We propose the use of stochastic frontier approach to modelling financial constraints of firms. The main advantage of the stochastic frontier approach over the stylised approaches that use pooled OLS or fixed effects panel regression models is that we can not only decide whether or not the average firm is financially constrained, but also estimate a measure of the degree of the constraint for each firm and for each time period, and also the marginal impact of firm characteristics on this measure. We then apply the stochastic frontier approach to a panel of Indian manufacturing firms, for the 1997–2006 period. In our application, we highlight and discuss the aforementioned advantages, while also demonstrating that the stochastic frontier approach generates regression estimates that are consistent with the stylised intuition found in the literature on financial constraint and the wider literature on the Indian credit/capital market.

We measure job-filling rates and recruiting intensity per vacancy at the national and industry levels from January 2001 to September 2011 using data from the Job Openings and Labor Turnover Survey. Industry-level movements in these variables are at odds with implications of the standard matching function in labor search theory but consistent with a generalized function that incorporates an important role for recruiting intensity. Construction makes up less than five percent of employment but accounts for more than 40 percent of the large swings in the job-filling rate during and after the Great Recession.

To better understand the workplace commitments experienced by organizational members, we reconceptualize commitment to highlight its distinctiveness and improve its applicability across all workplace targets. We present a continuum of psychological bonds and reconceptualize commitment as a particular type of bond reflecting volitional dedication and responsibility for a target. We then present a process model applicable to any workplace target to bring clarity, consistency, and synergy to the research and management of workplace commitments.

Using hand-collected data, we examine the targeting of shareholder class action lawsuits in merger and acquisition (M&A) transactions, and the associations of these lawsuits with offer completion rates and takeover premia. We find that M&A offers subject to shareholder lawsuits are completed at a significantly lower rate than offers not subject to litigation, after controlling for selection bias, different judicial standards, major offer characteristics, M&A financial and legal advisor reputations as well as industry and year fixed effects. M&A offers subject to shareholder lawsuits have significantly higher takeover premia in completed deals, after controlling for the same factors. Economically, the expected rise in takeover premia more than offsets the fall in the probability of deal completion, resulting in a positive expected gain to target shareholders. However, in general, target stock price reactions to bid announcements do not appear to fully anticipate the positive expected gain from potential litigation. We find that during a merger wave characterized by friendly single-bidder offers, shareholder litigation substitutes for the presence of a rival bidder by policing low-ball bids and forcing offer price improvement by the bidder.

We find that a substantial portion of short sellers' trading advantage comes from their ability to analyze publicly available information. Using a database of short sales combined with a database of news releases, we show that the well-documented negative relation between short sales and future returns is twice as large on news days and four times as large on days with negative news. Further, we find that the most informed short sales are not from market makers but rather from clients, and we find only weak evidence that short sellers anticipate news events. Overall, the evidence suggests that public news provides valuable trading opportunities for short sellers who are skilled information processors.

We investigate the influence of national culture on corporate debt maturity choice. Based on the framework of Williamson, we argue that culture located in social embeddedness level can shape contracting environments by serving as an informal constraint that affects human actors’ incentives and choices in market exchange. We therefore expect national culture to be related to debt maturity structure after controlling for legal, political, financial, and economic institutions. Using Hofstede’s four cultural dimensions (uncertainty avoidance, collectivism, power distance, and masculinity) as proxies for culture, and using a sample of 114,723 firm-years from 40 countries over the 1991–2006 period, we find robust evidence that firms located in countries with high uncertainty avoidance, high collectivism, high power distance, and high masculinity tend to use more short-term debt. We interpret our results as consistent with the view that national culture helps explain cross-country variations in the maturity structure of corporate debt.

ABSTRACT This paper examines the impact of hedge fund activism on corporate tax avoidance. We find that relative to matched control firms, businesses targeted by hedge fund activists exhibit lower tax avoidance levels prior to hedge fund intervention, but experience increases in tax avoidance after the intervention. Moreover, findings suggest that the increase in tax avoidance is greater when activists have a successful track record of implementing tax changes and possess tax interest or knowledge as indicated by their Securities and Exchange Commission (SEC) 13D filings. We also find that these greater tax savings do not appear to result from an increased use of high-risk and potentially illegal tax strategies, such as sheltering. Taken together, the results suggest that shareholder monitoring of firms, in the form of hedge fund activism, improves tax efficiency. JEL Classifications: G32; G34; H26. Data Availability: Data are available from sources identified in the text.

While firm-initiated compensation recovery (or clawback) provisions are gaining popularity and the recently enacted Dodd-Frank Act seeks to make the clawback of erroneously awarded compensation mandatory for all listed companies, little is known about their effectiveness. We find that the incidence of accounting restatements declines after firms initiate such provisions. In addition, we show that investors and auditors view such provisions as associated with increased accounting quality and lower audit risk. Specifically, we find that firms' earnings response coefficients increase after the adoption of clawback provisions. Further, for firms that adopt clawbacks, auditors are less likely to report material internal control weaknesses, charge lower audit fees, and issue audit reports with a shorter lag.

This research investigated the role of contemplation, conversation (conceptualized as social contemplation), and explanation in right-wrong decisions. Several theories suggest that contemplation or morally oriented conversation will promote ethical decisions and that immediate choice or self-interested conversation will not; other theories suggest that individuals' explanations will reinforce their decisions. An experimental task tempting people to lie supported all of these predictions. In addition, truth tellers viewed the situation as morally oriented, and non–truth tellers viewed it as oriented around self-interest, both before and after their decisions. These findings provided the basis for a new process model of moral decision making.

Consumers need information to compare alternatives for markets to function efficiently. Recognizing this, public policies often pair competition with easy access to comparative information. The implicit assumption is that comparison friction—the wedge between the availability of comparative information and consumers' use of it—is inconsequential because when information is readily available, consumers will access this information and make effective choices. We examine the extent of comparison friction in the market for Medicare Part D prescription drug plans in the United States. In a randomized field experiment, an intervention group received a letter with personalized cost information. That information was readily available for free and widely advertised. However, this additional step—providing the information rather than having consumers actively access it—had an impact. Plan switching was 28% in the intervention group, versus 17% in the comparison group, and the intervention caused an average decline in predicted consumer cost of about $100 a year among letter recipients—roughly 5% of the cost in the comparison group. Our results suggest that comparison friction can be large even when the cost of acquiring information is small and may be relevant for a wide range of public policies that incorporate consumer choice.