I investigate factors affecting firms' uses of three types of performance metrics to evaluate division mangers: division accounting metrics, firm accounting metrics and firm stock price. Survey data reveal that division accounting metric use increases with the divisions' industry's price–earnings correlation and decreases with divisional growth opportunities; firm accounting metric use increases with the manager's impact on other divisions and decreases with growth opportunities and other managers' impact on that division; and firm stock price use increases with relative division size and the correlation between firm stock returns and market-wide returns.

This study examines discretionary disclosures and stock price effects for 81 UK firms that received first-time modified audit reports during 1982–1990. Results indicate that these firms' managers are forthcoming about adverse developments, and appear to perceive the advantages of withholding negative news to be minimal. However, managers of many of the 58 stressed sample firms make disclosures about expected future performance that are overly optimistic relative to financial outcomes. As expected, stock market participants discount these stressed firms' positive tone disclosures. Evidence in this study confirms that there is a strong incentive problem with voluntary disclosure.

Divergent trends in the real value of the minimum wage in Mexico and Colombia in the 1980s provide an opportunity for evaluating the impact of minimum wages on developing economies. Using panel data for each country, substantial disemployment effects of minimum wages are found in Colombia, where the impact is estimated at roughly 2%–12% over the 1981–87 period. In Mexico, minimum wages have had no effect on wages or employment in the formal sector. The key explanation for the different impact is that the minimum wage is an effective wage in Colombia but not in Mexico.

Abstract. This study extends prior research on the average level of moral development in public accounting by examining five large accounting firms and three staff levels. The research is important because it highlights the need to include auditors from several firms in research designs, provides evidence of differences in moral development among public accounting firms, and profiles the professions' average level of moral development for three levels. The data are from 494 managers and seniors (204 females and 290 males) from five Big Six firms. Using the Defining Issues Test (Rest 1979a) to measure moral development, several results were noted. First, the results indicate a difference in the average level of moral development among firms, suggesting that use of subjects from only one firm inhibits the generalizability of findings regarding moral development. Second, female managers are at a significantly higher average level of moral development than male managers. In fact, the average scores for male managers fell between those expected for senior high school and college students. The data suggest that a greater percentage of high‐moral‐development males and low‐moral‐development females are leaving public accounting than their respective opposites. These results indicate that the profession has retained, through advancement, males who are potentially less sensitive to the ethical implications of various issues. The analysis also indicates that Kohlberg's (1969) theory of moral development is not biased towards the thought processes of males because female auditors did not score lower on the Defining Issues Test.

The purchase of insurance provides a potentially finer informational partition over the distribution of post-loss resolution wealth that may allow favorable adaptation of intermediate consumption, investment, or other decisions. Such a positive informational value does not require consumer risk aversion. Lines of insurance with longer resolution periods should impact relatively more decisions and have higher informational value. Under standard assumptions on preferences, in the absence of informational value, risk premiums paid for insurance by risk averse consumers should not increase as the loss resolution period increases. Empirical tests using data from the property-liability insurance market suggest that the willingness to pay per dollar of coverage (as measured by relative market demand across lines of insurance) is greater for lines of insurance with longer resolution periods consistent with a positive informational value of insurance. The results suggest that other financial assets may also have differential informational value.

Abstract In this paper we present and estimate a model of short-term interest rate volatility that encompasses both the level effect of Chan, Karolyi, Longstaff and Sanders (1992) and the conditional heteroskedasticity effect of the GARCH class of models. This flexible specification allows different effects to dominate as the level of the interest rate varies. We also investigate implications for the pricing of bond options. Our findings indicate that the inclusion of a volatility effect reduces the estimate of the level effect, and has option implications that differ significantly from the Chan, Karolyi, Longstaff and Sanders (1992) model.

Shareholder activists and regulators are pressuring U.S. firms to separate the titles of CEO and Chairman of the Board. They argue that separating the titles will reduce agency costs in corporations and improve performance. The existing empirical evidence appears to support this view. We argue that this separation has potential costs, as well as potential benefits. In contrast to most of the previous empirical work, our evidence suggests that the costs of separation are larger than the benefits for most large firms.

We document extreme bias and dispersion in the small-sample distributions of four standard regression-based tests of the expectations hypothesis of the term structure of interest rates. The biases arise because of the extreme persistence in short interest rates. We derive approximate analytic expressions for the biases under a simple first-order autoregressive data generating process for the short rate. We then conduct Monte Carlo experiments based on a bias-adjusted first-order autoregressive process for the short rate and for a more realistic bias-adjusted VAR-GARCH model incorporating the short rate and three term spreads. Conducting inference with the small-sample distributions of test statistics rather than with their asymptotic distributions provides a more consistent rejection of the expectations hypothesis. Plausible sources of measurement error in short and long yields do not salvage the expectations hypothesis.

When should a government provide a service in-house, and when should it contract out provision? We develop a model in which the provider can invest in improving the quality of service or reducing cost. If contracts are incomplete, the private provider has a stronger incentive to engage in both quality improvement and cost reduction than a government employee has. However, the private contractor's incentive to engage in cost reduction is typically too strong because he ignores the adverse effect on noncontractible quality. The model is applied to understanding the costs and benefits of prison privatization.

We examine an econometric model of counts of worker absences due to illness in a sluggishly adjusting hedonic labor market. We compare three estimators that parameterize the conditional variance—least squares, Poisson, and negative binomial pseudo maximum likelihood—to generalized least squares (GLS) using nonparametric estimates of the conditional variance. Our data support the hedonic absenteeism model. Semiparametric GLS coefficients are similar in sign, magnitude, and statistical significance to coefficients where the mean and variance of the errors are specified ex ante. In our data, coefficient estimates are sensitive to a regressor list but not to the econometric technique, including correcting for possible heteroskedasticity of unknown form.