Investment advisory firms and brokerage firms hire analysts to uncover profitable securities investment opportunities. Then these firms sell the information (either directly or indirectly) to others. Why? Given that the information has value, why do these firms not keep the information to themselves and trade solely for their own accounts? Because of competition, information is more valuable when fewer people trade on the information. This paper shows that selling information is a strategic response by competing informed traders. Specifically, it is a means for informed traders to commit to trade aggressively, thereby inducing other informed traders to trade less aggressively. Journal of Economic Literature Classification Numbers: G10, D82.

Leases, Operating lease accounting, Equity risk, Property rights

This article uses data from the 1986 Canadian Family Expenditures Survey to estimate a life-cycle-consistent model of household labor supply and commodity demand that incorporates a mortgage qualification constraint based on earnings. Both the parametric and nonparametric implications of the model suggest that the labor supply of a nontrivial percentage of married women is constrained by mortgage commitments. The results of generalized selectivity models of female labor force participation and labor supply show that the positive effect of a high debt service ratio exceeds the negative effect of young children.

This paper shows that previous analyses of IRA-type plans that seek to encourage household saving have miscalculated their effect on tax revenue and therefore on national saving by ignoring their favorable impact on corporate tax payments. Recognizing the important effects of IRA plans on corporate tax revenue changes previous conclusions about the revenue loss in a fundamental way. The revenue loss associated with IRAs either is much smaller than has generally been estimated or is actually a revenue gain.

We study a credit model where, because of adverse selection, unprofitable projects may nevertheless be financed. Indeed they may continue to be financed even when shown to be low-quality if sunk costs have already been incurred. We show that credit decentralization offers a way for creditors to commit not to refinance such projects, thereby discouraging entrepreneurs from undertaking them initially. Thus, decentralization provides financial discipline. Nevertheless, we argue that it puts too high a premium on short-term returns. The model seems pertinent to two issues: “soft budget constraint” problems in centralized economies, and differences between “Anglo-Saxon” and “German-Japanese” financing practices.

Based on theory and anecdotal evidence, we argue that ongoing implicit claims between a firm and its customers, suppliers, employees, and short-term creditors create incentives for management to choose long-run income-increasing accounting methods. Variables selected to proxy for the extent to which a firm depends on these implicit claims are found to be significant in explaining cross-sectional variation in inventory and depreciation methods. These variables remain incrementally significant when we include traditional variables found to have explanatory power in prior studies (i.e., leverage, bonus compensation, tax, and regulatory/political exposure variables).

Investor sophistication, Analyst forecasts, Analyst forecast error, LIFO adoption

Field research attempted to measure the risky environments, the information structures, the institutions, and the risk-response mechanisms of ten villages in northern Thailand. Various key features are then modeled in an abstract but realistic way, either with a full-information risk-sharing model or an information-constrained version of the same model. Observations from some of the villages seem consistent with one or the other of these models, but in many of the villages one is left with risk-response variations across households which suggest that Pareto improvements are possible.

We extend Healy (1985) by examining the relation between discretionary accruals and bonus plan bounds for a sample of 102 firms for the 1980–1990 period. Contrary to Healy, we find that when earnings before discretionary accruals fall below the lower bound, managers select income-increasing discretionary accruals (and vice versa). We believe that our results are more consistent with the income smoothing hypothesis than with Healy's bonus hypothesis. However, mechanical selection bias in portfolio formation cannot be entirely ruled out as an alternative explanation for our results.