The petrochemical industry employs assets subject to temporal and site specificity. The OPEC oil price shocks of the 1970s made it difficult to write contracts covering business dealings in the industry. I use this production and economic setting as a natural experiment to test transaction cost theory. In support of the theory, I find that input price uncertainty in the 1970s positively affected the extent of vertical integration by firms into input stages. Moreover, the positive reaction of vertical integration to price uncertainty mainly occurs in transactions subject to asset specificity. I also examine price controls and market power as alternative explanations for vertical integration in the industry, but fail to find support for these hypotheses.

The rapid expansion of organized equity exchanges in both emerging and developed markets has prompted policymakers to raise important questions about their macroeconomic impact, yet the need to focus on recent data poses implementation difficulties for econometric studies of dynamic interactions between stock markets and economic performance in individual countries. This paper overcomes some of these difficulties by applying recent developments in the analysis of panels with a small time dimension to estimate vector autoregressions for a set of 47 countries with annual data for 1980–1995. After describing recent theories on the role of stock markets in growth and considering a pure cross-sectional empirical approach, our panel VARs show leading roles for stock market liquidity and the intensity of activity in traditional financial intermediaries on per capita output. The findings underscore the potential gains associated with developing deep and liquid financial markets in an increasingly global economy.

This paper investigates the determinants of the market share of investment banks acting as advisors in mergers and tender offers. In both mergers and tender offers, bank market share is positively related to the contingent fee payments charged by the bank and to the percentage of deals completed in the past by the bank. It is unrelated to the performance of the acquirors advised by the bank in the past. In tender offers, the post-acquisition performance of the acquiror is negatively related to the contingent fee payments charged by the bank, suggesting that the contingent fee structure in tender offers ensures that investment banks focus on completing the deal.

It has generally been assumed that the potential commission revenue is an important determinant of a sell-side analyst's decision of what firms to cover and what information to publicly release. However, because stock volume has not been disaggregated on a brokerage-firm level, uncertainty remains regarding the economic importance of the relation between analyst coverage and brokerage-firm volume. Using a unique data set that identifies the broker(s) involved in each trade, I find that brokerage volume is significantly higher in covered stocks than in uncovered stocks. On average, brokers increase their market share in covered stocks by 3.8% relative to uncovered stocks.

Economics is not only a social science, it is a genuine science. Like the physical sciences, economics uses a methodology that produces refutable implications and tests these implications using solid statistical techniques. In particular, economics stresses three factors that distinguish it from other social sciences. Economists use the construct of rational individuals who engage in maximizing behavior. Economic models adhere strictly to the importance of equilibrium as part of any theory. Finally, a focus on efficiency leads economists to ask questions that other social sciences ignore. These ingredients have allowed economics to invade intellectual territory that was previously deemed to be outside the discipline's realm.

In this article, we provide quantitative evidence on the effects of monetary incentive schemes designed to reduce racial differences in school attainment and earnings. Our analysis is based on the structural estimation of a dynamic model of schooling, work, and occupational choice decisions over the life cycle. We consider two recent proposals that, although not specifically targeted to blacks, can be expected to have differential racial impacts. One proposal, suggested by Robert Reich, provides a high school graduation bonus to youths from lower‐income families. The other, suggested by Edmund Phelps, provides wage subsidies to low‐wage workers.

Current sales of most consumer durable goods are accounted for by replacements. However, only in recent years has the economic literature provided a more rigorous analysis of replacement purchases by incorporating elements of dynamic programming and of the theory of stochastic processes. This paper is an empirical study of household replacement decisions modeled as an optimal stopping rule. Using data from the Residential Energy Consumption Survey (RECS) of the U.S. Department of Energy, we conclude that demographic variables, operation and replacement costs, and equipment characteristics may affect ownership spells of appliances such as electric heaters and central air conditioners.

Current practice of management cash compensation is based on financial targets. The financial targets for a year may be above, equal to, or below the previous year's publicly available performance measures based in part on the prevailing economic conditions. Accordingly, during economic downturn, a flat relation between changes in management cash compensation and simple changes in corporate performance, like annual profits or return on equity, is predicted, while during economic growth, a positive relation is predicted between changes of management cash compensation and corporate performance measures. The evidence in this study is based on the period 1987‐95. Pooled, cross‐sectional results are consistent with the propositions of no relation between changes in management cash compensation and changes in measures of corporate performance during periods of economic downturn and significant positive relation during economic growth. Further sensitivity analysis of these results with respect to market‐based performance measures, size, and industry classifications confirm the main results.

International differences in the demand for accounting income predictably affect the way it incorporates economic income (change in market value) over time. We characterize the `shareholder’ and `stakeholder’ corporate governance models of common and code law countries respectively as resolving information asymmetry by public disclosure and private communication. Also, code law directly links accounting income to current payouts (to employees, managers, shareholders and governments). Consequently, code law accounting income is less timely, particularly in incorporating economic losses. Regulation, taxation and litigation cause variation among common law countries. The results have implications for security analysts, standard-setters, regulators, and corporate governance.