We exploit variation in the congestion of civil courts across Brazilian municipalities, together with a bankruptcy reform increasing secured creditors’ protection, to estimate the effect of enforcement on firm access to finance, investment, and size. We find that firms operating in municipalities with less congested courts experienced a larger increase in the use of secured loans, as well as a larger increase in investment and value of output in the years after the reform. To establish the direction of causality, we use an instrumental variable strategy that exploits Brazilian state laws on judicial organization, and focus on differences in court congestion across otherwise similar neighboring municipalities located across judicial district borders within the same state. The evidence indicates that differences in court enforcement affect the impact of financial reform on firm access to finance, investment, and size.

Higher audit fees associated with auditor industry specialization could represent higher unit price charged by industry specialist auditors (ISAs) or the provision of a greater quantity of audit services. This study exploits a field setting in Korea, where the disclosure of audit hours is required in company annual reports, and finds that ISAs charge significantly higher total audit fees but also expend significantly greater audit hours than non‐ISAs. When audit fees and hours are considered together, the unit audit price of ISAs is significantly lower than that of non‐ISAs. This indicates that higher total audit fees associated with ISAs are likely to be attributable to greater audit hours associated with ISAs. However, greater audit hours for ISAs may suggest higher audit quality or may simply indicate that the additional audit work performed by ISAs is conducted by relatively cheaper junior auditors. Our work provides an alternative explanation for the higher total audit fees documented in the previous studies.

Each year, the NCAA basketball tournament (March Madness) is a daytime distraction for millions of people, providing a largely exogenous shock to investor attention. We investigate whether March Madness influences the market response to earnings by diverting investor attention away from earnings news. We find that the price reaction to earnings news released during March Madness is muted. This result generally holds across several samples and additional analyses. We also find that the result is more muted for low institutional ownership firms, consistent with the effect being driven by less‐sophisticated investors. Furthermore, we find that it takes the market 30 to 60 days to correct for the distraction effect. Overall, we provide a unique test of the theory of limited attention by documenting that extraneous events can have a significant impact on the pricing of earnings.

JHE CLIOMETRIC revolution in ecoknomic history wedded neoclassical economics and quantitative methods in order to describe and explain the performance of economies in the past.' Economic history gained in rigor and scientific pretension, but at the expense of exploring a much more fundamental set of questions about the evolving structure of economies that underlies performance.2 Cliometricians have turned their backs on a long tradition stretching back from Joseph Schumpeter to Karl Marx to Adam Smith. These scholars regarded economic history as essential because it added a dimension to economics. Its purpose was to analyze the parameters held constant by the economist. If economics is a theory of choice subject to specified constraints, a task of economic history was to theorize about those evolving constraints. The failure of economic historians to provide their colleagues with a historical dimension to their perspective has reduced the effectiveness of economists in dealing with contemporary problems. Failure of economists to appreciate the transitory character of the assumed constraints and to understand the source and direction of these changing constraints is a fundamental handicap to further development of economic theory. The challenge to the economic historian which has equally compelling implications for the economic theorist is to explain the transformation of the structure of the American Economy in the past century.3 In the rest of this essay I shall explore this issue in order to specify some of the dimensions of the economic historian's task.

We examine institutional demand prior to well-known stock return anomalies and find that institutions have a strong tendency to buy stocks classified as overvalued (short leg of anomaly), and that these stocks have particularly negative ex post abnormal returns. Our results differ from numerous studies documenting a positive relation between institutional demand and future returns. We trace the difference to measurement horizon. We too find a positive relation at a quarterly horizon. However, the relation turns strongly negative at the one-year horizon used in anomaly studies. We consider several explanations for institutions’ tendency to trade contrary to anomaly prescriptions. Our evidence largely rules out explanations based on flow and limits-of-arbitrage, but is more consistent with agency-induced preferences for stock characteristics that relate to poor long-run performance.

Life insurers use reinsurance to move liabilities from regulated and rated companies that sell policies to shadow reinsurers, which are less regulated and unrated off-balance-sheet entities within the same insurance group. U.S. life insurance and annuity liabilities ceded to shadow reinsurers grew from $11 billion in 2002 to $364 billion in 2012. Life insurers using shadow insurance, which capture half of the market share, ceded 25 cents of every dollar insured to shadow reinsurers in 2012, up from 2 cents in 2002. By relaxing capital requirements, shadow insurance could reduce the marginal cost of issuing policies and thereby improve retail market efficiency. However, shadow insurance could also reduce risk-based capital and increase expected loss for the industry. We model and quantify these effects based on publicly available data and plausible assumptions.

The Council's Report provides a look at the 1969-71 game plan to disinflate by means of retarding aggregate demand.... The President-Elect's Task Force on Inflation recommended, as a first interim step, that aggregate demand be slowed so as to bring the unemployment rate back to some equilibrium region around 4.5 percent.... What happened was that, under the cover of the expectation and acceptance of such a limited step towards re-equilibration, the Administration gradually tightened monetary and fiscal policy so severely as 'gradually' to send the unemployment rate whizzing past the equilibrium zone to around 6 percent. To my knowledge the theory of how, and how well, this medicine would act to cure the patient of his inflation was never spelled out by the Council of Economic Advisers. [pp. 533--34]

Expectations are an important determinant of economic behavior. The analysis of economic expectations, however, has suffered from inadequate measurement. Throughout the literature, expectations have been treated as unobservable, and have therefore been measured only indirectly. The object of this paper is to develop and test a direct measure of the expectations of inflation, a particularly critical economic variable. A direct measure of inflationary expectations is here taken to be one constructed from a sample survey in which individuals are asked to state their expectations explicitly. The paper focuses on a popular forecast of the rate of change of consumer prices in the forthcoming year as calculated from responses to the Survey of Consumer Finances (SCF). This measure is presented in Section I. The SCF and others like it have existed for some time, but, a few recent studies notwithstanding, most economists continue to regard survey measures as inherently unreliable.' Their principal criticism is that the opinions an individual expresses