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This paper studies the effect of trust on the perceived credibility of earnings news. Using earnings response coefficients, we find that firms located in low-trust regions of the United States experience significantly lower stock price reactions to earnings news. Additional tests indicate that managers can counterbalance investors' dependence on trust by employing reputable auditors or signaling the quality of their earnings using dividends to improve the perceived credibility of their financial reports. Overall, our findings suggest that trust affects the pricing of earnings news in capital markets. This paper was accepted by Brian Bushee, accounting. Funding: This work was supported by Ministry of Education (Singapore) [Grant RG161/14]. Supplemental Material: Data and the online appendix are available at https://doi.org/10.1287/mnsc.2022.4569. [ABSTRACT FROM AUTHOR]

It is a tremendous honor for me to give the Martin Feldstein Lecture. Marty was an exceptional colleague at Harvard and inspired my journey from academia to the policy world. [...]

Buzzwords such as "economization", Çalışkan and Callon (2009) 369. "economic imperialism" Lazear (1999). or "the economist's hour" Appelbaum (2019). denote the fact that during the last century "economics has become the science of making social choices". Fourcade (2018) 1. In "economic transplants", Langenbucher (2017) (where the following footnotes list only pages, they reference this book). I explore how this has happened in European corporate and financial markets law. The book's focus is on legal reasoning, involving both a hypothesis about where economics' tempting allure may come from, and an argument on why the underlying disciplinary approaches of law and of economics often don't necessarily match. [ABSTRACT FROM AUTHOR]

Heterogeneity in factor endowments and the degree of specializations induced by comparative advantages are among the crucial factors that affect the overall productivity of the economy. Few studies, however, investigate what strengthens such endowment-related specialization patterns in the agricultural sector in low-income countries, although such evolutions have profound effects on the role of factor endowments in households' behaviors. This is in contrast to well-established international trade theory, such as the Heckscher-Ohlin theorem which describes how heterogeneity in endowment across countries gives rise to comparative advantages for specialization and trade. We partly fill this critical knowledge gap by providing a set of evidence from Nepal, which is a country that has historically been dominated by smallholder farmers and yet has recently been experiencing rapid structural transformation within the agricultural sector. Specifically, we show the following: the agricultural sector in Nepal has experienced a significant increase in returns-to-scale (RTS) in production in recent years during the process of growing adoptions of agricultural mechanization through the custom-hiring market. Such increase in RTS has primarily strengthened the linkages between factor endowment heterogeneity (across farm households) and their specialization behaviors in labor, land, and the agricultural capital market. Both cross-section and panel-data of households in Nepal extracted from Nepal Living Standards Surveys are used to generate this evidence. We find that rising RTS associated primarily with tractor use growth has been inducing greater exploitations of comparative advantages; agricultural households have been increasingly specializing in exchanges of production factors, services, and outputs, in ways consistent with predictions based on their relative factor endowments. Specifically, the rise in RTS has induced households with more labor, land, and capital endowments to rent out their labor, land, and credit, respectively, within the agricultural sector, while increasingly renting-in the other factors with which they are less endowed. The results suggest that understanding factor endowments heterogeneity among agricultural households is becoming increasingly important for effective agricultural policy designs in countries like Nepal, where employment shares in the agricultural sector remain high despite the growth in mechanization. Keywords: Agricultural mechanization, Returns-to-scale, Comparative advantages, Factor endowments heterogeneity, Random-effects Tobit, Nepal, INTRODUCTION Returns-to-scale (RTS) and comparative advantages are some of a country's most important economic characteristics. The transformation from declining RTS to constant RTS often accompanied the history of industrialization (Hansen [...]

INTRODUCTION Like most investors, physicians are searching for investment opportunities to diversify and strengthen their financial portfolios for the long term. Substantial changes in the regulatory environment have opened the [...]

