Using a large sample of accounting data for non-financial companies in France, this paper studies the interactions between macroeconomic shocks and companies’ financial fragility. We consider links in both directions, namely whether firms’ bankruptcies are affected by macroeconomic variables, and whether bankruptcies determine the business cycle. We estimate forecasting equations for firms’ bankruptcy using Shumway's (2001) approach and study the joint dynamics of bankruptcies and macroeconomic variables within an exogenous VAR type model estimated at the sector level. We find evidence of reciprocal links between the bankruptcy rate and the output gap and highlight significant “second round effects” of shocks to the output gap on bankruptcies. We show how taking into account the dynamic transmission of macroeconomic shocks matters in stress testing exercises.

The article contributes to the literature on financial fragility, studying how macroeconomic shocks affect supply and demand in the corporate debt market. We take into account the effect of the competitive environment, as well as the risk level, measured by companies’ default rate. The model is estimated using data from the Harmonised BACH database of corporate accounts for large euro area countries on the 1993–2005 period, in order to carry out an illustrative stress testing exercise. We measure the impact of large macroeconomic shocks (a severe recession and a sharp increase in oil prices) on the equilibrium in the debt market.

This paper examines the effect of several factors on the market share of investment banks that act as book managers in initial public offerings (IPOs) between 1984 and 1995. For established banks, IPO first-day returns, one-year abnormal performance, abnormal compensation, industry specialization, analyst reputation, and association with withdrawn offers have a significant impact on changes in market share. These factors have a more significant effect on market share changes in low-volume IPO markets. These factors have a less significant effect on market share, statistically and economically, for less established banks, consistent with the notion that less reputation is placed at risk.

This paper tests models of mutual fund market timing that allow the manager's payoff function to depend on returns in excess of a benchmark, and distinguish timing based on publicly available information from timing based on finer information. We simultaneously estimate parameters which describe the public information environment, the manager's risk aversion, and the precision of the fund's market-timing signal. Using a sample of more than 400 U.S. mutual funds for 1976–94, our findings suggest that mutual funds behave as highly risk averse, benchmark investors. Conditioning on public information improves the model specification. After controlling for the public information, we find no evidence that funds have significant market-timing ability.

On November 17, 1988, the board of directors of Nestlé AG decided to allow foreign investors to hold Nestlé registered stock, reversing a longstanding practice. This decision had a tremendous impact on the prices of the firm's three classes of common stock, as well as on the prices of several other corporations traded on the Zürich stock exchange. These price changes can be explained by the hypothesis that demand curves slope down.

Turner Broadcasting illustrates how organizational mechanisms can be adapted to prevent a majority owner from imposing costs on minority shareholders through inept management or opportunistic behavior. These mechanisms involve issuing preferred stock with unusual features, concentrating its ownership among a small group of investors, allowing the new preferred shareholders to elect several directors, and requiring supramajority approval of major management decisions by a reconstituted board of directors. The alienability of the preferred stock is restricted to help insure that its ownership stays concentrated and in the hands of those with the specific knowledge and incentives to be effective monitors.

In a multivariate regression model relating individual returns to the market return, CAPM implies non-linear restrictions on the parameters. Several asymptotically valid tests of these restrictions have been suggested. The existing Monte Carlo evidence shows that some of these tests are unreliable for reasonable sample sizes, but does not indicate well which tests are reliable. This paper reports the results of an extensive Monte Carlo experiment. Shanken's CSR test and Jobson and Korkie's corrected likelihood ratio test are quite accurate in all cases we consider.

One hesitates to write history as it happens, or to draw policy lessons from current events. The conference took place in May 2008 - after the government-assisted takeover of Bear Stearns but before a capital market downturn fueled a system-wide liquidity crisis, with successive insolvencies at IndyMac, Fannie Mae, Freddie Mac, Lehman, AIG, WaMu, and, as I write, Citigroup. But it would be odd to comment on capital market regulation without mentioning the events of the last three months. I am first to acknowledge that anything I might have written in May would not have foreseen the crisis or linked capital market regulation to financial institutions, which in the US have been conventionally treated as discrete in discourse and institutions (e.g., U.S. Treasury 2008; Leuz and Wysocki 2008).

The purpose of this paper is to investigate whether financial analysts with superior earnings forecasting ability can be distinguished on the basis of ex post forecast accuracy. I explore the question by estimating and comparing average accuracy across individuals, and by considering whether the observed distribution of analyst forecast accuracies differs from the distribution expected if their relative performances each year were purely random. Overall, I do not find systematic differences in forecast accuracy across individuals. Financial press coverage suggests there are superior financial analysts. For example, Institutional Investor's annual All American Research Team includes analysts rated by money managers as superior on a variety of criteria, including earnings forecasting, ability to pick stocks, and the quality of written reports. Clearly, financial analyst services other than forecast accuracy are valued by their clients. I focus on only one activity, earnings forecasting, for two reasons. First, forecast data are available, quantitative, and can be evaluated against observable earnings outcomes. Services such as insightful, well-written research reports are harder to evaluate quantitatively. Second, academic use of analyst forecasts as earnings expectations data in capital markets empir-

Auditing, Extrapolation, Time-series, Cost variance