This paper examines vertical arrangements in electricity markets. Vertically integrated wholesalers, or those with long-term contracts, have less incentive to raise wholesale prices when retail prices are determined beforehand. For three restructured markets, we simulate prices that define bounds on static oligopoly equilibria. Our findings suggest that vertical arrangements dramatically affect estimated market outcomes. Had regulators impeded vertical arrangements (as in California), our simulations imply vastly higher prices than observed and production inefficiencies costing over 45 percent of those production costs with vertical arrangements. We conclude that horizontal market structure accurately predicts market performance only when accounting for vertical structure

The factors determining foreign bank efficiency are investigated using a three stage research method. It is found that host market incumbency reduces efficiency of foreign banks in Australia, resulting in over use of inputs. Factors underlying the limited global advantage hypothesis of Berger et al. [Berger, Allen N., DeYoung, Robert, Genay, Hesna, Udell, Gregory F., 2000. Globalisation of financial institutions: Evidence from cross-border banking performance. Brookings-Wharton Papers on Financial Service 3, 23–120] are identified, in that nationality specific factors represented by dummy variables are not significant once other relevant effects are controlled for. Parent profitability is not found to result in increased host nation efficiency, while parent credit rating effects are mixed. Some evidence is presented that banks from more financially sophisticated nations are more efficient. The implications of these results are explored from the perspectives of bank management and bank regulators

This paper implements estimation and testing procedures for comovements of stock market “cycles” or “phases” in Asia. We extend the Harding and Pagan [Harding, D., Pagan, A.P., 2006. Synchronization of cycles. Journal of Econometrics 132 (1), 59–79] test for strong multivariate nonsynchronization (SMNS) between business cycles to a test that allows for an imperfect degree of multivariate synchronization between stock market cycles. Moreover, we propose a test for endogenously determining structural change in the bivariate and multivariate synchronization indices. Upon applying the technique to five Asian stock markets we find a significant increase in the cross country comovements of Asian bullish and bearish periods in 1997. A power study of the stability test suggests that the detected increase in comovement is more of a sudden nature (i.e. contagion or “Asian Flu”) instead of gradual (i.e. financial integration). It is furthermore argued that stock market cycles and their propensity toward (increased) synchronization contain useful information for both investors, policy makers and financial regulators

Mandatory disclosure is a regulatory tool intended to allow market participants to assess operational risk. We examine the value of disclosure through the controversial SEC requirement, since overturned, which required major hedge funds to register as investment advisors and file Form ADV disclosures. Leverage and ownership structures suggest that lenders and equity investors were already aware of operational risk. However, operational risk does not mediate flow‐performance relationships. Investors either lack this information or regard it as immaterial. These findings suggest that regulators should account for the endogenous production of information and the marginal benefit of disclosure to different investment clienteles

We study the effect of media coverage on corporate governance by focusing on Russia in the period 1999 to 2002. We find that an investment fund's lobbying increases coverage of corporate governance violations in the Anglo‐American press. We also find that coverage in the Anglo‐American press increases the probability that a corporate governance violation is reversed. This effect is present even when we instrument coverage with an exogenous determinant, the fund's portfolio composition at the beginning of the period. The fund's strategy seems to work in part by impacting Russian companies' reputation abroad and in part by forcing regulators into action

This paper investigates how stock market investors perceive the impact of market structure and efficiency on the long-run performance potential of European banks. To that end, a modified Tobin’s Q ratio is introduced as a measure of bank franchise value. This measure is applied to discriminate between the market structure and efficient-structure hypotheses in a coherent forward-looking framework, in which differences in banks’ horizontal and vertical differentiation strategies are controlled for. The results show that banks with better management or production technologies possess a long-run competitive advantage. In addition, bank market concentration does not affect all banks equally. Only the banks with a large market share in a concentrated market are able to generate non-competitive rents. The paper further documents that the forward-looking, long-run perspective and the noise-adjustment of the performance measure overcome most of the drawbacks associated with testing these hypotheses in a multi-country set-up. Finally, notwithstanding the international expansion of bank activities, the harmonization of regulation and the macroeconomic convergence in the European Union (EU15), we still find that country-specific macroeconomic variables have a significant impact on bank performance. The findings indicate that there is a trade-off between competition and stability that should be taken into account when assessing mergers or acquisitions

We analyze a sample of 330 firms making unaudited disclosures required by Section 302 and 383 firms making audited disclosures required by Section 404 of the Sarbanes-Oxley Act. We find that Section 302 disclosures are associated with negative announcement abnormal returns of −1.8 percent, and that firms experience an abnormal increase in equity cost of capital of 68 basis points. We conclude that Section 302 disclosures are informative and point to lower credibility of disclosing firms' financial reporting. In contrast, we find that Section 404 disclosures have no noticeable impact on stock prices or firms' cost of capital. Further, we find that auditor quality attenuates the negative response to Section 302 disclosures and that accelerated filers—larger firms required to file under Section 404—have significantly less negative returns (−1.10 percent) than non-accelerated filers (−4.22 percent). The findings have implications for the debate about whether to implement a scaled securities regulation system for smaller public companies: material weakness disclosures are more informative for smaller firms that likely have higher pre-disclosure information uncertainty

