This paper examines the relations between three board characteristics (independence, diligence, and expertise) and Big 6 audit fees for Fortune 1000 companies. To protect its reputation capital, avoid legal liability, and promote shareholder interests, a more independent, diligent, and expert board may demand differentially higher audit quality (greater assurance, which requires more audit work) than the Big 6 audit firms normally provide. The audit fee increases as the auditor's additional costs are passed on to the client, such that we expect positive relations between audit fees and the board characteristics examined. We find significant positive relations between audit fees and board independence, diligence, and expertise. The results persist when similar measures of audit committee “quality” are included in the model. The results add to the growing body of literature documenting relations between corporate governance mechanisms and various facets of the financial reporting and audit processes, as well as to our understanding of the determinants of audit fees.

We present new identification resiilts for models of first-price, second-price, ascending (English), and descending (Dutch) auctions.We analyze a general specification of bidders' preferences and the underlying information structure, nesting as special cases the pure private values and pure common values models, and allowing both ex ante symmetric and asymmetric bidders.We address identification of a series of such models and propose strategies for discriminating between them on the basis of observed data.In the simplest case, the symmetric independent pri- vate values model is nonparametrically identified even if only the transaction price from each auction is observed.For more complex models, we provide conditions for identification and testing when additional information of one of the following types is available: (i) one or more bids in addition to the transaction price; (ii) exogenous variation in the number of bidders; (iii) bidder-specific covariates that shift the distribution of valuations; (iv) the ex post reahzation of the value of the object sold.Our results include new tests that distinguish between private and common values models.

This paper presents new identification results for models of first–price, second–price, ascending (English), and descending (Dutch) auctions. We consider a general specification of the latent demand and information structure, nesting both private values and common values models, and allowing correlated types as well as ex ante asymmetry. We address identification of a series of nested models and derive testable restrictions enabling discrimination between models on the basis of observed data. The simplest model—symmetric independent private values—is nonparametrically identified even if only the transaction price from each auction is observed. For richer models, identification and testable restrictions may be obtained when additional information of one or more of the following types is available: (i) the identity of the winning bidder or other bidders; (ii) one or more bids in addition to the transaction price; (iii) exogenous variation in the number of bidders; (iv) bidder–specific covariates. While many private values (PV) models are nonparametrically identified and testable with commonly available data, identification of common values (CV) models requires stringent assumptions. Nonetheless, the PV model can be tested against the CV alternative, even when neither model is identified.

Many emerging market countries have suffered financial crises. One view blames soft pegs for these crises. Adherents of this view suggest that countries move to corner solutions—hard pegs or floating exchange rates. We analyze the behavior of exchange rates, reserves, and interest rates to assess whether there is evidence that country practice is moving toward corner solutions. We focus on whether countries that claim they are floating are indeed doing so. We find that countries that say they allow their exchange rate to float mostly do not—there seems to be an epidemic case of “fear of floating.”

The aim of this paper is to test the temporal variation of technical efficiency of Spanish savings banks during the period 1985–1998. Furthermore, we test whether merged and non-merged firms have different levels and temporal patterns of technical efficiency. A stochastic output distance function (R.W. Shephard, Theory of Cost and Production Functions, Princeton University Press, Princeton, NJ) is employed to accommodate multiple output technology. The distance function provides the advantage that it does not need information about prices, so it can accommodate the multi-product nature of the financial sector only using the quantities as data (an important point when the assumptions about perfectly competitive markets are unlikely to be met). The temporal variation of efficiency is modeled extending the Battese and Coelli (Journal of Productivity Analysis 3 (1992) 153–169) approach in two ways: relaxing the monotonicity of the temporal variation pattern of the efficiency term, and allowing for different patterns of efficiency change between merged and non-merged firms.

The volatility of its share price reflects the volatility of the market value of a bank's assets. We present data for the volatilities of individual banks' shares that are implied by the prices of options on the banks' shares. We present evidence that implied volatilities (IV's) better forecast actual, future volatilities of share prices than historical volatilities do. Banks' IV's are correlated with marketwide volatility, with the levels of their own share prices, with their own subordinated debt yield spreads, and with other banks' IV's. Bank capital reduces the response of IV's to market volatility. IV's are likely to add information about bank risk that is timely, cheap, objective, and useful.

This paper seeks to reconcile the growth empirics technique of Mankiw, Romer, and Weil (1992) with the empirical results of Barro and Sala-“i-Martin (1991) through the development of a new database covering the 1977-96 period. We create state-by-state capital stock and gross investment estimates by apportioning the national capital stock among the states. Using these estimates along with gross state product and employment data, we find evidence that the Solow growth model explains state-wide growth during this period. We consistently find a rate of convergence of around 2%. Our results, as a consequence, suggest that the empirical results of Barro and Sala-í-Martin are driven by the neoclassical growth process of Solow.

This paper examines the relations between three board characteristics (independence, diligence, and expertise) and Big 6 audit fees for Fortune 1000 companies. To protect its reputation capital, avoid legal liability, and promote shareholder interests, a more independent, diligent, and expert board may demand differentially higher audit quality (greater assurance, which requires more audit work) than the Big 6 audit firms normally provide. The audit fee increases as the auditor's additional costs are passed on to the client, such that we expect positive relations between audit fees and the board characteristics examined. We find significant positive relations between audit fees and board independence, diligence, and expertise. The results persist when similar measures of audit committee “quality” are included in the model. The results add to the growing body of literature documenting relations between corporate governance mechanisms and various facets of the financial reporting and audit processes, as well as to our understanding of the determinants of audit fees.

Acquisitions among New York Stock Exchange specialist firms can increase specialist firm size, capitalization, and market concentration, and thereby affect the market quality of the stocks they trade. We find that while traded stocks show significant improvement in several market quality measures following acquisitions, similar changes are evident in matched control stocks not involved in acquisitions. We conclude that specialist firm acquisitions either do not improve market quality, or improve market quality, but competitive and other pressures (resulting partly from the acquisitions themselves) force improvements in market quality for control stocks also. Either interpretation implies that specialist acquisitions have not had deleterious effects on market quality.

This paper estimates a structural model of optimal life-cycle consumption expenditures in the presence of realistic labor income uncertainty. We employ synthetic cohort techniques and Consumer Expenditure Survey data to construct average age-profiles of consumption and income over the working lives of typical households across different education and occupation groups. The model fits the profiles quite well. In addition to providing reasonable estimates of the discount rate and risk aversion, we find that consumer behavior changes strikingly over the life cycle. Young consumers behave as buffer-stock agents. Around age 40, the typical household starts accumulating liquid assets for retirement and its behavior mimics more closely that of a certainty equivalent consumer. Our methodology provides a natural decomposition of saving and wealth into its precautionary and life-cycle components.