We examine whether large shareholders (other than the largest shareholder) could constrain the influence of the largest shareholder by electing more independent directors to the board. Moreover, we assess whether this constraining ability is related to the size of other large shareholders' ownership position relative to the largest shareholder. Using a sample of 13,951 firm-year observations from the unique Chinese capital market between 2004 and 2014, our empirical results indicate that other large shareholders can elect a larger number of independent directors to the board when their share ownership increases. However, these other large shareholders have increased voting power on the board (through a larger percentage of independent directors) only if the largest shareholder owns less than 30% of the company's shares. When the largest shareholder owns less than 30% of the shares, we find that other shareholder constraints are associated with a larger number of independent directors, a larger percentage of independent directors on the board and a larger board size. In addition, board size partially mediates the relationship between other shareholder constraints and the percentage of independent directors. For companies in which the largest shareholder owns at least 30% of the shares, our results indicate that other shareholder constraints are associated with a higher number of independent directors and larger boards, but are not associated with the percentage of independent directors. Moreover, the increased board size fully mediates the relationship between other shareholder constrains and the percentage of independent directors. A larger number of independent directors, without an increase in the percentage of independent directors, suggests that the relationship between other shareholder constraints and the percentage of independent directors is mainly driven by the other shareholder constraints/board size relationship, rather than by an increased percentage of independent directors. Our results indicate that minority shareholders may have a voice on the board, but greater board voting power is more difficult for the minority shareholder to obtain. Keywords: board independence, board size, ownership concentration, Contact author's email address: Email: wangfangjun@xjtu.edu.cn, INTRODUCTION When a large blockholder owns a material portion of a company's shares, the interests of other (minority) shareholders could be adversely affected. If a single large shareholder could control [...]

Paraguay, like other economies, has two financial circuits, one corresponding to monetary flow and the other to intangible assets; the purchase and sale of the latter are carried out through the Capital Market. This market allows physical and legal economic agents from both the private and public sectors to request resources to finance the purchases of goods and the contracting of services, required to carry out the inherent activities of their organization. For this purpose, these economic agents quote fixed income securities, bonds, or variable income, shares; that are bought by those who seek to channel their savings to investment (Fabozzi, Modigliani and Ferri, 1996).

It is now well-established that different markets may develop different growth-supporting institutions that can give rise to public firms and set capital markets in motion. Yet, the paradigm view still holds local alternatives as merely stepping stones, a transitional passage toward achieving a deeper and more advanced market, at which point conventional legal and market institutions--modeled on Anglo-American corporate capitalism--are still held necessary. Four decades of economic development in China challenge these conventions. With modern firms with global prominence and a capital market that is the second largest in the world, corporate governance in China seems to have passed the point of an "adjust or perish" prognostic. The system that governs Chinese firms and the ways in which capital markets function sustain strong governance attributes that go against many fundamentals in economics and legal thought. Political involvement and state ownership, both assumed to stand in the way of capital market growth, remain prevalent while the market continues to advance. Most strikingly, harmonization with conventional corporate governance been pushed aside as the Chinese Communist Party has decided to exercise an ever-more expansive and direct role in market activity. Public firms in present-day China are increasingly being governed by a "politicized corporate governance." Political institutions with corporate governance capacities have been deployed both inside and outside firms. These institutions now buttress or even replace weaker traditional corporate governance mechanisms in the Chinese market. The implications are striking. First, despite justified reasons for alarm, a politicized corporate governance system in China can perform the main functions of corporate governance elsewhere, thereby offering some benefits for public firms and their stockholders. Second, these developments show how path-dependent corporate governance attributes, here political institutions, reject convergence predictions yet have enough plasticity to evolve and to support modern firms and markets beyond assumed thresholds and developmental milestones. In so doing, China's politicized corporate governance casts doubts on law and development conventions as well as on both sides of a long-standing governance convergence debate. Finally, the politicization of corporate governance in China offers a new direction in comparative corporate governance scholarship, providing evidence of an instituted reversal from outwardly convergent corporate governance toward a new form of a planned economy. [ABSTRACT FROM AUTHOR]

