This paper studies large private banks in 21 major emerging markets in the 1990s. It first demonstrates that bank failures are very common in these countries: about 25 percent of these banks failed during the seven-year sample period. The paper also shows that political concerns play a significant role in delaying government interventions to failing banks. Failing banks are much less likely to be taken over by the government or to lose their licenses before elections than after. This result is robust to controlling for macroeconomic and bank-specific factors, a new party in power, early elections, outstanding loans from the IMF, as well as country-specific, time-independent factors. This finding implies that much of the within-country clustering in emerging market bank failures is directly due to political concerns.

Conference at the University of Michigan, and the AFA meetings for helpful comments and suggestions. We would especially like to acknowledge the insights and contributions that Ken Wiles (AppForge, Inc.) has provided to the paper. Anna Danielova and Andras Marosi provided excellent research assistance. Corporate Governance, Incentives, and Industry Consolidations Several changes, such as the advances in information technology and the advent of outsourcing, led to increases in optimal firm size in many fragmented industries over the last decade. This paper studies the determinants of the success of these industry consolidations using a unique sample of firms that were created at the time of their initial public offering: rollup-up IPOs. In these transactions, many small firms merge into a shell company, which goes public at the same time. This sample allows us to follow firms from the day they were established. We find that these firms deliver poor absolute and relative stock returns, on average. Their operating performance mimics that of other firms of the industry, but does not justify to their high initial valuations. However, the average performance hides substantial cross-sectional differences. If

The authors test the hypothesis that, when their compensation is linked to relative performance, managers of investment portfolios likely to end up as 'losers' will manipulate fund risk differently than those managing portfolios likely to be 'winners.' An empirical investigation of the performance of 334 growth-oriented mutual funds during 1976 to 1991 demonstrates that mid-year losers tend to increase fund volatility in the latter part of an annual assessment period to a greater extent than mid-year winners. Furthermore, the authors show that this effect became stronger as industry growth and investor awareness of fund performance increased over time.

Keith C. Brown, Larry J. Lockwood, Scott L. Lummer, An Examination of Event Dependency and Structural Change in Security Pricing Models, The Journal of Financial and Quantitative Analysis, Vol. 20, No. 3 (Sep., 1985), pp. 315-334

We exploit Japan’s sudden and complete opening up to international trade in the 1860s to test the empirical validity of one of the oldest and most fundamental propositions in economics: the theory of comparative advantage. Historical evidence supports the assertion that the characteristics of the Japanese economy at the time were compatible with the key assumptions of the neoclassical trade model. Using detailed product‐specific data on autarky prices and trade flows, we find that the autarky price value of Japan’s trade is negative for each year of the period 1868–75. This confirms the prediction of the theory.

We consider a model of active asset management in which mutual fund managers exert unobservable effort to earn excess returns. Investors allocate capital to actively managed funds and passively managed products. In equilibrium, investors are indifferent between investing an additional dollar with an active manager or with a passively managed product. As passively managed products become more attractive to investors, active managers’ revenues from portfolio-management services fall, reducing their effort incentives. More-severe decreasing-returns-to-scale are also associated with reduced incentives and increased moral hazard. Performance-based fees and holdings-based data are all unlikely to mitigate moral hazard.

We analyze early-venture fundraising from dispersed, endogenously informed investors. An entrepreneur chooses a payoff-maximizing offering, and investors communicate their information by either contributing capital or abstaining. The entrepreneur uses the information conveyed by fundraising amounts to decide whether or not to undertake a risky venture. His decision threshold hedges investors against bad projects, creating a “loser’s blessing” that encourages contributing without information. Making the offering less attractive to investors mitigates the loser’s blessing but can give rise to a winner’s curse. Both tensions reduce financing efficiency.

Non-fundamental demand shocks have significant effects on asset prices, but observing these shocks is challenging. We use the exchange-traded fund (ETF) primary market to study non-fundamental demand. Unique to the ETF market, specialized arbitrageurs called authorized participants correct violations of the law of one price between an ETF and its underlying assets by creating or redeeming ETF shares. We show theoretically and empirically that creation and redemption activities (ETF flows) provide signals of non-fundamental demand shocks. A portfolio that is short high-flow ETFs and long low-flow ETFs earns excess returns of 1.1–2.0% per month, consistent with non-fundamental demand distorting asset prices away from fundamental values. Moreover, we show non-fundamental demand imposes non-trivial costs on investors, leading to underperformance.

We test the hypothesis that when their compensation is linked to relative performance, managers of investment portfolios likely to end up as will manipulate fund risk differently than those managing portfolios likely to be An empirical investigation of the performance of 334 growth-oriented mutual funds during 1976 to 1991 demonstrates that mid-year losers tend to increase fund volatility in the latter part of an annual assessment period to a greater extent than mid-year winners. Further, we show that this effect became stronger as industry growth and investor awareness of fund performance increased over time.

We test the hypothesis that when their compensation is linked to relative performance, managers of investment portfolios likely to end up as “losers” will manipulate fund risk differently than those managing portfolios likely to be “winners.” An empirical investigation of the performance of 334 growth‐oriented mutual funds during 1976 to 1991 demonstrates that mid‐year losers tend to increase fund volatility in the latter part of an annual assessment period to a greater extent than mid‐year winners. Furthermore, we show that this effect became stronger as industry growth and investor awareness of fund performance increased over time.