This study provides evidence that differential interpretations are an important stimulus for speculative trading. We measure differential interpretations using data on analysts' revisions of forecasts of annual earnings after the announcement of quarterly earnings that are components of those annual earnings numbers. We find two conditions under which differential interpretations play a significant role in explaining trading. First, we present empirical evidence supporting Kandel and Pearson's (1995) argument that trading coincident with small price changes reflects investors' differential interpretations of information. This evidence is important because it is inconsistent with conventional models of trade that assume homogeneous interpretations. Second, we also find that differential interpre? tations explain a significant amount of the trading occurring in a sample where trading volume is higher than the (firm-specific) non-announcement period average. This result is consistent with informed traders acting on their differential interpretations when there is enough liquidity trading to help camouflage their own information-based trades. In sum, the study's results confirm Bachelier's (1900) intuition that differential interpretations are an important stimulus for trading.

We provide evidence regarding the extent to which commercial banking organizations that have entered investment banking have adopted pay-performance compensation systems that are like those used by investment banks. We find that pay-performance sensitivities for these banks once they begin securities underwriting are very similar to the sensitivities for commercial banks that have chosen not to enter investment banking. We also find that pay-performance sensitivities for both types of commercial banks are less than for investment banks.

In this paper, we introduce three flexible consumer demand systems in which expenditures on goods are quadratic functions of income. We view these alternatives as to the demand systems used heretofore in the empirical modeling of rank-three demands, namely those in which expenditure shares are quadratic functions of the logarithm of income. Curvature conditions required by theory can be imposed locally during the estimation for each, and a semiflexible version can be estimated. For illustrative purposes, we estimate various forms of two of the systems using Canadian data on seven categories of goods for the period 1947 to 1995.

Brokerage analysts frequently comment on and sometimes recommend companies that their firms have recently taken public. We show that stocks that underwriter analysts recommend perform more poorly than “buy” recommendations by unaffiliated brokers prior to, at the time of, and subsequent to the recommendation date. We conclude that the recommendations by underwriter analysts show significant evidence of bias. We show also that the market does not recognize the full extent of this bias. The results suggest a potential conflict of interest inherent in the different functions that investment bankers perform.

[Portfolio turnpike theorems show that if preferences at large wealth levels are similar to power utility, then the investment strategy converges to the power utility strategy as the horizon increases. We state and prove two simple and general portfolio turnpike theorems. Unlike existing literature, our main result does not assume independence of returns and depends only on discounting of future cash flows. We also provide a critique of portfolio turnpike results, based on the observations that (1) the time required for convergence is often too large to be relevant, and (2) there is no convergence for consumption withdrawal problems.]

In an attempt to increase credibility in its capital markets, China recently adopted new auditing standards. Consistent with increased auditor independence, we find that the frequency of modified opinions increases nine-fold subsequent to the adoption of the new standards. However, the increase in modified reports is followed by a decline in audit market share among large auditors – those with the greatest propensity to issue modified reports. We conjecture that this `flight from audit quality’ results from lack of incentives to demand independent auditors. Our findings suggest that government regulation alone is insufficient to create financial markets that foster auditor independence.

This paper provides evidence on a previously unidentified source of managerial incentives: concerns about post-retirement board service. Both the likelihood that a retired CEO serves on his own board two years after departure, as well as the likelihood of serving as an outside director on other boards, are positively and strongly related to his performance while CEO. Retention on the CEO's own board depends primarily on stock returns, while service on outside boards is better explained by accounting returns. The evidence also suggests that firms consider ability in choosing board members.

Qualitative choice models of consumers' decisions to file for bankruptcy and their choice of bankruptcy chapter are estimated jointly, combining choice‐based sampling techniques with a nested estimation procedure. Medical and credit card debt are found to be the strongest contributors to bankruptcy, with homeownership playing an important role with respect to both the decision to declare bankruptcy and the choice of bankruptcy alternative. The potential effects of legal changes relating to property exemptions and dischargeable debt categories are found to encourage debt repayment through Chapter 13.

Qualitative choice models of consumers' decisions to file for bankruptcy and their choice of bankruptcy chapter are estimated jointly, combining choice‐based sampling techniques with a nested estimation procedure. Medical and credit card debt are found to be the strongest contributors to bankruptcy, with homeownership playing an important role with respect to both the decision to declare bankruptcy and the choice of bankruptcy alternative. The potential effects of legal changes relating to property exemptions and dischargeable debt categories are found to encourage debt repayment through Chapter 13.