We use a movie industry project-by-project dataset to analyze the choice of financing a project internally versus financing it through outside alliances. The results indicate that project risk is positively correlated with alliance formation. Movie studios produce a variety of films and tend to develop their safest projects internally. Our findings are consistent with internal capital market explanations. We find mixed evidence regarding resource pooling, i.e., sharing the cost of large projects. Finally, the evidence shows that projects developed internally perform similarly to projects developed through outside alliances.

This paper demonstrates that preferred stock may arise as an optimal security in a tax-induced equilibrium. This result is driven by graduated tax schedules and by uncertainty. In a more general sense, our results can be interpreted as a template for including any security with a different tax treatment in a firm's capital structure. The first part of the paper demonstrates that the Miller equilibrium framework can accommodate more than two securities if different investor classes are taxed differently on each security and the tax schedule for each investor group is upward sloping. We then simplify the tax schedule, but introduce uncertainty, which implies the possibility of bankruptcy and the possible loss of tax shelters. The interaction of tax rates and seniority now affects the contribution of each security to after-tax firm value, as in some states the firm may not be able to pay either interest (or dividends) or even principal to its various claimholders. It is shown why and how these features, i.e. the various tax rates and seniority, determine the financing equilibrium, which is obtained by equating the expected marginal tax benefit of all securities. We demonstrate that non-profitable firms will tend to issue preferred shares whereas profitable firms will not find preferred stock advantageous in our framework. Comparative statics with respect to various tax rates are derived as well. These predictions are tested using a large sample of firms for the last 25 years. The empirical testing broadly confirms the theoretical predictions.

Using a large data set that links individual Current Population Survey (CPS) records to employer-reported administrative data, we document substantial discrepancies in basic measures of employment status that persist even after controlling for known definitional differences between the two data sources. We hypothesize that reporting discrepancies should be most prevalent for marginal workers and for marginal or nonstandard jobs, and we find systematic associations between the incidence of reporting discrepancies and observable person and job characteristics that are consistent with this hypothesis. The paper discusses the implications of the reported findings for both micro and macro labor market analysis.

Previous papers by Eric B. Rasmusen, J. Mark Ramseyer, and John S. Wiley, Jr. (1991) and Ilya R. Segal and Michael D. Whinston (2000) argue that exclusive contracts can inefficiently deter entry in the presence of scale economies and multiple buyers. We first show that these results no longer hold when buyers are final consumers who can breach these contracts and pay expectation damages. We then show, however, that exclusive contracts can inefficiently deter entry if buyers are downstream competitors, even in the absence of scale economies and even if breach is possible.

The average wage is a key aspect of economic well-being in a society. Several alternative wage measures based upon official government statistics are available to analysts. Although these series always have differed in their relative levels, since the mid-1970's their trends have diverged markedly. This paper, which summarizes and updates our earlier work (Abraham et al., 1998), has several goals: to describe several commonly used hourly wage series; to characterize differences in their trends; and to evaluate alternative explanations for these differences.

This paper analyzes the asset pricing and portfolio implications of an important barrier to sustainable investing: uncertainty about the corporate ESG profile. In equilibrium, the market premium increases and demand for stocks declines under ESG uncertainty. In addition, the CAPM alpha and effective beta both rise with ESG uncertainty and the negative ESG-alpha relation weakens. Employing the standard deviation of ESG ratings from six major providers as a proxy for ESG uncertainty, we provide supporting evidence for the model predictions. Our findings help reconcile the mixed evidence on the cross-sectional ESG-alpha relation and suggest that ESG uncertainty affects the risk-return trade-off, social impact, and economic welfare.

This paper investigates the design of privatization mechanisms in emerging market economies characterized by political constraints that limit the set of viable privatization options. Our objective is to explain the striking diversity of mechanisms observed in practice and the frequent use of an apparently sub-optimal privatization mechanism: private negotiations. We develop a simple model in which privatization is to be carried out by a government agent, who plays favorites among bidders but is potentially disciplined by losing his private benefits of staying in office. If the political environment is such that the privatization agent himself aims at raising the fair value for the company, then privatization auctions and private negotiations are equally successful in raising public revenues. If, however, political considerations distort the agent’s incentives, it may be that a seemingly transparent auction will raise less revenue, than opaque private negotiations. We also show that information disclosure laws may have negative welfare implications: they may help the privatization agent to collude with some of the bidders to the disadvantage of non-colluding bidders.

Using detailed hand-collected data on firm ownership and board cultural diversity from Sweden, we find that foreign ownership is positively associated with board cultural diversity. This relationship is not an artifact of foreign owners joining the board, and it is not driven by firms with substantial foreign focus. The presence of foreign owners on nomination committees seems to be the channel through which foreign owners implement cultural diversity. The positive relationship between foreign ownership and board cultural diversity is also more pronounced in firms where owners may have more say (family firms, dual-class share firms, and firms with concentrated ownership). However, we do not find evidence that cultural diversity increases firm value or that it is correlated with other types of diversity. Our preferred interpretation is quasi-homophily.

This paper examines how, and to what extent, cross-listing impacts corporate dividend smoothing. We report significantly increased dividend smoothing, with idiosyncratic sectoral responses, after cross-listing. Furthermore, we show that sectoral competition and local market development explain the extent of dividend smoothing after cross-listing. To study the dynamics in dividend smoothing channels after cross-listing, we adopt a variance decomposition approach. We find substantial variation in the use of debt and investment channels to absorb net income shocks, keeping dividends smooth after cross-listing. Our findings suggest that, with increased access to a larger pool of capital in the U.S., cross-listed firms are motivated to keep dividends stable through debt and investment decisions after cross-listing.

Susan N. Houseman, Katharine G. Abraham, Female Workers as a Buffer in the Japanese Economy, The American Economic Review, Vol. 83, No. 2, Papers and Proceedings of the Hundred and Fifth Annual Meeting of the American Economic Association (May, 1993), pp. 45-51