We provide a tractable model of counterparty risk in a risk transfer market, and analyze the consequences of this risk being private information. We show that unknown type information can be revealed in the presence of a large trader identification policy; however, the market allocation is shown to be constrained inefficient. The inefficiency is highlighted by considering the imposition of a transaction tax, which can improve welfare by encouraging more information revelation and increasing risk transfer. The results suggest that increased transparency and/or central counterparty arrangements in over-the-counter derivative markets may promote transparency of counterparty risk.

This paper exploits a novel hand-collected data set to provide a comprehensive analysis of the social relationships that underlie illegal insider trading networks. I find that inside information flows through strong social ties based on family, friends, and geographic proximity. On average, inside tips originate from corporate executives and reach buy-side investors after three links in the network. Inside traders earn prodigious returns of 35% over 21 days, with more central traders earning greater returns, as information conveyed through social networks improves price efficiency. More broadly, this paper provides some of the only direct evidence of person-to-person communication among investors.

Christensen et al. (2017) provide evidence that the dissemination of mine safety information in SEC filings has real effects on mine safety. We discuss the extent to which Christensen et al.’s results generalize to a research question that we consider of broader interest to accounting researchers, specifically where and when mandated disclosure in SEC filings can increase the dissemination of information. We also discuss identification of causal effects and generalizability concerns more broadly in the context of large sample studies and quasi-natural experiments, as well as potential ways authors might address these concerns in accounting research.

The potential of Internet-enabled distance learning to transform higher education focuses attention on exactly what residential higher-education institutions do for and to their students. Two recent books marshal detailed quantitative and subjective data on individual student outcomes to document the effects of two institutions and how these outcomes might be improved. Paying for the Party concludes that a Midwestern state university reinforces existing economic inequalities rather than fostering upward mobility. How College Works finds that a northeastern liberal-arts college generally serves its students well and suggests low-cost improvements. These claims are evaluated.

This essay discusses the structure and governance of the Federal Reserve System in light of the many changes in its activities over the past thirty years. Based on this analysis, it argues in favor of four specific reforms: clarification of Congressional expectations for the system; enhanced Federal Reserve Board of Governors transparency with respect to its oversight of the Reserve Banks; stripping monetary-policy votes from the President of the Federal Reserve Bank of New York and the Boards of Directors of the Reserve Banks; and the initiation of a public conversation about redesigning the Federal Reserve as a unified public entity.

The dramatic rise in CEO compensation during the 1990s and early 2000s is a longstanding puzzle. In this paper, we show that much of the rise can be explained by a tendency of firms to grant the same number of options each year. Number-rigidity implies that the grant-date value of option awards will grow with firm equity returns, which were very high on average during the tech boom. Further, other forms of CEO compensation did not adjust to offset the dramatic growth in the value of option pay. Number-rigidity in options can also explain the increased dispersion in pay, the difference in growth between the US and other countries, and the increased correlation between pay and firm-specific equity returns. We present evidence that number-rigidity arose from a lack of sophistication about option valuation that is akin to money illusion. We show that regulatory changes requiring transparent expensing of the grant-date value of options led to a decline in number-rigidity and helps explain why executive pay increased less with equity returns during the housing boom in the mid-2000s.

The high-tech sector accounts for the majority of corporate innovation in modern economies. In a sample of 38 countries, we document a strong positive relation between the initial size of the country's high-tech sector and subsequent rates of GDP and total factor productivity growth. We also find a strong positive connection between a country's equity (but not credit) market development and the size of its high-tech sector. Our main difference-in-differences estimates show that better developed stock markets support faster growth of innovative-intensive, high-tech industries. The main channels for this effect are higher rates of productivity and faster growth in the number of new high-tech firms. Credit market development fosters growth in industries that rely on external finance for physical capital accumulation but is unimportant for growth in innovation-intensive industries. These findings show that stock markets and credit markets play important but distinct roles in supporting economic growth. Stock markets are uniquely suited for financing technology-led growth, a particularly important concern for advanced economies.

We investigate whether geographic proximity between corporate headquarters and IRS regional offices affects corporate tax avoidance and the likelihood and productivity of IRS examinations. Using geographic distance to represent information asymmetry, we find that corporations avoid more tax when located closer to the IRS unless they are close to an IRS industry specialist. This finding is consistent with taxpayers believing proximity provides them with an information advantage over the IRS. From the perspective of the IRS, we find that the Service is more likely to audit nearby companies and to assess more tax per hour from nearby taxpayers, except during constrained budget years. IRS audit likelihood and productivity are unaffected by the presence of nearby industry specialists, consistent with industry specialist proximity already constraining avoidance. Our tax compliance setting provides dual-party evidence on the proximity-information asymmetry hypothesis.