We estimate peer effects in college achievement using a data set in which individuals are exogenously assigned to peer groups of about 30 students with whom they are required to spend the majority of their time interacting. This feature enables us to estimate peer effects that are more comparable to changing the entire cohort of peers. Using this broad peer group, we measure academic peer effects of much larger magnitude than found in previous studies. The effects persist at a diminished rate into follow-on years, and we find evidence of nonlinearities in the magnitude of the effects across student academic ability. (c) 2009 by The University of Chicago.

Abstract This study uses a stochastic frontier approach to evaluate firm efficiency. The resulting efficiency score, based on firm characteristics, is the input for performance evaluation. The portfolio composed of highly efficient firms significantly underperforms the portfolio composed of inefficient firms even after adjustment for firm characteristics and risk factors, suggesting a required premium for the inefficient firms. The difference in performance between the two portfolios remains for at least five years after the portfolio formation year. In addition, firm efficiency exhibits significant explanatory power for average equity returns in cross-sectional analysis.

This paper investigates whether leveraged buyouts (LBOs) increase the bargaining power of firms with their suppliers. We find that suppliers to LBO firms experience significantly negative abnormal returns at the announcements of downstream LBOs. We also find that suppliers who have likely made substantial relationship-specific investments are more negatively affected, both in terms of abnormal stock returns and reduced profit margins, than suppliers of commodity products or transitory suppliers. Interestingly, leveraged recapitalization announcements are not associated with negative returns to suppliers, suggesting that increased leverage without an accompanying change in organizational form does not, on average, lead to price concessions from suppliers.

Ascertaining which enforcement mechanisms work to protect investors has been both a focus of recent work in academic finance and an issue for policy-making at international development agencies. According to recent academic work, private enforcement of investor protection via both disclosure and private liability rules goes hand in hand with financial market development, but public enforcement fails to correlate with financial development and, hence, is unlikely to facilitate it. Our results confirm the disclosure result but reverse the results on both liability standards and public enforcement. We use securities regulators’ resources to proxy for regulatory intensity of the securities regulator. When we do, financial depth regularly, significantly, and robustly correlates with stronger public enforcement. In horse races between these resource-based measures of public enforcement intensity and the most common measures of private enforcement, public enforcement is overall as important as disclosure in explaining financial market outcomes around the world and more important than private liability rules. Hence, policymakers who reject public enforcement as useful for financial market development are ignoring the best currently available evidence.

Abstract Operating performance and stock return results imply that managers who commit fraud anticipate large stock price declines if they were to report truthfully, which would cause greater losses for managerial stockholdings than for options because of differences in convexity. Fraud firms have significantly greater incentives from unrestricted stockholdings than control firms do, and unrestricted stockholdings are their largest incentive source. Our results emphasize the importance of the shape and vesting status of incentive payoffs in providing incentives to commit fraud. Fraud firms also have characteristics that suggest a lower likelihood of fraud detection, which implies lower expected costs of fraud.

[We develop asset pricing models' implications for portfolio efficiency with conditioning information in the form of lagged instruments. A model identifies a portfolio that should be minimum-variance efficient with respect to the conditioning information. Our framework refines tests of portfolio efficiency by using the given conditioning information optimally. The optimal use of the lagged variables is economically important; by using the instruments optimally, we reject several efficiency hypotheses that are not otherwise rejected. The Sharpe ratios of a sample of hedge fund indexes appear consistent with the optimal use of conditioning information.]

ABSTRACT We study a principal's choice to centralize or delegate decisions to an agent when delegation can be used to encourage the agent to communicate potential problems. We find that the principal may choose centralization either to exercise better control over the agent's actions or to provide stronger incentives. Delegation emerges in equilibrium only if the costs of effort to acquire information for both the principal and the agent are sufficiently high. We find that increases in the principal's penalties for an incorrect decision may increase the principal's expected payoff, owing to optimal organizational responses. In addition, catastrophic risk, the risk of incorrectly accepting a defective audit (or product), may be greater under centralization than under delegation. Furthermore, catastrophic risk can be increased by well‐intentioned legislative efforts to decrease such risk by, for example, increasing the agent's penalties for failing to take a corrective action, because the organizational structure may change.

Why do fertility rates vary so much across countries? Why are European fertility rates so much lower than American fertility rates? To answer these questions we extend the Barro—Becker framework to incorporate the decision to accumulate human capital (which determines earnings) and health capital (which determines life span). We find that cross-country differences in productivity and taxes go a long way toward explaining the observed differences in fertility and mortality.

[We examine the problem of motivating privately informed managers to engage in entrepreneurial activity to improve the quality of the firm's investment opportunities. The firm's investment and compensation policy must balance the manager's incentives to provide entrepreneurial effort and to report private information truthfully. The optimal policy is to underinvest (compared to first-best) and provide weak incentive pay in low-quality projects and overinvest (compared to first-best) and provide strong incentive pay in highquality projects.]