[Show abstract][Hide abstract] ABSTRACT: This study provides new insights into the link between local stock-market development and the demand for cross-listing. Analyzing 14 Central and Eastern European stock markets over two decades, we find that the link is non-monotonic: cross-listing activity first grows and then decreases as the local market develops. We support that country-level finding with firm-level evidence on non-monotonic preferences to issue and terminate depositary receipt programs. The results have important policy implications and they shed new light on the competitiveness and prospects of local stock markets in emerging economies.
[Show abstract][Hide abstract] ABSTRACT: Previous literature documents that executives tend to cash out equity incentives when equity-linked compensation vests. Such a behavior destroys long-term incentives and hence is costly to outside shareholders. It is recommended that the unloading of incentives can be limited when the firm adopts a minimum executive shareholding policy. We provide the first evidence of the effectiveness of such policies in that respect. Using data for UK FTSE 350 companies we show that executives whose ownership is below the minimum set by the policy retain more newly vesting equity and the incentives to retain shares weaken when the holdings are above the minimum. We also document economic implications of compliance with the policy and we find higher firm valuations when actual ownership increases relative to the minimum holdings required. Our results have implications for the debate on executive remuneration regulations and practices.
[Show abstract][Hide abstract] ABSTRACT: We find the surprising result that the tax level is negatively correlated with the size of the Democratic majority in the interval in which the Democrats hold between 50 and 66% of the seats in the state Legislatures. This negative relationship suggests the failure of a simple ideological model that had found some support in the literature, that the main determinant of the tax level is the extent of partisan control over the Legislature. We compare this model with an alternative: a separation-of-powers model in which ideology plays no role in determining the tax level. The driving force of our model is the overlap between the supporters of the Governor and the supporters of the legislative majority. The tax level at first rises and then decreases as the size of the ruling majority increases above 50% of the seats, whether the legislative majority is of the same party as the Governor or from the opposition. This non-monotonic relationship is observed in the data and explained by our model.
[Show abstract][Hide abstract] ABSTRACT: In this paper we analyze whether handling related securities improves a market maker's information environment and helps to incorporate new information in stock prices. Our empirical tests are focused on New York Stock Exchange specialists and the U.S. share in price discovery of 64 British and French companies cross-listed on the NYSE. We define related securities as stocks from the same country, the same region, or other foreign stocks. We find strong evidence that a higher prominence of related stocks in the specialist portfolio is associated with a higher U.S. share in price discovery of our sample firms. We interpret our findings as evidence that concentrating market makers in similar stocks reduces information asymmetries and improves the information environment as market makers can extract information relevant to a stock from order flow to related securities. To support our argument, we show that the adverse selection component of the bid–ask spread is negatively related to the prominence of other foreign stocks in the specialist portfolio.
[Show abstract][Hide abstract] ABSTRACT: In middle-income countries, the informal sector often accounts for a substantial fraction of the urban labor force. We develop a general equilibrium model with matching frictions in the urban labor market, the possibility of self-employment in the informal sector, and scope for rural-urban migration. We investigate the effects of labor market institutions, different types of growth, and company taxes on labor market outcomes and aggregate productivity. We quantify these effects by calibrating the model to data for Mexico, and show that matching frictions can lead to a large informal sector when formal sector workers have substantial bargaining power. (Copyright: Elsevier)
Review of Economic Dynamics 02/2009; 12(1):183-204.
[Show abstract][Hide abstract] ABSTRACT: This paper takes a partial equilibrium on-the-job search model to a decade (1996–2006) of repeated cross-sections from the U.S. Current Population Survey. Each month, a set of parameters ruling worker mobility between labor market states and along the wage ladder is estimated using wage distributions and individual transitions. In particular, job-to-job mobility is decomposed into a voluntary component (on-the-job search) and an involuntary one (job reallocation). The resulting time series of transition parameters are first used in a longitudinal analysis of labor turnover and search frictions. Job reallocations are shown to be key in the acyclical behavior of the job separation rate, and in the procyclical behavior of the probability of changing job. Moreover, an index of search frictions is computed and shown to follow no cyclical pattern. The paper then turns to an estimation of the matching function with both unemployed and employed job seekers. The transition parameters from the job search model are used as weights in an aggregate indicator of labor supply. The inclusion of employed workers increases the estimates of the elasticities of the matching function with respect to its two inputs (labor supply and job vacancies).
[Show abstract][Hide abstract] ABSTRACT: In this paper we consider whether companies manipulate their profitability data in response to regulatory investigations. In particular, we investigate whether companies' reported profitability during an investigation of "abuse of a monopoly position" tends to be lower than pre-investigation profitability. First, in a theoretical model, we show that in equilibrium companies manipulate profitability data once an investigation starts. We then test this proposition on evidence from UK competition cases and find that there are significant differences in reported profitability during an investigation when compared to pre-investigation profit levels.
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