The Euler equations derived from intertemporal asset pricing models, together with the unconditional moments of asset returns, imply a lower bound on the volatility of the intertemporal marginal rate of substitution. This paper develops and implements statistical tests of these lower bound restrictions. While the availability of short time series of consumption data often undermines the ability of these tests to discriminate among different utility functions, the authors find that the restrictions implied by a number of widely studied financial data sets continue to pose quite a challenge to the current generation of intertemporal asset pricing theories.

This study compares the pre- and postprivatization financial and operating performance of sixty-one companies from eighteen countries and thirty-two industries that experience full or partial privatization through public share offerings during the period 1961 to 1990. The authors' results document strong performance improvements, achieved surprisingly without sacrificing employment security. Specifically, after being privatized, firms increase real sales, become more profitable, increase their capital investment spending, improve their operating efficiency, and increase their work forces. Furthermore, these companies significantly lower their debt levels and increase dividend payout. Finally, the authors document significant changes in the size and composition of corporate boards of directors after privatization.

Private enforcement of regulatory policy is a significant feature of many government-sponsored contests, such as procurements. Although private enforcement is supposed to promote social welfare, we show that competitors can use it to achieve collusive outcomes. In a noncooperative duopoly setting, we show that the threat of litigation, and the possibility of settlement can dramatically affect ex ante competition in the relevant market. Essentially, the settlement process provides a legal mechanism for the exchange of side-payments, while the possibility of a court decision provides the plaintiff with a credible threat against the defendant so as to avert cheating. The result does not require repeated play, ex ante contracts, or other commitment devices. In the federal procurement context, we show that our results are robust to alterations in the court remedy, bargaining power of the litigants, and many other factors.

Trading halts increase, rather than reduce, both volume and volatility. Volume (volatility) in the first full trading day after a trading halt is 230 percent (50 to 115 percent) higher than following 'pseudohalts': nonhalt control periods matched on time of day, duration, and absolute net-of-market returns. These results are robust over different halt types and news categories. Higher posthalt volume is observed into the third day, while higher posthalt volatility decays within hours. The extent of media coverage is a partial determinant of volume and volatility following both halts and pseudohalts but a separate halt effect remains after controlling for the media effect.

This article examines the effect of issuing debt with and without “poison put” covenants on outstanding debt and equity claims for the period 1988 to 1989. The analysis shows that “poison put” covenants affect stockholders negatively and outstanding bondholders positively, while debt issued without such covenants has no effect. The study also finds a negative relationship between stock and bond returns for firms issuing poison put debt. These results are consistent with a “mutual interest hypothesis,” which suggests that the issuance of poison put debt protects managers and, coincidentally, bondholders, at the expense of stockholders.

We evaluate journals based on their relative contributions to top-level finance research in a recent period. Journals are ranked according to the number of citations found in articles published in Journal of Finance, Journal of Financial Economics, Journal of Financial and Quantitative Analysis, and Review of Financial Studies. The analysis controls for both the average number of articles and average number of words published annually in each cited journal. We identify the fifty most frequently cited journals during this period. We also list the fifty most frequently cited authors and articles and note topical trends in the research.

During the 1980s, the centre of financial market power moved from the United States to Japan and Germany. Having made the classic lending mistakes, American bankers were mauled in cut-throat competition. By the end of the decade, however, the inflection point had been reached and new competitive and economic forces had begun to shift the centre of power once again. In Global Champions, Roy Smith shows how the bases of banking competitiveness are changing, from the size of assets and profitable systems protected by regulation to market know-how, innovation, and technology. He reviews the past and present of the US, European and Japanese financial systems, and provides insights into their futures. European banks, he demonstrates, are in the early stages of a free-market renaissance for which many are ill-prepared. For the powerful German banks, events in Eastern Europe and eastern Germany will be a continuing distraction. Japanese banks and brokers, weakened by losses and scandal, have passed their peaks as superpowers. They now face major regulatory changes that will disrupt their once sage and profitable franchises. As the title indicates, Smith foresees a revival in the competitive position of US banking and finance. He shows how US banking will split into two distinct parts: large, technologically advanced retail companies and market-oriented investment bankers and wholesalers. As the 1990s unfold, survivors of the wild ride of the 1980s will adapt to life on the cutting edge of competition and will spearhead a recovery of American financial power.

We evaluate journals based on their relative contributions to top‐level finance research in a recent period. Journals are ranked according to the number of citations found in articles published in Journal of Finance, Journal of Financial Economics, Journal of Financial and Quantitative Analysis , and Review of Financial Studies . The analysis controls for both the average number of articles and average number of words published annually in each cited journal. We identify the fifty most frequently cited journals during this period. We also list the fifty most frequently cited authors and articles and note topical trends in the research.

This article analyzes the interaction between a firm's dynamic investment, operating, and financing decisions in a model with operating adjustment and recapitalization costs. Using numerical analysis, we solve the model for cases that highlight interaction effects. We find that higher production flexibility (due to lower costs of shutting down and reopening a production facility) enhances the firm's debt capacity, thereby increasing the net tax shield value of debt financing. While higher financial flexibility (resulting from lower recapitalization costs) has a similar effect, production flexibility and financial flexibility are, to some extent, substitutes. We find that the impact of debt financing on the firm's investment and operating decisions is economically insignificant.