The concept of „negative probability" has become one of interest in research. Initially developed in connection with physics (negative probabilities are important in the analysis of quantum phenomena), nowadays it has applications in many other scientific disciplines. Its main advantage is that it extends the classical probability theory, which involves values between 0 and 1, allowing negative or supraunitary values. From this point of view, negative probabilities are a useful tool that facilitates the calculation and makes analysis more flexible through models. This paper aims to present the theoretical framework, the principles in relation to which the use of negative probabilities in economics, in general, can be understood. The existing literature highlights that the negative probabilities are appropriate in the analysis of stochastic processes and, from this perspective, has developed applications especially in the field of finance. In this sense, negative probabilities are used in models such as the binomial CRR model (The Cox-Ross-Rubinstein Market Model), that evaluate the price of derivatives on the capital market, those that include hidden variable (non-observable) etc. In our analysis we describe these models and, based on them, we try to identify the features of the negative probabilities that can be used in the economic field. The research is a theoretical one, leading the way for new approaches in the direction of using negative probabilities in macroeconomic modelling. [ABSTRACT FROM AUTHOR]

The main objective of the study is to examine the impact of the political, economic, and political and sports environment on the development of Chinese. The recent national stimulation policy regarding the development and promotion of sport industry and sport consumption suggest that market capital is more inclined towards the sports industry in China. This study aims to provide a summary of National basketball association developmental history in China, investigating its marketing strategies, examining its recent promotional activities, and generalizing the practical situations for various other sports leagues who wants to get access to the Chinese market. For collecting the data from selected respondents in the present study we have developed a self-administered questionnaire to carry out the data analysis we have adopted the statistical tools and procedures. For data analysis if we compare the PLS-SEM with other techniques the PLS is comparatively is more flexible, powerful, and superior. The researcher has made some important efforts for getting maximum response rate. As a result, we have received 325 questionnaires back out of 400. Moreover, during the process of sorting the data we have discarded 15 questionnaires as they were not having the proper information, so the response rate forms this survey was 81 percent. The study will be helpful for policymakers, researchers, and auctioneers in understanding the issues related to the development of basketball in China. [ABSTRACT FROM AUTHOR]

This note responds to Chong Wang's article, "Conscious Capitalism Firms: Do They Behave as Their Proponents Say?" (in this issue of California Management Review) that sets out to test certain conjectures regarding the financial performance and the drivers of that performance for so-called "conscious capitalism" firms. It provides an update of our current thinking on the drivers of performance and describes the kind of analysis that is needed to better understand these drivers. It also presents a set of hypotheses that need to be tested by future research. [ABSTRACT FROM AUTHOR]

Proponents of the Conscious Capitalism (CC) movement claim that CC firms should demonstrate a lower gross margin, a higher profit margin, a lower SG&A (Sales, General & Administration), and a lower marketing expense than non-CC comparable firms. Using a sample of industry-year-size matched control firms as the CC firms' benchmark, this article shows that empirical evidence largely disagrees with these conjectures. It further shows that in contrast to the implications of the CC movement, CC firms neither demonstrated superior stock performance relative to the S&P 500 in recent years, nor do they respond less to the pressures from the equity market. [ABSTRACT FROM AUTHOR]

This Article takes stock of post-financial crisis regulatory developments to tell a tale of two markets within a political economy of financial regulation. The financial crisis stemmed from excessive risk-taking and dodgy practices in the subprime home mortgage market, a market that owed its existence to private-label securitization. The pre-crisis boom in private label mortgage-backed securities could never have happened, however, without financing from an array of structured products and vehicles created in the capital markets--CDOs, CDO2s, and SIVs. It was these capital markets products that magnified mortgage credit risk and transmitted it into the financial system's vulnerable nodes. The post-crisis regulation has proceeded on different lines for mortgage markets and for capital markets. Post-crisis regulation of residential mortgage origination and securitization markets includes a set of strict prohibitions on particular products and practices. In contrast, post-crisis regulation of capital markets takes a much lighter touch, increasing regulatory costs for certain transactions but not prohibiting them outright. Capital market regulation has been particularly focused on the capital requirements of a particular type of user of structured products--banks. Outside of bank regulation, capital markets remain free to innovate with structured products. This distinction is precisely what the political economy of regulation would predict. Interventions in consumer markets are likely to be more politically salient to voters because they address products that voters use directly, while structured products are purchased only by sophisticated financial institutional investors. Despite the lighter regulatory approach taken to capital markets, today's structured products are qualitatively different than pre-crisis products. Subprime mortgage-backed securities, CDOs, CDO2s, CDO-based synthetics, and SIVs have entirely disappeared from the market even without regulatory prohibitions. Even so, post-crisis regulation may have had an unintended effect. The increased regulation of banks has resulted in a shift of high-risk behavior in both the mortgage and structured products markets to the more thinly regulated nonbank sector, where financial innovation and regulatory arbitrage still proceed apace. The hydraulic effect of entity-based regulation may here be sowing the seeds of the next crisis. [ABSTRACT FROM AUTHOR]

