In the dynamic model of banking, a bank's option to hide its loan losses by rolling over non-performing loans is shown to worsen moral hazard. Contrary to the classic theory, moral hazard may arise even when a bank cannot seek a correlated risk for its loans. The loans seem to be performing and the bank makes a profit although it is de facto insolvent. When the bank's balance sheet includes hidden non-performing loans, the bank may optimally shrink lending or gamble for resurrection by growing aggressively. To eliminate this type of moral hazard, which is broadly consistent with evidence from emerging economies, a few regulatory implications are suggested.

Using a unique empirical setting, family firms in the S&P 500, Ali et al. [Ali, A., Chen, T.-Y., Radhakrishnan, S., 2007. Corporate disclosures by family firms. Journal of Accounting and Economics, doi:10.1016/j.jacceco.2007.01.006] contribute to a growing body of research on the relation between corporate governance and corporate disclosure quality. Using an indicator variable for sub-sample membership as an instrument for differing agency costs, the authors interpret their findings as consistent with family firms facing lower overall agency costs and providing higher quality corporate disclosures. However, their empirical findings are open to alternative interpretations and in totality present relatively weak, indirect evidence of a relation between corporate governance and the quality of corporate disclosure.

This paper investigates the influence of managerial entrenchment on private placements by examining the firm's decision to appoint representatives of the private investors to the board without shareholder approval. By analyzing a sample of U.S. firms that appoint directors in combination with private offerings between 1995 and 2000, we find that firms with greater managerial entrenchment are more likely to bypass shareholder approval. Firms that bypass shareholders are less likely to appoint independent directors or to elect one of these directors as chairman. We also show that the market reacts more positively to the private offering announcement when the firm submits its board candidates for shareholder approval. Further, firms that bypass approval underperform compared to firms that obtain it. Overall our findings suggest that managers avoid shareholder approval to perpetuate entrenchment.

[We provide evidence that commercial banks extend their reputation in underwriting syndicated loans and private placements (private debt) to their bond-underwriting activities. In the absence of bond market reputation, private-debt-market reputation enables commercial banks to win underwriting mandates from their loan clients. Furthermore, it allows them to credibly commit to investors against opportunistically using lending information and thereby deliver superior certification benefits in the form of higher issue prices relative to investment-bank underwriters. This pricing benefit is not offset by higher underwriting fees and thus results in lower total issuance costs for borrowers.]

I study the dynamics of investor cash flows in socially responsible mutual funds. Consistent with anecdotal evidence of loyalty, the monthly volatility of investor cash flows is lower in socially responsible funds than in conventional funds. I find strong evidence that cash flows into socially responsible funds are more sensitive to lagged positive returns than cash flows into conventional funds, and weaker evidence that cash outflows from socially responsible funds are less sensitive to lagged negative returns. These results indicate that investors derive utility from the socially responsible attribute, especially when returns are positive.

We develop a transferable utility model of the household in which the marriage market is characterized by (negative or positive) assortative matching, and spousal allocations are determined by premarital investments. We demonstrate that all sharing rules along the assortative order support efficient outcomes both in terms of premarital investments and intra-household allocations. The efficiency of premarital choices and household allocations then enables us to show that, for each couple, the marriage market generates a unique and maritally sustainable sharing rule that is a function of the distribution of premarital endowments and the sex ratios in the market. According to our results, transfers among spouses occur on two margins: premarital investments and intra-marital spousal allocations. Asymmetries in the sex ratios in the marriage markets produce gender differences in premarital investments and consumption that are larger for individuals with small premarital endowments than those with larger endowments. A corollary of these findings is that, when men are in short supply in the marriage markets, women can invest more than men even when the returns to investment are lower or the costs are higher for women.

We provide evidence that commercial banks extend their reputation in underwriting syndicated loans and private placements (private debt) to their bond-underwriting activities. In the absence of bond market reputation, private-debt-market reputation enables commercial banks to win underwriting mandates from their loan clients. Furthermore, it allows them to credibly commit to investors against opportunistically using lending information and thereby deliver superior certification benefits in the form of higher issue prices relative to investment-bank underwriters. This pricing benefit is not offset by higher underwriting fees and thus results in lower total issuance costs for borrowers.

We re-examine old evidence and provide new evidence on private placements of large-percentage blocks of stock. Our goal is to judge whether the prevailing hypotheses of monitoring and certification explain most private placements. Examining new evidence on events following the private placements and using a much larger sample than previous studies, our findings suggests that private placements are often made to passive investors, thereby helping management solidify their control of the firm. Although monitoring and certification may motivate some private placements, the evidence with respect to placement discounts, stock-price reactions, the post-placement activities of the purchasers, and a comparison with arm's-length trades of large blocks of stock favors managerial entrenchment as the explanation for many private placements.

In a plurality-rule election, a group of voters must coordinate behind one of two challengers in order to defeat a disliked status quo. Departing from existing work, the support for each challenger must be inferred from the private observation of informative signals. The unique equilibrium involves limited strategic voting and incomplete coordination. This is driven by negative feedback: an increase in strategic voting by others reduces the incentives for a voter to act strategically. Strategic-voting incentives are lower in relatively marginal elections, after controlling for the distance from contention of a trailing preferred challenger. A calibration applied to the U.K. General Election of 1997 is consistent with the impact of strategic voting and the reported accuracy of voters' understanding of the electoral situation.

In this paper, we present indirect evidence that the IMFs insistence on foreign control of two large nationwide Korean banks in exchange for short-term support during the 1997 financial crisis helped restrain soft related lending practices. News signaling the likely sale of a bank to a foreign financial institution yields an average daily decrease of about 2% in the stock price of related borrowers. News indicating difficulty in finding an interested foreign investor generates an increase in the stock price of related borrowers of about the same magnitude. These signals have larger impacts on less-profitable, less-liquid, and more bank-dependent firms.