This review essay reviews the volume edited by Owen Humpage, Current Federal Reserve Policy under the Lens of Economic History: Essays to Commemorate the Federal Reserve System’s Centennial, and provides a broader perspective on central-banking issues. The papers in the Humpage volume address various aspects of central banking history, money, and private banking, with a focus on putting recent Fed policies in perspective. The topics covered include the role of the central bank as lender of last resort, the effects of open-market operations versus central-bank lending, central-bank independence, the political economy of monetary unions, financial crises, the effects of unconventional monetary policies, commodity monies, and the Canadian financial system as a natural experiment. (JEL E32, E52, E58, G01, G21, G28, N10)

I. Introduction, 138. — II. A general equilibrium model of the growing low-income economy, 139. — III. The sources of growth paradox, 141. — IV. An analysis of the sources of growth paradox, 144. — V. Conclusion, 147.

Abstract While the Dodd–Frank Act (DFA) mandates board risk committees for large banks, we argue that such committees do not benefit all banks. Banks forced by the DFA to adopt a board risk committee do not experience a reduction in risk following adoption. In contrast, banks that voluntarily established risk committees before the DFA exhibit lower risk, especially when these committees possess greater risk expertise. Using unique interview data, we find that board risk committees serve as active monitors rather than merely rubber-stamping management proposals. However, regulatory-mandated tasks limit their monitoring role.

This paper examines whether firms are able to use acquisitions to ease their financial constraints. The results show that acquisitions do ease financing constraints for constrained acquirers. Relative to unconstrained acquirers, financially constrained firms are more likely to use undervalued equity to fund acquisitions and to target unconstrained and more liquid firms. Using a propensity score matched sample in a difference-in-difference framework, the results show that constrained acquirers become less constrained post-acquisition and relative to matched non-acquiring firms. This improvement is more pronounced for diversifying acquisitions and constrained firms that acquire rather than issue equity and retain the proceeds. Following acquisition, constrained acquirers raise more debt, increase investments, and reduce cash holdings relative to matched non-acquirers, consistent with experiencing reductions in financing constraints. These improvements are not seen for unconstrained acquirers. Finally, the familiar diversification discount is non-existent for financially constrained acquirers.

Introduction, 426. — I. The structure of the dual economy, 427. — II. Labor force growth and biased technological progress: comparative statics, 432. — III. Labor force growth and biased technological progress: dynamics, 435. — IV. A numerical experiment, 436. — V. Conclusion, 443. —Appendix A, 445. — Appendix B, 447.

We examine whether knowledge sharing can enhance the efficacy of implicit, trust-based incentives. Using a stark laboratory experiment, we find support for theory suggesting that individuals believe that their knowledge is an important part of their identity, making it costly to share, but facilitating greater trust that recipients of this knowledge will reciprocate with future rewards. Utilizing participants with substantial work experience, results from additional scenario-based experiments demonstrate practical implications of this theory. Collectively, the results from our experiments show that individuals help others less when the help conveys personal knowledge relative to when it does not absent the prospect of rewards, but more when they can expect future rewards (i.e., with implicit incentives). Importantly, knowledge sharing increases the efficacy of implicit incentives more when they are determined by the help recipient relative to someone else (e.g., a supervisor). Collectively, we contribute to a better understanding of incentive systems designed to promote knowledge sharing in practice.

Motivated by recent changes to corporate governance standards around the world, we use a regulatory shock that substantially altered the governance structure for some firms to shed light on the long-term impact of mandates that are of global interest. Firms affected by this shock had lower values and non-mandated governance practices that were less shareholder friendly before the mandates were in effect when compared to unaffected matched peers. In the post-mandate period, we document a 48% tightening of the relative value gap, and show that this gap relates to the continued use of less shareholder friendly non-mandated governance practices. Our results suggest that governance mandates can tighten, but not eliminate, the value gap between poorly and well governed firms, and that firms affected by the shock continue to have less shareholder friendly governance cultures long after regulatory intervention.

Poor countries are more volatile than rich countries, and we know this volatility impedes their growth. We also know that commodity price volatility is a key source of those shocks. This paper explores commodity and manufactures price over the past three centuries to answer three questions: Has commodity price volatility increased over time? The answer is no: there is little evidence of trend since 1700. Have commodities always shown greater price volatility than manufactures? The answer is yes. Higher commodity price volatility is not the modern product of asymmetric industrial organizations -oligopolistic manufacturing versus competitive commodity markets -that only appeared with the industrial revolution. It was a fact of life deep into the 18th century. Does world market integration breed more or less commodity price volatility? The answer is less. Three centuries of history shows unambiguously that economic isolation caused by war or autarkic policy has been associated with much greater commodity price volatility, while world market integration associated with peace and pro-global policy has been associated with less commodity price volatility. Given specialization and comparative advantage, globalization has been good for growth in poor countries at least by diminishing price volatility. But comparative advantage has never been constant. Globalization increased poor country specialization in commodities when the world went open after the early 19th century; but it did not do so after the 1970s as the Third World shifted to labor-intensive manufactures. Whether price volatility or specialization dominates terms of trade and thus aggregate volatility in poor countries is thus conditional on the century.

We construct a firm-level governance index that increases with minority shareholder protection. Compared with U.S. matching firms, only 12.68% of foreign firms have a higher index. The value of foreign firms falls as their index decreases relative to the index of matching U.S. firms. Our results suggest that lower country-level investor protection and other country characteristics make it suboptimal for foreign firms to invest as much in governance as U.S. firms do. Overall, we find that minority shareholders benefit from governance improvements and do so partly at the expense of controlling shareholders.

ABSTRACT: To curb opportunism in financial reporting, researchers and regulators have proposed that firms be required to report reconciliations of prior year estimates. We provide experimental evidence that such disclosures are not sufficient for nonprofessional investors to identify firms that are opportunistic in their estimates. We also offer evidence suggesting that the value of these disclosures can be enhanced when nonprofessional investors seek out information about the estimate accuracy of other firms in the industry (i.e., consensus information). Our study provides insights about these disclosures and the mechanisms that enhance their effectiveness. Our findings have broad implications for standard-setters and future research designed to assist in identifying opportunistic management behavior.