is that the posterior probability that the theory taken as a whole has explanatory power is close to one this conclusion includes the effect of variables that only appear in one study

is historical cost accounting a panacea market stress incentive distortions and gains trading we provide new empirical evidence concerning the contentious debate over the use of historical cost versus fair value accounting in regulating financial institutions these accounting rules through their interactions with capital regulation alter financial institutions optimal portfolio choice and trading behavior the insurance industry provides a natural laboratory in which to explore these interactions first there exist significant differences in regulatory accounting rules life insurers have greater flexibility to hold speculative grade instruments at historical cost than property and casualty insurers second within an insurer s investment portfolio detailed data are available on transactions positions and most importantly the regulatory accounting treatment for each security when faced with severe downgrades among their holdings in asset backed securities abs life insurers largely continue to hold the downgraded securities at historical cost and instead selectively sell their corporate bond holdings with the highest unrealized gains inducing significant price declines this is particularly true for life insurers facing regulatory capital constraints and with high abs exposures this behavior is largely absent among property and casualty insurers they instead disproportionately sell their re marked abs holdings historical cost accounting creates an altered incentive environment in which constrained financial institutions sell assets to realize gains insofar as this behavior transmits shocks across potentially unrelated markets historical cost accounting is not a panacea

the articulation of price earnings ratios and market to book ratios and the evaluation of growth this paper interprets the price earnings ratio pie and the marketto book ratio pib and describes how they articulate it also describes the role of book rate of return on equity the ratio of their denominators in the determination of the ratios and the relation between them although both are reported regularly there is not a common understanding of these issues for example the pie ratio has been interpreted as an earnings growth indicator cragg and malkiel 1982 and litzenberger and rao 1971 a risk measure ball 1978 and an earnings capitalization rate graham dodd and cottle 1962 boatsman and baskin 1981 and alford 1992 derivations based on the gordon 1962 model describe it as determined by return on equity beaver and morse 1978 show that this ratio indicates transitory earnings the molodovsky effect from molodovsky 1953 it has also been interpreted as an indicator of mispriced stocks basu 1977 and jaffee keim and westerfield 1989 and as a product of accounting principles craig johnson and joy 1987 the p b ratio received less academic attention until fama and french 1992 traditionally it was interpreted as indicating expected return on equity see for example graham dodd and cottle 1962 this interpretation is given expression in the standard formula reconciling price to book value in preinreich 1938 edwards and bell 1961 and peasnell 1982 for example like pie p b has been modeled as a growth

fair value accounting effects on banks earnings volatility regulatory capital and value of contractual cash flows abstract we investigate fair value accounting critics assertions by restating earnings and regulatory capital to reflect banks disclosed investment securities fair values we find 1 fair value based earnings are more volatile than historical cost earnings but share prices do not reflect the incremental volatility 2 banks violate regulatory capital requirements more frequently under under fair value than historical cost accounting fair value based violations help predict regulatory capital violations but share prices do not reflect this potential increased regulatory risk only historical cost violations are market information events 3 share prices reflect interest rates changes even though investment securities contractual cash flows are fixed

a model of accrual measurement with implications for the evolution of the book to market ratio this paper constructs a model of accrual measurement and tests its implications for the evolution of the book to market ratio the model captures the intuition that book value is untimely or smoothed relative to market value so that movements in market value have relatively high variance and low predictability compared with movements in book value empirical tests of the model use lagged market value changes to forecast the mean reversion of the book to market ratio this paper complements recent research investigating the role of book to market ratios in security analysis accounting theorists e g edwards and bell 1961 and feltham and ohlson 1995 have long recognized the critical role of book to market ratios as predictors of abnormal earnings in earnings based valuation models tests of such valuation models e g ou and penman 1993 confront the practical problem of determining the horizon beyond which abnormal earnings are expected to be zero the model in this paper implies that this horizon is determined by the remaining useful life of assets and that the expected path of abnormal earnings over this horizon reflects the pattern of expiration of the useful lives of assets in place

