This paper measures the growth in open market stock repurchases and the manner in which stock repurchases and dividends are used by U.S. corporations. Stock repurchases and dividends are used at different times from one another, by different kinds of firms. Stock repurchases are very pro-cyclical, while dividends increase steadily over time. Dividends are paid by firms with higher “permanent” operating cash flows, while repurchases are used by firms with higher “temporary”, non-operating cash flows. Repurchasing firms also have much more volatile cash flows and distributions. Finally, firms repurchase stock following poor stock market performance and increase dividends following good performance. These results are consistent with the view that the flexibility inherent in repurchase programs is one reason why they are sometimes used instead of dividends.

Using data from Finland, this study analyzes the extent to which past returns determine the propensity to buy and sell. It also analyzes whether these differences in past-return-based behavior and differences in investor sophistication drive the performance of various investor types. We find that foreign investors tend to be momentum investors, buying past winning stocks and selling past losers. Domestic investors, particularly households, tend to be contrarians. The distinctions in behavior are consistent across a variety of past-return intervals. The portfolios of foreign investors seem to outperform the portfolios of households, even after controlling for behavior differences.

We study the aggregate implications of (S, s) inventory policies in a dynamic general equilibrium model with aggregate uncertainty. Firms in the model's retail sector face idiosyncratic demand risk, and (S, s) inventory policies are optimal because of fixed order costs. The distribution of inventory holdings affects the aggregate outcome in two ways: variation in the decision to order and variation in the rate of sale through the pricing decisions of retailers. We find that both mechanisms must operate to reconcile observations that orders are more volatile than, and inventory investment is positively correlated with, sales, while remaining consistent with other salient business cycle characteristics. The model exhibits strong amplification for some shocks and persistence to a limited extent.

The purpose of this paper is to evaluate whether the expanded requirements of SAS No. 59 (A/CPA [1988]), which requires auditors to actively evaluate and report on a client's going-concern status for the coming year, have allowed investors to make more accurate ex ante assessments of firms that eventually file for bankruptcy. We extend Chen and Church [1996] (hereafter CC), who conclude that SAS No. 34 (AICPA [1981]) "subject to" going-concern opinions have information value because they reduce the surprise associated with bankruptcy announcements. We hypothesize that if SAS No. 59 has achieved what was intended, going-concern opinions issued under SAS No. 59 should further reduce investor surprise at bankruptcy announcements. While we do not believe SAS No. 59 was issued for the specific purpose of helping users to predict bankruptcy, we do suggest that the increased auditor responsibility and improved communication should provide users with information that is of relatively higher quality. This argument is based on a number of important differences between SAS No. 34 and SAS No. 59.

The paper extends Diamond's (1984) analysis of financial intermediation to allow for risk aversion of the intermediary. As in the case of risk neutrality, the agency costs of external funds provided to an intermediary are relatively small if the intermediary is financing many entrepreneurs with independent returns. Even though the intermediary is adding rather than subdividing risks, the underlying large-numbers argument is not invalidated by the presence of risk aversion. With risk aversion of entrepreneurs as well as the intermediary, financial intermediation provides insurance as well as finance. In contrast to earlier results on optimal intermediation policies under risk neutrality, the paper shows that when an intermediary is financing many entrepreneurs with independent returns, optimal intermediation policies must shift return risks away from risk averse entrepreneurs and impose them on the intermediary or on final investors.

Measurement error in unexpected earnings is recognized as a source of bias in examinations of the relation between earnings and returns. Reverse regression procedures are commonly used as a means of coping with this bias. This study examines the properties of reverse regression procedures in multi-interacted variable settings with a specific focus on the earnings response coefficient (ERC) analysis of Collins and Kothari (J. Account. Econom. 11 (1989) 143.). It shows that both conventional reverse regression techniques and novel techniques employed by Collins and Kothari are not robust. It also demonstrates how reverse regression techniques can be successfully employed in such settings using non-interacted-variable designs.

In this paper we analyze the monitoring role of occupational pension funds in the UK. We argue that because of their objectives, structure and overall share holding, occupational pension funds are likely to have more incentives to monitor companies in which they hold large stakes than other financial institutions. By comparing companies in which these funds hold large stakes with a control group of companies listed on the London Stock Exchange, we show that occupational pension funds hold large stakes over a long-time period mainly in small companies. However, the value added by these funds is negligible and their holdings do not lead companies to comply with the Code of Best Practice or outperform their industry counterparts. Overall, our results suggest that occupational pension funds are not effective monitors.