The recent literature in the field of commercial banking has centered to a considerable extent around the branch banking controversy and bank merger activities, particularly as regards their economic effects on banking structure and performance. Much has been said, moreover, about the effects of branching on the “public interest,” whether such branching is carried out through merger or de novo branching. Public interest is usually defined as including deposit safety, adequate compensation by banks to depositors for the use of their money, availability of credit for borrowers at competitive rates of interest, and, in more general terms, increased competition in banking without sacrificing safety.

The origins of the application of quantitative methods to the determination of optimum solutions to managerial problems can be traced back at least as far as 50 years when calculus techniques were first suggested for solution of economic lot size problems. However, the great increase in applications of optimizing techniques occurred after the Second World War with the popularization of the operations research concept and development of a wide variety of mathematical tools — among them linear programming, queuing theory, dynamic programming, and network flow theory. The development of digital computers in the late 1940's substantially reduced computational problems associated with the use of many mathematical methods and also made possible the use of simulation techniques which, without digital computers, are not ordinarily practical because of the large amount of computation involved.

Mandatory disclosure of CEO compensation peers signals potential outside opportunities for the cited CEOs by revealing which companies view them as viable executive candidates. CEOs cited often as compensation peers (especially by larger firms, which represent attractive employment opportunities) are more likely to leave for better positions or receive compensation increases. Equity-based awards following cites by larger firms have shorter vesting periods, suggesting these CEOs gain negotiating power relative to their boards. The disclosure requirement enhanced labor market transparency and led to higher compensation for highly cited CEOs without penalizing less cited CEOs, putting upward pressure on CEO compensation.

This paper exploits an influx of Chinese students to U.S. universities from 2000 through 2018 to study synergies between banks’ deposit-taking and lending activities. Banks that are more recognizable by Chinese students experience higher deposit inflows and increase their local credit supply. This credit supply expansion only occurs in information-sensitive credit markets: small business loans and second lien mortgages. Such increase concentrates in nontradable sectors and is more pronounced at locations where managers have more autonomy. The results indicate that deposits from local consumers convey private information about the local credit market, which helps banks in information-sensitive lending.

We examine how creditor rights affect the trade-off between non-debt and debt tax shields. Using four bankruptcy reforms and a panel of private and public firms from Italy, we show that laws empowering creditors reduce tax avoidance and increase debt financing, consistent with firms substituting non-debt tax shields with debt tax shields. We corroborate the validity of our findings using a panel of public firms across 33 countries. Additionally, we document that the impact of creditor protection laws is mitigated by tax system characteristics, which significantly reduce the incentives to substitute tax avoidance with debt.

The paper explores the economic value of being able to span market outcomes through the use of options. We model an economy with a single risky asset. Consumption takes place at one date, corresponding to the horizon of all investors. Options on the consumption good are not redundant securities in the economy because volatility is uncertain. The model enables us to examine the benefits to investors of using options to optimize their investments. Within this model, the gains from the use of options appear to be relatively minor.

Since Bowlin's [4] original article on the topic was published, a considerable literature on corporate bond refunding has developed. Most of that literature has concentrated on the question of how to measure the benefit to a company's shareholders of exercising the call provision associated with an outstanding debt issue (see [3], [12], [21], [26], [27], [29], and [31]). Among the related concerns have been the matters of whether there are valuation advantages to the deliberate issuance of discount—including “zero coupon”—bonds (see [9], [22], and [28]), and whether there can be profitable opportunities for refunding prior to maturity debt instruments that were issued at par but later trade at a discount (see [1], [2], [13], [15], [17], [18], and [23]).

This paper presents the results of a study which sought to determine whether the status of large member banks as owner-controlled or management-controlled has borne a significant relation to bank profit rates during recent years. The impetus for the study was provided by the view, encountered frequently in the literature, that management-controlled firms may place less emphasis on profit rate than owner-controlled firms, sacrificing it for performance goals regarded as more consistent with management interest. W. Baumo.1 [1, p. 4 and pp. 101–104], for example, has argued that management-controlled firms may sacrifice profit rate in order to achieve higher growth rate and reduced risk acceptance. R. Monsen and A. Downs [11] suggest that such firms may sacrifice both profit rate and growth rate for reduced risk acceptance. K. Cohen and S. Reid, in their study of bank merger activity during 1952–1961 [5], argue that bank managers, as compared to bank owners, place more emphasis on growth rate and less emphasis on profit-associated variables. Other possibilities present themselves. Management-controlled firms may sacrifice profit rate directly for management salaries, bonuses, and fringe benefits, including benefits associated with management prestige. The management-controlled firms may simply pursue efficiency less vigorously.

This study highlights the positive impact of a stock market listing on workplace safety. We find that workplace injuries in publicly listed firms are lower than those in comparable private firms, and this effect relates to heightened monitoring by the media and regulators. The media pays more attention to public firms’ safety issues than to those of private firms, and the reduced media scrutiny due to local newspaper closures leads to greater increases in injuries in public firms. Regulators also monitor public firms more strictly, evidenced by a higher likelihood of nonroutine inspections and larger penalties for detected violations.

We propose an explanation for why corporate investment used to be sensitive to cash flow and why the sensitivity declined over time. The sensitivity stems from the informational role of cash flow in inferring the productivity of tangible capital in the old economy. Over time, however, more new-economy firms enter the market. These firms have reduced tangible capital productivity and reduced cash-flow predictability, which drives the decline in the average investment–cash flow sensitivity. Theoretical and empirical analyses support this explanation.