misspecification of capital asset pricing this study documents empirical anomalies which suggest that either the simple one period capital asset pricing model capm is misspecified or that capital markets are inefficient in particular portfolios based on firm size or earnings price e p ratios experience average returns systematically different from those predicted by the capm furthermore the abnormal returns persist for at least two years this persistence reduces the likelihood that these results are being generated by a market inefficiency rather the evidence seems to indicate that the equilibrium pricing model is misspecified however the data also reveals that an e p effect does not emerge after returns are controlled for the firm size effect the firm size effect largely subsumes the e p effect thus while the e p anomaly and value anomaly exist when each variable is considered separately the two anomalies seem to be related to the same set of missing factors and these factors appear to be more closely associated with firm size than e p ratios

is comprehensive income superior to net income as a measure of firm performance abstract with the exception of financial firms we find no evidence that comprehensive income is more strongly associated with returns market value or better predicts future cash flows income than net income moreover the only component of comprehensive income that improves the association between income and returns is the marketable securities adjustment our results do not support the claim that comprehensive income is a better measure of firm performance than net income our results also raise questions about the appropriateness of items included in sfas 130 comprehensive income as well as the need for mandating uniform comprehensive income disclosures for all industries

the association between accounting earnings and security returns for large and small firms abstract the differential information hypothesis advanced by atiase 1980 states that information production and dissemination by private parties for the purpose of identifying mispriced securities is an increasing function of firm size this study examines two corollaries of that hypothesis first security prices of large firms anticipate accounting earnings earlier than security prices of small firms second for a given level of unexpected earnings the cumulative abnormal returns of small firms exceed those of large firms the results are generally consistent with atiase s hypothesis

return intervals systematic risk estimates and firm size abstract prior empirical evidence indicates that the size effect in stock returns is sensitive to the return interval used in estimating systematic risk recently handa kothari and wasley 1989 showed that the size effect is decreased when return interval is lengthened on u s data in this paper we demonstrate that on a thin european security market i e in the finnish stock market the case is just the opposite

you can t always get what you need organizational determinants of diversity programs while some u s corporations have adopted a host of diversity management programs many have done little or nothing we explore the forces promoting six diversity programs in a national sample of 816 firms over 23 years institutional theory suggests that external pressure for innovation reinforces internal advocacy we argue that external pressure and internal advocacy serve as alternatives such that when external pressure is already high increases in internal advocacy will not alter the likelihood of program adoption moreover institutional theory points to functional need as a driver of innovation we argue that in the case of innovations designed to achieve new societal goals functional need as defined in this case by the absence of workforce diversity or the presence of regulatory oversight is less important than corporate culture our findings help explain the spotty coverage of diversity programs firms that lack workforce diversity are no more likely than others to adopt programs but firms with large contingents of women managers are more likely to do so pro diversity industry and corporate cultures promote diversity programs the findings carry implications for public policy

earnings as an explanatory variable for returns in this paper we investigate whether the level of earnings divided by price at the beginning of the stock return period is relevant for evaluating earnings returns associations the primary model motivating this research relies on the idea that book value owners equity and market value are both stock variables indicating the wealth of the firm s equity holders the related flow variables after adjusting for dividends are respectively earnings divided by price at the beginning of the return period a p 1 and market returns it then follows that earnings divided by beginning of period price should be associated with stock returns although models based on a relation between market value and book value are used occasionally in the accounting research literature see for example landsman 1986 harris and ohlson 1987 and barth

the relation between the return interval and betas abstract the size effect is sensitive to the length of the return interval used in estimating betas beta changes with the return interval because an asset s covariance with the market and the market s variance do not change proportionately as the return interval is changed we document beta sensitivity to the return interval evidence from cross sectional regressions of returns on monthly and annual betas is inconsistent with beta changes stemming only from the higher standard errors of the longer interval betas we provide evidence that the size effect becomes statistically insignificant when risk is measured by betas estimated using annual returns

firm size and the information content of prices with respect to earnings abstract beaver lambert and morse 1980 suggest that prices may be useful in forecasting future earnings we explore the information content of prices with respect to earnings by focusing on firm size and its relation to the predictive accuracy of price based earnings forecasts firm size proxies for the amount of information and for the number of traders and professional analysts processing the available information about an enterprise our empirical results are consistent with the hypothesis that price based earnings will outperform univariate time series forecasts by a greater margin for larger firms than for smaller firms

