Standard models of panics do not allow for trade between banks and assume that a run bank's liquidation costs are determined exogenously. We develop a model in which banks trade with each other and liquidation costs are determined endogenously in a strategic environment. The model reproduces a panic's characteristic fall in stock prices, rise in interest rates, and wave of bank runs. It also accounts for the seasonal timing of panics, the change in interest rates across panics, and international differences in panic frequency. The roles of withdrawal suspension, lender of last resort, and deposit insurance are also investigated.

I examine whether monitoring-related contract costs are reflected in bank loan spreads and find evidence that cross-monitoring by senior and subordinate claimholders is associated with smaller spreads. I also find that loan spreads reflect financial contract costs of controlling borrower behavior toward the assets being financed. These results support the importance of contract costs in firms' financing decisions and provide evidence of the importance of monitoring in bank lending arrangements.

Capital structure, Tax incentives, Dividends, Dividend reinvestment plan

This paper examines the relationships among capital regulation, deposit insurance, and the optimal bank interest margin. In a model where loan losses are the source of uncertainty, changes in capital regulation or deposit insurance premiums have direct effects on the bank's interest margin. An increase in bank capital requirement or in deposit insurance premiums results in a reduced interest margin under nonincreasing risk aversion. Comparative static analysis also explores the relation between asset quality and interest margin. It is shown that a mean-preserving spread of the distribution of loan losses results in a reduced margin.

Comparing two countries in which the poor have equal real incomes, the one in which the rich are wealthier is likely to have a higher infant mortality rate. This anomalous result does not appear to spring from measurement error in estimating the income of the poor, and the association between high infant mortality and income inequality is still present after controlling for other factors such as education, medical personnel, and fertility. The positive association of infant mortality and the income of the rich suggests that measured real incomes may be a poor measure of social welfare. Countries with unequal income distributions have higher rates of infant mortality than countries with similar levels of national product per capita but more equal income distributions [Flegg, 1982; Rogers, 1979]. This finding is not surprising. Infant mortality is concentrated among the poor. If the rich are richer and the average level of income is the same, the poor are poorer. What is surprising, however, is that infant mortality appears to be posi-tively related to the income share of the rich (the upper 5 percent of the income distribution) when the incomes of the poor (the lowest 20 percent) are equalized among countries. In this paper I first document this striking empirical regularity. To a first approxima-tion, an increase in the wealth share of the rich while the incomes of the poor are held constant leaves the poor's command over resources unchanged. So why is such an increase associated with a decrease in the poor's ability to achieve the valued outcome—low infant mortality? The association presumably arises because an unequal income distribution is associated with another factor making for high infant mortality. This paper considers and tests several possible explanations, such as the provision of medical services, the degree of urbanization, the extent of female literacy, and differences in the composition of births among different income groups. None of these factors adequately accounts for the positive association between the incomes of the rich and infant mortality.

In this paper, we derive simple, directly computable conditions for minimum-variance portfolios to have all positive weights. We show that either there is no minimum-variance portfolio with all positive weights or there is a single segment of the minimum-variance frontier for which all portfolios have positive weights. Then, we examine the likelihood of observing positively weighted minimum-variance portfolios. Analytical and computational results suggest that: i) even if the mean vector and covariance matrix are compatible with a given positively weighted portfolio being mean-variance efficient, the proportion of the minimum-variance frontier containing positively weighted portfolios is small and decreases as the number of assets in the universe increases, and ii) small perturbations in the means will likely lead to no positively weighted minimum-variance portfolios.

We investigate the relation between the Value Line enigma and post-earnings-announcement drift. The ability of Value Line's ‘timeliness’ ranks to predict future abnormal returns is well-documented. However, we show that most rank changes occur within eight trading days of an earnings announcement. Once we control for post-earnings-announcement drift, differences in abnormal returns across Value Line timeliness ranks are no longer significant. Moreover, we find that timeliness ranks have no predictive power for firms with small earnings ‘surprises’. We conclude that the Value Line enigma is a manifestation of post-earnings-announcement drift.

Reviews the book `Government Accounting,' by C.G.A. Fletcher.

Paul Burkett, Robert C. Vogel; Financial Assets, Inflation Hedges, and Capital Utilization in Developing Countries: An Extension of McKinnon's Complementar