We experimentally examine determinants of the transferability and durability of an assurer's flagship-service reputation for competence in a multi-service context. Economic and psychology theories agree that transferability will increase when a new service and a flagship service require relatively similar, as opposed to relatively dissimilar, competencies. These theories disagree, however, regarding the durability of an assurer's flagship-service reputation following a performance failure in a new service. Economic theory requires some reciprocity for transferability and durability, and, accordingly, predicts that a new-service failure will inflict more damage on a flagship-service reputation when the new and flagship services require relatively similar, as opposed to relatively dissimilar, competencies. Psychology theory, in contrast, predicts that a new-service failure will tend not to damage the flagship-service reputation, even when the new and flagship services require relatively similar competencies. Thus, unlike economic theory, psychology theory predicts that relatively similar competencies between a new and a flagship service can improve the transferability of an assurer's flagship-service reputation for competence without reciprocally threatening its durability. Experimental findings indicate that reputation transferability increases when the new and flagship services require relatively similar, as opposed to relatively dissimilar, competencies. They also indicate that a new-service failure damages the flagship-service reputation only when, and to a greater degree when, the new and flagship services require relatively dissimilar, as opposed to relatively similar, competencies. Thus, empirically, greater similarity in the competencies required by a new and flagship service simultaneously enhances the transferability and durability of the assurer's flagship-service reputation. These empirical findings are better explained by psychology theory than by economic theory.

We use administrative data from Missouri to examine the sensitivity of earnings impact estimates for a job training program based on alternative nonexperimental methods. We consider regression adjustment, Mahalanobis distance matching, and various methods using propensity-score matching, examining both cross-sectional estimates and difference-in-difference estimates. Specification tests suggest that the difference-in-difference estimator may provide a better measure of program impact. We find that propensity-score matching is most effective, but the detailed implementation is not of critical importance. Our analyses demonstrate that existing data can be used to obtain useful estimates of program impact.

[Given the cross-sectional and temporal variation in their liquidity, emerging equity markets provide an ideal setting to examine the impact of liquidity on expected returns. Our main liquidity measure is a transformation of the proportion of zero daily firm returns, averaged over the month. We find that it significantly predicts future returns, whereas alternative measures such as turnover do not. Consistent with liquidity being a priced factor, unexpected liquidity shocks are positively correlated with contemporaneous return shocks and negatively correlated with shocks to the dividend yield. We consider a simple asset-pricing model with liquidity and the market portfolio as risk factors and transaction costs that are proportional to liquidity. The model differentiates between integrated and segmented countries and time periods. Our results suggest that local market liquidity is an important driver of expected returns in emerging markets, and that the liberalization process has not fully eliminated its impact.]

The lock-in effect proposes that capital gains taxes represent transaction costs that increase the reservation price for security owners and, ceteris paribus, reduce trading volume. Consistent with the lock-in effect, previous empirical research documents price and reactions to enacted changes in the capital gains tax rate. We investigate whether the volume hypothesis predicted by the lock-in effect extends to corporate acquisition activity. In particular, we analyze whether aggregate corporate acquisition activity is inversely associated with shareholder capital gains tax rates. We measure quarterly corporate acquisition activity from 1973 through 2001 using (1) the percentage of traded firms acquired in a calendar quarter and (2) the percentage of market value of traded firms acquired in a calendar quarter. In supplemental analysis, we measure acquisition activity at the industry level (i.e., as the percentage of firms and percentage of market value acquired by industry annually). In each analysis we model acquisition activity as a function of the maximum long-term capital gains tax rate for individuals and other macroeconomic factors previously hypothesized to be associated with acquisition activity. Consistent with a lock-in effect for corporate acquisitions, we find a significant negative association between corporate acquisition activity and the capital gains tax rate whether we measure acquisition activity in the aggregate or at the industry level. In addition, we find that this negative association is attributable to increased (decreased) taxable acquisition activity during periods of low (high) capital gains tax rates. These results suggest that, ceteris paribus, capital gains taxes represent significant transaction costs that influence the level of corporate acquisition activity.

We compare the value and credit relevance of financial statements under fair-value and smoothing (SFAS-87) models of pension accounting. While fair-value improves the credit relevance of the balance sheet, it does not improve its value relevance. Further, fair-value impairs both the value and credit relevance of the income statement and the combined financial statements unless transitory gains and losses (G&L) are separated from more persistent income components. Overall, our results suggest there are no informational benefits to adopting a fair-value pension accounting model.

This paper tests the hypothesis that the expected return premium on the market portfolio is always non-negative. A violation of this lower bound restriction provides evidence against a broad class of risk-based equilibrium models in favor of bubble behavior. Our tests utilize information variables, identified in prior literature, that predict time variation in market return premia. We employ out-of-sample forecasts and bootstraps generated with parameters that are consistent with non-negativity but closest to the estimated parameters. We find statistically reliable evidence against non-negativity for the excess return on the value-weighted market index. The most negative out-of-sample prediction was −2.01% in September 1973.

National banks and Financial Holding Companies (FHC) solicited permission from the Federal Reserve Board and the Treasury Department to add real estate brokerage and management services to list of permissible business activities under the 1999 Gramm–Leach–Bliley Act (GLB). To date, permission has been denied due to the Community Choice in Real Estate Act, HR 111 and S 98. This study offers a method of combining the financial data of two independent industries. Additionally, this study identifies the scale returns and cost complementarities that may occur if banks offered real estate brokerage services under a single organization. Considerable evidence suggests that joining bank and real estate activities under a single organization would continue to generate increasing returns to scale for banks even when large levels of real estate brokerage services are offered by the joint institution. In addition, the results indicate evidence that bank acquisitions of real estate brokerages do create some cost saving synergies from cost complementarities between product lines. Finally, complementarities exist between traditional bank services and real estate services most at low levels of real estate outputs.

When information is limited or costly, agents are unable to engage in optimal arbitrage. Excess price dispersion across markets can arise and goods may not be allocated efficiently; in this setting, information technologies may improve market performance and increase welfare. Between 1997 and 2001, mobile phone service was introduced throughout Kerala, a state in India with a large fishing industry. Using micro-level survey data, we show that the adoption of mobile phones by fishermen and wholesalers was associated with a dramatic reduction in price dispersion, the complete elimination of waste and near-perfect adherence to the Law of One Price. Both consumer and producer welfare increased.