are small stock returns achievable returns of the small company universe an examination of actual small company passive portfolios sheds some light on this issue these small stock portfolios deliver the returns of their targets within statistically acceptable bounds there are however significant differences across their returns and these differences appear to be related to management style pure indexers try to maintain perfect index like portfolio compositions minimizing trading cost is of secondary importance to them these portfolios have the lowest returns at the other extreme some portfolios emphasize minimizing trading costs at the expense of perfect portfolio composition these portfolios have the highest returns

on cross sectional analysis in accounting research abstract this paper examines cross sectional analysis procedures common to many market based accounting research papers both the economic and econometric properties of levels and returns studies are discussed topics covered include the relations between the accounting studies and cash flow valuation models the role of expectations of accounting variables deflators spurious inference risk adjustment and its relation to growth size and leverage residual dependence dependence among explanatory variables and the effect of scale differences across firms major conclusions are that market value is the correct deflator in returns studies and that levels and returns studies are economically but not econometrically equivalent

fair value disclosures by bank holding companies abstract this paper examines the value relevance of fair value data disclosed under sfas 107 by banks for 1992 and 1993 collectively the evidence suggests differences between fair and book values of financial instruments are associated with market to book ratios however fair value disclosures for financial instruments other than securities are value relevant only in limited settings in addition only in 1992 are fair value variables associated with market to book ratios after incorporating existing historical cost information further analysis suggests the weaker 1993 results are not necessarily due to increased measurement error in fair value numbers

the relevance of the value relevance literature for financial accounting standard setting another view this paper explains that value relevance research assesses how well accounting amounts reflect information used by equity investors and provides insights into questions of interest to standard setters a primary focus of financial statements is equity investment other uses of financial statement information such as contracting do not diminish the importance of value relevance research value relevance questions can be addressed using extant valuation models value relevance studies address econometric issues that otherwise could limit inferences and can accommodate and be used to study the implications of accounting conservatism r 2001 elsevier science b v all rights reserved jel classification m41 m44 g12

efficiency with costly information a reinterpretation of evidence from managed portfolios we investigate the informational efficiency of mutual fund performance for the period 1965 84 results are shown to be sensitive to the measurement of performance chosen we find that returns on s p stocks returns on non s p stocks and returns on bonds are significant factors in performance assessment once we correct for the impact of non s p assets on mutual fund returns we find that mutual funds do not earn returns that justify their information acquisition costs this is consistent with results for prior periods coauthors are martin j gruber sanjiv das and matthew hlavka article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the valuation of fdic deposit insurance using option pricing estimates when congress set the premium rate for fdic deposit insurance in the banking act of 1935 which authorized a permanent federal insurance system neither experience nor theory could offer much guidance regarding an appropriate fee structure although rates have since been periodically revised the fdic has yet to attempt to set the insurance rate at a ifair level that is a level equal to administrative costs plus the ex ante value of the insurance such a premium is the rate that would be charged by competitive private insurers however7 the garn st germain act of 1982 directed the fdic to consider the feasibility of a risk based premium structure in response the fdic has suggested a trial system in which each insured bank will be placed in one of three risk classes based on credit and interest rate risk relative to capital and a premium rate will be assigned to each group those rates will be determined in part by the loss experience of the entire banking system fdic 1983 another approach to the determination of the appropriate insurance premium has been offered by merton 1977 who suggested using the analogous relationship between deposit guarantees and put options to value fdic insurance in this paper we follow merton s suggestion and calculate bank specific estimates of the proper premium for deposit insurance for the banks in our sample we find that fdic rates greatly exceed estimates of the fair value of the insurance derived from the blackscholes 1972 option pricing model

time series coefficient variation in value relevance regressions a discussion of core guay and van buskirk and new evidence abstract many claim that gaap financial information has become largely irrelevant to explaining valuations core et al compare financial information s value relevance for the new economy stocks with other stocks we supplement their analysis with new evidence on the economic determinants of the time series variation in the coefficients mapping financial information into prices we document significant variation in the coefficients related to proxies for changing market growth expectations and discount rates and additional variation consistent with time varying correlated omitted variables such findings make it difficult to draw unambiguous inferences about the relevance and reliability of financial information from value relevance regressions

