Abnormal accounting accruals are unusually high around stock offers, especially high for firms whose offers subsequently attract lawsuits. Accruals tend to reverse after stock offers and are negatively related to post-offer stock returns. Reversals are more pronounced and stock returns are lower for sued firms than for those that are not sued. The incidence of lawsuits involving stock offers and settlement amounts are significantly positively related to abnormal accruals around the offer and significantly negatively related to post-offer stock returns. Our results support the view that some firms opportunistically manipulate earnings upward before stock issues rendering themselves vulnerable to litigation.

Regulators argue that mandated compensation disclosure improves corporate governance by permitting shareholders to enjoin boards of directors to reward executives in ways that are consistent with shareholder value creation. We posit that mandated compensation disclosure, or the absence thereof, has a greater impact on the CEO compensation practices of widely held firms than of closely held firms. More specifically, we expect that, in the absence of mandated disclosure, CEO compensation is likely to be less performance‐contingent among widely held firms than among closely held firms. Moreover, we also expect that the advent of mandated disclosure leads widely held firms to increase the extent to which CEO compensation is performance‐contingent, much more so than closely held firms would. We use a unique data base resulting from the Ontario Securities Commission amendment of regulation 638 in October 1993. For the first time, this amendment required firms listed on the Toronto Stock Exchange to provide detailed executive compensation data similar to those required by the Securities and Exchange Commission, for the current year as well as retroactively for the previous two years. We find that, in the absence of mandated disclosure, CEO cash compensation in widely held firms is less performance‐contingent than in closely held firms. With the imposition of mandated disclosure, performance‐contingent cash compensation increases more in widely held firms than in closely held firms. Results with respect to stock option grants are mixed, with both closely held and widely held firms reacting to the advent of mandated disclosure.

Does investor protection foster economic growth? To assess the widely held affirmative view, we introduce investor protection into a standard overlapping generations model of capital accumulation. Better investor protection implies better risk sharing. Because of entrepreneurs' risk aversion, this results in a larger demand for capital. This is the demand effect. A second effect (the supply effect) follows from general equilibrium restrictions. Better protection (i.e., higher demand) increases the interest rate and lowers the income of entrepreneurs, decreasing current savings and next period's supply of capital. The supply effect is stronger the tighter are the restrictions on capital flows. Our model thus predicts that the (positive) effect of investor protection on growth is stronger for countries with lower restrictions. Cross-country data provide support for this prediction, as does the detailed examination of the growth experiences of South Korea and India.

One of the most influential tests of the expectations hypothesis is Mankiw and Miron [Q. J. Econ. 101 (1986) 211], who found that the spread between the long-term and short-term rates provided predictive power for the short-term rate before the Fed's founding but not after. They suggested that the failure of the expectations hypothesis after the Fed's founding was due to the Fed's practice of smoothing short-term interest rates. We show that their finding that the expectations hypothesis fares better prior to the Fed's founding is due to the fact that the test they employ tends to generate results that are more favorable to the expectations hypothesis during periods when there is extreme volatility in the short-term rate.

This paper assesses the current state of evidence on the impact of trade policy reform on poverty in developing countries. There is little empirical evidence addressing this question directly, but a lot of related evidence on specific aspects. We summarize this evidence using an analytic framework addressing four key areas: economic growth and stability; households and markets; wages and employment and government revenue. Twelve key questions are identified and empirical studies and results are discussed. We argue that there is no simple generalizable conclusion about the relationship between trade liberalization and poverty, and the picture is much less negative than is often suggested. In the long run and on average, trade liberalization is likely to be strongly poverty alleviating, and there is no convincing evidence that it will generally increase overall poverty or vulnerability. But there is evidence that the poor may be less well placed in the short run to protect themselves against adverse effects and take advantage of favorable opportunities.

This paper investigates how clients' choices regarding whether or not to engage in competitive bidding affect a bidding firm's decisions about planned engagement effort and pricing. Specifically, we investigate whether competitive bidding is associated with higher planned engagement effort and lower fees relative to noncompetitive bidding, and whether competitive bidding is associated with increased sensitivity of effort and fees to cost drivers and the components of service production. There is little available evidence regarding the effects of competitive versus noncompetitive bidding in the current market, and none that focuses on both quality and pricing effects associated with competitive bidding across a broad array of clients. We address these issues using data from a sample of one firm's evaluations of prospective clients, made during 1997‐98. During that period, about half of the firm's bids were competitive and half were noncompetitive, providing a unique opportunity to study how the bidding environment affects engagement planning and pricing. Our findings reveal that competitive bidding is associated with higher planned engagement effort and lower fees. In addition, we find that in competitive bidding situations there are stronger associations between cost drivers and planned engagement effort, and between the components of service production and fees.

This paper develops and implements semiparametric methods for estimating binary response (binary choice) models with continuous endogenous regressors. It extends existing results on semiparametric estimation in single-index binary response models to the case of endogenous regressors. It develops a control function approach to account for endogeneity in triangular and fully simultaneous binary response models. The proposed estimation method is applied to estimate the income effect in a labour market participation problem using a large micro data-set from the British Family Expenditure Survey. The semiparametric estimator is found to perform well, detecting a significant attenuation bias. The proposed estimator is contrasted to the corresponding probit and linear probability specifications.

We study the inferences about labor adjustment costs obtained by the gap methodology of Caballero and Engel [1993] and Caballero, Engel and Haltiwanger [1997]. In that approach, the policy function of a manufacturing plant is assumed to depend on the gap between a target and the current level of employment. We Þnd that their rejection of the quadratic cost of adjustment model, based upon evidence of nonlinear hazard functions, may not be justiÞed. Instead these nonlinearities may reßect difficulties measuring the gap. Thus it appears that the gap methodology, as currently employed, may be unable to identify the costs of labor adjustment. ∗We are grateful to seminar participants at Boston University, the University of British Columbia, University of Texas at Austin and the 2000 CMSG conference at McMaster University for comments and suggestions. Discussions with John Haltiwanger and Daniel Hamermesh were much appreciated. The authors thank the NSF for Þnancial support. The views expressed herein are solely those of the authors and do not necessarily reßect the views of the Federal Reserve Bank of Kansas City, the Federal Reserve Bank of Minneapolis or the Federal Reserve System.

A Comment on the Economics of Labor Adjustment: Mind the Gap: Rejoinder by Russell Cooper and Jonathan L. Willis. Published in volume 94, issue 4, pages 1245-1247 of American Economic Review, September 2004