We examine aftermarket transactions for closed-end fund IPOs and document large sell-to-buy imbalances (“flipping”), extensive price stabilization, and sharp subsequent price drops. The timing of the price drop is related to both the amount of initial flipping, and use of the over-allotment options. The extent of the flipping activity is related to the composition of the syndicate. Moreover, aftermarket buys (sells) are mainly small (large) trades. These findings suggest that lead underwriters price stabilize and manage the supply of shares in the aftermarket, and that closed-end fund IPOs are marketed to a poorly informed public.

Investment is characterized by costly reversibility when a firm can purchase capital at a given price and sell capital at a lower price. We solve for the optimal investment of a firm that faces costly reversibility under uncertainty and we extend the Jorgensonian concept of the user cost of capital to this case. We define and calculate cU and cL as the user costs of capital associated with the purchase and sale of capital, respectively. Optimality requires the firm to purchase and sell capital as needed to keep the marginal revenue product of capital in the closed interval [cL, cU). This prescription encompasses the case of irreversible investment as well as the standard neoclassical case of costlessly reversible investment.

Information content, Cash flows from operations, Earnings permanence, Transitory earnings

Abstract. This paper adopts a valuation perspective within an asymmetric information setting and explores properties of economic income. The optimal intertemporal contract induces an accrual component of income which would not exist absent the information problem. The contracting solution introduces a dampening effect—if cash flow increases by one dollar, income increases by less than one dollar. Thus, the accrual is inversely related to cash flows. Further, this dampening is greater for more favorable cash outcomes. Résumé. Les auteurs adoptent la perspective de l'évaluation en situation d'asymétrie de l'information et explorent les propriétés du bénéfice économique. Le contrat intertemporel optimal fait intervenir une amplification du bénéfice qui n'existerait pas si ce n'était de la présence du problème d'information. La solution contractuelle amène un effet atténuateur — c'est‐à‐dire qu'à une augmentation du flux monétaire de un dollar correspond une augmentation du bénéfice de moins de un dollar. Ainsi, l'amplification est en relation inverse avec les flux monétaires. En outre, l'atténuation est plus marquée dans le cas de résultats monétaires plus avantageux.

The well-documented phenomena of departures from the absolute priority rule (APR) have provoked an important public policy debate over their consequences. Some scholars argue that APR violations increase economic efficiency because they play an important role in the avoidance of inefficient liquidations and also mitigate inefficient risk incentives. Another group argues that APR violations should be abolished because they add greater uncertainty to the security valuation process; that is, they increase noise in security prices. To date, however, no evidence has been presented on the issue of how much noise APR violations add. We develop a theoretical model that allows an empirical test of the effect of APR violations on noise; our results suggest that APR violations importantly increase noise. Indeed, at least 30 percent, and as much as 85 percent of the noise in security prices may be attributable to APR violations. This does not suggest that the beneficial effects of APR violations are nonexistent or unimportant, but it does imply that failing to account for the effect of APR violations on noise in any modelling of optimal bankruptcy rules may lead to a suboptimal design. We also find that the amount of noise in this market appears to have declined over time as more institutional/informed investors have entered the market for bankrupt firms' securities and the effect of change in the bankruptcy law has become clearer, both consistent with the noisy rational expectations hypothesis.

This study helps to explain why measured school inputs appear to have little effect on student outcomes, particularly for cohorts educated since 1960. Teachers' unionization can explain how public schools simultaneously can have more generous inputs and worse student performance. Using panel data on United States school districts, I identify the effect of teachers' unionization through differences in the timing of collective bargaining, especially timing determined by the passage of state laws that facilitate teachers' unionization. I find that teachers' unions increase school inputs but reduce productivity sufficiently to have a negative overall effect on student performance. Union effects are magnified where schools have market power.