We examine how residents of the United States allocate their stock portfolios internationally. We find that a large U.S. Foreign Direct Investment (FDI) position in a destination country in 1990 is associated with a relatively large stock portfolio position in that country in the 2001–2006 period. Moreover, a change in the U.S. FDI position from 1980 to 1990 helps predict the change in the U.S. Foreign Portfolio Investment position from 1994 to 2006. These results are rationalized by Van Nieuwerburgh and Veldkamp’s (2009) equilibrium model of learning and portfolio choice under an information processing constraint. FDI establishes marginal differences in the endowments of information about different countries, which later translate into differences in stock portfolio holdings. We control for cross-country differences in capital controls, proximity along different dimensions, corporate governance, and economic and capital market development. Our results also hold for the G6 countries collectively. [ABSTRACT FROM PUBLISHER]

We describe two theoretical explanations for the amount, pace, and costs of the prestige enhancement a firm engages in during the year before its initial public offering. The "snowball model" captures well-known processes whereby prestige-rich organizations accumulate even more prestige. The "dressing-up model" builds upon deadline-induced remediation, a phenomenon not previously studied in a macro-organizational context. In 242 software IPOs, the snowball model substantially explains final-year prestigious hiring. But there is also strong evidence of a tandem dressing-up process. As the final year counts down, prestige-poor firms aggressively hire prestigious executives and directors and pay higher prices to do so. [ABSTRACT FROM AUTHOR]

We use a movie industry project-by-project dataset to analyze the choice of financing a project internally versus financing it through outside alliances. The results indicate that project risk is positively correlated with alliance formation. Movie studios produce a variety of films mid tend to develop their safest projects internally. Our findings are consistent with internal capital market explanations. We find mixed evidence regarding resource pooling, i.e., sharing the cost of large projects. Finally. the evidence shows that projects developed internally perform similarly to projects developed through outside alliances. [ABSTRACT FROM AUTHOR]

This paper extends the literature on the role of political economy in financial reporting and auditing by testing two hypotheses. The first hypothesis predicts that there will be a greater increase in audit effort and audit fees for Malaysian firms with political connections, as a result of the Asian financial crisis, than for non-politically connected firms because these firms have a higher risk of financial misstatements. The second hypothesis predicts that the audit fees of politically connected firms will decline when capital controls are introduced by the government as a ploy to financially assist politically connected firms to rebound from the crisis, and thus reduces the risk of financial misstatements. The results show that there is a greater increase in audit fees for firms with political connections than for non-politically connected firms as a result of the Asian financial crisis. However, there is a decline in audit fees for politically connected firms after the capital controls are implemented. [ABSTRACT FROM AUTHOR]

Many models use noise trader risk and corresponding violations of the Law of One Price to explain pricing anomalies, but include a storage technology in perfectly elastic supply or unlimited asset liability. Storage allows aggregate consumption risk to differ from exogenous fundamental risk, but using aggregate consumption as a factor for asset returns can make noise trader risk superfluous. Using (i) limited asset liability and limited storage withdrawals, or (ii) an endogenous locally riskless interest rate eliminates violations of the Law of One Price. Our main results use only budget equations and market clearing, and require virtually no assumptions about behavior. [ABSTRACT FROM AUTHOR]

