the international debt crisis and bank loan loss reserve decisions the signaling content of partially anticipated events the huge increases in loan loss provisions by major bank holding companies bhcs in 1987 were a signal of impending asset writedowns of loans to less developed countries ldcs 1 since loan loss reserve decisions like asset write downs are simply bookkeeping adjustments significant market reactions to such announcements should not be expected strong and meyer 1987 however found a positive and statistically significant cumulative average residual after the announcement of asset write downs 2 thakor 1987 argues that write downs have a price effect not because they mean much by themselves but because they signal events to come specifically he sees write downs as a signal of economic value enhancing corporate restructuring to come in the future p 662 we use event study methods to examine security returns for the twenty five largest u s bank holding companies surrounding citicorp s 3 billion loan loss

olson s exploitation hypothesis in a public good economy a reconsideration since the publication of olson s 1965 the logic of collective action the exploitation hypothesis in which the rich shoulder the provision burden of public goods for the poor has held sway despite empirical exceptions to address such exceptions we establish two alternative exploitation hypotheses based on contributors asymmetric preferences or on their productivity differences regarding the public good the classic hypothesis and its two variants are proven in a novel fashion for asymmetric preferences we also establish the exploitation hypothesis for the joint products model with private and public co benefits our theoretical insights are then illustrated by some empirical examples from the field of international public goods such as military defense and cross border pollution

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

the voluntary provision of a pure public good the case of reduced cfc emissions and the montreal protocol abstract this paper applies the theory of the voluntary provision of a pure public good to the behavior of nations to curb chlorofluorocarbon cfc emissions during the late 1980s by devising an empirical test we determine that these cutbacks in emissions are consistent with nash behavior when taste parameters are controlled the relationship between emission cutbacks and national income is nearly linear as implied by the theory if the sample is purged of potential outliers then the linear relationship results a significant taste parameter is the extent of political and civil freedoms while a marginally significant parameter is geophysical position in terms of latitude

bank foreign lending mandatory disclosure rules and the reaction of bank stock prices to the mexican debt crisis this paper examines the effects of the mexican debt mora torium in august 1982 on bank valuation the mexican default resulted in the passage of regulations requiring public disclosure of bank fo reign lending exposure the authors find that even in the absence of public disclosure regulations investors were able to discriminate a mong banks with different levels of exposure copyright 1987 by the university of chicago

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

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

separation of regulators against collusive behavior we show that the separation of powers in regulation may act as a commitment against the threat of regulatory capture splitting regulatory tasks and monitoring technologies among several nonbenevolent regulators may reduce their discretion in engaging in socially wasteful activities when regulators make collusive offers that are accepted by the agent whatever his characteristics competition between regulators relaxes collusion proofness constraints and improves social welfare this result is robust to different specifications of the agent s preferences and to the timing of the game as long as one insists on safe side contracting offers we also discuss how separation affects both allocative efficiency and the distribution of rents in the economy

identifying the free riders a simple algorithm for determining who will contribute to a public good abstract when a heterogeneous group of people provide themselves with a pure public good the resulting nash equilibrium outcome will divide the group into contributors and free riders this paper proposes a general algorithm for discovering which individuals in the group fall into which of these two classes the algorithm is based on identifying for each individual how much of the public good must be provided by others to drive that individual s contribution to zero

pure public goods versus commons benefit cost duality sandler and arce 1 pure public goods versus commons benefit cost duality by todd sandler school of international relations university of southern california von kleinsmid center 330 los angeles ca 90089 0043 tsandler usc edu 213 740 9695 213 742 0281 fax and daniel g arce m department of economics rhodes college 2000 n parkway memphis tn 38112 1690 arce rhodes edu 901 843 3121 901 843 3736 fax final revision november 2002 sandler is the robert r and katheryn a dockson professor of international relations economics university of southern california and arce is the robert d mccallum distinguished professor of economics business rhodes college sandler s and arce s research was funded through the dockson and mccallum endowments respectively we have profited from the helpful comments of two anonymous referees

why do only the g7 2 countries among united nations members discuss about international public goods a simulation study abstractthis article investigates why only the group of 7 plus china and russia g7 2 countries among 194 united nations members discuss about international public goods by simulating the heterogeneity of income prices and preference parameters on the total provisions and the number of free riders we find that the number of contributors for international public goods is 15 under the 194 member countries while the others are free riders in addition the contributors are the top 15 powerful countries with largest dropout value over the world then the discussion with only 15 countries for public goods is meaningful as large as the heterogeneity of parameters is the number of contributors becomes closer to g7 2

