When estimating a single equation with an error generated by an autoregressive process of higher order than one using a sequence of likelihood ratio tests to determine the correct order, the asymptotic size of the tests will be biased because of multiple optima of the likelihood function. A new type is suggested similar to the Durbin test [2] which is not biased in this way. IN HIS ARTICLE on testing for serial correlation in the presence of lagged endogenous variables [2] Durbin proved a general theorem which gives a significance test shown to be generally asymptotically equivalent to a likelihood ratio test. This paper proposes a generalization which gives a test criterion that may be preferred to the existing test criteria insofar as it can be set up using a less arbitrary choice of the parameters to be re-estimated, and also has the advantage of being relatively simple to compute. It seems more appropriate than the general Durbin form of test for application to the dynamic specification problem discussed in the third section of this article.

Dileep R. Mehta, Edward A. Moses, Benoit Deschamps, Michael C. Walker, The Influence of Dividends, Growth, and Leverage on Share Prices in the Electric Utility Industry: An Econometric Study, The Journal of Financial and Quantitative Analysis, Vol. 15, No. 5 (Dec., 1980), pp. 1163-1196

We assess the role of human discretion in lending outcomes using a randomized, controlled experiment. The lenders in our sample utilize a third party, machine-generated credit model as an input in their decision. We design a new feature for the credit-scoring platform – the slider feature – which invites lenders to incorporate additional discretion in their decision by adjusting the machine-based recommendation. We compare the loan outcomes for treatment lenders that randomly get the slider, relative to a control group. The treatment group's adjustments are predictive of forward looking portfolio characteristics – they show larger declines in future portfolio-level credit risk and larger increases in future sales orders, relative to the control group. The effects of our intervention are more pronounced when borrowers do not have social media accounts and in competitive markets. Our study provides insights about the role of human decisions, given the rapid evolution of machine-based lending models.

Do industries use advertising strategically when subject to the threat of political costs? Communication via advertising can assuage public concerns, which, in turn, reduces the incentives for elected officials to impose regulations on the industry. We identify expected political costs using cases of repeated industry testimony at congressional hearings. To disentangle strategic advertising in response to the threat of political costs from advertising for other reasons (e.g., reputation building or to generate sales), we exploit the fact that only politicians overseeing industry-relevant hearings can impose costs on a given industry. We find that subsequent to these hearings, affected industries increase their advertising by 132% more in the electorates of the politicians overseeing the hearings, relative to the increase in the electorates of other politicians. The strategic increase in advertising is magnified in the electorates served by the most senior politicians on the committees and those with the most politically engaged citizens. The increase is also pronounced in election years, when the hearings are longer, contain more negative language, or include a higher proportion of legislation-related words. Moreover, our results are not driven by politicians’ decisions to serve on committees relevant to their local-area firms. In sum, our findings provide novel evidence about corporate communication with non-investor stakeholders.

Owners of business groups are often accused of expropriating minority shareholders by tunneling resources from firms where they have low cash flow rights to firms where they have high cash flow rights. In this paper we propose a general methodology to measure the extent of tunneling activities. The methodology rests on isolating and then testing the distinctive implications of the tunneling hypothesis for the propagation of earnings shocks across firms within a group. When we apply our methodology to data on Indian business groups, we find a significant amount of tunneling, much of it occurring via nonoperating components of profit.

ABSTRACT Substantial evidence suggests that regulatory agencies in the United States can be captured by the politicians who oversee them. We provide novel evidence of a federal agency in which capture is limited: the United States Patent and Trademark Office. Although patent applications from politically connected applicants are slightly more likely to be approved despite being of lower ex post quality, additional analyses suggest these outcomes are not indicative of capture. In particular, the disclosure quality of connected patents' legal claims increases more than unconnected patents during the review process, narrowing the scope of the patents and constraining the intellectual property rights. Furthermore, connected patents are no more likely than others to be litigated ex post, suggesting these patent grants are not spurious. Our findings provide insights into how the design of a regulator can limit the benefits that accrue to politically connected firms.

ABSTRACT This paper examines the consequences of powerful political connections for local governments. We find that governments located within the constituencies of, and thus connected to, powerful congressional members reduce their stewardship over public resources. Using plausibly exogenous declines in the power of congressional representation, we show that the effect is causal. To better understand why connected local governments can reduce stewardship, we study electoral characteristics. Our findings suggest that the increased resources that come with powerful congressional representation allow local‐government officials to reduce stewardship without material adverse effects on their reelection prospects. In sum, we provide evidence of a cost of political connections: they weaken local governments' incentives to act in a socially optimal manner.