Foreign Entry into Underwriting Services: Evidence from Japan's “Big Bang” Deregulation

We examined the effect of foreign entry into bond market underwriting activity using issue‐level data from the Japanese “Samurai” and euro–yen bond markets. We found that the fees charged by Japanese underwriters were higher on average than those of foreign underwriters, but the difference could be explained by conditioning on issue characteristics. Our results also suggest that bond issuers sorted properly across underwriters, as switching across underwriter nationalities would be expected to result in higher fees. However, the savings enjoyed by firms issuing with foreign underwriters were modest and statistically insignificant, while those of firms issuing with Japanese underwriters were substantial and statistically significant. This result suggests that Japanese underwriters priced their services aggressively over the sample period, perhaps in an effort to retain or gain market share. This conjecture is supported by a matching exercise that examined the liberalization of foreign underwriter access to the Samurai bond market, using euro–yen bond issues as a control. Foreign entry led to a statistically and economically significant decrease of 16 basis points on average in underwriting fees in the Samurai bond market. Overall, our results suggest that the international market for Japanese bond underwriting services was partially segmented by nationality as issuers appear to have preferred habitats, but that liberalization increased overall market competition.     

Risk Premiums in Dynamic Term Structure Models with Unspanned Macro Risks

This paper quantifies how variation in economic activity and inflation in the United States influences the market prices of level, slope, and curvature risks in Treasury markets. We develop a novel arbitrage‐free dynamic term structure model in which bond investment decisions are influenced by output and inflation risks that are unspanned by (imperfectly correlated with) information about the shape of the yield curve. Our model reveals that, between 1985 and 2007, these risks accounted for a large portion of the variation in forward terms premiums, and there was pronounced cyclical variation in the market prices of level and slope risks.     

THE IMPACT OF HIV EDUCATION ON BEHAVIOR AMONG YOUTHS: A PROPENSITY SCORE MATCHING APPROACH

There has been a long‐standing debate as to whether sex or human immunodeficiency virus (HIV) education actually influences the way young people behave. To the extent these programs work, they represent a potential mechanism policy‐makers might use to reduce risky behavior among youths. This paper uses data from the 2009 Youth Risk Behavior Survey to examine if students who have received school‐based HIV instruction behave differently than those who have not. To address potentially endogenous exposure to HIV education, this paper considers a propensity score matching approach. Findings from the propensity score analysis suggest that standard ordinary least squares results are biased. Despite this, there remains some evidence that exposure to HIV education decreases risky sexual activity. Among male students, HIV education is also negatively related to the rate of using needles to inject illegal drugs into the body. The needle use results are robust to a sensitivity analysis, while the results for sexual behaviors are not. (JEL H75, I18, I28, K32)     

Voluntary Disclosure and Equity Offerings: Reducing Information Asymmetry or Hyping the Stock?*

We examine corporate disclosure activity around seasoned equity offerings and its relationship to stock prices. Beginning six months before the offering, our sample issuing firms dramatically increase their disclosure activity, particularly for the categories of disclosure over which firms have the most discretion. The increase is significant after controlling for the firm's current and future earnings performance and tends to be largest for firms with selling shareholders participating in the offering. However, there is no change in the frequency of forward‐looking statements prior to the equity offering, something that is expressly discouraged by the securities law. Firms that maintain a consistent level of disclosure experience price increases prior to the offering, and only minor price declines at the offering announcement relative to the control firms, suggesting that disclosure may have reduced the information asymmetry inherent in the offering. Firms that substantially increase their disclosure activity in the six months before the offering also experience price increases prior to the offering relative to the control firms, but suffer much larger price declines at the announcement of their intent to issue equity, suggesting that the disclosure increase may have been used to “hype the stock” and the market may have partially corrected for the earlier price increase. Firms that maintain a consistent disclosure level have no unusual return behavior relative to the control firms subsequent to the announcement, while the firms that “hyped” their stock continue to suffer negative returns, providing further evidence that the increased disclosure activity may have been hype, and suggesting that the hype may have been successful in lowering the firms' cost of equity capital.     

THE PROBLEM OF GLOBAL ENVIRONMENTAL PROTECTION

Suppose that land is communally owned. Every person has theright to hunt, till, or mine the land. This form of ownershipfails to concentrate the cost associated with any person's exerciseof his communal right on that person. If a person seeks to maximizethe value of his communal rights, he will tend to overhunt andoverwork the land because some of the costs of his doing soare borne by others. The stock of game and the richness of thesoil will be diminished too quickly. It is conceivable thatthose who own these rights, i.e. every member of the community,can agree to curtail the rate at which they work the lands ifnegotiating and policing costs are zero... [However,] negotiatingcosts will be large because it is difficult for many personsto reach a mutually satisfactory agreement, especially wheneach hold-out has the right to work the land as fast as he pleases.[Furthermore,] even if an agreement among all can be reached,we must yet take account of the costs of policing the agreement,and these may be large, also. Footnotes ¹ I have benefited greatly from comments made by David Pearceon an earlier draft of this paper.     

DOES IMPROVING SCHOOL QUALITY REDUCE THE PROBABILITY OF UNEMPLOYMENT?

The authors investigate the relationship between high school quality and the probability of extended unemployment among noncollege-bound men during three periods: the first two years, two to four years, and seven to nine years after high school. They find that larger high schools and schools with lower pupil–teacher ratios tend to decrease the probability of being unemployed for noncollege-bound men in the period shortly after high school graduation. However, no effect is found of high school quality on unemployment probabilities approximately a decade after high school completion. (JEL I21 , J64 )