The Impact of Bank Consolidation on Commercial Borrower Welfare

We estimate the impact of bank merger announcements on borrowers' stock prices for publicly traded Norwegian firms. Borrowers of target banks lose about 0.8% in equity value, while borrowers of acquiring banks earn positive abnormal returns, suggesting that borrower welfare is influenced by a strategic focus favoring acquiring borrowers. Bank mergers lead to higher relationship exit rates among borrowers of target banks. Larger merger‐induced increases in relationship termination rates are associated with less negative abnormal returns, suggesting that firms with low switching costs switch banks, while similar firms with high switching costs are locked into their current relationship.     

Do People Always Pay Less Than They Say? Testbed Laboratory Experiments with IV and HG Values

Hypothetical bias is a long‐standing issue in stated preference and contingent valuation studies—people tend to overstate their preferences when they do not experience the real monetary consequences of their decision. This view, however, has been challenged by recent evidence based on the elicitation of induced values (IV) in the lab and homegrown (HG) demand function from different countries. This paper uses an experimental design to assess the extent and relevance of hypothetical bias in demand elicitation exercises for both induced (IV) and homegrown (HG) values. For testbed purpose, we use a classic second‐price auction to elicit preferences. Comparing the demand curve we elicit in both, hypothetical bias unambiguously (i) vanishes in an IV, private good context and (ii) persists in HG values elicitation context. This suggests hypothetical bias in preference elicitation appears to be driven by “preference formation” rather than “preference elicitation.” In addition, companion treatments highlight two sources of the discrepancy observed in the HG setting: the hypothetical context leads bidders to underestimate the constraints imposed by their budget limitations, whereas the real context creates pressure leading them to bid “zero” to opt out from the elicitation mechanism. As a result, there is a need for a demand elicitation procedure that helps subjects take the valuation exercise sincerely, but without putting extra pressure on them.     

CAN SOFT DRINK TAXES REDUCE POPULATION WEIGHT?

Soft drink consumption has been hypothesized as one of the major factors in the growing rates of obesity in the United States. Nearly two-thirds of all states currently tax soft drinks using excise taxes, sales taxes, or special exceptions to food exemptions from sales taxes to reduce consumption of this product, raise revenue, and improve public health. In this paper, we evaluate the impact of changes in state soft drink taxes on body mass index (BMI), obesity, and overweight. Our results suggest that soft drink taxes influence BMI, but that the impact is small in magnitude. ( JEL I18, H75)     

Earnings Announcements and the Components of the Bid-Ask Spread

This study investigates the behavior of the components of the bid-ask spread around earnings announcements. We find that the adverse selection cost component significantly increases surrounding the announcements, while the inventory holding and order processing components significantly decline during the same periods. Our results suggest that the directional change in the total bid-ask spread depends on the relative magnitudes of the changes in these three components. Specifically, the decreases in inventory holding costs and order processing costs imply that earnings announcements may have an insignificant impact on the total bid-ask spread, even when they result in increased information asymmetry.     

‘Amsterdam is Standing on Norway’Part I: The Alchemy of Capital,Empire and Nature in the Diaspora of Silver, 1545–1648

In the first of two essays in this Journal, I seek to unify the historical geography of early modern ‘European expansion’ (Iberia and Latin America) with the environmental history of the ‘transition to capitalism’ (northwestern Europe). The expansion of Europe's overseas empires and the transitions to capitalism within Europe were differentiated moments within the geographical expansion of commodity production and exchange – what I call the commodity frontier. This essay is developed in two movements. Beginning with a conceptual and methodological recasting of the historical geography of the rise of capitalism, I offer an analytical narrative that follows the early modern diaspora of silver. This account follows the political ecology of silver production and trade from the Andes to Spain in Braudel's ‘second’ sixteenth century (c. 1545–1648). In highlighting the Ibero‐American moment of this process in the present essay, I contend that the spectacular reorganization of Andean space and the progressive dilapidation of Spain's real economy not only signified the rise and demise of a trans‐Atlantic, Iberian ecological regime, but also generated the historically necessary conditions for the unprecedented concentration of accumulation and commodity production in the capitalist North Atlantic in the centuries that followed.     

The Value of Imputation Tax Credits on Australian Hybrid Securities

Hybrid securities are becoming an increasingly important component of the capital structure of Australian firms. While displaying characteristics of both debt and equity, one principal equity attribute of hybrids is their ability to pay franked dividends. This enables resident domestic investors to claim corporate tax payments as a credit against personal tax obligations under Australia's dividend imputation tax system. This paper estimates a value for the ‘franking credits’ that attach to hybrid securities by examining stock price changes around ex‐dividend dates. We add to the literature that examines the ex‐day price changes of ordinary shares (OS) in that the hybrid securities we examine have high dividend yields and are relatively insensitive to market movements. Therefore the signal‐to‐noise ratio is much higher than for OS. Our analysis reveals that cum‐dividend day prices on hybrid securities do not include any value for franking credits. This result is consistent with the notion that the price‐setting investor in the Australian market is a foreign investor who places no value on franking credits.     

The Impact of the 2007 Liquidity Shock on Bank Jumbo Mortgage Lending

This paper explores the consequences of the collapse of the private‐label residential mortgage‐backed securities market in 2007 on banks’ originations of jumbo mortgages. We show that jumbo lending declined by more at banks that were more dependent on this market and were less well capitalized. In contrast, banks that had little dependence on this market and were well capitalized increased jumbo originations. These findings highlight how dependence on the secondary market may cause amplification of financial shocks, and the potential value of capital requirements that are higher during periods of economic growth in mitigating the amplification effects.     

SOCIAL INTERACTIONS AND COLLEGE ENROLLMENT: EVIDENCE FROM THE NATIONAL EDUCATION LONGITUDINAL STUDY

This paper uses nationally representative data on high school students to test for several types of social influences on the decision to enroll in college. An instrumental variable strategy is used in order to manage the well‐known reflection problem in social interactions research. Additionally, I am able to incorporate several usually unavailable group‐level factors to reduce the possibility of important group‐level characteristics driving the relationships. I present evidence that a 10 percentage point increase in the proportion of high school classmates who attend college is predicted to increase an individual's probability of attending college by approximately 2–3 percentage points. (JEL I2, J24, J18)     

TRACING THE EFFECTS OF GUARANTEED ADMISSION THROUGH THE COLLEGE PROCESS: EVIDENCE FROM A POLICY DISCONTINUITY IN THE TEXAS 10% PLAN

The Texas 10% law states that students who graduated among the top 10% of their high school class are guaranteed admission to public universities in Texas. We estimate the causal effects of this admissions guarantee on a sequence of connected decisions: students' application behavior, admission decisions by the university, students' enrollment choices conditional on admission; as well as the resulting college achievement. We identify these effects by comparing students just above and just below the top 10% rank cut off. We assume that other student characteristics and incentives are continuous at this cut off. We find that students react to incentives created by the admissions guarantee—for example, by reducing applications to competing private universities. The effects of the admissions guarantee depend on the university and the type of students it attracts. The 10% law is binding and alters the decisions of the admissions committees. We find little evidence that the law increases diversity or leads to meaningful mismatch for the marginal student admitted. (JEL I23, I28)