Since 1973 technological, political, regulatory, and economic forces have been changing the worldwide economy in a fashion comparable to the changes experienced during the nineteenth century Industrial Revolution. As in the nineteenth century, we are experiencing declining costs, increasing average (but decreasing marginal) productivity of labor, reduced growth rates of labor income, excess capacity, and the requirement for downsizing and exit. The last two decades indicate corporate internal control systems have failed to deal effectively with these changes, especially slow growth and the requirement for exit. The next several decades pose a major challenge for Western firms and political systems as these forces continue to work their way through the worldwide economy.

For New York Stock Exchange listed securities, the price execution of seemingly comparable orders differs systematically by location. In general, executions at the Cincinnati, Midwest, and New York stock exchanges are most favorable to trade initiators, while executions at the National Association of Security Dealers are least favorable. These intermarket price differences depend on trade size, with the smallest trades exhibiting the biggest per share price difference. Collectively, these results raise questions about the adequacy of the existing intermarket quote system, the broker's fiduciary responsibility for 'best execution,'and the propriety of order flow inducements.

The authors provide evidence that the spread between commodity spot and futures prices (the basis) reflects the macroeconomic risks common to all asset markets. The basis of many commodities is correlated with the stock index dividend yield and corporate bond quality spread. Explanatory power is related to exposure to macroeconomic fluctuations: about 40 percent of the variation in the basis of a portfolio of commodities with high business cycle sensitivity is explained by the stock and bond yields. Further diagnostics indicate that these associations are largely due to the presence of risk premiums, rather than spot price forecasts, in the basis.

The authors examine the reaction of common stock returns to bond rating changes. While recent studies find a significant negative stock response to downgrades, they argue that this reaction should not be expected for all downgrades because some rating changes are anticipated by market participants and downgrades because of an anticipated move to transfer wealth from bondholders to stockholders should be good news for stockholders. The authors find that downgrades associated with deteriorating financial prospects convey new negative information to the capital market but that downgrades due to changes in firms' leverage do not.

An apparent pricing anomaly exists in the market for U.S. Treasury strips: zero-coupon strips created from principal payments typically trade at significantly higher prices than otherwi se identical zero-coupon strips created from coupon payments. In additi on to documenting this phenomenon, this study demonstrates that differences in liquidity and differences in reconstitution characteristics explain much of this price variation.

This paper studies senior management compensation policy in seventy-seven publicly traded firms that filed for bankruptcy or privately restructured their debt during 1981 to 1987. Almost one-third of all CEOs are replaced, and those who keep their jobs often experience large salary and bonus reductions. Newly appointed CEOs with ties to previous management are typically paid 35 percent less than the CEOs they replace. In contrast, outside replacement CEOs are typically paid 36 percent more than their predecessors, and are often compensated with stock options. On average, CEO wealth is significantly related to shareholder wealth after firms renegotiate their debt contracts. However, managers' compensation is sometimes explicitly tied to the value of creditors' claims.

An apparent pricing anomaly exists in the market for U.S. Treasury strips: zero-coupon strips created from principal payments typically trade at significantly higher prices than otherwise identical zero-coupon strips created from coupon payments. In addition to documenting this phenomenon, this study demonstrates that differences in liquidity and differences in reconstitution characteristics explain much of this price variation.