Look at the dramatic change in family structure that has occurred recently, illustrated in Figure 1. In the United States, 23 percent of children lived with an unwed mother in 1998, compared with only 8 percent in 1960.1 Of this 15-percentage-point increase, about 6 percentage points are due to a rise in the rate of divorce; the remaining 9 percentage points arise from an increase in out-of-wedlock births. Why care about this change in the structure of families? The lot of children living with a single mother is bleak. About 70 percent of those children in a family with a never-married mother were living near or below the poverty level in 1995. The corresponding figure for children being raised by a divorced mother was 45 percent. Associated with the increase in number of single mothers has been a rise in the percentage of the population on welfare. In 1960 only 1.7 percent of the population was on AFDC (Aid to Families with Dependent Children), while in 1995 about 5.2 percent were. Most mothers who received AFDC were single; 71 percent were in 1993. Also, AFDC mothers tended to have more children (2.6 on average vs. 2.1 for the population as a whole in 1993). It is interesting to note that there is evidence suggesting that more entrances into and exits out of welfare are connected with a shift in family structure rather than with a change in employment status. For instance, of the first-time entrances into welfare during 1983-1991 about 21 percent were associated with an out-of-wedlock birth, 23 percent were connected with a divorce or separation and 21 percent were linked with a reduction in the mother's work hours. Last, real AFDC benefits rose by about 70 percent between 1945 and 1977. They were about 25-percent higher in 1995 than in 1945. Could this have contributed to the rise in single motherhood? The task here is to outline a general-equilibrium model in which, at any point in time, some individuals will marry, others will divorce, and yet others will choose to have out-of-wedlock births. While the model is still prototypical in nature, it will be shown how such a framework can be used to address public-policy questions, in particular, the impact of welfare on family structure and the well-being of the economy.

We investigate learning by doing using detailed data from a major auto producer’s assembly plant. We focus on the acquisition, aggregation, transmission, and embodiment of the knowledge stock built through learning. We find that most knowledge was not retained by plant workers despite their importance as a learning conduit. This is consistent with the plant’s systems for productivity measurement and improvement. We further explore how learning at the hundreds of processes along the production line undergirds plantwide productivity. Our results shed light on how productivity gains accrue at the plant level and how firms apply managerial inputs to expand production.

By considering investor order placement strategy, this paper demonstrates that transaction costs cause bid-ask spreads to be an equilibrium property of asset markets. With transaction costs, the probability of a limit order executing does not go to unity as the order is placed infinitesimally close to a counterpart market quote; thus, with certainty of execution at the counterpart market quote, a "gravitational pull" is generated that keeps counterpart quotes from being placed infinitesimally close to each other. An equilibrium spread is defined and its size linked to market thinness; implications are noted for the design of a trading system.

Less-informed investors face greater costs of processing earnings news into actionable information. Our findings suggest financial analysis on social media reduces less-informed investors’ disclosure processing costs. We document an attenuated spike in earnings announcement (EA) information asymmetry for quarters containing more financial analysis on social media in the weeks prior to the EA. Cross-sectional evidence suggests this finding is stronger when coverage from traditional intermediaries is lower, for financial analyses written by more credible authors, and for financial analyses that are more likely relevant to evaluating the EA. Further evidence suggests retail trades, but not institutional trades, at EAs are significantly more profitable in quarters with greater financial analysis on social media, consistent with financial analysis on social media benefitting traders who are otherwise less-informed. Overall, our evidence suggests that financial analysis on social media plays an important role in aiding less-informed investors by helping them better process EA news.

We examine whether public financial statement information is incrementally useful in forecasting confidential taxable income. More precise firm-level taxable income forecasts can improve policymakers' modeling of the tax system and the analysis of proposed changes in corporate tax law, while more accurate macro-level forecasts of corporate taxable income can improve estimates of corporate tax revenues, a significant component of the federal budget. We find the addition of financial statement information improves firm- and industry-level estimates of future taxable income by primarily providing more timely information, but also through accruals. Our results suggest that macroeconomic forecasts of taxable income may be further improved by the aggregation of firm-level forecasts that are generated using financial statement information. Importantly, our results are driven primarily by tax information in financial statements. We also contribute to the research on the information content of financial statement information for forecasting economic activity.

Recent evidence suggests that investors struggle to process complex financial disclosures. Relative to equity and public debt investors, banks have unique advantages in acquiring information and can impose contractual terms to mitigate information frictions. We investigate whether financial statement complexity is associated with firms' reliance on bank financing and the terms of bank loans. We focus on two aspects of complexity: the length of financial reports and the complexity of financial reporting rules. We document that both aspects of complexity are positively associated with firms' reliance on bank financing (i.e., level of debt and new financing). This result is consistent with banks' superior information processing capabilities. Next, we document that banks ameliorate information frictions using loan contractual terms that depend on the source of complexity. Overall, banks are an attractive source of financing for firms with complex disclosures, but banks also increase screening and monitoring for relatively complex borrowers. Data Availability: Data used in this study are available from public sources identified in the study.

Compensation committees face special difficulties when setting pay in the last years of a CEO's tenure. For example, incentives to manipulate earnings for the purpose of enhancing earnings-based compensation are greater in CEOs' terminal years. We predict that compensation committees are aware of these incentives and adjust the relative weights placed on earnings components in the cash compensation function to mitigate the problem. Consistent with our prediction, we find that in CEOs' terminal years, positive changes in discretionary accruals receive significantly less weight than other income components in determining cash compensation. This provides new evidence that not all gains flow through to compensation. We also find that in non-terminal years, managers' compensation is partially shielded from the negative effects of selling, general, and administrative expenditures (SG&A), but this effect reverses in the terminal period, consistent with the compensation committee discouraging investment in legacy assets by outgoing CEOs. Overall, our findings suggest that compensation committees treat components of earnings differently when setting pay in the terminal period.

We extend the literature on earnings management through real operating decisions by providing insight into the types of expenditures (core versus noncore and operating versus non-operating activities) affected by earnings management. We partition a sample of California nonprofit hospitals based on their earnings management incentives. We find that expenditures on non-operating and non-revenue-generating activities appear to decrease in hospitals with incentives to engage in such behavior, while core patient care activities remain unchanged. We also find evidence of earnings management in non-core operational expenses. Second, we analyze real earnings management related to pay-for-performance incentives and find that hospitals with stronger performance incentives exhibit a significant incremental decrease in expenditures. Finally, we examine two different kinds of behavior to discriminate between earnings management and good operational decisions and provide weak evidence to support opportunism rather than good management. Together, these results provide evidence of the use of real operating decisions to manage earnings.

We study the effects of cross-listings on audit fees. We first develop a model in which legal environments play a crucial role in determining the auditor's legal liability. Our model and analysis predict that auditors charge higher fees for firms that are cross-listed in countries with stronger legal regimes than they do for non-cross-listed firms and that the cross-listing audit fee premium increases with the difference in the strength of legal regimes between the cross-listed foreign country and the home country. We then empirically test these predictions. The results of our cross-country regressions strongly support our predictions. In addition, we find no significant cross-listing fee premium for firms that are cross-listed in countries whose legal regimes are. no stronger than those of their home countries. This suggests that cross-listing audit fee premiums are associated with increased legal liability and not with increased audit complexity per se. Our findings help explain why cross-listing premiums occur and what determines their magnitude.