This paper studies endogenous risk-taking by embedding a concern for status (relative consumption) into an otherwise conventional model of economic growth. We prove that if the intertemporal production function is strictly concave, an equilibrium must converge to a unique steady state in which there is recurrent endogenous risk-taking. (The role played by concavity is clarified by considering a special case in which the production function is instead convex, in which there is no persistent risk-taking.) The steady state is fully characterized. It displays features that are consistent with the stylized facts that individuals both insure downside risk and gamble over upside risk, and it generates similar patterns of risk-taking and avoidance across environments with quite different overall wealth levels. Endogenous risk-taking here is generally Pareto-inefficient. A concern for status thus implies that persistent and inefficient risk-taking hinders the attainment of full equality.

This paper examines income shifting of U.S. multinational companies over the past two decades. Domestic and foreign policy makers are increasingly concerned with the effect of income shifting on dwindling tax revenues, however, extant research on income shifting by U.S. multinational enterprises is mixed. We address the disconnect between the academic literature and the policy maker's perceptions by examining the extent of multijurisdictional income shifting by U.S. multinational companies. We directly address conflicting results in extant literature and show that using either multiperiod proxies or instrumental variables overcomes weaknesses of annual proxies in this setting. Our tests show that U.S. companies have become more active at shifting income out of the United States as the regulatory costs of shifting have changed. Holding tax rate differences between U.S. and foreign jurisdictions constant, our empirical estimates suggest that our sample of 380 corporations with low average foreign tax rates collectively shifts approximately $10 billion of additional income out of the United States annually during 2005–2009 relative to 1998–2002 due to varying regulatory costs of shifting.

Using a sample of 231 firms in Hong Kong, Singapore, and Taiwan, we examine the changes in firms' accounting practice around leadership successions-the turnovers of chairmen. We find that the successions are associated with reduction in the firms' unsigned discretionary accruals and an increase in timely loss recognition. We argue that the incumbent chairmen cannot transfer most of their unique assets, such as reputation and political/social networks, to their successors, resulting in reduced relationship-based contracting post succession. This change from relationship-based to market-based contracting also shifts the firms to a less insider-based accounting system. Moreover, we find that the extent of the shift in accounting is larger in founder successions ( turnovers of chairmen that are founders) than in subsequent ( non-founder) successions, possibly because the loss of unique assets is more pronounced in the first succession than in subsequent successions.

We examine the relation between institutional investors and management discipline over the last several decades to better understand how CEO turnover has increased. Using a sample of forced and voluntary turnovers, we investigate the changing roles of activism and exit among institutional investors between 1982–1994 and 1995–2006. We find evidence of activist investors throughout the sample period and their impact is consistently significant in multivariate analysis. In contrast, voting with their feet has declined to the point where it no longer affects turnover outcomes. Nonetheless, activism is fairly uncommon and does not explain the higher turnover observed over time. Block holdings of known activists have increased and are linked to improving target firms. However, other blocks merely reflect the increasing size of institutional money managers. Going forward, the increasing size of institutional investors seems likely to inhibit voting with their feet while activism remains an important vehicle for change.

The classic model of Becker (1965, “A Theory of the Allocation of Time”, Economic Journal, 125, 493–517) suggests that labour supply decisions should be analysed within the broader context of time allocation and market good consumption choices, but most empirical work on policy has focused exclusively on measuring impacts on market work. This paper examines how income taxes affect time allocation during the entire day and how these time allocation decisions interact with expenditure patterns. Using the Panel Study of Income Dynamics from 1975 to 2004, we analyse the response of single women's housework, labour supply, and other time to variation in tax and transfer schedules across income levels, number of children, states, and time. We find that when the economic reward to participating in the labour force increases, market work increases and housework decreases, with the decrease in housework accounting for approximately two-thirds of the increase in market work. Analysis of repeated cross sections of time diary data from 1975 to 2004 shows that “home production” decreases substantially when market hours of work increase in response to policy changes. Data on expenditures show some evidence that expenditures on market goods likely to substitute for housework increase in response to a greater incentive to join the labour force. The baseline estimates imply that the elasticity of substitution between consumption of home and market goods is 2·61. The results are consistent with the Becker model. Meanwhile, single men show little response to changes in tax policy, and we are able to rule out an elasticity of substitution between home and market goods for this group of more than 1·66.

We study the effects of positive steady-state inflation in New Keynesian models subject to the zero bound on interest rates. We derive the utility-based welfare loss function taking into account the effects of positive steady-state inflation and solve for the optimal level of inflation in the model. For plausible calibrations with costly but infrequent episodes at the zero lower bound, the optimal inflation rate is low, typically <2% even after considering a variety of extensions, including optimal stabilization policy, price indexation, endogenous and state-dependent price stickiness, capital formation, model uncertainty, and downward nominal wage rigidities. On the normative side, price-level targeting delivers large welfare gains and a very low optimal inflation rate consistent with price stability. These results suggest that raising the inflation target is too blunt an instrument to efficiently reduce the severe costs of zero bound episodes.

We investigate whether stock betas vary with the release of firm-specific news. Using daily firm-level betas estimated from intraday prices, we find that betas increase on earnings announcement days and revert to their average levels two to five days later. The increase in betas is greater for earnings announcements that have larger positive or negative surprises, convey more information about other firms in the market, and resolve greater ex ante uncertainty. Our results are consistent with a learning model in which investors use information on announcing firms to revise their expectations about the profitability of the aggregate economy. The Author 2012. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please e-mail: [email protected]., Oxford University Press.

Intraday Value-at-Risk (VaR) is one of the risk measures used by market participants involved in high-frequency trading. High-frequency log-returns feature important kurtosis (fat tails) and volatility clustering (extreme log-returns appear in clusters) that VaR models should take into account. We propose a marked point process model for the excesses of the time series over a high threshold that combines Hawkes processes for the exceedances with a generalized Pareto distribution model for the marks (exceedance sizes). The conditional approach features intraday clustering of extremes and is used to calculate instantaneous conditional VaR. The models are backtested on real data and compared to a competitor approach that proposes a nonparametric extension of the classical peaks-over-threshold method. Maximum likelihood estimation is computationally intensive; we use a differential evolution genetic algorithm to find adequate starting values for the optimization process.