How big is the elasticity of substitution between goods from different countries—the Armington elasticity? Estimates of the macroelasticity between home and imported goods are often smaller than the microelasticity between foreign sources of imports. Using new, highly disaggregate U.S. production data matched to imports and simulated data from a Melitz-style model with nested CES preferences, we explore estimation techniques for the two elasticities. For between two-thirds and three-quarters of sample goods, there is no significant difference between the macro- and microelasticities, but for the rest, the microelasticity is significantly higher, even at the same level of disaggregation.

We propose and test a social outreach hypothesis of family firm succession. We argue that family firms proactively engage in social outreach activities as a strategy to ensure smooth succession. We focus on corporate philanthropy (CP), a social outreach activity, in a family firm succession to test our hypothesis. The results show that family firms engage in a strategy of using more CP in connection to family firm succession, especially when the successor is from the second generation. The findings are robust to alternative specifications of CP activities, various sub-sample analyses, using a difference-in-differences analysis, a two-stage least square approach, strategic choice on timing of succession, and accounting for the successor's education and experience of working for the family firm before succession. We document that despite generally poorer performance after succession, a family firm with a second-generation CEO that engages in CP exhibits better market and accounting performance relative to other types of transitions, suggesting a strategy in which CP reduces the magnitude of poor performance after succession.

We provide strong evidence that the dispersion of individual stock options trading volume across moneynesses (IDISP) contains valuable information about future stock returns. Stocks with high IDISP consistently underperform those with low IDISP by more than 1% per month. In line with the idea that IDISP reflects dispersion in investors’ beliefs, we find that the negative IDISP-return relationship is particularly pronounced around earnings announcements, in high sentiment periods and among stocks that exhibit relatively high short-selling impediments. Moreover, the IDISP effect is highly persistent and robustly distinct from the effects of a large array of previously documented cross-sectional return predictors.

ABSTRACT Recent research reveals that accruals-based earnings management (AEM) is decreasing while real earnings management (REM) is increasing, suggesting the correlation is due to regulatory scrutiny. However, based on Correspondent Inference Theory, we predict and find that when management uses REM, auditors are more restrictive of management's subjective estimates, making it more difficult for management to use income-increasing AEM. Our experiment manipulates the presence versus absence of REM, and whether the audit difference potentially impacts the client's ability to meet an earnings target. Using a serial mediation model, we find that when auditors observe REM, they perceive these operating decisions as aggressive, leading them to perceive management as aggressive, ultimately causing greater proposed adjustments on an unrelated audit difference. We contribute to the literature by demonstrating that when auditors observe REM, their altered perceptions about management can cascade, affecting how they respond to management estimates in unrelated financial statement accounts.

ABSTRACT While researchers and practitioners alike estimate firms' exposures to systematic risk factors, the disclosure literature typically assumes that exposures are common knowledge. We develop a model where the firm's exposure to a factor is unknown, and analyze the effects of factor-exposure uncertainty on share price and the effects of disclosure about the exposure. We find that: (1) factor-exposure uncertainty introduces skewness and excess kurtosis in the cash flow distribution relative to the commonly used normal distribution; (2) risk-factor disclosure affects all moments of that distribution; and (3) the pricing of higher moments affects the price response of disclosure and the incentives to disclose. For example, factor-exposure uncertainty may actually increase price when the uncertainty implies positive skewness in the cash flow distribution. Hence, a reduction in uncertainty through disclosure may increase cost of capital. We also extend our model to multiple firms and show that factor-exposure uncertainty manifests as uncertainty about a firm's CAPM beta. JEL Classifications: G12; M41.

ABSTRACT This study investigates whether subjective communication from team members to a manager responsible for allocating performance-based bonuses increases team performance and whether the efficacy of such communication is reduced in heterogeneous teams. We draw on both economic and behavioral theories to predict that communication content, even though subjective, provides information that enables the manager to allocate bonuses so as to enhance the relation between individuals' contributions and rewards, thereby increasing individuals' effort and team performance. However, we also predict that the positive effect of team member subjective communication is more muted when team members' abilities are heterogeneous compared to homogeneous. We test these predictions via an experiment. Consistent with our predictions, team member subjective communication has a positive effect on team performance, and the positive effect is more muted for heterogeneous teams. Results of our study contribute to both theory and practice by enhancing our understanding of the role of subjective communication from team members to team managers in motivating effort in teams and, particularly, how its efficacy is affected by team composition. Data Availability: Data are available from the authors upon request.

We examine how a 16-week cut in potential unemployment insurance (UI) duration in Missouri affected search behavior of UI recipients and the aggregate labor market. Using a regression discontinuity design (RDD), we estimate marginal effects of maximum duration on UI and nonemployment spells of 0.45 and 0.25, respectively. We simulate the unemployment rate implied by the RDD estimates assuming no market-level externalities. The implied response closely approximates the decline in the unemployment rate following the benefit cut, suggesting that, even in a period of high unemployment, the labor market absorbed the influx of workers without crowding out other job seekers.

This paper presents a new approach to the measurement of the effects of spatial mismatch that takes advantage of matched employeremployee administrative data integrated with a person-specific job accessibility measure, as well as demographic and neighborhood characteristics. We focus on a group of job searchers for plausibly exogenous reasons: lower-income workers with strong labor force attachment separated during a mass layoff. Our results support the spatial mismatch hypothesis. We find that better job accessibility significantly decreases the duration of joblessness among lower-income displaced workers, especially for blacks, women, and older workers.

Medicare's prospective payment system for long-term acute-care hospitals (LTCHs) provides modest reimbursements at the beginning of a patient's stay before jumping discontinuously to a large lump-sum payment after a prespecified number of days. We show that LTCHs respond to the financial incentives of this system by disproportionately discharging patients after they cross the large-payment threshold. We find this occurs more often at for-profit facilities, facilities acquired by leading LTCH chains, and facilities colocated with other hospitals. Using a dynamic structural model, we evaluate counterfactual payment policies that would provide substantial savings for Medicare.

ABSTRACT Many natural competitors are jointly held by a small set of large institutional investors. In the U.S. airline industry, taking common ownership into account implies increases in market concentration that are 10 times larger than what is “presumed likely to enhance market power” by antitrust authorities. Within‐route changes in common ownership concentration robustly correlate with route‐level changes in ticket prices, even when we only use variation in ownership due to the combination of two large asset managers. We conclude that a hidden social cost—reduced product market competition—accompanies the private benefits of diversification and good governance.