During the past decade, new regulations have been adopted to improve audit committee effectiveness. Prior research has generally provided evidence in support of these regulations and suggests that a more independent and expert audit committee is more effective. We posit that CEO power reduces or even eliminates the improvements in audit committee effectiveness resulting from independent and financially expert committee members. Thus, CEO power may result in an audit committee that appears effective in form but is not in substance. We construct a composite index for CEO power by combining ten CEO characteristics and employ the incidence of internal control weaknesses as a proxy for audit committee monitoring quality. Since all the firms in our sample have completely independent audit committees, we use financial expertise to examine the impact of CEO power on audit committee effectiveness. We find that, when CEO power is low, audit committee financial expertise is negatively associated with the incidence of internal control weaknesses. However, as CEO power increases, this association monotonically weakens. When CEO power reaches a sufficiently high level, this association is no longer negative. The moderating effect of CEO power on audit committee effectiveness is more prominent when the CEO extracts more rents from the firm through insider trading. Our results are not driven by the CEO 's involvement in director selection. Our paper suggests that more expert audit committees in form do not automatically translate into more effective monitoring. Rather, the substantive monitoring effectiveness of audit committees is contingent on CEO power.

We use a shock to the public scrutiny of firm subsidiary locations to investigate whether that scrutiny leads to changes in firms’ disclosure and corporate tax avoidance behavior. ActionAid International, a nonprofit activist group, levied public pressure on noncompliant U.K. firms in the FTSE 100 to comply with a rule requiring U.K. firms to disclose the location of all of their subsidiaries. We use this setting to examine whether the public pressure led scrutinized firms to increase their subsidiary disclosure, decrease tax avoidance, and reduce the use of subsidiaries in tax haven countries compared to other firms in the FTSE 100 not affected by the public pressure. The evidence suggests that the public scrutiny sufficiently changed the costs and benefits of tax avoidance such that tax expense increased for scrutinized firms. The results suggest that public pressure from outside activist groups can exert a significant influence on the behavior of large, publicly traded firms. Our findings extend prior research that has had little success documenting an empirical relation between public scrutiny of tax avoidance and firm behavior.

This study examines the relation between performance covenants in private debt contracting and conservative accounting under adverse selection. We find that under severe adverse selection (i.e., high information asymmetry), accounting conservatism and performance covenants act as complements to signal that the borrower is unlikely to appropriate wealth from the lender. No such relation obtains in a low information asymmetry regime. We further show that in the high information asymmetry regime, borrowers with high levels of conservatism and tight performance covenants generally enjoy lower interest rate spreads than borrowers with low levels of conservatism and loose performance covenants. Consistent with our signaling theory, in the high information asymmetry regime, borrowers with high levels of conservatism and tight performance covenants are less likely to make abnormal payouts to shareholders. Our empirical results are robust to alternative measures of conservatism and covenant restrictiveness.

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]

A recent article by Akira Takayama discusses an earlier paper by Harvey Averch and Leland L. Johnson on fair rate of return regulation of public utilities. Although Takayama (p. 255) agrees with Averch and Johnson's general conclusions a firm will tend to increase its investment with the introduction of an active constraint on its rate of return, he criticizes the argument as being confusing, ambiguous, and in error. Takayama then attempts a clarification, and presents a new formulation which leads to the result quoted above. This comment will discuss several of Takayama's criticisms in addition to showing that the so-called A-J cannot be derived from the basic assumptions made by both Averch and Johnson and Takayama.1 We will show that the very assumptions used to prove the Effect, by defining the region of X, require an assumption that the Effect exists in the first place.

During the 1970's the South and West census regions accounted for 89.9 percent of incremental U.S. population and 72.5 percent of incremental nonagricultural employment. These figures are sharply higher than corresponding figures for any other decade in U.S. history. For example, during the 1930's the South and West gained 65.4 percent of incremental national population, which was the highest share previously recorded. The immediate cause of the interregional population shifts is fairly heavy net out-migration from the Northeast and North Central regions to the South and West, combined with birth rates that are near historical low levels. Interactive relationships that cause employment growth and migration to reinforce one another are probably operating, but these relationships are not well understood. They are the focus of this paper. Using a new and unique set of time-series data on migration and employment, we develop and estimate a time-series model of migration and employment growth for each of 171 U.S. regions. Our primary emphasis in this paper is on the 57 major metropolitan