Intrastate branching deregulation allowed correspondent banks to enter downstream retail deposit markets. Integrated correspondent banks may engage in vertical foreclosure, raising prices to downstream rivals or extracting valuable competitive information. The Federal Reserve would then tend to gain market share from private correspondent banks. Deregulation of restrictions on the formation of multibank holding companies, in contrast, allowed other correspondents to enter, increasing competition. We test these hypotheses using a panel data set of respondent account balances. We find that the Federal Reserve became a more important supplier of correspondent services following branching deregulation and that market power in the correspondent market declined following multibank holding company deregulation. Journal of Economic Literature Classification Numbers: D43, G21, G28, L11.

Our interest in this study is the relative informativeness of earnings announcements reported before and after Form 8‐K disclosures of the reason for an auditor change. We appeal to several models that predict that the market's response to an earnings surprise is positively related to the perceived precision of the earnings report. We predict that the Form 8‐K reason disclosures aid investors in updating their expectations of earnings precision by providing useful information about the financial reporting process that produces the earnings report. For 802 auditor changes from late 1991 through late 1997, the average price response per unit of earnings surprise is lower subsequent to an auditor change for companies that switched for disagreement‐related or fee‐related reasons and higher for those that switched for service‐related reasons. This paper provides further evidence on the effects of differential earnings quality on differences in the returns‐earnings relation across companies and over time as well as the efficacy of Form 8‐K disclosures of reasons for auditor changes.

Our interest in this study is the relative informativeness of earnings announcements reported before and after Form 8-K disclosures of the reason for an auditor change. We appeal to several models that predict that the market's response to an earnings surprise is positively related to the perceived precision of the earnings report. We predict that the Form 8-K reason disclosures aid investors in updating their expectations of earnings precision by providing useful information about the financial reporting process that produces the earnings report. For 802 auditor changes from late 1991 through late 1997, the average price response per unit of earnings surprise is lower subsequent to an auditor change for companies that switched for disagreement-related or fee-related reasons and higher for those that switched for service-related reasons. This paper provides further evidence on the effects of differential earnings quality on differences in the returns-earnings relation across companies and over time as well as the efficacy of Form 8-K disclosures of reasons for auditor changes.

This paper investigates the optimal income transfer problem at the low end of the income distribution. The government maximizes a social welfare function and faces the traditional equity-efficiency trade-off. The paper models labor supply behavioral responses along the intensive margin (hours or intensity of work on the job) and along the extensive margin (participation in the labor force). Optimal tax formulas are derived as a function of the behavioral elasticities, the shape of the income distribution and the redistribution tastes of the government. When behavioral responses are concentrated along the intensive margin, the optimal transfer program is a classical Negative Income Tax program with a substantial guaranteed income support that is taxed away at high rates. However, when behavioral responses are concentrated along the extensive margin, the optimal transfer program is an Earned Income Credit program with negative marginal tax rates at low income levels and a small guaranteed income. Numerical simulations calibrated with the actual empirical earnings distribution are presented for a range of behavioral elasticities and redistributive tastes of the government. For realistic elasticities, the optimal program provides a moderate guaranteed income, imposes low tax rates on very low annual earnings levels, and then starts phasing out

The recent rise in wage inequality is usually attributed to skill-biased technical change (SBTC), associated with new computer technologies. We review the evidence for this hypothesis, focusing on the implications of SBTC for overall wage inequality and for changes in wage differentials between groups. A key problem for the SBTC hypothesis is that wage inequality stabilized in the 1990s despite continuing advances in computer technology; SBTC also fails to explain the evolution of other dimensions of wage inequality, including the gender and racial wage gaps and the age gradient in the return to education.

The types of investments a firm undertakes will depend in part on what it expects the outcome of those investments to reveal about its skills, capabilities, and assets (i.e., its resources). We predict that a firm will specialize when young, then experiment in a new line of business for some time, and then either expand into a large, multisegment business or focus and scale up its specialized business. We derive several empirical implications for firm valuations and the reaction of stock prices to news about firm prospects. We also offer a novel explanation for the well-documented “diversification” discount.

Gibbins and Trotman's study both explores reviewer attributes that auditors judge to influence review quality and replicates earlier, largely experimental findings about preparer and reviewer decision behavior. Such exploration and intra‐method replication create opportunities to refine theory and better design future experimental and nonexperimental studies. Naturally, as with any study, the opportunities that this study creates are not without bounds. To help in thinking about these bounded opportunities, this discussion raises four topics that I have entitled “retro‐spective biases”, “stylization perceptions”, “manager styles”, and “real‐time review complexities”. After discussing these topics in turn, I end with a short summary.

The experiment reported in this paper tests a theoretical model of experienced and novice auditors' information use. The model, based on social cognition research, posits that when judgements are sequential, the information encountered first affects the processing of subsequent information. Specifically, initial information that is in line with expectations results in more superficial processing of subsequent information than initial information that violates expectations. The judgements of 13 experienced and 26 novice auditors were analyzed to determine whether the model is descriptive of auditors' judgements in an ill‐structured task setting (real estate valuation). Results lend support for the model. The implications of the results and the model's impact on audit effectiveness are discussed.

Gibbins and Trotman's study both explores reviewer attributes that auditors judge to influence review quality and replicates earlier, largely experimental findings about preparer and reviewer decision behavior. Such exploration and intra-method replication create opportunities to refine theory and better design future experimental and nonexperimental studies. Naturally, as with any study, the opportunities that this study creates are not without bounds. To help in thinking about these bounded opportunities, this discussion raises four topics that I have entitled “retro-spective biases”, “stylization perceptions”, “manager styles”, and “real-time review complexities”. After discussing these topics in turn, I end with a short summary.