This study examines UK firms' contracting cost incentives for capitalizing estimates of brand value. Results indicate that firms' decisions to capitalize acquired brands were influenced by the impact that the immediate write-off of goodwill to equity has on the London Stock Exchange's shareholder approval requirement for future acquisitions and disposals. These findings provide evidence of contracting costs that result from stock exchange mandated shareholder approval rules for planned transactions.

Lee (1988) finds that LIFO firms have higher earnings‐price (EP) ratios than non‐LIFO firms despite the income‐reducing effects of LIFO, a result contrary to economic intuition that Lee describes as a “puzzle.” This paper attempts to resolve this puzzle by introducing refined measures of variables that are related to both EP ratios and inventory costing method choices. The improved proxies are analysts' expectations of future growth rather than realized growth, beta computed using a procedure designed to reduce measurement error rather than the usual OLS beta, and leverage as a supplemental risk measure. Further, we control for expected earnings changes, since transitory earnings shocks that are not expected to persist in future earnings affect the numerator of the EP ratio. After controlling for these factors, we find that EP ratios for LIFO firms are actually lower than those of non‐LIFO firms, a result consistent with economic intuition and the result expected by Lee.

Prior research on the factors influencing the use of debt covenants restricting dividends and additional borrowing is extended by considering management incentives. When alternative incentive variables are considered separately, we find covenants have a significant, negative relation to CEO cash compensation, an insignificant relation to the value of CEO equity held, and significant positive relations to both the ratio of the value of CEO equity holdings to cash compensation and the fraction of equity held by the CEO. In two-stage simultaneous equations models, only the latter is significant when jointly considered with each of the other incentive variables.

Contrary to previous studies, we find managers change depreciation policies in predictable ways. We identify three dimensions of depreciation-policy changes: whether it is a method change or an estimate revision; whether it is income-increasing or decreasing; and whether it applies to new assets only or both new and existing assets. This disaggregation leads to three findings: First, a 1981 tax law altered the frequency of estimate revisions and method changes. Second, firms adopting income-increasing method changes for all assets experience worse performance than those adopting such changes only for new assets. Finally, non-income-increasing policy changes are associated with changes in investment opportunities.

This paper examines the competitive effects of commercial bank entry into the corporate debt underwriting market, particularly with respect to underwriter spreads, ex-ante yields, and market concentration. We find that underwriter spreads and ex-ante yields have declined significantly with bank entry, consistent with the market becoming more competitive. This effect is strongest among the lower-rated and smaller debt issues of which banks have underwritten a relatively greater share. The early evidence also indicates that bank entry has tended to decrease market concentration. Overall, our results suggest that bank entry has had a pro-competitive effect.

This article compares immigrant and native‐born male occupational distributions in Canada in the 1980s. Three questions are addressed: (1) How do immigrant and native‐born occupational distributions differ? (2) Are immigrants more occupationally mobile? and (3) How do immigrant occupations and mobility relate to characteristics used in immigrant selection? Results indicate that immigrants are more skilled, but this declines across successive cohorts. Immigrants are more occupationally mobile even long after arrival, indicating immigration may contribute to a more flexible labor force. Immigrants who are not assessed on their skills or are not fluent at arrival are less occupationally mobile.

This paper provides a theoretical rebalancing benchmark for trading volume that delivers a connection between trading activity in individual stocks and market-wide volume. This model supports the empirical use of an adjustment for market-wide trading activity when filtering out normal trading volume. Data on a sample of large NYSE/AMEX firms support the usefulness of the benchmark. While 20% of the sample firms exhibit trading behavior that is consistent with the cross-sectional prediction of the rebalancing bench? mark, systematic deviations exist. An analysis of deviations from the benchmark allows a characterization of anomalous trading activity. I find that average excess turnover vs. the benchmark is positively related to option availability and institutional ownership and negatively related to firm size. The data do not yield a uniform conclusion on the effect of S&P 500 inclusion. S&P 500 inclusion does not significantly increase the trading of firms that are already trading above benchmark levels, but does result in additional trading for firms that undertrade the benchmark prior to inclusion. An investigation of individual firm market model regressions indicates that this is a useful methodology for filtering out the anomalous trading documented here.

We employ corporate takeover decisions to investigate the impact of institutional ownership on corporate performance. The OLS regressions of bidder gains on institutional ownership indicate a positive relation between the two. However, we find institutional ownership to be significantly determined by firm size, insider ownership and the firm's presence in the S&P 500 index. Thus, when bidder gains are regressed on the predicted values of institutional ownership in two-stage regressions, the recursive estimates do not confirm the relationship shown by the OLS regressions. Furthermore, we do not find any evidence that active institutional investors (e.g., CalPERS) as a group enhance efficiency in the market for corporate control. These findings cast doubt on the superior selection/monitoring abilities of institutional investors.

Principal-agent models are studied, in which outcomes conditional on the agent's action are uncertain, and the agent's behaviour therefore unobservable. For a model with bounded agent's utility, conditions are given under which the first-best equilibrium can be approximated arbitrarily closely by contracts relating payment to observable outcomes. For general models, it is shown that the solution may not always be obtained by using the agent's first-order conditions as constraint. General conditions of Lagrangean type are given for problems in which contracts are finite-dimensional.