We condition security price reactions to quarterly earnings announcements on whether firms disclose supplementary balance sheet and/or cashflow information that can be used to estimate the consequences of earnings management. Disclosure of supplementary information is voluntary, and thus, we consider the possibility that firms that disclose balance sheet and/or cashflow information differ systematically from firms that do not disclose. Results indicate that investors discount evidence of earnings management at the disclosure date when supplementary information is disclosed. Such results indicate more informed earnings interpretations of quarterly earnings when firms provide balance sheet and/or cashflow information concurrently.

We analyze the incentives for independent bank regulators with financially integrated jurisdictions to form a regulatory union. Externalities lead competing regulators to choose suboptimally low standards. Centralized regulation, however, entails a loss of flexibility if equal standards must be applied across jurisdictions. We find that, first, centralized regulation will more likely emerge among relatively homogeneous jurisdictions/countries. Second, centralized regulation will be unanimously preferred to independence only if it entails standards higher than those of the country with the highest individual standards. Third, financial integration among more than two jurisdictions may prevent partial unions, which, in turn, may prevent more comprehensive agreements.

In the period 1993 through 2002 examined in this study, quoted and effective spreads declined substantially on Nasdaq and to a lesser degree on the NYSE. At the same time, however, trades outside the quotes increased dramatically on Nasdaq. Because investors would prefer to trade at the quotes rather than outside the quotes, we examine why trades outside the quotes are observed. We focus on how the continuous market mechanism itself influences the outcome of orders and the reporting of trades, and we conclude that slippage exists in the market mechanism. Outside-trades occur on Nasdaq, first, because of delays in reporting trades, second, because the ability of dealers to delay execution of trades creates a look-back option, which when exercised results in outside-trades, and third, because large trades can take place at prices outside the quotes. Outside-trades are rarely observed on the NYSE because the market is more centralized. While the pattern of trading on the NYSE is not inconsistent with the presence of a look-back option, our tests provide no direct evidence that specialists are exercising such an option.

We examine how analysts respond to public information when setting stock recommendations. We model the determinants of analysts' recommendation changes following large stock price movements. We find evidence of an asymmetry following large positive and negative returns. Following large stock price increases, analysts are equally likely to upgrade or downgrade. Following large stock price declines, analysts are more likely to downgrade. This asymmetry exists after accounting for investment banking relationships and herding behavior. This result suggests recommendation changes are “sticky” in one direction, with analysts reluctant to downgrade. Moreover, this result implies that analysts' optimistic bias may vary through time.

This article evaluates the impact of capital controls and their liberalization on the activities of US multinational firms. These firms attempt to circumvent capital controls by reducing reported local profitability and increasing the frequency of dividend repatriations. As a result, the reported profit impact of local capital controls is comparable with the effect of 27% higher corporate tax rates, and affiliates located in countries imposing capital controls are 9.8% more likely than other affiliates to remit dividends to parent companies. Multinational affiliates located in countries with capital controls face 5.25% higher interest rates on local borrowing than do affiliates of the same parent borrowing locally in countries without capital controls. Capital control liberalizations are associated with significant increases in multinational activity—property, plant, and equipment grow at 6.9% faster annual rates following liberalizations. The combination of the costliness of avoidance and higher interest rates discourages investment in countries with capital controls, and this effect is reversed upon liberalization of controls.

The sensitivity of Bayesian implementation to agents' beliefs about others suggests the use of more robust notions of implementation such as ex post implementation, which requires that each agent's strategy be optimal for every possible realization of the types of other agents. We show that the only deterministic social choice functions that are ex post implementable in generic mechanism design frameworks with multidimensional signals, interdependent valuations, and transferable utilities are constant functions. In other words, deterministic ex post implementation requires that the same alternative must be chosen irrespective of agents' signals. The proof shows that ex post implementability of a nontrivial deterministic social choice function implies that certain rates of information substitution coincide for all agents. This condition amounts to a system of differential equations that are not satisfied by generic valuation functions.

We investigate the relation between option-based executive compensation and market measures of risk for a sample of commercial banks during the period of 1992–2000. We show that following deregulation, banks have increasingly employed stock option-based compensation. As a result, the structure of executive compensation induces risk-taking, and the stock of option-based wealth also induces risk-taking. The results are robust across alternative risk measures, statistical methodologies, and model specifications. Overall, our results support a management risk-taking hypothesis over a managerial risk aversion hypothesis. Our results have important implications for regulators in monitoring the risk levels of banks.

We study dating behavior using data from a Speed Dating experiment where we generate random matching of subjects and create random variation in the number of potential partners. Our design allows us to directly observe individual decisions rather than just final matches. Women put greater weight on the intelligence and the race of partner, while men respond more to physical attractiveness. Moreover, men do not value women's intelligence or ambition when it exceeds their own. Also, we find that women exhibit a preference for men who grew up in affluent neighborhoods. Finally, male selectivity is invariant to group size, while female selectivity is strongly increasing in group size.

Generalized measures of deviation are considered as substitutes for standard deviation in a framework like that of classical portfolio theory for coping with the uncertainty inherent in achieving rates of return beyond the risk-free rate. Such measures, derived for example from conditional value-at-risk and its variants, can reflect the different attitudes of different classes of investors. They lead nonetheless to generalized one-fund theorems in which a more customized version of portfolio optimization is the aim, rather than the idea that a single “master fund” might arise from market equilibrium and serve the interests of all investors. The results that are obtained cover discrete distributions along with continuous distributions. They are applicable therefore to portfolios involving derivatives, which create jumps in distribution functions at specific gain or loss values, well as to financial models involving finitely many scenarios. Furthermore, they deal rigorously with issues that come up at that level of generality, but have not received adequate attention, including possible lack of differentiability of the deviation expression with respect to the portfolio weights, and the potential nonuniqueness of optimal weights. The results also address in detail the phenomenon that if the risk-free rate lies above a certain threshold, the usually envisioned master fund must be replaced by one of alternative type, representing a “net short position” instead of a “net long position” in the risky instruments. For nonsymmetric deviation measures, the second type need not just be the reverse of the first type, and there can sometimes even be an interval for the risk-free rate in which no master fund of either type exists. A notion of basic fund, in place of master fund, is brought in to get around this difficulty and serve as a single guide to optimality regardless of such circumstances.

The article focuses on spending caps, and compares those used in politics with many examples in sports economics. In 1999, the party of Israeli Prime Minister Ehud Barak was fined $3.2 million for exceeding Israel's campaign finance caps. Financing caps by the National Collegiate Athletics Association did not prevent The University of Oregon from spending $3 million on their football locker room. Mathematical models are provided in order to prove that spending caps will not necessarily have their intended effect, as they increase the total expended amount by increasing the risk of being fined.