Researchers in financial accounting often use qualitative response models in choice‐based empirical research. Most of this research relies on the familiar techniques of dichotomous probit or logistic regression. Only a limited amount of this research uses n‐chotomous qualitative response models such as ordered probit or multinomial logistic regression. A potential explanation for this limited use is that the interpretation of model coefficients in qualitative response models with limited dependent variables (dichotomous or n‐chotomous) differs substantially from OLS regression, and econometric texts do not provide a systematic approach to coefficient interpretation. This paper discusses several approaches to interpreting coefficients in n‐chotomous qualitative response models. These methods focus on partial derivatives, elasticities of probability, sensitivity analysis, and odds ratios. The methods are applied to the models presented in Thomas (1989) and Mittelstaedt (1989). Additional analyses of the models demonstrate that the methods of interpretation can provide different conclusions or strengthen existing conclusions. The methods provide a better understanding of the directional effects of model coefficients, the relative responsiveness of the probability of choice to changes in the independent variables, and the effects of changes in the independent variables on the probability of choice. These methods should make these models more attractive to researchers interested in choice‐based financial accounting research, and allow for a broader range of decision outcomes than that provided by dichotomous qualitative response models.

This study tests the bonus-maximization hypothesis that managers make discretionary accrual decisions to maximize their short-term bonuses. By using the management and financial reporting database of a large conglomerate, we extend previous investigations in two ways. First, the analysis is conducted using business unit-level data, which reduces the aggregation problem that is likely to arise using firm-level data. Second, managers in this setting are paid bonuses based solely on business unit earnings. The potentially confounding effects of long-term performance and stock-based incentive compensation are thus absent. These innovations yield robust evidence consistent with Healy (1985).

The papers by Dhaliwal, Subramanyam and Trezevant (1998)and Vincent (1998)both examine whether stock returns are more highly associated with net income or an alternative measure of firm performance in contexts that are of some current interest to accounting regulators. However, since neither paper does a very good job of motivating their basic economic questions, we are left with results that are not all that interesting or surprising. Both papers would have benefited greatly from a clearer delineation of the economic rationale for their tests and predictions.

This article investigates if the location choices made by immigrants when they arrive in the United States are influenced by the interstate dispersion in welfare benefits. Income-maximizing behavior implies that foreign-born welfare recipients, unlike their native-born counterparts, may be clustered in the states that offer the highest benefits. The empirical analysis indicates that immigrant welfare recipients are indeed more heavily clustered in high-benefit states than the immigrants who do not receive welfare, or than natives. As a result, the welfare participation rate of immigrants is much more sensitive to changes in welfare benefits than that of natives.

We develop a model of corporate myopia in which the interaction between asymmetric information and short-term trading by equity holders induces firms to undertake short-term rather than long-term projects, which are intrinsically more valuable. We study the effectiveness of alternative policy prescriptions in eliminating myopia. We show that a capital gains tax cut for long-term equity holders induces optimal project selection; an across-the-board tax cut has no such impact. We characterize the long-term capital gains tax rate which eliminates corporate myopia. Further, we show that a long-term capital gains tax cut does not induce a bias toward inefficient long-term projects when it is, in fact, short-term projects which are more valuable. In contrast, an investment tax credit directed at long-term projects leads to such a bias. Finally, we show that reducing the long-term capital gains tax rate to the level required to eliminate myopic investment behavior may also lead to an increase in government tax revenues.Journal of Economic Literature Classification Numbers: H21, G31, D82.

We examine the impact of Rule 10a-1, the Uptick Rule, on short-sell orders sent to the NYSE. The principal finding is that the execution quality of short-sell orders is adversely affected by the Uptick Rule, even when stocks are trading in advancing markets. This is inconsistent with one of the three stated objectives of the rule, i.e., to allow relatively unrestricted short selling when a firm's stock is advancing so that the rule does not affect price discovery during such times. Journal of Economic Literature Classification Numbers: G18, K22

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.