EXPRESS LANE OR TOLLBOOTH IN THE DESERT? THE SEC'S FRAMEWORK FOR SECURITY ISSUANCE

U.S. companies that need capital may choose between selling securities in the private and public markets. These venues differ in terms of direct issuance costs, the required information disclosed, the liability incurred, and the mechanics of the capital-raising process itself. During the last two decades, the Securities and Exchange Commission (SEC) has deregulated private offerings by broadening their investor base and increasing secondary market liquidity. At the same time, SEC policy has bifurcated the offering process in the public market into two distinct segments based largely on company size and seasoning. Large public issuers have seen a gradual deregulation and acceleration of their capitalraising processes. Important changes for issuers include allowing them to incorporate information into registration statements by reference to Exchange Act reports, to use shelf registration to speed up offers, and to place securities offshore with less regulatory uncertainty. Though small issuers enjoy some of the benefits of these changes, deregulation of their offerings has been somewhat less pronounced. In a Commission report and a subsequent concept release, the SEC indicates it may restructure and unify these three disparate strands of capital raising through an innovative schema of registering companies rather than securities.     

The constant preferences assumption as a specification error in demand analysis

Complete demand systems often are estimated under the assumption that preferences are constant. If preferences do change in reality, this leads to a specification error. This note explores some of the implications of such a specification error.     

The (International) Political Economy of Falling Wage Shares: Situating Working-Class Agency

This paper relates the financial and monetary dimensions of the contemporary economic crisis to working-class agency via a central concern of classical political economy: the distribution of surplus between the chief factors of production. The fall in the wage share of value added is now accepted as a stylised fact in the empirical economic literature. This paper argues that the punctuated pattern of the development validates the regulation theoretical narrative of an epochal shift from Fordism to finance-led accumulation. Furthermore, synthesising econometric studies supports a class-centred explanation. In the last instance, the falling wage share is due to successful transnational class rule in the form of a neoliberal hegemonic paradigm. Crucially, such class rule restructured the environment of trade unions, rendering increasingly ineffective its relational power resources. The paper concludes by considering the contradictory implications for organised labour of the current financial crisis. On the one hand, the financial crisis offers an opportunity to link its particular interests to the general interest of macroeconomic management since low wage share inhibits growth rates. But how might trade unions assert a higher wage share in the face of the structural power of (financial) capital?     

PROPERTIES OF OPTION PRICES IN MODELS WITH JUMPS

We study convexity and monotonicity properties of option prices in a model with jumps using the fact that these prices satisfy certain parabolic integro–differential equations. Conditions are provided under which preservation of convexity holds, i.e., under which the value, calculated under a chosen martingale measure, of an option with a convex contract function is convex as a function of the underlying stock price. The preservation of convexity is then used to derive monotonicity properties of the option value with respect to the different parameters of the model, such as the volatility, the jump size, and the jump intensity.     

Does corruption increase emerging market bond spreads?

We study the relationship between corruption and borrowing costs for governments and firms in emerging markets. Combining data on bonds traded in the global market with survey data on corruption compiled by Transparency International, we show that countries that are perceived as more corrupt must pay a higher risk premium when issuing bonds. The global bond market ascribes a significant cost to corruption: an improvement in the corruption score from the level of Lithuania to that of the Czech Republic lowers the bond spread by about one-fifth. This is true even after controlling for macroeconomic effects that are correlated with corruption. We find little evidence that investors became more sensitive to corruption in the wake of the Asian financial crisis.     

Globalisation and union opposition to technological change

Trade unions have a rational incentive to oppose the adoption of labour-saving technology when labour demand is inelastic and unions care much for employment relative to wages. Trade liberalisation typically increases trade union technology opposition. These conclusions are reached in a model of unionised international duopoly with two-way trade. We also find that the incentive for technology opposition is stronger in the more technologically advanced country and in the country with the larger home market, complementing earlier explanations for technological catch-up and leapfrogging.     

Elective Stock Dividends and REITs: Evidence from the Financial Crisis

In response to the recent financial crisis, the U.S. Government introduced new rules which allow Real Estate Investment Trusts (REITs) to issue elective stock dividends (ESDs), i.e., noncash dividends, to satisfy their distribution requirements. The purported goal of these rules was to provide temporary relief to REITs facing cash flow problems. We investigate how the introduction of these rules affects dividend policy of REITs. Surprisingly, we document that only 17 REITs chose to issue elective stock dividends. We examine the characteristics of these REITs and find that their cash flows are similar to REITs that do not select these dividends. This suggests that cash flow problems are unlikely to be the primary determinant of the ESD issuance decision. Instead, our findings indicate the decision to pay ESDs is related to the level of loans that are close to maturity, REIT size, growth prospects and poor performance during the financial crisis. Furthermore, we find that the same factors determine the ratio, amount and frequency of stock dividends issued by these REITs. We also examine the response of shareholders to ESDs announcements and find positive abnormal returns surrounding these dividend announcements.