Auditing, Analytical review judgement, Hypothesis set size, Time efficiency

Corporations uniquely have a tax preference for cash dividends. Nevertheless, dividends do not increase following trades of large-percentage blocks of stock from individuals to corporations. Moreover, although one-third of firms have corporate blockholders, 68% of these firms pay no dividends, and ownership is not clustered at levels that increase the tax benefits of dividends. These findings are not driven by the investing firms' tax rates or by agency problems. Instead, operating companies expand the target firms and pursue joint ventures. Dividends are lower with these investors. Financial investors are not attracted to dividend-paying firms and tend to be passive. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: [email protected]., Oxford University Press.

Share repurchases help alleviate agency costs of surplus cash by restricting management’s scope to waste corporate resources. But why do self-interested managers agree to disgorge surplus cash in the first place? This study examines the intervening effect of managerial monitoring and incentive alignment mechanisms on the decision to distribute excess cash through a share repurchase. Findings indicate that repurchases substitute for cash retention decisions that would otherwise prove costly for shareholders, and that better managerial incentive alignment and closer monitoring by external shareholders are important factors stimulating such payouts.

The standard view of the monetary transmission mechanism rests on the central bank's ability to manipulate the overnight interest rate by controlling reserve supply. In the 1990s, there was a significant decline in the level of reserve balances in the US accompanied at first by an increase in federal funds rate volatility. However, following this initial rise, volatility declined. In this paper, we find evidence of structural breaks in volatility. We estimate a Tobit model of temporary open market operations and conclude that there have been changes in the Desk's reaction function that played a major role in controlling volatility.

We examine whether the post-earnings announcement drift (PEAD) varies cross-sectionally with short-horizon return predictability from order flows, which characterizes the information environment and reflects the extent to which information is efficiently impounded in prices. We first demonstrate that this proxy for market efficiency (developed by Chordia, Roll, and Subrahmanyam 2008) captures the degree of market frictions that limit arbitrage activities. We then present evidence that the inverse of short-horizon return predictability is negatively associated with the PEAD and remains statistically and economically significant after controlling for a wide range of explanatory variables used in prior research. Finally, although we find that profits of implementing the PEAD trading strategy are significantly reduced by transaction costs, we demonstrate that profits continue to remain statistically and economically significant for the less efficient firms that face otherwise higher barriers to arbitrage. Our results indicate that short-horizon return predictability from order flows better explains stock returns after earnings announcements.

This paper studies a unique buyback method allowing firms to reacquire their own shares on a separate trading line where only the firm is allowed to buy shares. This share repurchase method is called the Second Trading Line and has been extensively used by Swiss companies since 1997. This type of repurchase is unique for two reasons. First, unlike open market programs, the repurchasing company does not trade anonymously. Second, all transactions made by the repurchasing firm are publicly available in real time to every market participant. This is a case of instantaneous disclosure which contrasts sharply with other markets characterized by delayed or no disclosure. We document that the daily repurchase decision is statistically associated with short-term price changes and the release of firm-specific news. We also find that repurchases on the second trading line have a beneficial impact on the liquidity of repurchasing firms. Exchanges and regulators may consider the second trading line an attractive share reacquisition mechanism because of its transparency and positive liquidity effects.

We offer a new explanation as to why international trade is so volatile in response to economic shocks. Our approach combines the uncertainty shock idea of Bloom (2009) with a model of international trade, extending the idea to the open economy. Firms import intermediate inputs from home or foreign suppliers, but with higher costs in the latter case. Due to fixed costs of ordering firms hold an inventory of intermediates. We show that in response to an uncertainty shock firms optimally adjust their inventory policy by cutting their orders of foreign intermediates disproportionately strongly. In the aggregate, this response leads to a bigger contraction in international trade flows than in domestic economic activity. We confront the model with newly-compiled monthly aggregate U.S. import data and industrial production data going back to 1962, and also with disaggregated data back to 1989. Our results suggest a tight link between uncertainty and the cyclical behavior of international trade.

We examine the effect of internal employee coordination on customer trust, focusing specifically on employees’ responsiveness to each other as an important, quantifiable, and objective aspect of internal coordination. Using proprietary data from a company with exogenous assignment of employees to teams that serve individual customers, we study how inter‐employee responsiveness influences customer trust. Each customer is served via an app‐based group chat by a randomly assigned team of employees. Our data include more than 2 million group chat messages with over 16 thousand customers. We find that inter‐employee responsiveness serves as a credible signal that helps build customer trust, as evidenced by their subsequent contracting choices. The effect is more pronounced when the signal is (1) more frequent and (2) more intense. Our findings highlight the novel value of internal employee responsiveness as a credible signal that helps build trust with external stakeholders.

We suggest that forward guidance, via publicly committing the central bank to future actions and creating associated expectations, fundamentally affects bank lending decisions independently of other forms of monetary policy. To test this hypothesis, we build a forward guidance measure based on the language used in the Federal Open Market Committee meetings and match this measure with syndicated loans. Our results show that expansionary forward guidance decreases corporate loan spreads and that this effect is stronger for well-capitalized banks lending to riskier firms. Forward guidance also affects nonprice lending terms, such as covenants, performance pricing provisions, and the loan syndicate structure. Additionally, banks tend to initiate new lending relationships with lower spreads after forward guidance issuance.