We study the aggregate implications of (S, s) inventory policies in a dynamic general equilibrium model with aggregate uncertainty. Firms in the model's retail sector face idiosyncratic demand risk, and (S, s) inventory policies are optimal because of fixed order costs. The distribution of inventory holdings affects the aggregate outcome in two ways: variation in the decision to order and variation in the rate of sale through the pricing decisions of retailers. We find that both mechanisms must operate to reconcile observations that orders are more volatile than, and inventory investment is positively correlated with, sales, while remaining consistent with other salient business cycle characteristics. The model exhibits strong amplification for some shocks and persistence to a limited extent.

We view debt and outside equity as serving to elicit credible information from different specialists about the value of an enterprise in its various uses. The equity valuation specialist provides a price forecast for equity that reveals information about the value of the enterprise in its primary use. The debt valuation specialist provides a price forecast for debt that reveals information about the value of the enterprise in its alternative use. The prices forecast by the valuation specialists credibly reveal their private information because they are required to buy the associated claims at the forecast prices, thereby bonding their valuations.

Street gangs have a long history in American cities (Thrasher 1927). Until recently, gangs were organized primarily as social peer groups. Any economic activities were of secondary importance (Suttles 1968, Klein 1995). The last two decades, however, have given rise to a dramatic transformation in street gangs, or what Taylor (1990) terms their "corporatization."

This paper examines the costs and determinants of order aggressiveness. Aggressive orders have larger price impacts but smaller opportunity costs than passive orders. Price impacts are amplified by large orders, small firms, and volatile stock prices. To minimize the implementation shortfall, the optimal strategy is to enter buy (sell) orders at the bid (ask). Aggressive buy (sell) orders tend to follow other aggressive buy (sell) orders and occur when bid–ask spreads are narrow and depth on the same (opposite) side of the limit book is large (small). Aggressive buys are more likely than sells to be motivated by information.

We investigate the determinants of discretionary SFAS 106 choices of non-regulated firms. We find that more unionized firms are more likely to use immediate recognition, consistent with incentives to reduce labor renegotiation costs. Immediate recognition is more prevalent among post-adoption plan modifiers, particularly if their transition obligation is large, consistent with incentives to increase future reported earnings. Immediate recognition, together with post-adoption benefit plan reduction, frees future income from the transition obligation amortization expense and adds a positive component as negative prior service costs are amortized. Immediate recognition is less prevalent among firms with higher potential debt contracting costs.

Mounting nuclear plant decommissioning costs and utility deregulation focused attention on accounting for decommissioning liabilities. FASB's Exposure Draft 158-B proposes balance sheet recognition of the projected future decommissioning cost liability at initial plant commission. We expect market valuation of each dollar of decommissioning cost apportioned to utilities to vary with utility-specific factors related to the probability of cost recovery via rates. We find a more negative decommissioning cost/firm value association for utilities with higher business or financial risk. Also, equity value is significantly associated with total decommissioning cost across all nuclear units in which a utility has ownership interest.

The idea that banks exist to reduce the costs of monitoring is central to modern theories of financial intermediation. The fact that banks are generally granted senior positions on their small-business loans, however, is hard to reconcile with the typical view that junior lenders have the best incentives to engage in this costly monitoring. Our paper addresses this puzzling contradiction by showing that bank seniority plays an important role in encouraging the formation of valuable bank–firm relationships. The intuition behind our model lies in the fact that once the firm's prospects have deteriorated, junior creditors have incentives much like those of the firm's shareholders. Thus, it is the most senior claimant that benefits from helping the firm improve its quality. If banks are made junior to other creditors, they benefit little from additional investment in the firm during times of poor performance and hence will have little incentive to build relationships that enable them to determine the value of such an investment. As a result, making the bank senior improves its incentives to build a relationship with the firm, thereby fulfilling an important function of intermediated debt. Journal of Economic Literature Classification Numbers: G21, G32.

Andrew D. Cuccia, Gary A. Mc Gill, The Role of Decision Strategies in Understanding Professionals' Susceptibility to Judgment Biases, Journal of Accounting Research, Vol. 38, No. 2 (Autumn, 2000), pp. 419-435

Firms' organizational choices are influenced by external conditions such as the instability of the product market. In order to address this issue in a macroeconomic perspective, we embed the firm's choice of organizational structure in a model of growth through creative destruction, which induces endogenous market volatility. We find that an increasing supply of skill or globalization may increase the rate of creative destruction, the skill premium, and the skilled wages, and it may depress the unskilled wages. We use an original data set to test the empirical relevance of our theory.

This paper tests whether managers repurchase stock when their assessment of the firm's economic value exceeds the market value. Using the forecasts managers would have if they had perfect foresight, we estimate economic value using an earnings‐based valuation model. The major findings are as follows: (1) 74 percent of the firms that repurchase shares via fixed‐price tender offers are undervalued relative to their preannouncement economic value; this percentage is significantly lower for a control sample, (2) the tender premium is highly correlated with the magnitude of undervaluation, and (3) the decision to satisfy oversubscription demand is influenced significantly by the magnitude of undervaluation.