In this paper, we examine how the value of failed bank assets differs between two types of FDIC resolution methods: liquidation and private-sector reorganization. Our findings show that private-sector reorganizations do not deliver the expected cost-savings from 1986 to 1991, a period of industry distress. On a univariate basis, the net loss on assets is lower for a private-sector reorganization than for a liquidation in both a period of industry distress and of industry health. However, institutions with higher quality assets and higher franchise values are more likely to be resolved using a private-sector resolution. Once we control for this selection bias, we find that institutions that are resolved during periods of industry distress result in higher resolution costs than liquidation. During periods of industry health, private-sector resolutions are less costly than liquidations. We show that if a bank that failed during the post-crisis period instead failed during the crisis period, its net loss as a percent of assets would have been 3.232 percentage points higher. Given that the average net loss on assets ratio is 21.42 percent during our sample period from 1986 to 2007, the increase in costs is economically significant.

Using a multi-period partial equilibrium model, I demonstrate that a combination of management fees and a time-varying information advantage for a fund manager can account for several empirically observed characteristics of closed-end funds simultaneously. The model is consistent with the basic time-series behavior of fund discounts, accounts for the excess volatility of fund returns, explains why the management fee appears to be an insignificant determinant of discounts, and is consistent with many time-series correlations between discounts, NAV returns, and fund returns. The model also generates novel predictions regarding the relations between asset turnover, discounts, and returns.

This article examines the effect of asymmetric information on the trading of underwriting risk between insurers and reinsurers and how it is mitigated in a context of long-term relationships. It begins by explaining how information problems affect the efficiency of the allocation of risk between insurers and reinsurers and how long-term implicit contracts allow the inclusion of new information in the pricing of reinsurance coverage. A key feature of these relationships is the reliance on loss-contingent rebates and commissions in the pricing of reinsurance coverage. We argue that when information is revealed only over time, long-term implicit contracts between insurers and reinsurers allow the inclusion of new information into reinsurance pricing. Because of this feature, the allocation of risk between insurers and reinsurers is more efficient. Specifically, such arrangements lead to more reinsurance coverage, higher insurer profits, and lower expected distress in the industry. Journal of Economic Literature Classification Numbers: G22, G13, L15, D81.

Prior literature and anecdotal evidence, most recently provided by allegations relative to Enron, Global Crossing, and WorldCom, suggest that failing firms (defined here as prebankruptcy firms) may be motivated to engage in fraudulent financial reporting to conceal their distress. I examine two research questions: (1) Are failing firms' prebankruptcy financial statements more likely to exhibit signs of material income increasing earnings manipulation than those of nonfailing firms? (2) Do auditors detect the overstatements in firms that they perceive to be failing? I predict and find that as (ex post) bankrupt firms that do not (ex ante) appear to be distressed approach bankruptcy, their financial statements reflect significantly greater material income‐increasing accrual magnitudes in nongoing‐concern years than do control firms. The accrual behavior of these firms resembles that of bankrupt firms that the Securities and Exchange Commission (SEC) has sanctioned for fraud. Like sanctioned firms, the nonstressed bankrupt firms display significantly greater (material) increases in receivables; inventory; property, plant, and equipment; sales; net working capital, current, and discretionary accruals in prebankruptcy nongoing‐concern years than do control firms. They also display significantly more negative changes in cash flows from operations and net cash and a greater disparity between accrual‐based net income and operating cash flows than do control firms, consistent with Lee, Ingram, and Howard 1999. Finally, I predict and find that these firms' going‐concern years reflect evidence consistent with auditor‐prompted reversal of previous overstatements. These results are based on parametric and nonparametric tests for various subsample combinations drawn from a sample of 293 bankrupt firms representing approximately 2,500 observations.

This study examines discretionary accruals imbedded in quarterly earnings announcements that precede executive stock option grants. Prior research indicates that managers attempt to increase the value of their option pay (by depressing the option's exercise price) through a variety of strategies including timing voluntary disclosures, influencing option grant dates, or managing accruals. This study extends the research by jointly examining managerial incentives and opportunities to pursue an accruals-based strategy. We find evidence that discretionary accruals are lower when option pay is high and when concurrent firm performance is poor (incentive factors), but only when firms issue grants following earnings announcements relatively infrequently (opportunity factor). For firms that follow a predictable grant schedule, managers behave as if they believe that investors will discount earnings-based signals preceding the grant. Our results suggest that the decision to pursue an option-related strategy is influenced by economic tradeoffs. From a policy perspective, our results have relevance for the ongoing debate over option compensation practices, appropriate disclosure to investors, and the quality of corporate earnings.

More mothers engage in marketplace work today than ever before, with over 33% returning to work by the time their child is 3 months old. This article identifies the effects of maternal marketplace work in the initial months of an infant’s life on the child's cognitive development. Results suggest that such work in the first year of a child’s life has detrimental effects. Where significant, the results also indicate negative effects of maternal employment in the child’s first quarter of life. However, the negative effects of maternal marketplace work are partially offset by positive effects of increased family income.