Fragmented trading is widespread. Chowdhry and Nanda [Chowdhry, B., Nanda, V., 1991. Multimarket trading and market liquidity. Rev. Finan. Stud. 4, 483–511] show that some traders benefit by splitting orders across markets at the cost of small liquidity traders who, for exogenous reasons, only trade locally. We extend their model to analyze British and Dutch stocks with ADRs, which trade on both sides of the Atlantic for one or two hours each day. We predict that, in the presence of sufficient small liquidity trading, traders concentrate their trades in the overlapping period and split orders across markets. We document considerable empirical support. In the cross-section, we find order-splitting only for ADRs with most NYSE small liquidity trading. The evidence is (i) increased volatility, increased volume, and (weakly) higher liquidity supply in the overlap and (ii) positive correlation in order imbalance across markets. We further find that the common component in order imbalance has long-term price impact, which supports the notion that these order-splitters are informed traders.

A fair level of provisions on bad and doubtful loans is an essential input in mark-to-market accounting, and in the calculation of bank profitability, capital and solvency. Loan-loss provisioning is directly related to estimates of loan-loss given default (LGD). A literature on LGD on bank loans is developing but, surprisingly, it has not been exploited to address, at the micro level, the issue of provisioning at the time of default, and after the default date. For example, in Portugal, the central bank imposes a mandatory provisioning schedule based on the time period since a loan is declared ‘non-performing’. The dynamic schedule is ‘ad hoc’, not based on empirical studies. The purpose of the paper is to present an empirical methodology to calculate a fair level of loan-loss provisions, at the time of default and after the default date. To illustrate, a dynamic provisioning schedule is estimated with micro-data provided by a Portuguese bank on recoveries on non-performing loans. This schedule is then compared to the regulatory provisioning schedule imposed by the central bank.

We analyze the potential competitive effects of the proposed Basel II capital regulations on US bank credit card lending. We find that bank issuers operating under Basel II will face higher regulatory capital minimums than Basel I banks, with differences due to the way the two regulations treat reserves and gain-on-sale of securitized assets. During periods of normal economic conditions, this is not likely to have a competitive effect; however, during periods of substantial stress in credit card portfolios, Basel II banks could face a significant competitive disadvantage relative to Basel I banks and nonbank issuers.

Large U.S. banks dramatically increased their capitalization during the 1990s, to the highest levels in more than 50 years. We document this buildup of capital and evaluate several potential motivations. Our results support the hypothesis that regulatory innovations in the early 1990s weakened conjectural government guarantees and enhanced bank counterparties' incentives to monitor and price default risk. We find no evidence that a bank holding company's (BHC's) market capitalization increases with its asset volatility prior to 1994. Thereafter, the data display a strong cross-sectional relation between capitalization and asset risk.

This paper provides evidence on the role of deferred taxes in the recent financial crisis among Japanese banks. Upon adoption of deferred tax accounting in FY1998, the major Japanese banks recognized net deferred tax assets of ¥6.6 trillion ($55 billion). Without these assets, the banks would have been insolvent. The evidence supports the conclusion that Japanese regulators used deferred tax accounting as part of a regulatory forbearance strategy, and that bank managers used these assets to bolster their banks’ regulatory capital. The results show how ostensibly similar accounting rules can be implemented very differently, and so have implications for IFRS.

We review the recent but growing economic literature on the worldwide growth of obesity, relating the review to a recent anthology of articles—Obesity, Business and Public Policy. We discuss the competing explanations for the growth of obesity as well as the role of governments in attempting to limit it.

This paper identifies factors that influence decisions about a country's financial safety net, using a comprehensive data set covering 180 countries during the 1960–2003 period. Our analysis focuses on how private interest-group pressures, outside influences, and political-institutional factors affect deposit-insurance adoption and design. Controlling for macroeconomic shocks, quality of bank regulations, and institutional development, we find that both private and public interests, as well as outside pressure to emulate developed-country regulatory schemes, can explain the timing of adoption decisions and the rigor of loss-control arrangements. Controlling for other factors, political systems that facilitate intersectoral power sharing dispose a country toward design features that accommodate risk-shifting by banks.

[I model the contrasting capital-labor decisions of financially constrained and unconstrained firms. I show that financially restricted firms use relatively more labor than physical capital because informed employees provide more efficient financing than uninformed capital suppliers. I demonstrate that constrained firms cannot easily attract new employees to replace existing staff. Their greater employee retention aligns owner-worker incentives and encourages workers to make firm-specific investments. Constrained firms, however, gradually suffer from their inability to replace low-quality workers, such that their relative labor productivity decreases over time. Empirical tests utilizing instrumental variables confirm several implications of the theory.]

We use the control function approach to identify the average treatment effect and the effect of treatment on the treated in models with a continuous endogenous regressor whose impact is heterogeneous. We assume a stochastic polynomial restriction on the form of the heterogeneity, but unlike alternative nonparametric control function approaches, our approach does not require large support assumptions.

We model and experimentally examine the board structure–performance relationship. We examine single-tiered boards, two-tiered boards, insider-controlled boards, and outsider-controlled boards. We find that even insider-controlled boards frequently adopt institutionally preferred rather than self-interested policies. Two-tiered boards adopt institutionally preferred policies more frequently but tend to destroy value by being too conservative, frequently rejecting good projects. Outsider-controlled single-tiered boards, both when they have multiple insiders and only a single insider, adopt institutionally preferred policies most frequently. In those board designs where the efficient Nash equilibrium produces strictly higher payoffs to all agents than the coalition-proof equilibria, agents tend to select the efficient Nash equilibria.