bank capital regulation and the valuation effects of latin american debt moratoriums abstract we examine effects of the mexican and bolivian debt moratoriums on bank share prices and analyze whether bank capital regulation influences these returns we hypothesize that investors perceived that capital deficient banks with exposure to this debt would sustain greater regulatory costs due to increased pressure from regulators to strengthen their capital bases or to reduce leverage consistent with this hypothesis we find that the impact of these debt moratoriums on bank stock returns is more unfavorable for capital deficient banks than for banks that met regulatory standards of capital adequacy

the reaction of bank stock prices to the international debt crisis abstract in this paper we develop a cross sectional regression approach to estimate the impact of foreign loan exposure on the pricing of u s bank stocks a new approach is required because news about foreign loan problems may arrive incremently over time rather than reaching the market on a few specific dates the way earnings and dividend announcements do consistent with this interpretation we find that foreign loan exposure had a significant impact on the pricing of u s bank stocks during the years 1982 and 1983 but that the stock prices adjusted continually over the two year period rather than jumping on a few particular days

bank runs and currency run in a system without a safety net argentina and the tequila shock abstract this paper tests the random withdrawals vs informed based theories of bank runs in the context of the bank panic that took place in argentina as a consequence of the mexican devaluation of december 20 1994 this evidence is unique in several ways it is the case of a contemporary banking system with virtually no explicit safety net a currency board with no deposit insurance scheme and a case in which the bank runs were triggered by a currency run the findings of the paper provide support to the informed based theories and show that depositors are concerned with the impact of a currency run on bank solvency

the international debt crisis and bank security returns in 1982 this research investigates the reaction of bank security returns to the 20 august 1982 mexican request for the rescheduling of its external debt empirical results show that the reaction of bank stocks was rapid and significantly negative within six days of the published announcem ent prices had adjusted to reflect levels of individual bank exposure which re futes the much longer time impliedin other studies of this event the authors c onclude that the marketreaction was essentially efficient rational and orderly copyright 1987 by ohio state university press

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

united nations global compact the promise performance gap the united nations global compact ungc was created in 2000 to leverage un prestige and induce corporations to embrace 10 principles incorporating values of environmental sustainability protection of human rights fair treatment of workers and elimination of bribery and corruption we review and analyze the gc s activities and impact in enhancing corporate social responsibility since inception first we propose an analytical framework which allows us to assess the qualities of the ungc and its principles in the context of external and internal elements that influence code effectiveness and implementation second we analyze ungc performance in encouraging companies to become signatory members and bring about demonstrable change in corporate csr sustainability activities in its 10 year report ungc has proclaimed growth in both membership and program activity however all credible and publicly available data and documentation conclusively demonstrate that the ungc has failed to induce its signatory companies to enhance their csr efforts and integrate the 10 principles in their policies and operations the result has been a loss of public trust and support of ungc from important constituencies among civil society organizations and those individuals and groups adversely impacted by corporate activities and resultant negative externalities this diminished credibility has also made ungc largely dependent on the corporate sector for its very survival we conclude that this dependence has in turn impaired and would continue to hinder ungc s ability to fulfill its mission such an outcome raises serious questions as to the viability usefulness and continued existence of ungc

depositor behavior under macroeconomic risk evidence from bank runs in emerging economies depositor behavior has been associated with bank specific characteristics random runs or contagion episodes using evidence on the 2000 02 bank runs in argentina and uruguay this paper shows that macroeconomic risk is also important few macroeconomic shocks can quickly cause large runs macroeconomic risk affects deposits regardless of traditional bank specific characteristics furthermore bank exposure to macroeconomic factors can explain differences in deposit withdrawals during crises the evolution of bank specific characteristics is mainly driven by macroeconomic factors while the informational content of bank specific variables declines overall depositors seem responsive to risk in a broader sense than that often considered by the literature

who are the members of the international club this article proposes pragmatic methods that incorporate recent contributions to public good theory to identify the members of the international club and how they select new members this article also suggests simple applications to the recent problems in international clubs such as the euro and nato

an approach to statistical inference in cross sectional models with security abnormal returns as dependent variable several recent event studies test hypotheses about the association between event related abnormal security returns and firm characteristics using a three step procedure first forecast model parameters are estimated usually parameters of a market model second prediction errors or residuals are computed over an event period third prediction errors are regressed cross sectionally on firm characteristics hypothesized to influence the impact of the event on share values results of these regressions are used to draw inferences about the relation between abnormal returns and firm characteristics researchers who employ three step procedures acknowledge that crosssectional ols regressions lead to valid inferences if the disturbances are iid normal in cross section see for example leftwich 1981 p 23 and lustgarten 1982 p 138 while sufficient assumptions to draw valid inferences from ols regressions are clear these assumptions are violated if there is cross correlation and cross sectional heteroscedasticity in the firm return processes from which the prediction errors are estimated assumptions about the processes generating these prediction

