Negative abnormal stock returns of about 1% occur near record dates of stock splits. Further, the lower the returns, the more positive are ex-date returns and when-issued premiums. A possible explanation of these related phenomena is that trading hindrances associated with record dates create trading inconvenience that is reflected in lower prices near record dates. In turn, anomalous positive ex-date returns arise in part from the abnormally low prices of unsplit shares caused by the negative record date returns.

In this paper, the principal rewards an agent’s farsighted effort both in the short and long term, with the short‐term reward based on a noisy, forward‐looking performance measure and the long‐term reward based on a potentially less noisy, trailing performance measure. The main result is that optimal contracting weights depend on the agent’s employment time horizon: the shorter the agent’s employment horizon the greater the emphasis on the forward‐looking performance measure and vice versa. This implies that contracting on forward‐looking performance measures can be valuable in mitigating any adverse long‐term effects of employees myopically focusing on short‐term trailing performance measures.

Abstract This paper examines the effects of disclosure and recognition requirements on investment decisions when shareholders have limited liability. Firms' investment projects have either high initial pollution prevention costs or high subsequent clean‐up costs, and their liability for clean‐up costs may be either individual or joint and several. Even with individual liability for clean‐up costs, shareholders' limited liability creates an incentive to select the latter project type and to impose costs on the rest of the economy. This tendency is exacerbated when clean‐up liability is joint and several. We show that a disclosure requirement cannot have an unambiguous effect on the selection of the “cleaner” project. However, an accrual requirement, together with an accounting‐based dividend restriction, is shown to promote choice of the project that imposes lower expected costs on the rest of the economy. Moreover, we find that it is possible for a recognition requirement to have a greater impact in a joint‐and‐several liability regime than in an individual liability regime.

Using audit trail data for a sample of NYSE firms we show that medium-size trades are associated with a disproportionately large cumulative stock price change relative to their proportion of all trades and volume. This result is consistent with the predictions of Barclay and Warner's (1993) stealth-trading hypothesis. We find that the source of this disproportionately large cumulative price impact of medium-size trades is trades initiated by institutions. This result is robust to various sensitivity checks. Our findings appear to confirm street lore that institutions are informed traders.

This article presents a simple yet powerful new approach for approximating the value of American options by simulation. The key to this approach is the use of least squares to estimate the conditional expected payoff to the optionholder from continuation. This makes this approach readily applicable in path-dependent and multifactor situations where traditional finite difference techniques cannot be used. We illustrate this technique with several realistic examples including valuing an option when the underlying asset follows a jump-diffusion process and valuing an American swaption in a 20-factor string model of the term structure.

This paper proposes an alternative to the asymptotic principal components procedure of Connor and Korajczyk (J. Financial Econom. 15 (1986) 373) that is robust to time series heteroskedasticity in the factor model residuals. The new method is simple to use and requires no assumptions stronger than those made by Connor and Korajczyk. It is demonstrated through simulations and analysis of actual stock market data that allowing heteroskedasticity sometimes improves the quality of the extracted factors quite dramatically. Over the period from 1989 to 1993, for example, a single factor extracted using the Connor and Korajczyk method explains only 8.2% of the variation of the CRSP value-weighted index, while the factor extracted allowing heteroskedasticity explains 57.3%. Accounting for heteroskedasticity is also important for tests of the APT, with p-values sometimes depending strongly on the factor extraction method used.

This paper studies the impact of lobbying on political competition and policy outcomes in a framework which integrates the citizen-candidate model of representative democracy with the menu-auction model of lobbying. Positive and normative issues are analysed. On the positive side, lobbying need have little or no effect on policy outcomes because voters can restrict the influence of lobbyists by supporting candidates with offsetting policy preferences. On the normative side, coordination failure among lobbyists can result in Pareto inefficient policy choices. In addition, by creating rents to holding office, lobbying can lead to “excessive” entry into electoral competition.

We investigate the effects of contract renegotiation in multi-agent situations where risk averse agents negotiate a contract offer to the principal after the agents observe a common, unverifiable perfect signal about their actions. We show that renegotiation with multiple agents reduces the cost of implementing any implementable action profile down to the first-best level, even though the principal cannot observe the agents’ actions. Moreover, it is sufficient for the principal to use a “simple” initial contract, in the sense that it consists of no more than a single sharing scheme for each agent and the total payments to the agents are the same regardless of the realised state. An important implication is that decentralization, in the sense of delegated negotiation and proposals from the agents, can be as effective as centralized schemes that utilize revelation mechanisms in unrestricted ways.

We offer evidence that legalized abortion has contributed significantly to recent crime reductions. Crime began to fall roughly eighteen years after abortion legalization. The five states that allowed abortion in 1970 experienced declines earlier than the rest of the nation, which legalized in 1973 with Roe v. Wade. States with high abortion rates in the 1970s and 1980s experienced greater crime reductions in the 1990s. In high abortion states, only arrests of those born after abortion legalization fall relative to low abortion states. Legalized abortion appears to account for as much as 50 percent of the recent drop in crime.