The objectives of this review are threefold: (1) to characterize the empirical literature on the cyclical behavior of real wages; (2) to identify the sources of the differences in results across studies; and (3) to enumerate key factors that determine the cyclicality of real wages. Given a host of measurement and methodological issues, drawing firm conclusions is difficult, but several generalizations can be made. The estimated cyclicality of real wages depends crucially on the time period of analysis and the choice of whether to examine the production or the consumption wage. Composition effects play an important but complicated role as well.

The typical Mincerian wage equation examines wages in relation to the education, potential experience, and other personal characteristics of job incumbents. These characteristics serve as proxies for the job holder’s skill level, but do not indicate what specific skills are being rewarded. A number of recent papers make use of data on occupational skill requirements, which have proven useful for understanding shifts in labor demand (see, for example, David Autor, Frank Levy, and Richard Murnane 2003; Maarten Goos and Alan Manning 2007) as well as for understanding the relationship between wages and specific job skills (see, for example, Beth Ingram and George Neumann 2006; Autor and Michael Handel 2008). To the extent that the labor market does a good job of matching individuals to jobs for which they are well suited, such analyses can shed new light on how workers’ job skills are valued in the labor market. Studies that focus on job skills generally begin with data from the Current Population Survey (CPS) or another household survey that contains information on the detailed occupation in which people work. Information on required job skills is attached to the survey records according to reported occupation. There is considerable evidence, however, of significant errors in the coding of occupation in household survey data. Wesley Mellow and Hal Sider (1983) find disagreements between the occupation recorded in CPS data compared to that based on information supplied by individuals’ employers for 19 percent of jobs at the major occupation level and 42 percent at the detailed occupation level. Nancy Mathiowetz (1992) reports similar findings for the employees of a large manufacturing firm. Comparisons of aggregate data on the number of jobs in each of 19 broad occupations from the New Evidence on the Returns to Job Skills

In this paper, we present a tax‐induced framework to analyze debt maturity problems. We show that under some modifications of the existing U.S. tax code, debt maturity is irrelevant even in the presence of taxes and bankruptcy costs that yield an optimal capital structure. If this restrictive structure is relaxed, and assuming the Miller [15] equilibrium does not prevail, tax reasons would usually imply the existence of an optimal debt maturity structure. If there exists a gain from leverage, then an increasing term structure of interest rates, adjusted for default risk, results in long‐term debt being optimal. A decreasing term structure, under similar circumstances, renders short‐term debt optimal. In the absence of agency costs, a Miller [15]‐type result emerges at equilibrium and irrelevance prevails. We also argue that agency costs could again reverse the irrelevance and imply a firm‐specific optimal debt maturity structure.

Center for Research in Financial Services for financial support. The standard disclaimer applies. Optimal Financial Contracts for a Start-Up with Unlimited Operating Discretion This paper presents a model in which asymmetric information and extreme uncertainty lead to the exclusive use of equity and riskless debt for small business financing. The paper derives these results without any restrictions on the available contract space, the distribution function governing a project’s payoff, or the risk aversion of most potential entrepreneurs. Linear securities derive from the assumption that small business financing involves more uncertainty than is captured in most financial models. Instead of assuming that business people are faced with a given menu of projects, the model allows entrepreneurs to create (over time) an unlimited number of non-positive net present value projects with any payoff distribution they desire. Also, outside investors cannot observe project choice but only terminal cash flows. As a result, suppliers of funds must design contracts so that in equilibrium entrepreneurs do not wish to undertake undesirable investments. Further analysis of the model shows that in equilibrium entrepreneurs must contribute some

Firms from emerging economies have significantly increased the amount of bond financing, particularly after the Global Financial Crisis and when compared to other financing instruments. The literature links this growth to a rise in international bond issuances as the supply of capital by foreign investors expanded. This paper explores the role of domestic markets by comparing domestic and international bond issuances by East Asian firms, which are the most active bond issuers in emerging economies. The paper shows that an expansion in domestic bond issuances, in domestic currency, by more and smaller firms was the main component behind the overall growth in bond financing. This expansion was accompanied by a decline in bond yields, higher firm leverage, and higher cash accumulation following issuances after 2008. The evidence is consistent with a higher supply of funds by domestic investors being an important driver behind the rise in domestic bond financing.

