The Value of Investment Banking Relationships: Evidence from the Collapse of Lehman Brothers

We examine the long‐standing question of whether firms derive value from investment bank relationships by studying how the Lehman collapse affected industrial firms that received underwriting, advisory, analyst, and market‐making services from Lehman. Equity underwriting clients experienced an abnormal return of around ?5%, on average, in the 7 days surrounding Lehman's bankruptcy, amounting to $23 billion in aggregate risk‐adjusted losses. Losses were especially severe for companies that had stronger and broader security underwriting relationships with Lehman or were smaller, younger, and more financially constrained. Other client groups were not adversely affected.     

Gender‐Compensation Differences Among High‐Level Executives in the United States

Bertrand and Hallock (2001: 3) present compelling evidence that female executives in the United States earned 45 percent less total compensation than their male counterparts for 1992–1997. We complement their results by analyzing data over a longer time period and, more importantly, contend that most of the unexplained gender difference in total pay among executives was due to gender differences in the portion of variable pay, in particular a different cash payout from stock option exercises.     

Global Banks and Synthetic Funding: The Benefits of Foreign Relatives

This paper examines the effect of dislocations in foreign currency (FX) swap markets (“CIP deviations”) on bank lending. Using data from UK banks we show that when the cost of obtaining swap-based funds in a particular foreign currency increases, banks reduce the supply of cross-border credit in that currency. This effect is increasing in the degree of banks' reliance on swap-based FX funding. Access to foreign relatives matters as banks employ internal capital markets to shield their cross-border FX lending supply from the described channel. Partial substitution occurs from banks outside the UK not affected by changes in synthetic funding costs.     

ASSESSING THE WELFARE IMPACT OF TAX REFORM: A CASE STUDY OF THE 2001 U.S. TAX CUT

This paper implements a relatively simple methodological approach to estimate the impact on family welfare of a specific tax reform. The measured impact can differ greatly from simple marginal tax rate comparisons, and conclusions about the distribution of the welfare impact can vary depending on the basis of comparison. For example, absolute welfare gains from the 2001 U.S. tax reform were concentrated among the highest and lowest income families, whereas welfare gains measured as a share of pre‐tax income are found to be nearly monotonically declining in income.     

Rural Europe reshaped: the economic transformation of upland regions, 1850–20001

Agriculture is no longer the main sector in the economy of rural Europe. Based on a comparative analysis of nine upland areas from five different countries (Scotland, Switzerland, France, Italy, and Spain), this article argues that, contrary to the claims of most social science work on ‘rural restructuring’, the decline of agriculture in the rural economy should be understood from a long‐term perspective and in relation to European industrialization, rather than as a recent process linked to postmodern dynamics. In fact, widely diverging paths of rural change during industrialization similarly imply occupational change.     

On Stock Market Returns and Returns on Investment

This article presents general conditions under which it is possible to obtain asset pricing relations from the intertemporal optimal investment decision of the firm. Under the assumption of linear homogeneous production and adjustment cost functions (the Hayashi (1982) conditions), it is possible to establish, state by state, the equality between the return on investment and the market return of the financial claims issued by the firm. This result proves to be, in essence, robust to the consideration of very general constraints on investment and the inclusion of taxes.     

Wanna Dance? How Firms and Underwriters Choose Each Other

We develop and test a theory explaining the equilibrium matching of issuers and underwriters. We assume that issuers and underwriters associate by mutual choice, and that underwriter ability and issuer quality are complementary. Our model implies that matching is positive assortative, and that matches are based on firms' and underwriters' relative characteristics at the time of issuance. The model predicts that the market share of top underwriters and their average issue quality varies inversely with issuance volume. Various cross‐sectional patterns in underwriting spreads are consistent with equilibrium matching. We find strong empirical confirmation of our theory.