This article examines the role of corporate headquarters in allocating scarce resources to competing projects in an internal capital market. Unlike a bank, headquarters has control rights that enable it to engage in “winner-picking”—the practice of actively shifting funds from one project to another. By doing a good job in the winner-picking dimension, headquarters can create value even when it cannot help at all to relax overall firm-wide credit constraints. The model implies that internal capital markets may sometimes function more efficiently when headquarters oversees a small and focused set of projects.

ABSTRACT This article examines the role of corporate headquarters in allocating scarce resources to competing projects in an internal capital market. Unlike a bank, headquarters has control rights that enable it to engage in “winner‐picking”—the practice of actively shifting funds from one project to another. By doing a good job in the winner‐picking dimension, headquarters can create value even when it cannot help at all to relax overall firm‐wide credit constraints. The model implies that internal capital markets may sometimes function more efficiently when headquarters oversees a small and focused set of projects.

This study tests assertions that Economic Value Added (EVA®) is more highly associated with stock returns and firm values than accrual earnings, and evaluates which components of EVA, if any, contribute to these associations. Relative information content tests reveal earnings to be more highly associated with returns and firm values than EVA, residual income, or cash flow from operations. Incremental tests suggest that EVA components add only marginally to information content beyond earnings. Considered together, these results do not support claims that EVA dominates earnings in relative information content, and suggest rather that earnings generally outperforms EVA.

Some of the most recent empirical studies on interest rate derivatives have found humped shapes in the volatility structure of interest rates. In this paper, we propose a simple model that allows for humped volatility structures, and that can be described by one state variable. With the model, American style claims can be priced very efficiently which is very important if the model has to be calibrated daily to market prices of standard American options. Furthermore, the model allows for explicit formulas for European style options. Finally, the computational efficiency of our model in the Li et al. (1995) framework is compared with the efficiency in a typical Hull and White (1993a, 1994, 1996) framework. In fact, we can use both procedures for our model, since we prove that if a deterministic volatility model can be embedded in either of these algorithms, then so it does in the other one. Empirical evidence from option data supporting our model is provided as well.

Although several researchers have speculated that stock splits may affect the ownership structure of firms, there is very little empirical evidence available in this regard. We investigate a broad sample of stock splits by firms without confounding events, controlling for industry and size effects. Our results show that stock splits increase the numbers of both individual and institutional shareholders, and they do not affect the proportion of equity held by institutions. Further, changes in the numbers of individual and institutional shareholders are positively related to the split factor. Abnormal announcement returns are positively correlated with changes in the total number of shareholders. These findings support the signaling hypothesis.

The authors address two questions using experimental data on disadvantaged women. First, what is the impact of being offered Job Training Partnership Act classroom training on the duration of unemployment and employment? Second, what is the effect of actually participating in this training on the length of such spells? Belonging to the treatment group shortens unemployment spells but has no effect on employment spells. Actually participating in training has a larger positive effect on the exit rate from unemployment than the effect of simply being a member of the treatment group. Ignoring the endogeneity of actual training in estimation substantially underestimates its effect. Copyright 1997 by The Review of Economic Studies Limited.

In this paper, we consider what can be learned about causal effects when one uses a contaminated instrumental variable. In particular, we consider what inferences can be made about the causal effect of teenage childbearing on a teen mother's subsequent outcomes when we use the natural experiment of miscarriages to form an instrumental variable for teen births. Miscarriages might not meet all of the conditions required for an instrumental variable to identify such causal effects for all of the observations in our sample. However, it is an appropriate instrumental variable for some women, namely those pregnant women who experience a random miscarriage. Although information from typical data sources does not allow one to identify these women, we show that one can adapt results from Horowitz and Manski (1995) on identification with data from contaminated samples to construct informative bounds on the causal effect of teenage childbearing. We use these bounds to re-examine the effects of early chilbearing on the teen mother's subsequent educational and labour market attainment as considered in Hotz, McElroy and Sanders (1995a, 1995b). Consistent with their study, these bounds indicate that women who have births as teens have higher labour market earnings and hours worked compared to what they would have attained if their childbearing had been delayed.

We examine the fit between the ownership data provided by four surrogate databases and the data collected from proxy statements. We discover an unambiguous pecking order among the surrogates relative to the benchmark ownership statistics of corporate proxy statements. Corporate Text is first, followed in descending order by Compact Disclosure, Value Line, and Spectrum. Further tests show that reporting discrepancies in the Value Line and Spectrum databases could affect economic inferences drawn from regressions using their ownership data. A field guide describing each data source's reporting conventions, formats, and strate? gies for data aggregation may be downloaded from the Journal of Financial and Quantitative Analysis' web site (http.V/weber.u.washington.edu/~jfqa/hola7andeapdx.pdf).

[This paper examines the relationship between the incidence of litigation events with potentially large damage awards and managers' accounting choices. We argue that the size of damage awards is a function of reported net income and net worth, and that this relationship provides management an incentive to manipulate accounting numbers. Our results indicate that managers of oil firms facing potentially large damage awards choose income decreasing non-working capital accruals relative to managers of other oil firms. Further, the results indicate that the management of these firms makes accounting choices that result in lower non-working capital accruals during the litigation period than in other years. These negative non-working capital accruals appear to result from the under-estimation of new reserves.]