Much work has been directed to develop aggregate efficiency measures for firms or decision‐making units (DMUs) in which we are able to observe only the outputs and inputs. Assuming that each DMU has the same type of observed outputs and inputs and using only this information, Farrell's technical efficiency and the CCR ratio can be used to assign an aggregate measure of efficiency to each DMU, which can then be used to compare the efficiency of the DMUs. This paper considers a subset of the general aggregate efficiency problem called the matched output/input case in which each output is matched to exactly one input, forming a subunit. Dividing the output by the input for each subunit within a DMU yields a subunit ratio that is the output per unit input. For a particular subunit, the subunit ratios for two DMUs can be compared directly. If all the subunit ratios of one DMU exceed the corresponding subunit ratios in another DMU, then we should reasonably expect that any aggregate efficiency measure has the efficiency of the first DMU greater than the efficiency of the other DMU. This requirement is defined as the Matched Output/Input Axiom, which is then shown to be violated for certain data sets satisfying Simpson's Paradox. Both Farrell's technical efficiency and the CCR ratio are then shown to violate the Matched Output/Input Axiom, which raises questions about the overall validity of both procedures. Résumé. Les travaux visant l'élaboration de mesures globales du rendement des unités décisionnelles ou des entreprises, dans lesquelles il n'est possible d'observer que les extrants et les intrants, sont nombreux. En supposant que le même type d'extrants et d'intrants est observé pour chaque unité décisionnelle et que cette information est la seule qui soit utilisée, le rendement technique de Farrell et le ratio CCR (Charnes, Cooper et Rhodes) peuvent être utilisés pour attribuer une mesure globale de rendement à chaque unité décisionnelle, mesure qui peut ensuite permettre de comparer le rendement des différentes unités. Les auteurs étudient un sous‐ensemble du problème général de rendement global, le cas de concordance extrant‐intrant, dans lequel chaque extrant est associé à exactement un intrant, pour former un sous‐ensemble. En divisant l'extrant par l'intrant pour chaque sous‐ensemble d'une unité décisionnelle, on obtient, pour chacun d'eux, un ratio représentant l'extrant par unité d'intrant. Pour un sous‐ensemble particulier, les ratios de deux unités décisionnelles peuvent faire l'objet d'une comparaison directe. Si la totalité des ratios des sous‐ensembles d'une unité décisionnelle excède la totalité des ratios des sous‐ensembles correspondants d'une autre unité décisionnelle, on est en droit de s'attendre à ce que l'application d'une mesure globale du rendement, quelle qu'elle soit, indique que le rendement de la première unité est supérieur à celui de la seconde. Les auteurs démontrent que ce principe, défini comme étant l'axiome de concordance extrant‐intrant, est transgressé pour certains ensembles de données répondant aux critères du paradoxe de Simpson. Ils démontrent également que le rendement technique de Farrell ainsi que le ratio CCR dérogent à l'axiome de concordance extrant‐intrant, ce qui les amène à s'interroger sur la validité globale des deux procédés.

Prior to the announcement of a tender offer, the bidding firm is legally allowed to acquire shares in the open market, subject to some limitations. These pre-announcement purchases are known as toeholds. This paper presents a simple model that describes the bidder's optimal toehold acquisition strategy, within an environment that closely parallels the present legal institutions. The model shows that toeholds and bids interact in a complex manner even without the presence of asymmetric information. By examining a simple environment the paper provides a useful alternative hypothesis for tests of other, presumably more complex, models. One of the main implications of our model is that if no competing bidders are expected, no toeholds should be purchased. The paper also demonstrates that the correct specification of an empirical model can be critical. For example, under some parameter values toehold purchases may exhibit a negative cross-sectional correlation with the pre-announcement run up in the stock price. This occurs even though prices are strictly increasing the size of the toehold. Several implications concerning various aspects of merger legislation are considered. For example, we demonstrate that a rule similar to a “fair price” provision has the desirable property that a second bidder arrives and wins if and only if he places a higher value on the target than the initial bidder.

We view innovation investments as real options and explore the implications of risk (volatility) as well as a newly defined outcome independent measure of ambiguity (Knightian uncertainty) for innovation decisions. The empirical analysis uses stock returns to compute an implementable measure of ambiguity. We also control for risk and other determinants of innovation. We find a consistently significant negative effect of ambiguity on R&D, patents, and citations, as predicted. The effect of risk on R&D is positive and significant, but the corresponding effect on patents and citations is negative and significant. Ambiguity matters more for high-tech firms, consistent with intuition.