When good investments go bad: The contraction in community bank lending after the 2008 GSE takeover

In September 2008, the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, were placed into conservatorship. The GSEs' equity prices dropped considerably in response, and, as a result, many banks that held sizable amounts of the preferred stock of the two GSEs recognized substantial losses. Fifteen failures and two mergers resulted. We treat these losses as plausibly exogenous, unanticipated, supply-side shocks to bank lending, as they are likely unrelated to demand-side factors that could affect lending, and because GSE investments were considered to be safe by banks, regulators, and rating agencies. As a result, this event allows us to examine the relationship between community bank condition and lending during the global financial crisis. We find that, following the shock, loan growth at exposed banks was about 2 percentage points lower than other banks.     

The effect of low-wage import competition on U.S. inflationary pressure

The effect of import competition from low-wage countries on U.S. inflationary pressure is estimated using a new methodology that identifies the causal response of prices to comparative advantage-induced supply shocks in these nations. The results of a panel covering 325 manufacturing industries from 1997 to 2006 show that imports from nine low-wage countries are associated with strong downward pressure on prices. When these nations capture a 1% share of the U.S. sector, the sector's producer prices decrease by 2.35%. Because import competition also influences the skewness of the distribution of price changes, it is likely to have impacted U.S. equilibrium inflation.     

The robustness of the Sarbanes Oxley effect on the U.S. capital market

We examine the incidence of new listings and delistings on U.S. stock exchanges and firms’ propensity to delist, as a function of general market conditions, firm fundamentals, and the costs of compliance with the Sarbanes Oxley Act (SOX). We find that both general market conditions and firm fundamentals explain the delisting incidence and firms’ delisting decisions; while SOX variables are positively associated with firms’ delisting likelihood only when general market conditions are not included in the analyses. Further analyses on the population partitioned into size quintiles suggest that the passage of SOX was not associated with an increase in the likelihood of delisting for any size quintile of firms and that the implementation of SOX section 404 is positively associated with the delisting likelihood for midsized and larger firms. Our empirical evidence is useful to regulators as they consider changes in the imposition and implementation of SOX section 404.     

Bookbuilding vs. fixed price revisited: The effect of aftermarket trading

Investors who possess information about the value of an IPO can participate in the offering as well as trade strategically in the aftermarket. Both the bookbuilding and the fixed price IPO selling methods require more underpricing when aftermarket trading by informed investors is considered. Bookbuilding becomes especially costly, since the potential for profit in the aftermarket adversely affects investors' bidding behavior in the premarket. Unless the underwriter can restrict its bookbuilding effort to a small enough subset of the informed investors, a fixed price strategy that allocates the issue to retail investors produces higher proceeds on average, contrary to the conventional wisdom in the literature. We therefore find a benefit to limiting access to the premarket and, hence, provide an efficiency rationale for the practice by American bankers of marketing IPOs to a select group of investors. We also provide unique policy and empirical implications.     

The effect of recognition vs. disclosure on investor valuation: The case of pension accounting

Whether or not the format of financial reporting influences user assessment of the reported information is an important issue to the Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), and managers. Do investors, in determining security prices, differentiate between information recognized in the balance sheet and that disclosed in the footnotes? The findings indicate that investors appear to consider pension information disclosed in the footnotes as value-relevant, given that an accrued (prepaid) pension liability (asset) is also recognized in the balance sheet. Second, investors attach equal importance to both sorts of pension information.     

An empirical analysis of the day-of-the-week effect in stock returns: The case of U.S. and Japan

This article employs daily closing index data to investigate the relationship between the U.S. and Japanese equity markets. It reassesses and extends the Becker et al. (1990) methodology over a longer sample space. The article then advances the analysis further by estimating structural equation models and by including the exchange rate as an additional explanatory variable. The resulting multivariate econometric design shows that the U.S. equity market strongly affects the Japanese equity market Monday through Friday while the Japanese market exerts a weaker influence on the U.S. market with the influence observed only on Mondays and Wednesdays.     

The mediated effect of SAS No. 99 and Sarbanes–Oxley officer certification on jurors’ evaluation of auditor liability

This study experimentally examines the impact of implementing Statement on Auditing Standard (SAS) No. 99, Consideration of Fraud in a Financial Statement Audit and the financial statement and internal control certification requirement by key corporate officers under the Sarbanes–Oxley Act (SOX). The study investigates the prediction that the new regulations affect jurors’ assessment of guilt for failing to discover fraud, and also whether the regulations affect jurors’ perceptions of the appropriateness of auditors’ actions regarding fraud detection and of auditors’ and officers’ responsibility for the fraudulent financial statements. The study tests whether these perceptions mediate the association between the regulations and mock jurors’ guilt assessments. Results show that jurors assess auditors as less guilty under SAS No. 99 and in the presence of the officer certification requirement. SAS No. 99 decreases guilt assessments indirectly through jurors’ perception that auditors acted more appropriately under the new standard. Although jurors did view auditors as more responsible under SAS No. 99, their responsibility perceptions had no effect on guilt assessments. An additional finding is that the officer certification requirement has an indirect effect on guilt assessments via jurors’ perceptions of the officers’ responsibility for the fraudulent financial statements.