Taxes and capital structure: evidence from firms' response to the Tax Reform Act of 1986

While the theoretical relation between taxes and capital structurehas been extensively analyzed, the empirical evidence on thisissue has thus far been inconclusive. One of the main difficultiesconfronting previous empirical studies of the cross-sectionalrelationship between taxes and leverage was the control of interveningvariables. The Tax Reform Act of 1986 (TRA), which drasticallychanged the tax regime, provides a unique opportunity to assessthe interaction between taxes and leverage decisions in a controlledenvironment. We test the relationship between leverage and certaintax-related variables for a large sample of companies in theyears surrounding the enactment of the TRA. The results supportthe tax-based theories of capital structure. The findings indicatethat there exists a substitution effect between debt and nondebttax shields, and that both corporate and personal tax ratesaffect leverage decisions.     

Are employers pursuing value-based purchasing?

Some employers have begun to undertake a variety of initiatives, collectively termed value-based purchasing (VBP), which aim at factoring quality into the purchasing decision-making process when negotiating costs with providers and insurers. There is evidence that the VBP movement has begun gaining momentum; yet it is unclear whether employers are firmly committed to VBP principles. By surveying a national sample of employers, this study investigates the extent to which employers are currently engaged in VBP activities and also increases our understanding of barriers hampering the broader implementation of these activities.     

Forcing firms to talk: financial disclosure regulation and externalities

We analyze a model of voluntary disclosure by firms and thedesirability of disclosure regulation. In our model disclosureis costly, it has private and social value, and its precisionis endogenous. We show that (i) a convexity in the value ofdisclosure can lead to a discontinuity in the disclosure policy;(ii) the Nash equilibrium of a voluntary disclosure game isoften socially inefficient; (iii) regulation that requires aminimal precision level sometimes but not always improves welfare;(iii) the same is true for subsidies that change the perceivedcost of disclosures; and (iv) neither regulation method dominatesthe other.     

Sunshine trading and financial market equilibrium

In this article, we consider the possibility that some liquiditytraders preannounce the size of their orders, a practice thathas come to be known as 'sunshine trading'. Two possible effectspreannouncement might have on the equilibrium are examined.First, since it identifies certain trades as informationless,preannouncement changes the nature of any informational asymmetriesin the market. Second, preannouncement can coordinate the supplyand demand of liquidity in the market. We show that preannouncementtypically reduces the trading costs of those who preannounce,but its effects on the trading costs and welfare of other tradersare ambiguous. We also examine the implications of preannouncementfor the distributions of prices and the amount of informationthat prices reveal.     

A theory of intraday patterns: volume and price variability

This article develops a theory in which concentrated-tradingpatterns arise endogenously as a results of the strategic behaviorof liquidity traders and informed traders. Our results providea partial explanation for some of the recent empirical findingsconcerning the patterns of volume and price variability in intradaytransaction data.     

Divide and conquer: a theory of intraday and day-of-the-week mean effects

This article develops a model in which patterns in buy and sellvolume, order imbalances, and expected price changes arise endogenously.The model covers cases in which the market maker is competitiveand is a monopolist. Our results provide an explanation forthe existence of patterns in mean returns within the tradingday and across trading days.     

Stock prices and volume

We undertake a comprehensive investigation of price and volumeco-movement using daily New York Stock Exchange data from 1928to 1987. We adjust the data to take into account well-knowncalendar effects and long-run trends. To describe the process,we use a seminonparametric estimate of the joint density ofcurrent price change and volume conditional on past price changesand volume. Four empirical regularities are found: (i) positivecorrelation between conditional volatility and volume; (ii)large price movements are followed by high volume; (iii) conditioningon lagged volume substantially attenuates the 'leverage' effect;.and (iv) after conditioning on lagged volume, there is a positiverisk-return relation.