regulation competition and liberalization in many countries throughout the world regulators are struggling to determine whether and how to introduce competition into regulated industries this essay examines the complexities involved in the liberalization process while stressing the importance of case specific analyses this essay distinguishes liberalization policies that generally are procompetitive from corresponding anticompetitive liberalization policies

banks as monitors of other banks evidence from the overnight federal funds market this study provides evidence that banks are effective monitors of their peers by showing that the interest rate paid on federal funds transactions reflects differences in credit risk across borrowers in addition the size and relative importance in the funds market of the trading institutions are shown to affect the rates charged for overnight borrowing thereby providing insight into the nature of competition in the federal funds market transaction volume and size of transaction effects are uncovered as is evidence of relationship banking between banks these results are made possible by unique data identifying individual federal funds transactions copyright 2001 by university of chicago press

the brazilian default announcement and the contagion effect hypothesis abstract in this paper we use stocl market data to test several hypotheses regarding possible investor reaction to the february 20 1987 brazilian default both the traditional event study approach and a generalized least squares regression using brazilian exposure as an explanatory variable for abnormal returns are used a sample of 46 bank holding companies all listed on the new york or american srock exchanges is divided into groups of no low and high brazilian exposure we find that the initial stock market reaction to the default represents a rational investor response to new bank specific information however the stock market reaction also reveals that not all relevant information was contained in the disclosure announcement further we find some evidence of a contagion effect related to size

strategic information acquisition and the mitigation of global warming abstract we consider the strategic role of uncertainty and information acquisition for the mitigation of global warming before the countries decide on their contribution to a mitigation of global warming they may invest in information about the country specific benefit of reductions of the emissions of greenhouse gases we show that information acquisition has a substantial strategic value countries may prefer not to learn their benefit of climate protection even if information acquisition does not involve a direct cost this strategic information choice may further decrease the efficiency of the public good provision

theoretical incentive properties of contingent valuation questions do they matter in the field abstract green et al 1998 green d jacowitz k e kahneman d mcfadden d 1998 referendum contigent valuation anchoring and willingness to pay for public goods resource and energy economics 20 2 85 116 show theoretically that stated preference questions about public services can be framed in such ways that if the subjects accept the frame the payoff maximizing behavior will be to answer truthfully one key element of such a theoretically incentive compatible framing is that the hypothetical decision rule specified in the survey instrument is understood to be a majority rule rather than the efficiency rule typically used in cost benefit analysis we conducted field experiments in germany and switzerland to test if a referendum framing as suggested by green et al is effective in reducing strategic misrepresentation in a contingent valuation setting we did not find the expected effects of the framing treatments on stated willingness to pay or on individuals stated beliefs about the social choice context the results do not support hopes that a theoretically incentive compatible framing could be purposefully used to invoke the specific beliefs about the linkage between responses and policy implementation that would make stated preference questions incentive compatible

does the japanese stock market price bank risk evidence from financial firm failures the ability of the japanese stock market to appropriately price the riskiness of japanese financial firms has been frequently questioned particularly in light of japan s widespread financial distress in recent years and poor disclosure requirements this paper examines the response in equity returns of japanese banks to the failure of four commercial banks and two securities firms between 1995 and 1998 using event study methodology the analysis finds that share prices of surviving banks on the whole responded unfavorably to the failures and that financially weaker survivors were more adversely affected this suggests that despite the distress and alleged opaqueness bank shareholders were able to use available indicators of financial condition both to incorporate new information quickly into stock prices and to differentiate among banks

effects of technology transfers on the provision of public goods in this paper we examine the viability ofcooperative policies oriented to the resolution oftransboundary pollution problems using the theory ofprivate provision of public goods in a two countrymodel we analyze the effects on economic welfare ofvoluntary technological transfers oriented to reducingthe emission of pollutants

international aid from the recipient perspective public or private good input assistance abstractthis article proposes a theoretical model from the recipient perspective that considers what type of assistance a donor country should provide public good assistance or private good assistance we investigate the effects of migration and free riders under both types of assistance we empirically apply this model to the rapidly growing economies and a large official development assistance disbursement for east asia