The authors examine corporate issuance and payout policies in the presence of both adverse selection (in capital markets) and managerial opportunism. Their results establish the importance of the locus of decision control in the firm. When shareholders determine policies, debt financing is always optimal in the presence of either adverse selection or managerial opportunism. However, when both of these problems are simultaneously present, equity issuance can become an optimal signaling mechanism. Shareholder's most preferred signaling mechanism is restricting dividends, followed by equity financing and, finally, underpricing securities. When managers determine policies, a reversed hierarchy may be obtained.

We provide experimental evidence that nonbinding preplay communication between bidders in auctions of shares facilitates the adoption of equilibrium strategies: collusive strategies in uniform-price auctions, and the unique equilibrium in undominated strategies in discriminatory auctions. When communication between bidders is introduced, clearing prices and auctioneer profits in uniform-price auctions fall below those observed in discriminatory auctions. This evidence suggests that uniform-price auctions of Treasury securities may result in lower revenues than the currently employed discriminatory procedure.

This paper introduces two arbitrage-based tests of target-zone credibility using a new data source, ERM cross-rate options. Using daily option prices from September 1991 to August 1994, we assess the credibility of the pound-mark and mark-lira target zones that collapsed in September 1992, and the ongoing mark-French franc target zone. These tests are based on restrictions that must apply to all option prices within a credible target zone, and are free from specification error and estimation error. We also identify a minimum "intensity of realignment," an expression indicating the probability-weighted average realignment size.

MATIF is the only major exchange offering a 24-hour non-interrupted trading cycle accommodating two distinct non-overlapping trading mechanisms. We find that trading volume on the floor is significantly higher than that on GLOBEX around the switch of trading mechanism. GLOBEX is mainly used by institutions to hedge their cash positions. The higher trading volume on the floor may be attributed to several factors: trade immediacy vs. transaction cost, liquidity trading by locals, inertia to trade under a new mechanism, and transparency vs. anonymity. In addition, the floor's open is unique with large interday return volatility.

[This study provides evidence that fair value estimates of loans, securities and long-term debt disclosed under SFAS No. 107 provide significant explanatory power for bank share prices beyond that provided by related book values. In contrast to Eccher et al. (1996) and Nelson (1996), we consistently find incremental explanatory power for loans' fair values. Relatively stronger findings are obtained using a set of significant conditioning variables, including nonperforming loans, and interest-sensitive assets and liabilities. The joint significance of these loan-related variables and loans' fair values indicates that loans' fair values do not reflect completely loan default and interest rate risk. The loans' coefficient is significantly larger for banks with higher regulatory capital, which is consistent with market participants discounting unrealized gains on loans disclosed by less healthy banks. The findings are robust with respect to the inclusion of additional explanatory variables and to a first differences formulation.]

An experiment analyzing behavior in English common value auctions is reported. English auctions raise more revenue than first-price auctions only when bidders do not suffer from a strong winner's curse. Agents employ other bidders' dropout prices along with their private information as Nash bidding theory predicts. However, a simple and natural signal-averaging rule, that does not require recognizing the adverse-selection effect of winning the auction, better characterizes the data than the Nash rule. Monte Carlo simulations using FIML estimates of the signal-averaging rule predict a number of data characteristics not directly employed in the estimation procedure.

The author examines a factor pricing model for stock returns. The factors are returns on physical investment, inferred from investment data via a production function. The author examines the model's ability to explain variation in expected returns across assets and over time. The model is not rejected. It performs about as well as the CAPM and the Chen, Roll, and Ross (1986) factor model, and it performs substantially better than a simple consumption-based model. The author also provides an easy technique for estimating and testing dynamic, conditional asset pricing models--one simply includes factors and returns scaled by instruments in an unconditional estimate--and for comparing such models.

This study presents an integrated investigation into the factors affecting executive ownership, the market value of the firm, and executive compensation by explicitly incorporating the simultaneity of the process determining these variables into the empirical estimation. Overall, the results of the study support the notion that a firm's market value, executive stock ownership, and executive compensation are jointly determined. Further, the findings suggest that executive stock ownership and executive compensation may serve as a type of bond by which top executives are induced to act in the best interests of shareholders. The study also finds that a firm's q ratio and an executive's job-specific experience (as well as firm size) are important determinants of executive compensation. This result is generally consistent with the view that the firm optimally establishes its managerial compensation plan in response to both its operating environment and the specific personal characteristics of its chief executive(s).

This paper documents exploratory drilling activity on offshore wildcat oil and gas leases in the Gulf of Mexico sold between 1954 and 1980. The authors calculate the empirical drilling hazard function for cohorts in specific areas. For each year of the lease, they study the determinants of the decision whether to begin exploratory drilling and their relationship to the outcome of any drilling activity. Their results indicate that equilibrium predictions of plausible noncooperative models are reasonably accurate and more descriptive than those of cooperative models of drilling timing. The authors discuss why noncooperative behavior may occur and the potential gains from coordination.