Share Repurchases

The UK government recently introduced legislation to treat the qualifying distribution on a repurchase of shares in the same way as ‘foreign income dividends’. This paper examines and criticises this reform from two perspectives. First, there is no underlying rationale for such an approach. Second, the legislation moves the tax system away from simplification. A better approach would have been to remove the advance corporation tax (ACT) charge on a repurchase. JEL classification: H25, K34.     

CLOTHES-CARE SYMBOLS: ARE THEY UNDERSTOOD?

This brief paper is a report of an investigation into the acceptability of modern clothes care symbols carried out by third-year psychology students who have been following an option in consumer psychology in their course.     

The Analytics of Performance Measurement Using a Security Market Line

Security market line (SML) analysis, while an important tool, has never been fully justified from a theoretical standpoint. Assuming symmetric information and an inefficient index, we show that SML analysis can be grossly misleading, since, in general, efficient and inefficient portfolios can plot above and below the SML. On a more positive note, if SML analysis uses the return on a marketed riskless asset for the zero-beta rate, efficient portfolios must plot above the SML. Nonetheless, arbitrarily inefficient portfolios also plot above the SML.     

Hedonic Analysis in a Spatial Context: Theoretical Problems in Valuing Location-Specific Amenities*

Hedonic analysis is frequently implemented to generate implicit prices for location-specific amenities within single markets, either in cross-city wage differentials or in intra-city rent gradients. Amenities are shown to be generally priced in both land and labour markets, with single-market valuations tending to understate true amenity values. Establishing a correct multi-market amenity valuation model is seen to depend on the resolution of a host of additional issues.     

How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans

Legal and institutional differences shape the ownership and terms of bank loans across the world. We show that under strong creditor protection, loans have more concentrated ownership, longer maturities, and lower interest rates. Moreover, the impact of creditor rights on loans depends on borrower characteristics such as the size and tangibility of assets. Foreign banks appear especially sensitive to the legal and institutional environment, with their ownership declining relative to domestic banks as creditor protection falls. Our multidimensional empirical model paints a more complete picture of how financial contracts respond to the legal and institutional environment than existing studies.     

Funding Liquidity without Banks: Evidence from a Shock to the Cost of Very Short‐Term Debt

In 2011, Colombia instituted a tax on repayment of bank loans, which increased the cost of short‐term bank credit more than long‐term credit. Firms responded by cutting short‐term loans for liquidity management purposes and increasing the use of cash and trade credit. In industries in which trade credit is more accessible (based on U.S. Compustat firms), we find substitution into accounts payable and little effect on cash and investment. Where trade credit is less available, firms increase cash and cut investment. Thus, trade credit provides an alternative source of liquidity that can insulate some firms from bank liquidity shocks.     

Scottish,Irish, and imperial connections: Parliament,the three kingdoms,and the mechanization of cotton spinning in eighteenth‐century Britain1

This paper offers a new perspective on the emergence of machinery in the cotton spinning trade during the third quarter of the eighteenth century. It does so by examining the interplay between economic, political, and national interests within the early Hanoverian state. Changes in trading relationships between textile producers across the three kingdoms of England/Wales, Ireland, and Scotland created escalating supply‐side problems, which, by the 1760s, would precipitate a quest for solutions based on new technologies.     

Wall Street Occupations

Many finance jobs entail the risk of large losses, and hard‐to‐monitor effort. We analyze the equilibrium consequences of these features in a model with optimal dynamic contracting. We show that finance jobs feature high compensation, up‐or‐out promotion, and long work hours, and are more attractive than other jobs. Moral hazard problems are exacerbated in booms, even though pay increases. Employees whose talent would be more valuable elsewhere can be lured into finance jobs, while the most talented employees might be unable to land these jobs because they are “too hard to manage.”