This paper investigates the role of bank capital regulation in risk control. It is known that banks choose portfolios of higher risk because of inefficiently priced deposit insurance. Bank capital regulation is a way to redress this bias toward risk. Utilizing the mean‐variance model, the following results are shown: (a) the use of simple capital ratios in regulation is an ineffective means to bound the insolvency risk of banks; (b) as a solution to problems of the capital ratio regulation, the “theoretically correct” risk weights under the risk‐based capital plan are explicitly derived; and (c) the “theoretically correct” risk weights are restrictions on asset composition, which alters the optimal portfolio choice of banking firms

This paper introduces a decision framework for regulating environmental health risks which incorporates the characteristic uncertainty about the dissemination and toxicological impacts of environmental contaminants and the behavioral restrictions commonly encountered. Analysis indicates that increases in uncontrollable uncertainty will increase emphasis on average performance, that more potent or less controllable risks will be regulated more stringently and that increasing aversion to uncertainty may result in poorer average performance. The paper also develops an alternative measure for valuing risk of loss of life taking into account uncertainty about health risk generation processes

Reviews the book "Legal Regulation of British Company Accounts: 1836-1900," edited by J. R. Edwards

This study examines the joint effect of perquisite disclosure regulations and enforcement policies on changes in cash salary and bonus compensation paid to chief executive officers. It is hypothesized that the combined effect of an SEC perquisite disclosure requirement and the IRS policy of taxing perquisites as income causes a shift from perquisites to monetary compensation. A regression model is used to assess the changes in real compensation. The findings support the hypothesis that a change in the chief executive officers' compensation occurred as a result of the disclosure requirement and tax policies

The paper develops a model that shows the effects of rational expectations, and of efficient markets, on public utility regulation. It is shown that the feedback from investor expectations to regulatory behavior, together with investor expectations that take account of this feedback, basically alters the consequences of regulatory decisions. The analysis examines the effects of a deviation between the allowed rate of return and the cost of capital, with both perfect and imperfect investor foresight. It also assesses the consequences of differing expected growth rates. Conclusions are drawn for the effects of regulatory decisions on resource misallocation and of regulatory lag on incentives

The economic theory of regulation suggests that occupational licensing laws are enacted and administered to advance the interests of licensed practitioners. For example, grading standards on licensing examinations could be altered to protect incumbent practitioners from new competitors. This possibility is investigated with time series data of Uniform CPA Examination results for California and Illinois. The results indicate that when the exam was graded by the individual states, exam failure rates increased with downturns in economic activity (as measured by unemployment rates). However, the evidence shows no statistical relation between failure rates and economic activity in the years after each of the states adopted the AICPA's Advisory Grading Service

Franchising is an important and controversial form of vertical integration. Allegations of opportunistic behavior by franchisors have led to calls for public regulation and in some states "fairness in franchising" laws. The advisability of such regulation depends on the long-run incentives to franchise. If franchising is a temporary step on the path to complete ownership integration, regulation may be called for. Alternatively, if complete or partial franchising is a permanen t market solution, regulation is at least contestable. This paper offer s new evidence on the incentives to franchise

Researchers often restrict their sample selection to either December or non-December Compustat companies. However, no one has rigorously investigated the implications of this restriction. This paper compares financial characteristics of December and non-December year-end companies. December year-end firms are larger and have smaller betas as compared to companies with non-December year-ends. There are some strong industry concentrations in December year-ends, most notably in the regulated or recently deregulated industries. Retail sales firms have primarily non-December year-ends. A comparison of leverage ratios does not reveal a stable systematic difference between December and non-December year-end companies

Inequity in capital markets, defined here as Inequality of opportunity or the existence of systematic and significant information asymmetries across investors, leads to adverse private and social consequences: high transaction costs, thin markets, lower liquidity of securities, and in general, decreased gains from trade. Such adverse consequences of Inequity can be mitigated by a public policy mandating the disclosure of financial information in order to reduce information asymmetries. The equity-orientation of disclosure regulation advanced here differs markedly from the traditional, moralistic concepts of equity in accounting, which are generally phrased in terms of maintaining fairness, eliminating fraud, and protecting the uninformed investors against exploitation by insiders. In contrast to such vague, anachronistic, and unattractive notions, the equity concept advanced here is state of the art and operational, being linked directly to recent theoretical developments in economics and finance. As such it provides an economically sound justification for disclosure regulation, and furthermore, it offers accounting policymakers an operational "public interest" criterion for disclosure choices and opens up to researchers a rich agenda for evaluating regulation consequences