We investigate the market liquidity effects of the introduction of index-tracking stocks for the Dow Jones Industrial Average (DIAMONDS) and the NASDAQ 100 index (Q's). Our main finding is liquidity of the underlying DJIA 30 index stocks improves after the introduction of the exchange-traded fund, largely because of a decline in the cost of informed trading. Further, we find the DIAMONDS has significantly lower liquidity costs over the first 50 days of trading as compared to the portfolio of its component stocks, again primarily because of lower adverse selection costs. Finally, we find weaker but qualitatively similar results for the Q's.

Under the common assumption of constant interest rates, we show that penalties for early termination of a lease are often structured in such a way that the cancellation option embedded in consumer automotive leases has little value. Furthermore, our estimates drawn from a sample of three popular car models over 1990 to 2000 indicate that the stand‐alone value of the lease‐end purchase option is, on average, about 16% of the market value of underlying used vehicles, or about $1,462 per contract. Finally, we examine the sensitivity of our option value estimates to model parameters and default risk.

Studies in social sciences suggest that a normative commitment to stable, biological married life is a potent catalyst for inculcating and nourishing prosocial values, preferences and behaviors among family members. Extrapolating from this literature, we investigate whether firms led by married chief executive officers (CEOs) are associated with better corporate social responsibility (CSR). Our analysis of 2163 U.S. public corporations from 1993 to 2008 shows that firms led by married CEOs are associated with significantly higher scores on a popular CSR index, after controlling for a wide range of firm characteristics and CEO attributes. Further, the observed positive relation is particularly sharper with the diversity and employee relations components of CSR. Our findings highlight CEO marital status as an important driver of socially responsible corporate decision making.

Based on theoretical advice and empirical evidence suggesting that risk taking in asset allocation enhances pension returns, we evaluate empirically whether good corporate governance leads to a larger allocation of pension assets to risky securities as compared to safe investments. Our findings suggest that firms with good external and internal corporate governance take more risk by investing heavily in equities and allocating a smaller share of the plan assets to cash, government debt, and insurance company accounts. The main underlying mechanisms appear to be higher investment returns and better pension funding status associated with higher equity and lower safe asset allocations.

Shantaram P. Hegde, Robert E. Miller, Market-Making in Initial Public Offerings of Common Stocks: An Empirical Analysis, The Journal of Financial and Quantitative Analysis, Vol. 24, No. 1 (Mar., 1989), pp. 75-90

The authors compare the relative magnitudes of the components of the bid-ask spread for New York Stock Exchange (NYSE)/American Stock Exchange (AMEX) stocks to those of National Association of Securities Dealers Automated Quotations (NASDAQ)/National Market System (NMS) stocks. They find that the order-processing cost component is smaller, and the adverse selection component is greater, on the NYSE/AMEX trading systems than on the NASDAQ/NMS system. The inventory holding component is also greater for exchange-traded stocks than for NASDAQ/NMS stocks, but this may be attributable to differences in the characteristics of the firms whose stocks trade on the respective systems.

Patented knowledge capital improves the transparency of research and development expenditures, converts intangible intellectual property into collateralizable and salable assets, enhances sustained competitive advantage by enabling firms to weather business cycles, withstand obsolescence risk and competitive threats, and lowers future financing risk and growth uncertainties. Consistent with this conjecture, we find that knowledge capital, proxied by stocks of patents, their forward citations and estimated market value, is associated with lower future cost of equity as well as firm risk. These findings appear robust to controlling for the stock of R&D expenses, potential endogeneity concerns about firms’ innovative activities, controls for technology spillovers from industry rivals, and product market competition.