We show that high cash holdings can be used by executives in the ex post bargaining over their compensation. Cash holdings are positively associated with CEO compensation and is driven by non-salary components. In companies with weaker governance, this relation is more pronounced. Using exogenous shocks to the firm’s cash, we show that CEO compensation readily responds to increases in cash holdings, confirming that managers are able to derive personal benefits from excess cash holdings.

Fund flows are more correlated among funds with similar investment horizon, consistent with correlated demand for liquidity. We find that stocks held by institutions with more heterogeneous investment horizon are more liquid and have lower volatility of liquidity. Identification tests confirm that the improvement in stock liquidity holds when the increase in investor heterogeneity arises from an exogenous shock due to the 2003 tax reform. In addition, extreme flow-induced trading by institutional funds has a bigger price impact when stocks have a less heterogeneous investor base. Moreover, the premium associated with stock illiquidity is concentrated in stocks with low investor heterogeneity.

Do lenders securitize or price loans in response to credit risk? Exploiting exogenous variation in regional credit risk due to foreclosure law differences along U.S. state borders, we find that lenders securitize mortgages that are eligible for sale to the government-sponsored enterprises (GSEs) rather than price regional credit risk. For non-GSE-eligible mortgages with no GSE buyback provision, lenders increase interest rates as they are unable to shift credit risk to loan purchasers. The results inform the debate surrounding the GSEs’ buyback provisions, the constant interest rate policy, and show that underpricing regional credit risk increases the GSEs’ debt holdings.

The group of issues that falls under the heading of bank capital adequacy has received a great deal of attention from academics, regulators, and bankers in recent years and is likely to continue as a subject for debate for many years to come. Although the traditional questions debated in the literature on capital adequacy are important and remain unresolved, this paper is not directed at them. Instead, the approach here is to examine how bank regulators operating within the existing legal structure of regulation can pursue optimal policies with respect to the regulation of bank capital.

In two previous articles [11] and [12] a family of normative models of the individual's economic decision problem under risk was presented. At the same time, certain implications of these models with respect to individual behavior were deduced for a class of utility functions. This paper will show that these models also give rise to an induced theory of the formation and operation of firms under risk for the same class of utility functions.

The use of residuals, both mean and mean absolute, was found to be useful in capturing the impact of new quarterly earnings information on share prices. Our results seem to indicate that the market evaluates third quarter and annual earnings reports differentially from the first and second reports. This can perhaps be explained in part because the annual report, which is audited, contains year-end accounting adjustments. Furthermore, the third quarter report may be viewed as a harbinger of the annual report. Our results also indicate that the share prices of high growth companies adjust to earnings information differently than do the shares of medium and low growth firms. In total our results seem to be consistent with the “loose” form of the efficient markets hypothesis. This is because of the difficulty in predicting the signs of the mean residuals. Or alternatively, while we could observe significant changes in the absolute means, it was considerably more difficult to predict the direction of these changes as seen in the mean residuals. While the difficulty of predicting the direction of the residuals and the loss of statistical significance between trading days when days −1 and 0 in the group tests over all reports indicate support of market efficiency, it should be reemphasized that the market appears to take very long to react to the annual report — that is, the reaction seems to start even before the third quarter report.

This study empirically tests contingent claims pricing models for American currency spot and futures options. Numerical analysis indicates that the difference in the model prices of spot and futures put (call) options (with the same exercise price and maturity) is, for a premium (discount) currency, positive and an increasing function of (a) the absolute difference in the prices of the underlying spot and futures contracts and (b) the maturity of the options. Tests on British pound, Deutsche mark, and Swiss franc options indicate many violations of the ordinal pricing relationships noted above. Additional tests indicate that option prices are inconsistent with functional relationship (b) above. Most of the observed violations are sufficiently large to provide arbitrage profits net of transaction costs, assuming interest rates are constant and the Interest Rate Parity theorem holds continuously. Alternatively, both the violations and the inconsistent functional relationship may be due to violation of the assumption of constant interest rates.

When measures such as the average or the midrange are used to report a typical value for the price series in each interval, the stochastic character of the underlying price process is subtly transformed. Fortunately, the spurious serial dependence introduced by averaging measures is sufficiently well understood to allow direct tests of many hypotheses to be made from averaged data. Moreover, a simple autoregressive transformation of the averaged data can be used to unscramble the effects of averaging on the lower-frequency components of the spectrum of the underlying process. These statistical devices are presented and are then illustrated by applications to the Cowles Commission Common- Stock Indexes, a massive collection of New York Stock Exchange price indexes tabulated in the form of monthly midranges.

This paper shows how a derivative security can be duplicated by a forward strategy, and, hence, priced by arbitrage in terms of the forward price.

Traditional models of portfolio selection assume that all assets are traded in competitive markets, so that rates of return to any individual investor are fixed. This paper represents an extension of portfolio theory to the case in which asset markets are not perfectly competitive and rates of return cannot be taken as given. Klein [10] has noted that, when asset markets are imperfect, the separation theorem no longer holds but does not solve explicitly for the relationship between risk and return. Here for simplicity we shall consider the case of the investor who has a monopoly in an asset he creates, so that its risk and return characteristics are determined by the decisions of the portfolio selector and hence are endogenous. It will be shown that even if the market for an asset in the portfolio is imperfectly competitive, as long as the demand curve for the asset is well behaved, the locus of efficient portfolios facing the investor, which is composed of combinations of the riskless asset and the optimal combination of risky assets, will be a concave function, as opposed to a linear function in the competitive case. In other words, the introduction of capital market imperfections does not affect the positive slope of the efficient set of portfolios. Moreover, the expected return on the imperfectly competitive asset will be shown to be easily decomposable into the standard risk premium and a monopoly premium.