We suggest that transparent bias in management disclosures may result from managers processing information in a heuristic, as distinct from Bayesian, fashion when they face imperfect or head-to-head competition. We predict that transparent bias in disclosures is positively related to the extent of head-to-head competition. In addition, when disclosure is discretionary, we show that managers who exhibit viable, heuristic behavior are less likely to disclose than managers who exhibit Bayesian behavior. Finally, when disclosure is discretionary, we show that the increase in the proportion of uninformed managers who exhibit viable, heuristic behavior encourages more disclosure by an informed manager.

Emerging market economies have undergone an extraordinary period of turbulence in capital markets during the period 1997–2002, and volatility remains a salient feature of the financial landscape. This paper discusses a number of central issues for the future of the region's financial markets. It starts with a brief summary of the reforms undertaken and shows that financial systems still remain fragile in a number of countries in the region. The paper then advances policy recommendations to strengthen domestic financial systems. The analysis and policy prescriptions aim at three areas: 1) the appropriate design of regulatory and supervisory institutions; 2) the role of foreign banks; and 3) how international financial practices affect Latin America.

Drawing on a unique dataset of flow-of funds and balance sheet data, this paper analyzes the impact of financial crises on aggregate corporate financing and expenditure in a range of countries. Investment and inventory contractions are the main contributors to lower GDP growth after crises, with a much greater effect in emerging market countries. The debt–equity ratio is correlated with investment and inventory declines following crises. Econometric analysis suggests that financial crises have a greater impact on expenditure and the financing of corporate sectors in emerging markets than in industrial countries. Industrial countries appear to benefit from a pick-up in bond issuance in the wake of banking crises. Although companies in emerging market countries hold more precautionary liquidity, this is evidently not sufficient to prevent a greater amplitude of response of expenditure to shocks.

This paper provides a method for estimating the market risk premium that accounts for shifts in investment opportunities by explicitly modeling the underlying process governing the level of market volatility. I find that approximately 50% of the measured risk premium is related to the risk of future changes in investment opportunities. Evidence of a structural shift in the underlying volatility process suggests that the simple historical average of excess market returns may substantially overstate the magnitude of the market risk premium for the period since the Great Depression.

The purpose of our work is to explore contagious financial crises. To this end, we use simplified, thus numerically solvable, versions of our general model [C.A.E. Goodhart, P. Sunirand, D.P. Tsomocos, A Model to Analyse Financial Fragility, Oxford Financial Research Centre Working Paper No. 2003fe13, 2003]. The model incorporates heterogeneous agents, banks and endogenous default, thus allowing various feedback and contagion channels to operate in equilibrium. Such a model leads to different results from those obtained when using a standard representative agent model. For example, there may be a trade-off between efficiency and financial stability, not only for regulatory policies, but also for monetary policy. Moreover, agents who have more investment opportunities can deal with negative shocks more effectively by transferring ‘negative externalities’ onto others.