This paper studies the evolution of income concentration in Japan from 1886 to 2005 by constructing long-run series of top income shares and top wage income shares, using income tax statistics. We find that (i) income concentration was extremely high throughout the pre-WWII period during which the nation underwent rapid industrialization; (ii) a drastic de-concentration of income at the top took place in 1938–1945; (iii) income concentration remained low during the rest of the century but shows some sign of increase in the last decade; and (iv) top income composition in Japan has shifted dramatically from capital income to employment income over the course of the twentieth century. We attribute the precipitous fall in income concentration during WWII primarily to the collapse of capital income due to wartime regulations and inflation. We argue that the change in the institutional structure under the occupational reforms made the one-time income de-concentration difficult to reverse. In contrast to the sharp increase in wage income inequality observed in the United States since 1970, the top wage income shares in Japan have remained relatively stable over the last thirty years. We show that the change in technology or tax policies alone cannot account for the comparative experience of Japan and the United States. Instead we suggest that institutional factors such as internal labor markets and union structure are important determinants of wage income concentration

For over three centuries and across the globe, lottery-linked savings (LLS) programs have offered individuals the opportunity to save, and in lieu of paying traditional interest, have given savers periodic chances to win money or prizes. Despite their long history, LLS programs are relatively unstudied by scholars. In this paper, I detail an LLS program that the UK government has offered continuously since 1956, the UK Premium Bond (PB) program. PBs guarantee holders risk-free return of nominal principal. In aggregate, they pay a market-related return, distributed to holders each month by a lottery like mechanism. Premium bonds are popular savings vehicles in the UK. Over £31.1 billion of PBs were outstanding as of March 2006, and public reports suggest that they were held by between 22 percent and 40 percent of UK citizens. The 60.2 million residents of the UK had £517 invested in PBs per capita. If held in the banking sector, PB holdings would have accounted for 3.9 percent of household sterling deposits in UK financial institutions. LLS programs, such as PBs, are fascinating not just because of their size, but because of their appeal to nonsavers, especially low-income families. Mauro Guillen and Adrian Tschoegl (2002, reviewing LLS programs in Latin America, concluded: “The bankers we spoke with believe that [LLS] are especially successful with low income depositors, and in cases where there are lots of people outside the banking system.” In South Africa, a new LLS program raised over 1.2 billion rand and enrolled 750,000 participants across a wide spectrum of the economy in two years. In the United Kingdom, while PBs are held by about the same fraction of the population holding stocks, PBs have a stronger appeal to lower-income British households. PBs are held by a larger fraction of British households than are stocks and shares for all households, except those earning over £52,000 annually (Department for Work and Pensions 2007). Are PB holders saving, gambling, or engaging in both activities? This question is not just academic, because national laws and regulations in many countries bar private LLS programs on the basis that they are prohibited gambling activities. For example, in South Africa, the government has tried to shut down the popular LLS program mentioned above; in the United States, these programs would violate state lottery laws and federal banking regulations. In this paper, I analyze the time series of net sales of the PB program and conclude that the program appears to be a hybrid of gambling and savings, but with a clear savings element

While terrorist attacks are relatively infrequent, Gary Becker and Yona Rubinstein (2008) provide evidence that they generate a disproportionate amount of stress and fear, suggesting that the indirect effects may be far more reaching than the direct effects. The international organization Medecins Sans Frontieres (2006) claims that the physiological effect of civil conflict is Colombian’s worst public health problem. This paper is the first attempt to measure the effect of prenatal psychological stress due to terrorism on child birth outcomes. The medical literature indicates that prenatal stress increases levels of CorticotrophinReleasing Hormone (CRH), which regulates the duration of pregnancy and fetal maturation and thus increases the risk of adverse birth outcomes (Pathik D. Wadhwa et al. 1993, among others). There is also evidence that birth outcomes are most sensitive to maternal stress in early stages of pregnancy (Laura M. Glynn et al. 2001). This study finds that the intensity of random landmine explosions during a woman’s first trimester of pregnancy has a significant negative impact on child birth weight. This finding persists when mother fixed effects are included, suggesting that neither observable nor unobservable characteristics of the mothers are driving the results. I use a large dataset, comprising approximately 4 million births in Colombia from 1998 to 2003, which enables me to observe multiple births by the same mother and gives strong statistical power to discern patterns. The data also allow me to link the date of a landmine explosion with the trimester of the pregnancy, and thereby to identify the stage of pregnancy Stress and Birth Weight: Evidence from Terrorist Attacks