Risk aversion enters many theoretical models of human capital investment, but attitudes toward risk have not been incorporated in empirical models of human capital investment. This article develops a model of the joint investment in financial wealth and human wealth to show that human capital investment is an inverse function of the degree of relative risk aversion. Using data from the Survey of Consumer Finances, I find that wage growth is positively correlated with preferences for risk taking. More-educated individuals are also more likely to be risk takers, thus risk taking explains a portion of the returns to education.

This paper provides empirical evidence on the determinants of corporate hedging decisions. The paper examines the evidence in light of currently mandated financial reporting requirements and, in particular, the constraints placed on anticipatory hedging. Data on hedging are obtained from 1992 annual reports for a sample of 3,022 firms. Out of the 771 firms classified as hedgers, 543 firms disclose information in their annual reports on their hedging activities; the remaining 228 firms report use of derivatives but no information on hedging activities. Based on the evidence, I draw the following conclusions with respect to the models of hedging: evidence is inconsistent with financial distress cost models; evidence is mixed with respect to contracting cost, capital market imperfections, and tax-based models; and evidence uniformly supports the hypothesis that hedging activities exhibit economies of scale.

We investigate the effect of tenure on employee retention under varying labor market conditions. Using a competing risks analysis of recall and new job acceptance applied to layoff unemployment spell data from waves 15 and 16 (1982-83) of the Panel Study of Income Dynamics, we find that adverse conditions (sectoral employment decline) significantly reduce the positive tenure effect on recall probabilities. This result is consistent with firm default on delayed payment contracts and does not appear to reflect the effect of technological change on the value of firm-specific investments.

We use data from the Canadian 2-year longitudinal Labour Market Activity Survey of 1986-87 to estimate the effect of the Unemployment Insurance (UI) system on job duration. Particular attention is focused on the "entrance requirements" of the UI system, which relate eligibility for UI benefits to an individual's recent employment history. The article makes operational the UI entrance requirement provisions which take into account variations in the regional unemployment rate. Controlling for many personal and job characteristics, we find evidence that a significant number of jobs terminate when they have reached the duration that would permit a UI claim.

This paper shows how to estimate a model in which an unknown transformation of the dependent variable is a linear function of explanatory variables plus an unobserved random variable, U, whose distribution is unknown. The model nests many familiar parametric and semiparametric models, including models with Box-Cox transformed dependent variables and proportional hazards models with and without unobserved heterogeneity. The paper develops root-n consistent, asymptotically normal estimators of the transformation function, coefficients of the explanatory variables, and distribution of U. The results of Monte Carlo experiments indicate that the estimators work well in samples of size one hundred. Copyright 1996 by The Econometric Society.

Robin L. Lumsdaine, Consistency and Asymptotic Normality of the Quasi-Maximum Likelihood Estimator in IGARCH(1,1) and Covariance Stationary GARCH(1,1) Models, Econometrica, Vol. 64, No. 3 (May, 1996), pp. 575-596

The papers by Subramanyam (1996) and Kasanen, Kinnunen, and Niskanen (KKN, 1996) both consider why managers manipulate accounting accruals. Subramanyam finds that discretionary accruals are associated with several performance measures, and concludes that managers' accrual choices increase the informativeness of accounting earnings. However, a strong competing alternative is that the ‘Jones model’ systematically mismeasures discretionary accruals, so that they contain a significant non-discretionary component. Unlike many US studies, KKN find strong evidence of earnings management in Finland, where Finnish managers set earnings to satisfy the demand for dividends by keiretsu-like institutional investors.

We examine aftermarket transactions for closed-end fund IPOs and document large sell-to-buy imbalances (“flipping”), extensive price stabilization, and sharp subsequent price drops. The timing of the price drop is related to both the amount of initial flipping, and use of the over-allotment options. The extent of the flipping activity is related to the composition of the syndicate. Moreover, aftermarket buys (sells) are mainly small (large) trades. These findings suggest that lead underwriters price stabilize and manage the supply of shares in the aftermarket, and that closed-end fund IPOs are marketed to a poorly informed public.