B. H. Beckhart, Carl F. Behrens, George N. Emory, Shirley K. Hart, James J. O'Leary, A. M. Weimer, Liquidity: A Growing Attribute of Mortgage Loan Portfolios: Discussion, The Journal of Finance, Vol. 5, No. 4 (Dec., 1950), pp. 324-336

We examine high stakes three-person bargaining in a game show where contestants bargain over a large money amount that is split into three unequal shares. We find that individual behavior and outcomes are strongly influenced by equity concerns: those who contributed more to the jackpot claim larger shares, are less likely to make concessions, and take home larger amounts. Contestants who announce that they will not back down do well relative to others, but they do not secure larger absolute amounts and they harm others. There is no evidence of a first-mover advantage and little evidence that demographic characteristics matter.

Most interpretations of prevalent counterinsurgency theory imply that increasing government services reduces rebel violence. Empirically, however, development programs and economic activity sometimes increase violence. Using new panel data on development spending in Iraq, we show that violence-reducing effects of development assistance are greater when: (i) projects are small; (ii) troop strength is high; and (iii) professional development expertise is available. These findings are consistent with an information-centric (“hearts and minds”) model, which implies that violence-reduction is greatest when projects are secure, valued by community members, and services derived are conditional on government control of the territory.

In this study, we examine whether firms respond to internal control weaknesses (ICWs) by requiring accounting-specific skills when hiring rank-and-file employees. Using unique data containing an extensive collection of job postings, we document significant increases in firms’ job postings that list accounting skills after the disclosure of an ICW. This effect is more pronounced for firms with better financial resources and when ICWs are more severe or personnel-related. In addition, our results extend to employees that are not specifically designated as accountants, suggesting a broader role for rank-and-file employees in influencing internal control quality. Finally, we find that increases in job postings with accounting skill requirements are associated with improvements in internal controls and a higher likelihood of ICW remediation. Overall, our findings shed new light on how firms respond to ineffective internal controls by increasing their emphasis on accounting skills in their workforce. Data Availability: Data are publicly available from the sources identified in the text.

Audit practitioners, academics, and attorneys have expressed concern that disclosing critical audit matters (CAMs) will increase jurors' auditor liability judgments when auditors fail to detect misstatements. In contrast, this study provides theory and experimental evidence that CAM disclosures, under certain conditions, reduce auditor liability judgments as jurors perceive that undetected fraudulent misstatements were more foreseeable to the plaintiff (i.e., the financial statement user suing the auditor). However, we find that CAM disclosures only reduce auditor liability for undetected misstatements that, absent CAM disclosure, are relatively difficult to foresee. Finally, CAM disclosures that are unrelated to subsequent misstatements neither increase nor reduce auditor liability judgments relative to the current regime (i.e., where CAMs are not disclosed), but reduce liability judgments relative to reporting that there were no CAMs. As such, we find that, relative to stating there were no CAMs, disclosure of any CAM (i.e., related or unrelated) provides litigation protection in cases of undetected fraud. Consequently, the CAM requirement could incentivize auditors to disclose innocuous boilerplate CAMs, thereby diluting the impact of more warranted CAM disclosures. Data Availabliity: Available from authors upon request.

Measures of private equity (PE) performance based on cash flows do not account for a discount‐rate risk premium that is a component of the capital asset pricing model (CAPM) alpha. We create secondary market PE indices and find that PE discount rates vary considerably. Net asset values are too smooth because they fail to reflect variation in discount rates. Although the CAPM alpha for our index is zero, the generalized public market equivalent based on cash flows is large and positive. We obtain similar results for a set of synthetic funds that invest in small cap stocks. Ignoring variation in PE discount rates can lead to a misallocation of capital.