This study examines a commercial bank manager's incentives to reduce regulatory costs imposed when the bank's capital adequacy ratio falls below its regulatory minimum. It also tests the general political sensitivity hypothesis that a manager seeks to reduce political costs incurred when revenue is unusually large. Tests of adjustments to the loan loss provision, loan charge-offs, and securities gains and losses attempt to control for exogenous economic conditions and previous investing decisions. Results are consistent with hypotheses associating accounting adjustments with capital adequacy ratio guidelines, but fail to support the political sensitivity hypothesis.

Using the model of discretionary disclosure suggested in Verrecchia (1983), I show that an increase in the quality of private information received by a manager results in more disclosure on his part. I also discuss how this result influences a manager's choice over levels of quality.

In the preceding paper Darrough and Stoughton suggest that firm interdependence, modelled as an entry game among firms in a product market, can yield endogenous proprietary costs. This allows the costs associated with the dissemination of information about the firm to depend upon the information's content in some direct way. My comments focus on: first, the structure of the game, which emphasizes the potential for full disclosure; second, the extent to which the entry game exaggerates the usefulness of ‘bad news’; and third, their suggestion that more competition among firms implies more, and not less, disclosure, an observation seemingly contrary to Verrecchia (1983).

This paper addresses the First Theorem of Welfare Economics in a moral hazard environment. An entrepreneur sells equity in a firm which he supplies with an unobservable, costly input. How much equity he retains determines his incentives and is observed by investors. The investors have rational expectaions which cause the equity price to increase in the amount of equity the entrepreneur retains. This gives the entrepreneur an incentive to retain equity and hence supply input. The entrepreneur may also be bound by an explicit incentive contract. In this framework, not all competitive equilibria are efficient, as defined relative to the moral hazard constraint. However, equilibria can be inefficient only if the entrepreneur's optimal input is nonunique or exhibits positive income effects.

For more than a decade, there has been a great debate in the profession concerning the proper base for personal and business taxation. This debate has focused on the choice of the base versus the (or consumption) base. The concept of used in these debates is a comprehensive accretion measure often referred to as HaigSimons income, after the work of Robert M. Haig (1921) and Henry C. Simons (1938). This is the standard concept of income that has been used (with several variations) in tax policy analysis in the postwar period. However, it appears not to be widely recognized that, although Haig did ultimately settle on accretion income as the best feasible tax base, he definitely saw this as a second-best measure of true income. As will become clear, reexamination of Haig's famous article reveals that Haig actually felt that consumption expenditure would be a better measure of true income than accretion income, and he would have preferred a tax on this base-that is, he preferred what today would be called a consumption tax. He felt that

In this study I propose and test a model that predicts individual analyst forecasts of corporate earnings per share (EPS) using the change in the mean consensus forecast of other analysts since the date of the analyst's current outstanding forecast; the deviation of the analyst's current forecast from the consensus forecast; and cumulative stock returns since the date of the analyst's current forecast. I find that these three variables explain about 38% of the variability in analyst forecast revisions. While there is evidence of a relation between changes in earnings expectations and price changes, virtually all of the explanatory power of my model arises from other analyst forecasts. Section 2 describes the data bases used and the sample selection process. Section 3 presents the model and method for predicting individual analyst forecasts. Section 4 reports the bias and accuracy of the predicted forecasts. Conclusions are in section 5.

The 1980 census reveals a serious lag in the employment performance of young black men relative to young white men. With census data we test for demand-side causes of this lag, using both aggregate data for 94 standard metropolitan statistical areas (SMSAs) and disaggregate (or individual) data from the 1-in-100 Public Use Sample. Variation across SMSAs in the employment and wages of white youth provides indicators of the demand conditions for black youth, and we estimate that feasible increases in these demand factors would lead to about a 25% increase in the employment of black youth.

This paper demonstrates that Black-Scholes option pricing model hedge positions that are risk free when rebalanced continuously will frequently exhibit substantial systematic risk when rebalanced at finite intervals. This systematic risk may have biased important empirical tests of the option pricing model. Moreover, this systematic risk means that the Black-Scholes option pricing model is inherently inconsistent with the discrete time version of the Capital Asset Pricing Model (CAPM).

The unionization rate in a worker's industry and the worker's tenure are interacted with employer size in wage regressions using Current Population Survey data. The results provide insight into the relatively small size-wage relationship in the union sector. Nonunion tenure profiles steepen sharply with establishment size, while union profiles flatten. Also, the effect of industry unionization increases with firm size in the nonunion sector, a pattern indicative of threat effects. A separate analysis of nonunion wages indicates that size-wage relationships are stronger in occupations associated with high monitoring costs.

This article examines a model of "semiefficient" bargaining in which the union and the firm bargain over wages and various types of work rules. The results are compared to the outcomes that are associated with fully efficient bargaining (i.e., over wages and the level of employment) and bargaining solely over wages.