When estimating finance panel regressions, it is common practice to adjust standard errors for correlation either across firms or across time. These procedures are valid only if the residuals are correlated either across time or across firms, but not across both. This paper shows that it is very easy to calculate standard errors that are robust to simultaneous correlation along two dimensions, such as firms and time. The covariance estimator is equal to the estimator that clusters by firm, plus the estimator that clusters by time, minus the usual heteroskedasticity-robust ordinary least squares (OLS) covariance matrix. Any statistical package with a clustering command can be used to easily calculate these standard errors.

This study finds that managers take deviations from their target capital structures into account when planning and structuring acquisitions. Specifically, firms that are overleveraged relative to their target debt ratios are less likely to make acquisitions and are less likely to use cash in their offers. Furthermore, they acquire smaller targets and pay lower premiums. Managers of overleveraged firms also actively rebalance their capital structures when they anticipate a high likelihood of making an acquisition. Finally, they pursue the most value-enhancing acquisitions. Collectively, these findings improve understanding of how firms choose their capital structures and shed light on the interdependence of capital structure and investment decisions in the presence of financial frictions.

An empirical review of the three fiscal stimulus packages of the 2000s shows that they had little if any direct impact on consumption or government purchases. Households largely saved the transfers and tax rebates. The federal government only increased purchases by a small amount. State and local governments saved their stimulus grants and shifted spending away from purchases to transfers. Counterfactual simulations show that the stimulus-induced decrease in state and local government purchases was larger than the increase in federal purchases. Simulations also show that a larger stimulus package with the same design as the 2009 stimulus would not have increased government purchases or consumption by a larger amount. These results raise doubts about the efficacy of such packages adding weight to similar assessments reached more than thirty years ago.

A recent literature has constructed top income shares time series over the long run for more than twenty countries using income tax statistics. Top incomes represent a small share of the population but a very significant share of total income and total taxes paid. Hence, aggregate economic growth per capita and Gini inequality indexes are sensitive to excluding or including top incomes. We discuss the estimation methods and issues that arise when constructing top income share series, including income definition and comparability over time and across countries, tax avoidance, and tax evasion. We provide a summary of the key empirical findings. Most countries experience a dramatic drop in top income shares in the first part of the twentieth century in general due to shocks to top capital incomes during the wars and depression shocks. Top income shares do not recover in the immediate postwar decades. However, over the last thirty years, top income shares have increased substantially in English speaking countries and in India and China but not in continental European countries or Japan. This increase is due in part to an unprecedented surge in top wage incomes. As a result, wage income comprises a larger fraction of top incomes than in the past. Finally, we discuss the theoretical and empirical models that have been proposed to account for the facts and the main questions that remain open.

Informational asymmetries between a firm and investors may lead to adverse selection in capital markets. This paper demonstrates that when the market obtains noisy information about a firm over time, this adverse selection problem can be costlessly solved by issuing callable convertible bonds with restrictive call provisions. Such securities can be designed to make the payoff to new claimholders independent of the private information of the manager. This eliminates the possibility of any dilution of equity or underinvestment and implements the symmetric information outcome in either a pooling or a separating equilibrium. The same first-best efficient outcome can also be implemented by issuing floating-price and mandatory convertibles.

We investigate analysts' use of stock returns and other analysts' forecast revisions in revising their own forecasts after an earnings announcement. We find that analysts respond more strongly to these signals when the signals are more informative about future earnings changes. Although analysts underreact to these signals on average, we find that analysts who are most sensitive to signal informativeness achieve superior forecast accuracy relative to their peers and have a greater influence on the market. The results suggest that the ability to extract information from the actions of others serves as one source of analyst expertise.

This paper argues that welfare economics should be restored to a prominent place on the agenda of economists, and should occupy a central role in the teaching of economics. Economists should provide justification for the ethical criteria underlying welfare statements, and these criteria require constant re-evaluation in the light of developments in economic analysis and in moral philosophy. Economists need to be more explicit about the relation between welfare criteria and the objectives of governments, policy-makers and individual citizens. Moreover, such a restoration of welfare economics should be accompanied by consideration of the adoption of an ethical code for the economics profession.

Using data for six Asian miracle economies over the period from 1953 to 2006, this paper examines the extent to which growth has been driven by R&D and tests which second-generation endogenous growth model is most consistent with the data. The results give strong support to Schumpeterian growth theory but only limited support to semi-endogenous growth theory. Furthermore, it is shown that R&D has played a key role for growth in the Asian miracle economies.

We present a revealed preference methodology for empirically analysing collective consumption behaviour. First, we introduce an integer programming (IP) methodology for testing data consistency with collective consumption models that account for publicly as well as privately consumed goods. This IP methodology can include information on “assignable quantities” for private goods. Next, we show that the IP methodology allows for recovering the personalized (Lindahl) prices for the public goods and the personalized quantities for the private goods. In turn, this implies recovery of the sharing rule (i.e. personalized income share levels). An empirical application demonstrates the practical usefulness of the methodology.

This paper investigates the relationship between media bias and the influence of the media on voting in the context of newspaper endorsements. We first develop a simple econometric model in which voters choose candidates under uncertainty and rely on endorsements from better informed sources. Newspapers are potentially biased in favour of one of the candidates and voters thus rationally account for the credibility of any endorsements. Our primary empirical finding is that endorsements are influential in the sense that voters are more likely to support the recommended candidate after publication of the endorsement. The degree of this influence, however, depends upon the credibility of the endorsement. In this way, endorsements for the Democratic candidate from left-leaning newspapers are less influential than are endorsements from neutral or right-leaning newspapers and likewise for endorsements for the Republican. We also find that endorsements are more influential among moderate voters and those more likely to be exposed to the endorsement. In sum, these findings suggest that voters do rely on the media for information during campaigns but that the extent of this reliance depends upon the degree and direction of any bias.