We construct a panel of S&P 500 Index call and put option portfolios, daily adjusted to maintain targeted maturity, moneyness, and unit market beta, and test multi-factor pricing models. The standard linear factor methodology is applicable because the monthly portfolio returns have low skewness and are close to normal. We hypothesize that any one of crisis-related factors incorporating price jumps, volatility jumps, and liquidity (along with the market) explains the cross-sectional variation in returns. Our hypothesis is not rejected, even when the factor premia are constrained to equal the corresponding premia in the cross-section of equities. The alphas of short-maturity out-of-the-money puts become economically and statistically insignificant. (JEL G11, G13, G14)

We develop a model of the dynamic interaction between CEO overconfidence and dividend policy. The model shows that an overconfident CEO views external financing as costly and hence builds financial slack for future investment needs by lowering the current dividend payout. Consistent with the main prediction, we find that the level of dividend payout is about one-sixth lower in firms managed by CEOs who are more likely to be overconfident. We document that this reduction in dividends associated with CEO overconfidence is greater in firms with lower growth opportunities and lower cash flow. We also show that the magnitude of the positive market reaction to a dividend-increase announcement is higher for firms with greater uncertainty about CEO overconfidence.

Using a sample of long-term supply contracts collected from SEC filings, I show that hold-up concerns and information asymmetry are important determinants of contract design. Asymmetric information between buyers and suppliers leads to shorter term contracts. However, when longer duration contracts facilitate the exchange of relationship specific assets, the parties substitute short-term contracts with financial covenants in order to reduce moral hazard. Covenant restrictions are more prevalent when direct monitoring is costly and the products exchanged are highly specific. Finally, I find that buyers and suppliers are less likely to rely on financial covenants when financial statement reliability is low.

Research in experimental economics has cogently challenged the fundamental precept of neoclassical economics that economic agents optimize. The last two decades have seen elaboration of boundedly rational models that try to move away from the optimization approach, in ways consistent with experimental findings. Nonetheless, the collection of alternative models has made little headway supplanting the dominant paradigm. We delineate key ways in which neoclassical microeconomics holds continuing and compelling advantages over bounded-rationality models, and suggest, via a few examples, the sorts of further, difficult pushes that would be needed to redress this state of affairs. Closer collaboration between theoretic modeling and experiments is clearly seen to be necessary. (JEL B40, C72, C90, D01, D21)

International audience

Abstract We analyze the impact of bank internationalization on domestic market power (Lerner index) and risk for German banks. Risk is measured by the official declaration of regulatory authorities that a bank is distressed. We distinguish the volume of foreign assets, the number of foreign countries, and different modes of foreign entry. Our analysis has three main results. First, higher market power is associated with lower risk. Second, holding assets in many countries reduce market power at home, but banks with a higher share of foreign assets exhibit higher market power. Third, bank internationalization is only weakly related to bank risk.

Abstract Traditional theories of capital structure do not explain the puzzling phenomena of zero-leverage firms and negative net debt ratios. We develop a theory where firms adopt a net debt target that acts as a balancing variable between equityholders and managers. Negative (positive) net debt occurs in human (physical) capital intensive industries. Negative net debt arises because tradeable claims cannot be issued against transferable human capital. Heterogeneity in capital structure occurs when firms have debt that is not fully collateralized. Physical capital intensive firms take on high leverage but may underlever to avoid bankruptcy costs. This creates excess rents for managers (even if the supply of human capital is competitive) because wealth constraints prevent managers from coinvesting.

This study constructs a financial stress index for Bulgaria, the Czech Republic, Hungary, Poland, and Russia and examines the relationship between financial stress and economic activity. The financial stress index incorporates banking sector fragility, time varying stock market return volatility, sovereign debt spreads, an exchange market pressure index, and trade credit. These variables seem to capture key aspects of financial stress in sample countries as the index peaks at known financial crises in these countries. We then examine the relationship between financial stress and economic activity. Impulse response functions based on bivariate VARs show a significant relationship between financial stress and some measures of economic activity. Overall, the constructed financial stress index provides valuable information on the state of the economy and economic activity.

This study examines occupational licensing in the United States using a specially designed national labor force survey. Estimates from the survey indicated that 35% of employees were either licensed or certified by the government and that 29% were licensed. Another 3% stated that all who worked in their job would eventually be required to be certified or licensed, bringing the total that are or eventually must be licensed or certified by government to 38%. We find that licensing is associated with about 18% higher wages but that the effect of governmental certification on pay is much smaller.