We use new data from rural and semi-urban Thailand to examine how financial constraints affect entrepreneurial activity. The analysis uses nonparametric and reduced form techniques. The results indicate that financial constraints play an important role in shaping the patterns of entrepreneurship in Thailand. In particular, wealthier households are more likely to start businesses. Wealthier households are also more likely to invest more in their businesses and face fewer constraints. We also provide evidence that financial constraints place greater restrictions on entrepreneurial activity in the poor Northeast compared to the more developed Central region.

The term structure of interest rates is modeled as a random field with conditional volatility. Random field models allow consistency with the current shape of the term structure without the need for recalibration. However, most such models are Gaussian, with no conditional volatility. State-dependent volatility is introduced while a key property of Gaussian random field models is retained. Each forward rate is part of a low-dimensional diffusion process, simplifying estimation and derivatives pricing. The modeling approach also implies that, in general, the set of zero coupon bonds does not complete the market, and term structure derivatives cannot always be priced by arbitrage.

After a large bank merger, the compensation of the surviving bank's CEO often increases materially. Theories of executive compensation based on managerial productivity and optimal incentives suggest that changes in CEO compensation are related to the potential gains from merger. Alternatively, compensation gains might result from an increase in bank size regardless of whether the merger creates value. We examine mergers among billion-dollar banks in the 1990s and find results consistent with managerial productivity. Specifically, we show empirically that changes in CEO compensation after mergers are positively related to anticipated gains from merger measured at the announcement date. Other changes in the structure of compensation are also consistent with hypotheses based on managerial productivity and incentive restructuring.

It is widely believed that the Fed controls the federal funds rate by altering the degree of pressure in the reserve market through open market operations when it changes its target for the funds rate. Recently, however, several analysts have suggested that the Fed need not conduct open market operations to change the funds rate. Rather, they argue it is sufficient that the Fed indicate its desire for the funds rate. This paper notes that there is yet a third alternative, the interest-rate-smoothing hypothesis, that suggests that the Fed does not move rates per se but, rather, smooths the transition of rates to the new equilibrium required by economic shocks. This paper tests the open market and open mouth alternatives using a methodology first used by Cook and Hahn [Journal of Monetary Economics (1989a) 331]. Finding no evidence that either open market operations or open mouth operations can account for the close relationship between the funds rate and the funds rate target, a variety of evidence consistent with the interest-rate-smoothing hypothesis is considered. The results suggest that many changes in the Fed’s funds rate target are an endogenous response to economic events and suggest that an alternative way to identify exogenous changes in policy is to identify exogenous changes in the Fed’s funds rate target.

This paper analyzes how community heterogeneity influences resident decisions to undertake actions generating public benefits. The decision in question is completing and returning the 2000 Census questionnaire, an action which secures a significant amount of federal grants for the community. The model developed to explain this action allows members of societal groups to differentially value public benefits that accrue to other group members. Racial, generational, and socioeconomic class heterogeneity all predict significantly lower response rates at the county level. The potential for endogenous sorting into heterogeneous counties implies that the magnitude of true behavioral effects exceeds these estimates.

Abstract This study conducts a local analysis of the relation between market structure and audit fees. The research question of interest to us is how audit fees are determined by each practicing local office, after taking into account the auditor's own position in a local market and the influence exerted by his or her clients. Appealing to the economic theories of monopoly and monopsony power, we hypothesize a positive audit fee‐concentration relation, and a negative audit fee‐client influence relation. Results indicate that auditor market concentration is positively associated with the non‐Big 6 audit fees but is unrelated to the Big 6 audit fees. Evidence is mixed concerning the client influence hypothesis. When this construct is proxied by the number of rival auditors operating within a geographic area centered on the municipality, the prediction of negative audit fee‐client influence relation is strongly supported for both groups of auditors. Results are much weaker using measures developed based on the relative importance of a municipal client to its auditor's audit portfolio. The issues addressed in this study are important at a time when the Canadian municipal sector is undergoing major changes because of municipal amalgamation, altering the underlying market structure for audit services and the bargaining position of a municipality vis‐Ã‐vis its auditor. More broadly speaking, our analysis implies that when assessing an auditor's report for signs of client pressure, the professional oversight bodies and regulatory authorities need to consider the relative, rather than the absolute, bargaining position of the client in question.

Abstract. Mergers and acquisitions improve market efficiency by capturing synergies between firms. But takeovers also impose externalities (both positive and negative) on the remaining firms in the industry. This paper describes a new equilibrium concept designed to explain and predict takeovers in this setting. We experimentally compare the new equilibrium concept to that of competing con-cepts in situations without and with externalities. Moreover, we examine the predicted dynamics of takeovers and outcome implications of those dynamics. Our experimental results support the predictions of the new equilibrium concept and provide implications for further empirical tests. 1.