abandoning the transactions based accounting model weighing the evidence abstract i develop a benchmark for evaluating whether fair values disclosed by banks differ from investors estimates of the market value of financial assets and liabilities using this benchmark i conclude that the hypothesis that disclosed fair values closely approximate investors estimates should be rejected i present evidence suggesting that the procedure used in establishing fair values results in an understatement of the value of financial assets an an overstatement of liabilities i also conclude that the reaction of bank stocks to the adoption of sfas 105 107 and 115 is more consistent with regulatory concerns and not with potential adverse effects of those statements for contracting

new evidence on the january effect before personal income taxes we examine the returns of stocks in cowles industrial index before and after the introduction of personal income taxes in 1917 this is distinct from earlier studies because we cross sectionally analyze the relationship between the returns of the individual stocks and measures of tax loss selling potential and size we find that excess returns at the turn of the year and for the month of january were not significant until after 1917 these results provide strong support for the tax loss selling hypothesis as an explanation for the january seasonal in the returns of small firms

tax planning regulatory capital planning and financial reporting strategy for commercial banks we test whether banks investment and financing policies can be explained by tax status we document changes in bank holdings of municipal bonds in response to changes in tax rules relating to deductibility of interest expense we also document an association between banks marginal tax rates and their investment and financing decisions which is consistent with the existence of tax clienteles however banks do not sort themselves perfectly into investment and financing clienteles because of adjustment costs we posit specific types of transaction cost impediments to tax planning and document that banks apparently trade off these costs against tax planning benefits article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

a reexamination of the over or under pricing of deposit insurance this study shows how fair deposit insurance premia can be calculated using data on bank stock prices interest rate movements and income and balance sheet accounts fair insurance premia are estimat ed under the alternative assumptions that the fdic provides either a limited term variable rate or unlimited term insurance cont ract to banks the paper s results suggest that for nearly all of the large commerical banks in the sample the actual insurance premium c harged by the fdic falls between the bounds of fair limited term and unlimited term insurance premia copyright 1987 by ohio state university press

an investigation of capital market reactions to pronouncements on fair value accounting this paper examines the impact of twenty three pronouncements related to fair value accounting fva rules on equity prices of financial institutions the results document that announcements that signal an increased decreased probability of issuance of fva standards produce negative positive abnormal stock price reactions for sample banks further the magnitude of the stock price reactions is negatively related to a bank s primary capital ratio and positively related to the ratio of the book value of the investment portfolio to total assets and the ratio of the difference between the market and book value of the investment portfolio to total assets

the cost of institutional equity trades presented are an overview of the findings from the recent literature on the cost of u s equity trades for institutional investors and new evidence on trading costs from a large sample of institutional trades the findings discussed have important implications for policymakers and investors implicit trading costs are economically significant equity trading costs vary considerably and vary systematically with trade difficulty and order placement strategy and whether a trade price represents best execution depends on detailed data for the trade s entire order submission process especially information on pretrade decision variables such as the trading horizon

relative valuation roles of equity book value and net income as a function of financial health abstract this study tests predictions that pricing multiples on and incremental explanatory power of equity book value net income increase decrease as financial health decreases tests using a sample of 396 bankrupt firms and tests using a larger pooled sample both yield inferences consistent with predictions findings are robust to inclusion of controls for industry size return on equity and volatility of equity returns equity book value and net income multiples and incremental explanatory power vary predictably across three illustrative industries selected based on the likely extent of unrecognized intangible assets

stock market valuation of gains and losses on commercial banks investment securities an empirical analysis abstract prior studies document an insignificant effect of unrealized gains losses urgl and a negative effect of realized gains losses sgl on bank stock returns we argue that these results may reflect the omission of changes in value of other net assets resulting from interest rate changes we find that after controlling for effects of other on balance sheet net assets both urgl and sgl have significant positive effects on bank returns in normal periods but the sgl effect is significantly lower in periods of low capital and earnings these findings are relevant to the market value accounting debate