This study distinguishes between the information in the Ou and Penman (1989a) Pr measure and that in analysts' forecasts of earnings. For cases where analysts' forecasts are available, trading on Pr produces abnormal returns only when the predictions of Pr and those of analysts' forecasts disagree. This is consistent with Pr capturing some information not impounded in market prices. However, abnormal returns to this trading strategy continue for up to 72 months after the release of the data necessary to compute Pr. This is consistent with Pr proxying for the effects of omitted risk factors.

In 1981 the FASB issued a new standard for accounting for foreign currency translation, SFAS 52. The standard provided a gradual transition period, allowing firms to select from several possible adoption dates. This study extends the research on the positive theory of accounting choice to examine the factors associated with a management's choice of adoption date. The comparison reveals that early adopters were smaller, typically decreased in pre-charge earnings the year before adoption, had less stock owned by directors and officers, and were more constrained on dividend payouts and interest coverage ratios than later adopters.

Provisions in the securities acts provide incentives to purchasers of common stocks to initiate class action lawsuits when stock prices decline at and preceding announcements that directly reduce, or imply a reduction in, previously reported accounting book values. Reported common stock returns associated with alleged misrepresentations in financial statements are consistent with incentives provided by the law. Classification of misrepresentations based on hypothesized relations between announcements and security returns results in observed differences in the association between litigated accounting announcements and common stock returns.

Abstract We use an event study approach to estimate the burden of the financial regulations associated with Systemically Important Financial Institution (SIFI) designation. On March 30, 2016, the US District Court determined that MetLife’s SIFI designation was arbitrary and capricious because the Financial Stability Oversight Council (FSOC) failed to weigh the economic cost of the financial regulation on MetLife against the benefits of increased financial stability. We find significant positive abnormal returns for MetLife and AIG on the date of the ruling. We estimate that the lifting of the SIFI designation created $1.4 billion in corporate wealth for MetLife, suggesting that MetLife would be 3.4% more profitable as a non-SIFI. These gains fall short of the $8 billion stipulated by MetLife in its complaint. We also find significant abnormal returns to SIFI institutions on the day following the US Presidential election.

This paper addresses Alvin Roth’s findings of market contracting at times earlier than optimal for market participants, which Roth describes as market “unraveling,” a market failure he proposes to solve by designing centralized buyer‐seller matching programs. This paper shows that, while Roth’s engineering solutions are ingenious, the early contracting phenomena derive from labor market monopsony. Under monopsony, price is unavailable to clear the market; time of contract becomes the currency for working out market forces. Roth’s matching serves to shore up the monopsony and would be unnecessary if the monopsony were removed; a superior solution is to end the monopsony.

This study examines aspects of pay and promotion in corporate hierarchies in the context of tournament theory. Evidence supports the tournament perspective in that most positions are filled through promotion and pay rises strongly with hierarchical level. Furthermore, the winner's prize in the CEO tournament increases with the number of competitors for the CEO position. Not all evidence is supportive: the square of the number of competitors is negatively associated with the CEO prize. Additionally, firms do not appear to maintain short-term promotion incentives, as lengthier time in position prior to a promotion reduces the pay increase from the promotion. Copyright 2001 by University of Chicago Press.

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 hypothesizes that the quit propensity of married men rises with an increase in their wives' income. Assuming that individuals are risk averse and that quitting is risky, the wife's income increases the husband's expected value of quitting by reducing the variance of expected family income. Using the longitudinal data from the Michigan Panel Study of Income Dynamics (PSID), the wife's income is found to have a large effect on quits. The average husband's quit rate increases by about 45% when the wife's income rises from zero to two-thirds that of the husband's. The wife's income effect nearly offsets the negative effect that marriage typically has on male quit rates.

We examine the change in the value of the underlying stock associated with long-term option introduction. Analysis of the abnormal returns associated with LEAPS (Long-Term Equity Anticipation Security) introductions indicates a decline in firm value even after we control for the endogenous nature of the listing decision. However, the evidence does not support previously-offered explanations for the price change associated with option introductions. In particular, we do not find the predicted relations between the cumulative abnormal returns and variables associated with loosening of short sale constraints such as beta, proxies for the dispersion in investor beliefs, and change in relative short interest.