This article develops a model for evaluating alternative hedging strategies for financially constrained firms. A key advantage of the model is the ability to capture the intertemporal effects of hedging on the firm's financial situation. We characterize the optimal hedge. A wide range of alternative hedging strategies can be specified and the model allows us to determine in each case if the hedging strategy raises or lowers firms value and by how much. We show that hedging firm value, hedging cash flow from operations and hedging sales revenue are not optimal. The article highlights the fact that every hedging strategy comes packaged with a borrowing strategy which requires careful consideration.

We investigate the extent to which managerial incentives, including golden parachute (GP) payments, have influenced target acquisition gains over the past two decades. We find that the use and scope of GP contracts expanded dramatically for a large sample of firms acquired from 1980 through 1995. To investigate the effect of managerial incentives on target acquisition gains, we estimate a regression of abnormal stock returns for acquisitions on variables including managerial incentives, the value of GP payments, and the interaction between GPs and management incentives. The regression results indicate that management incentives are positively associated with target acquisition returns and that GP payments serve to mitigate this influence. We do not, however, detect any direct association between the level of GP payments and target gains.

We present a simple model of managerial reporting bias for a setting in which the capital market is uncertain about the manager's reporting objective. In this setting, the manager's reporting bias reduces the value relevance of the manager's report; that is, it adds noise to the report. Through comparative static results, our model yields insights into factors that affect the slope and intercept terms in a regression of price on earnings. Specifically, we find that the information content of the manager's report, as captured by the earnings slope coefficient, falls as the private cost to the manager of biasing reports falls, and as the uncertainty about the manager's objective increases. We also find that the magnitude of the adjustment for the expected amount of bias, as captured by the absolute value of the intercept, falls as the uncertainty about the manager's objective increases. Finally, to highlight conditions under which managers would lobby to retain an option to bias reports (i.e., retain reporting flexibility), we analyze the effect of the option to bias on the manager's welfare. For example, we show that the ex ante benefit from biasing the report is positive if there is sufficient uncertainty about the manager's reporting objective.

There is a global trend in initial public offerings toward the increased use of book building. Relative to other methods such as auctions, a key feature of book building is that the underwriter has total discretion in allocating shares, allowing allocations to be based on long-term relationships between underwriters and investors. In a multiperiod model with endogenous (and costly) information acquisition. I show that the underwriter's ability to lower underpricing depends largely on its ability to favor regular uninformed investors. One implication is that the hybrid book building/open offer method, which is becoming increasingly popular internationally, will lead to higher underpricing than straight book building.

In this paper, we consider identification and estimation in panel data discrete choice models when the explanatory variable set includes strictly exogenous variables, lags of the endogenous dependent variable as well as unobservable individual-specific effects. For the binary logit model with the dependent variable lagged only once, Chamberlain (1993) gave conditions under which the model is not identified. We present a stronger set of conditions under which the parameters of the model are identified. The identification result suggests estimators of the model, and we show that these are consistent and asymptotically normal, although their rate of convergence is slower than the inverse of the square root of the sample size. We also consider identification in the semiparametric case where the logit assumption is relaxed. We propose an estimator in the spirit of the conditional maximum score estimator (Manski (1987)) and we show that it is consistent. In addition, we discuss an extension of the identification result to multinomial discrete choice models, and to the case where the dependent variable is lagged twice. Finally, we present some Monte Carlo evidence on the small sample performance of the proposed estimators for the binary response model.

This paper examines the takeover charter amendments made by 128 firms listed on the New Zealand Stock Exchange. By December 31, 1995, firms were to have adopted one of three charter amendments that varied the timing and content of information required to be provided in takeover bids. The results show that after controlling for the probability of takeover and firm size, unaffiliated directors, representing blockholders, are associated with a less restrictive takeover amendment. We also find evidence that equity owned and controlled by executive and affiliated directors is related to the choice of takeover amendment. We find no relation between the choice of takeover amendment and the level of institutional shareholding, the proportion of public directors or the joint role of CEO and board chairman.

This paper presents a general-equilibrium model where human capital investment increases specialization and exposes skilled workers to region-specific earnings risk. Interjurisdictional mobility of skilled labor mitigates these risks; state-contingent migration of skilled labor also improves efficiency. With perfect capital markets, labor-market integration raises welfare and reduces ex post earnings inequality. If instead human capital investment can only be financed through local taxes, labor-market integration leads to interjurisdictional fiscal competition, shifting the burden of taxation to low-skilled immobile workers. Decentralized public provision of human capital investment creates earnings inequalities and is inefficient. (JEL H00)