A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.
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22,315 resources
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With fixed costs of participating in the stock market, consumers with high income will participate in the stock market, but consumers with lower income will not participate. If a fully funded defined-contribution Social Security system tries to exploit the equity premium by selling a dollar of bonds per capita and buying a dollar of equity per capita, consumers who save but do not participate in the stock market will increase their consumption, thereby reducing saving and capital accumulation. Calibration of a general-equilibrium model indicates that this policy could reduce the aggregate capital stock substantially, by about 50 cents per capita.
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I analyze investment, q, and cash flow in a tractable stochastic model in which marginal q and average q are identically equal. I introduce classical measurement error and derive closed-form expressions for the coefficients in regressions of investment on q and cash flow. The cash-flow coefficient is positive and larger for faster growing firms, yet there are no financial frictions in the model. I develop the concepts of bivariate attenuation and weight shifting to interpret the estimated coefficients on q and cash flow in the presence of measurement error.
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This paper extends the theory of investment under uncertainty to incorporate fixed costs of investment, a wedge between the purchase price and sale price of capital, and potential irreversibility of investment. In this extended framework, investment is a nondecreasing function of q, the shadow price of installed capital. The optimal rate of investment is in one of three regimes (positive, zero, or negative gross investment), depending on the value of q relative to two critical values. In general, however, the shadow price q is not directly observable, so the authors present two examples relating q to observable variables. Copyright 1994 by American Economic Association.
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We derive analytic solutions for the valuation, optimal investment, and optimal payout of a financially constrained firm. While marginal q and average q would be identically equal in the absence of financial constraints, they differ when financial constraints bind. We use analytic solutions to characterize the properties of regressions of investment on average q and cash flow. The coefficient on cash flow is positive, but does not isolate the impact of the financial constraint, since it also partially reflects the impact of persistent profitability. The coefficient on average q understates the impact of persistent profitability.
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For a firm that cannot raise external funds, cash on hand serves as precautionary saving. We derive a closed-form expression for the target level of cash on hand in the presence of persistent cash flows. Contrary to conventional wisdom, a mean-preserving increase in the volatility of cash flow can decrease this target. Over the set of admissible parameter values, the average impact of volatility on the target is zero. Endogenous selection, reflecting termination of firms that run out of cash, leads to a positive average impact of volatility on the target level of cash, consistent with empirical findings.
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A key open question for theories of reference-dependent preferences is: what determines the reference point? One candidate is expectations: what people expect could affect how they feel about what actually occurs. In a real-effort experiment, we manipulate the rational expectations of subjects and check whether this manipulation influences their effort provision. We find that effort provision is significantly different between treatments in the way predicted by models of expectation-based, reference-dependent preferences: if expectations are high, subjects work longer and earn more money than if expectations are low. (JEL D12, D84, J22)
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What accounts for the worldwide advance of financial reforms in the last quarter century? Using a new index of financial liberalization, we find that influential events shook the policy status quo. Balance-of-payments crises spurred reforms, but banking crises set liberalization back. Falling global interest rates strengthened reformers, while new governments went both ways. The overall trend toward liberalization, however, reflected pressures and incentives generated by initial reforms that raised the likelihood of additional reforms, stimulated further by the need to catch up with regional reform leaders. In contrast, ideology and country structure had limited influence.
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We revisit one of the results in Cicala (2015) and show that the previously estimated large and significant effects of US electricity restructuring on fuel procurement are not robust to the presence of outliers. Using methodologies from the robust statistics literature, we estimate the effect to be less than one-half of the previous estimate and not statistically different from zero. The robust methodology also identifies as outliers the plants owned by a single company whose coal contracts were renegotiated before discussions about restructuring even started.
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Journals
- American Economic Review (10,442)
- Journal of Finance (6,024)
- Journal of Financial Economics (3,464)
- Review of Financial Studies (2,385)
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- Bond (773)
- CEO (263)
- Mergers and Acquisitions (243)
- Director (145)
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Between 1900 and 1999
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