This paper analyzes economic characteristics of firms that correct previously reported quarterly earnings. The basic findings are that, relative to their industry, the sample (correcting) firms are smaller, less profitable, have higher debt, are slower growing, and face more serious uncertainties. Their average stock returns between the issuance of erroneous quarterly reports and their correction are negative. Also, correction disclosure frequently precedes SEC or stockholder suits against firm management. Results are consistent with predictions based on the economic interests of management and their auditors.

Abstract. This paper examines the information content of revenue recognition rules in a series of environments, ranging from an abstract disclosure setting to one of disclosure in the presence of moral hazard and self‐reporting by an informed agent. The emphasis is on conceptualization of recognition issues, ranging across financial and labor markets, and the simplification required to force the analysis into a workable and familiar model. In this way, the limitations of both our thinking about recognition issues and our modeling techniques are highlighted. Résumé. Les auteurs examinent le contenu informationnel des règies de constatation des produits dans un éventail de cas, parmi lesquels un cas abstrait de publication d'information, un cas de présentation d'information en situation de risque moral, en passant par la présentation autonome d'information par un mandataire averti. Les auteurs s'intéressent particulièrement à la conceptualisation de questions relatives à la constatation des produits couvrant le marché financier et le marché du travail, et à la simplification qu'il faut opérer pour ramener l'analyse à la dimension d'un modèle maniable et d'utilisation courante. Ainsi les limites que component tant l'opinion au sujet des questions de constatation des produits que les techniques de modélisation sont‐elles mises en relief.

Abstract. The analysis in this paper considers the effects of relaxing regulations that ensure that the proportions of ownership retained by entrepreneurs in new issues are observable to investors. Entrepreneurs, endowed with full ownership of their firms and private information concerning future prospects, seek to share risks with investors able to diversify those risks away. There is a trade‐off for entrepreneurs receiving good news between shedding risk and having their shares undervalued by uninformed investors. In equilibrium, an entrepreneur with good news either retains full ownership or sells a portion of his shares at the same price offered by an entrepreneur with bad news. The price in the latter case reflects rational expectations by investors as to the proportion of ownership retained by the entrepreneur conditional on his news. Only in certain cases are Pareto orderings possible across regimes in which ownership retention is either observable or unobservable. Implications for securities regulation are discussed. Résumé. Les auteurs s'intéressent dans leur analyse aux conséquences de l'assouplissement de la réglementation voulant que la proportion de titres retenue par les entrepreneurs dans les nouvelles émissions soit observable pour les investisseurs. Les entrepreneurs qui ont la propriété exclusive de leur entreprise et qui disposent d'une information privilégiée au sujet des ses perspectives d'avenir cherchent à partager leurs risques avec des investisseurs capables de diversifier ces risques de manière à les minimiser. Lorsque l'information est positive, l'entrepreneur fait face à un compromis entre le partage du risque et la sous‐évaluation de ses titres par les investisseurs non informés. En situation d'équilibre, l'entrepreneur qui détient une information positive conserve la totalité des titres ou en vend une fraction au prix qu'offrirait un entrepreneur détenant de l'information négative. Le prix, dans ce dernier cas, reflète les attentes rationnelles des investisseurs quant à la proportion des titres conservée par l'entrepreneur, en fonction de l'information dont il dispose. L'application des classements de Pareto n'est possible que dans certains cas seulement dans des situations où la proportion de titres conservée est soit observable soit non observable. Les auteurs traitent des conséquences des résultats de leurs recherches sur la réglementation relative aux valeurs mobilières.

Competitive rational expectations models have the unsatisfactory property, dubbed the “schizophrenia” problem by Hellwig, that each trader takes the equilibrium price as given despite the fact that he influences that price. An examination of information aggregation in a non-competitive rational expectations model using a Nash equilibrium in demand functions shows that the schizophrenia problem is avoided by having each trader take into account the effect his demand has on the equilibrium price. Given a distribution of private information across traders, prices reveal less information than in the competition equilibrium, and prices no longer become fully informative in the limit as noise trading vanishes or as traders become risk neutral. With small traders, the model may become one of monopolistic competition, not perfect competition. In contrast to the competitive model, a reasonable model of endogenous acquisition of costly private information is obtained, even when traders are risk-neutral.

This paper considers whether short-period deterministic cycles can exist in a class of stationary overlapping generations models with long- (but finite-) lived agents. It shows that if agents discount the future positively, then as life spans get large, nonmonetary cycles will disappear. Further, neither constant monetary steady states nor stationary monetary cycles can exist. It also shows that if agents discount the future negatively, then there are robust examples in which constant monetary steady states as well as stationary monetary cycles (with undiminished amplitude) can occur no matter how long agents live.

This paper investigates the international transmission mechanism of stock market movements by estimating a nine-market vector autoregression (VAR) system. Using simulated responses of the estimated VAR system, we (i) locate all the main channels of interactions among national stock markets, and (ii) trace out the dynamic responses of one market to innovations in another. Generally speaking, a substantial amount of multi-lateral interaction is detected among national stock markets. Innovations in the U.S. are rapidly transmitted to other markets in a clearly recognizable fashion, whereas no single foreign market can significantly explain the U.S. market movements. Also, the dynamic response pattern is found to be generally consistent with the notion of informationally efficient international stock markets.

Stock pride change associated with a given unexpected earnings change (the earnings response coefficient) exhibits cross-sectional and temporal variation. We predict and document evidence that the earnings response coefficient is a function of riskless interest rates and the riskiness, growth and/or persistence of earnings. The earnings response coefficient also varies cross-sectionally with the holding period return interval. Collectively, our results explain the previously reported differential earnings response coefficient with respect to size. Moreover, by including the factors noted above, the empirical specification of the earnings/returns relation is significantly improved.