Prediction, Decision making, Sequential patters, Time-series

Limited coverage is a standard feature in deposit insurance schemes. It is used to limit moral hazard, and achieves this objective by reinforcing market discipline: depositors have more incentives to monitor banks’ risk-taking if they have skin in the game. In this paper, I study market discipline and coverage levels by analyzing the relationship of funding costs and deposit growth with banks’ risk. I use a database of Colombian banks’ balance sheets and take advantage of a sudden, significant, and exogenous increase in the coverage level that occurred in April 2017. I find evidence of market discipline throughout the period of analysis and most results are consistent with it not being reduced by the change in the coverage level. The results are nuanced, however. Two variables are impacted: one in the quantity and the other in the price dimension. Furthermore, results also vary when I look at specific groups of banks separately. Market discipline is not present in big banks. Too big-to-fail perceptions seem to limit it. This is also the case for banks concentrated in fully insured deposits, where limited coverage has a less prevalent role.

Using a large sample of accounting data for non-financial companies in France, this paper studies the interactions between macroeconomic shocks and companies’ financial fragility. We consider links in both directions, namely whether firms’ bankruptcies are affected by macroeconomic variables, and whether bankruptcies determine the business cycle. We estimate forecasting equations for firms’ bankruptcy using Shumway's (2001) approach and study the joint dynamics of bankruptcies and macroeconomic variables within an exogenous VAR type model estimated at the sector level. We find evidence of reciprocal links between the bankruptcy rate and the output gap and highlight significant “second round effects” of shocks to the output gap on bankruptcies. We show how taking into account the dynamic transmission of macroeconomic shocks matters in stress testing exercises.

The article contributes to the literature on financial fragility, studying how macroeconomic shocks affect supply and demand in the corporate debt market. We take into account the effect of the competitive environment, as well as the risk level, measured by companies’ default rate. The model is estimated using data from the Harmonised BACH database of corporate accounts for large euro area countries on the 1993–2005 period, in order to carry out an illustrative stress testing exercise. We measure the impact of large macroeconomic shocks (a severe recession and a sharp increase in oil prices) on the equilibrium in the debt market.

This paper examines the effect of several factors on the market share of investment banks that act as book managers in initial public offerings (IPOs) between 1984 and 1995. For established banks, IPO first-day returns, one-year abnormal performance, abnormal compensation, industry specialization, analyst reputation, and association with withdrawn offers have a significant impact on changes in market share. These factors have a more significant effect on market share changes in low-volume IPO markets. These factors have a less significant effect on market share, statistically and economically, for less established banks, consistent with the notion that less reputation is placed at risk.

This paper tests models of mutual fund market timing that allow the manager's payoff function to depend on returns in excess of a benchmark, and distinguish timing based on publicly available information from timing based on finer information. We simultaneously estimate parameters which describe the public information environment, the manager's risk aversion, and the precision of the fund's market-timing signal. Using a sample of more than 400 U.S. mutual funds for 1976–94, our findings suggest that mutual funds behave as highly risk averse, benchmark investors. Conditioning on public information improves the model specification. After controlling for the public information, we find no evidence that funds have significant market-timing ability.

On November 17, 1988, the board of directors of Nestlé AG decided to allow foreign investors to hold Nestlé registered stock, reversing a longstanding practice. This decision had a tremendous impact on the prices of the firm's three classes of common stock, as well as on the prices of several other corporations traded on the Zürich stock exchange. These price changes can be explained by the hypothesis that demand curves slope down.

Turner Broadcasting illustrates how organizational mechanisms can be adapted to prevent a majority owner from imposing costs on minority shareholders through inept management or opportunistic behavior. These mechanisms involve issuing preferred stock with unusual features, concentrating its ownership among a small group of investors, allowing the new preferred shareholders to elect several directors, and requiring supramajority approval of major management decisions by a reconstituted board of directors. The alienability of the preferred stock is restricted to help insure that its ownership stays concentrated and in the hands of those with the specific knowledge and incentives to be effective monitors.

In a multivariate regression model relating individual returns to the market return, CAPM implies non-linear restrictions on the parameters. Several asymptotically valid tests of these restrictions have been suggested. The existing Monte Carlo evidence shows that some of these tests are unreliable for reasonable sample sizes, but does not indicate well which tests are reliable. This paper reports the results of an extensive Monte Carlo experiment. Shanken's CSR test and Jobson and Korkie's corrected likelihood ratio test are quite accurate in all cases we consider.

We examine the robustness of empirical models and findings concerning CEO turnover. We show that the sensitivity of turnover to abnormal firm performance is an extremely robust result. In contrast, evidence indicating a relation between turnover and industry performance is both weak and fragile. We show that small changes in turnover modeling choices can affect inferences in a large way. Our evidence casts substantial doubt on the hypothesis that there is a large industry performance component to turnover decisions. We use our findings to offer some general prescriptions for checking robustness results in CEO turnover research. Received June 6, 2017; editorial decision July 10, 2017 by Editor Uday Rajan.