Time‐Varying Capital Requirements and Disclosure Rules: Effects on Capitalization and Lending Decisions

We investigate how banks’ capital and lending decisions respond to changes in bank‐specific capital and disclosure requirements. We find that an increase in the bank‐specific regulatory capital requirement results in a higher bank capital ratio, brought about via less asset risk. A decrease in the requirement implies more lending to firms but also less Tier 1 capital and higher bank leverage. We do not observe differences between confidential and public disclosure of capital requirements. Our results empirically illustrate a tradeoff between bank resilience and a fostering of the economy through more bank lending using banks’ capital requirement as policy instrument.     

THE REGULATION OF MIGRATION IN A TRANSITION ECONOMY: CHINA'S HUKOU SYSTEM

Unlike most countries, China regulates internal migration. Access to public schools, health services, low‐cost housing, and attractive jobs by those who do not have local registration (Hukou) is often limited. Coincident with the deepening of economic reforms, Hukou has gradually been relaxed since the 1980s, contributing to a migration surge. In this study of interprovincial Chinese migration, we address two questions. First, what is a sensible way of incorporating Hukou into theoretical and empirical models of migration in China? Second, to what extent has Hukou influenced the scale and structure of migration? We incorporate two different measures of Hukou into a modified gravity model nuanced to fit the Chinese case: (1) the migrant's perceived probability of securing Hukou and (2) the perceived joint probability of securing Hukou and a job available only to a registered person. Our tests include a much wider variety of controls especially important for the Chinese case. Using census data for 1985–90, 1995–2000, and 2000–05, we find that migration is very sensitive to Hukou, with the greatest sensitivity occurring during the middle period. (JEL J61)     

Genetic Variation in Financial Decision‐Making

Individuals differ in how they construct their investment portfolios, yet empirical models of portfolio risk typically account only for a small portion of the cross‐sectional variance. This paper asks whether genetic variation can explain some of these individual differences. Following a major pension reform Swedish adults had to form a portfolio from a large menu of funds. We match data on these investment decisions with the Swedish Twin Registry and find that approximately 25% of individual variation in portfolio risk is due to genetic variation. We also find that these results extend to several other aspects of financial decision‐making.     

LABOR MARKET DISCRIMINATION AND CAPITAL: THE EFFECTS OF FAN DISCRIMINATION ON STADIUM AND ARENA CONSTRUCTION

We investigate the possibility that labor market discrimination affects capital. Previous research indicates that discrimination affects wages and employment in labor markets. However, the effects of discrimination on other inputs to production are not known. We develop a model of the optimal capital stock in the presence of customer discrimination and test this model using data on sports facility construction. The empirical evidence suggests that teams in cities with a larger white population and more racial segregation put less capital in place, confirming the predictions of the model about the effect of customer discrimination on capital inputs. (JEL J7, D24, L83)     

When to Lean against the Wind

In this paper, we show that policymakers can distinguish between good and bad credit booms with high accuracy and they can do so in real time. Evidence from 17 countries over nearly 150 years of modern financial history shows that credit booms that are accompanied by house price booms and a rising loan‐to‐deposit ratio are much more likely to end in a systemic banking crisis than other credit booms. We evaluate the predictive accuracy for different classification models and show that characteristics observed in real time contain valuable information for sorting the data into good and bad booms.     

Simplicity-minded management. A practical guide to stripping complexity out of your organization

Large organizations are by nature complex, but over the years new business challenges--globalization, innovative technologies, and regulations, to name a few--have conspired to add layer upon layer of complexity to corporate structure and management. Organizations have become increasingly ungovernable and unwieldy: Performance is declining, accountability is unclear, decision rights are muddy, and data are crunched repeatedly, often with no clear purpose in mind. To avoid frustration and inefficiency, executives need to systematically attack the causes of complexity in their companies. Ashkenas and his partners at Robert H. Schaffer & Associates have worked with dozens of firms to help them develop strategies for simplifying. In this article, the author details the elements of a simplicity-minded strategy: Streamline the structure; prune products, services, and features; build disciplined processes; and improve managerial habits. ConAgra Foods' experience illustrates how one company turned itself around through careful execution of a simplicity strategy. The packaged-food supplier had become enormously successful by acquiring well-known brands and then allowing them to operate autonomously, evolving into a $14 billion organization with more than 100 brands, a food services business, and a commodity trading operation. ConAgra, however, had no common method for reporting, tracking, or analyzing results. Over time, therefore, it became a highly unwieldy enterprise, riddled with inefficiencies and unable to communicate adequately with investors and other stakeholders. When CEO Gary Rodkin came on board, in 2005, he invested in a series of initiatives to combat complexity. The tactic not only made life easier for customers and employees but also saved millions of dollars in costs. This article has an online interactive questionnaire that can help you assess your own company's level of complexity.