Adopting an asset-market view of international risk sharing, we identify various sources of macroeconomic risk faced by international investors using a structural Vector Autoregression model. We find that most of the risks of exogenous financial market shocks are shared by international investors through the existing asset markets. However, other macroeconomic risks such as those associated with exogenous shocks to consumption growth, inflation and monetary policies are not fully shared across countries. This finding helps us understand the apparently contradicting perceptions of international risk sharing generated by the analysis of asset-market returns versus that of aggregate consumption growth across countries. [ABSTRACT FROM AUTHOR]

Bloomfield and Hales (2002) find strong evidence that experimental market subjects are influenced by trends and patterns in a manner supportive of the shifting regimes model of Barberis, Shleifer, and Vishny (1998) . We subject the model to further empirical scrutiny using the football wagering market as our price laboratory. Sports betting markets have several advantages over traditional capital markets as an empirical setting, and commonalities with traditional markets allow for useful insights. We find scant evidence that investors behave in accordance with the model. [ABSTRACT FROM AUTHOR]

Progressives have advocated reforms of rules governing corporations to achieve greater distributive justice, but Maitland (2001) has argued that corporate rules are distributively neutral and that changing the rules will have no long run impact on distributive justice. These different conclusions stem from the use of two different methods of economic analysis, partial equilibrium and general equilibrium models. A change in the rules governing corporations in a "large" sector of the economy is appropriately analyzed using a general equilibrium analysis, supporting the conclusion that changes in the rules may affect distributive justice in the long run. However, a partial equilibrium analysis of a change in the rules of corporations affecting a "small" part of the economy such as a single firm or even all firms in a small state supports the claim that such changes cannot affect distributive justice [ABSTRACT FROM AUTHOR]

This paper investigates the effects of pre-IPO banking relationships on a firm's IPO. Using a new and unique data set, which compares the firm's pre-IPO banking relationships to the underwriters managing the firm's new issue, I test whether banking relationships established before the firm's IPO ameliorate asymmetric information problems behind high IPO underpricing. The results show that firms with a pre-IPO banking relationship with a prospective underwriter face about 17% lower underpricing than firms without such banking relationships. These results are robust to controlling for the firm's endogenous selection of the pre-IPO banking institution. [ABSTRACT FROM AUTHOR]

We analyze the dynamic investment decision of a firm subject to an endogenous financing constraint. The threat of future funding shortfalls lowers the value of the firm's timing options and encourages acceleration of investment beyond the first-best optimal level. As well as highlighting another way by which capital market frictions can distort investment behavior, this result implies that (1) the sensitivity of investment to cash flow can be greatest for high-liquidity firms and (2) greater uncertainty has an ambiguous effect on investment. [ABSTRACT FROM AUTHOR]

We study optimal financial contracting for centralized and decentralized firms. Under centralized contracting, headquarters raises funds on behalf of multiple projects. Under decentralized contracting, each project raises funds separately on the external capital market. The benefit of centralization is that headquarters can use excess liquidity from high cash-flow projects to buy continuation rights for low cash-flow projects. The cost is that headquarters may pool cash flows from several projects and self-finance follow-up investments without having to return to the capital market. Absent any capital market discipline, it is more difficult to force headquarters to make repayments, which tightens financing constraints ex ante. Cross-sectionally, our model implies that conglomerates should have a lower average productivity than stand-alone firms. [ABSTRACT FROM AUTHOR]

Recent work suggests that financial development is important for economic growth, since financial markets more effectively allocate capital to firms with high value projects. For firms in poorly developed financial markets, implicit borrowing in the form of trade credit may provide an alternative source of funds. We show that industries with higher dependence on trade credit financing exhibit higher rates of growth in countries with weaker financial institutions. Furthermore, consistent with barriers to trade credit access among young firms, we show that most of the effect that we report comes from growth in the size of preexisting firms. [ABSTRACT FROM AUTHOR]

The past decade has witnessed an increase in the fraction of equity portfolios invested abroad, as barriers to international asset trade have significantly declined. What are the long-run implications of this process? In this paper we investigate to what extent nontradables (consumption and leisure) can affect the portfolio allocation decision in otherwise integrated capital markets. We find that hedging against nontradables shocks can account for only a small portfolio bias toward domestic assets. These results suggest that in the near future we pan expect to observe sizable additional international diversification. [ABSTRACT FROM AUTHOR]