We study the relative risk of value and growth stocks. We find that time-varying risk goes in the right direction in explaining the value premium. Value betas tend to covary positively, and growth betas tend to covary negatively with the expected market risk premium. Our inference differs from that of previous studies because we sort betas on the expected market risk premium, instead of on the realized market excess return. However, we also find that this beta-premium covariance is too small to explain the observed magnitude of the value premium within the conditional capital asset pricing model.

We study how heterogeneous beliefs affect returns and examine whether they are a priced factor in traditional asset pricing models. To accomplish this task, we suggest new empirical measures based on the disagreement among analysts about expected earnings (short-term and long-term) and show they are good proxies. We first establish that the heterogeneity of beliefs matters for asset pricing and then turn our attention to estimating a structural model in which we use the forecasts of financial analysts to proxy for agents' beliefs. Finally, we investigate whether the amount of heterogeneity in analysts' forecasts can help explain asset pricing puzzles.

We confront the predictions of various theories with new training data from the British Household Panel Survey. We find that employer-financed training is associated with significantly higher wages at current and future firms, with a larger impact in future firms. This is consistent with human capital theory with credit constraints and with the new training literature assuming imperfectly competitive labor markets.

The observation that liquidations are concentrated in recessions has long been the subject of controversy. One view holds that liquidations are beneficial in that they result in increased restructuring. Another view holds that this rise in restructuring is costly since liquidations are privately inefficient and essentially wasteful. This paper proposes an alternative perspective. On the basis of a combination of theory with empirical evidence on gross job flows and on financial and labour market rents, we find that, cumulatively, recessions result in reduced rather than increased restructuring, and that this is likely to be socially costly once we consider inefficiencies on both the creation and destruction margins. Copyright 2005, Wiley-Blackwell.

Because of conflicting incentives among participants, collaborations (e.g., strategic alliances, joint ventures, and work teams) present a significant control challenge to managerial accountants. On the one hand, formal controls such as sanctioning and monitoring systems improve cooperation by reducing the incentives for opportunistic behavior. On the other hand, prior research finds that the mere presence of a control system causes decision makers to view the collaborative setting as noncooperative, and other collaborators as untrustworthy. In this paper, we conduct two experiments in which participants act as business collaborators. Through these experiments, we examine the effects of control on trust and cooperation in collaborative settings. Specifically, we posit and provide evidence that a strong control system can enhance the level of trust among collaborators. The mediating role of control-induced cooperation provides the mechanism by which control systems can increase trust in collaborative environments. Furthermore, we show that this increased trust has a positive effect on the subsequent level of cooperation among collaborators. Taken together, the results suggest an increasing marginal benefit of control system strength arising from the trust that control-induced cooperation engenders. The implication is that firms will choose to implement a stronger control system than previous research would seem to suggest.

This paper surveys the empirical literature examining bank privatization. We begin by documenting the extent of, theoretical rationale for, and measured performance of state-owned banks around the world, and then assess why many governments have chosen to privatize their often very large state-owned banking sectors. The empirical evidence clearly shows that state-owned banks are less efficient than privately owned banks, and that state domination of banking imposes increasingly severe penalties on those countries with the largest state banking sectors. On the other hand, there is little in the empirical record to suggest that privatization alone transforms the efficiency of divested banks, especially when these are only partially privatized. Privatization generally improves performance, but by far less than is typically observed in studies of non-financial industries. An increasingly common outcome of large-scale bank privatization programs is foreign ownership of many nations’ banking sector, which evidence suggests is usually positive in an economic sense, but problematic politically.

This paper gives a long-term assessment of intraday price reversals in the US stock index futures market following large price changes at the market open. We find highly significant intraday price reversals over a 15-year period (November 1987–September 2002) as well as significant intraday reversals in our yearly and day-of-the-week investigations. Moreover, the strength of the intraday overreaction phenomenon seems more pronounced following large positive price changes at the market open. That being said, the question of whether a trader can consistently profit from this information remains open as the significance of intraday price reversals is sharply reduced when gross trading results are adjusted by a bid–ask proxy for transactions costs.

ABSTRACT We examine three‐day cumulative abnormal returns around the announcement of 702 newly appointed outside directors assigned to audit committees during a period before implementation of the Sarbanes‐Oxley Act (SOX). Motivated by the SOX requirement that public companies disclose whether they have a financial expert on their audit committee, we test whether the market reacts favorably to the appointment of directors with financial expertise to the audit committee. In addition, because it is controversial whether SOX should define financial experts narrowly to include primarily accounting financial experts (as initially proposed) or more broadly to include nonaccounting financial experts (as ultimately passed), we separately examine appointments of each type of expert. We find a positive market reaction to the appointment of accounting financial experts assigned to audit committees but no reaction to nonaccounting financial experts assigned to audit committees, consistent with accounting‐based financial skills, but not broader financial skills, improving the audit committee's ability to ensure high‐quality financial reporting. In addition, we find that this positive reaction is concentrated among firms with relatively strong corporate governance, consistent with accounting financial expertise complementing strong governance, possibly because strong governance helps channel the expertise toward enhancing shareholder value. Together, these findings are consistent with financial expertise on audit committees improving corporate governance but only when both the expert and the appointing firm possess characteristics that facilitate the effective use of the expertise.

Abstract Accounting involves assigning numbers to events — quantifying them. Conventional wisdom holds that putting numbers to an argument enhances its persuasive power. There is, however, little scholarly evidence to support or refute this claim, in accounting or elsewhere. In this paper, we develop an original process‐based model of how quantification influences persuasion. We posit that including a high‐quality quantified analysis in a proposal enhances its persuasive power by increasing both the perceived competence of the proposal preparer and the perceived plausibility that a favorable outcome could occur. Under some conditions, however, quantification also encourages criticism of the details of the proposal, which potentially offsets these effects. We experimentally test implications of our model in a managerial decision setting, investigating conditions in which quantification is more and less likely to result in criticism of the quantified proposal and, thus, less and more likely to be persuasive. We also test the model itself using structural equations methods. Results largely support the model, which should prove of value to researchers interested in the effects of quantification on judgements and to those interested in persuasion.

The market for developing country sovereign debt has become increasingly competitive. Is this necessarily good for welfare? Or, is there scope for benefi-cial government intervention to reduce competition, and promote coordination, among creditors? This paper reviews recent theoretical work on the market for developing country sovereign debt that shows that competition can reduce welfare. Further, it argues that while private sector creditor organizations have been successful at coordinating existing creditors in history, government inter-vention to discourage entry by new creditors may be welfare improving today. In the past three decades, the market for developing economy sovereign lending has grown increasingly competitive. Advances in telecommunications and the removal of capital market regulations have reduced the costs of doing business. At the same